Investment Agreements and the Regulatory State:
Can Exceptions Clauses Create a Safe Haven for
Governments
1st ANNUAL FORUM OF DEVELOPING COUNTRY
INVESTMENT NEGOTIATORS
Singapore
October, 2007
Howard Mann
Senior International Law Advisor
International Institute for Sustainable Development
www.iisd.org/investment
Agenda
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What is the problem discussed in this session?
Scope: what do we mean by regulation in this
context?
The nub of the legal problem: investor-state
dispute settlement and uncertainty (OK, and
incorrectness)
Some responses for greater clarity and certainty
Final thoughts
What is the problem?
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Regulation of investors is common feature around
the world
What role do IIAs play in regulating how
governments regulate foreign investors?
Not a sovereignty issue:
all international agreements must impact sovereignty or
are useless
 Issue is getting the proper balance between the right
and duty of governments to regulate and the
appropriate protection of foreign investors
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Scope
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Regulatory and legislative measures, but what type?
A perfect definition is not possible, some examples
protect human health from harmful products;
 protect the environment from pollutants;
 ensure the conservation of natural resources;
 ensure employee health and safety at work;
 protect and enhance human rights;
 protect against criminal activity or activity contrary to
public morals;
 prevent anti-competitive practices; and
 promote consumer knowledge, awareness and
protection.
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Scope
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What would not be included:
effectively transfer private held land to the state for a
public purpose, such as building a school, hospital, or
ecological park;
 transfer economic activity between actors doing the
same thing in the same manner;
 measures that are otherwise an abuse of government
regulation-making powers to achieve ulterior purposes;
or
 promoting one business over another.
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Form as a regulation/legislation is not
determinative, nature and purpose, bona fides are
The Legal Problem: Uncertainty
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Expropriation provisions are the key issue (+NT, F&E)
Definition of indirect expropriation and “regulatory
expropriation”
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Case law diverges:
Metalclad v. Mexico
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Economic impact test
Nature and purpose of measure not relevant
Methanex v. United States
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US doctrine of “regulatory taking”
Under general international law, non-discriminatory regulations are not an
expropriation
“police powers” rule creates bright line in the sand
No clarity, certainty for governments
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leading to possible regulatory chill
Some responses: towards clarity
and certainty for governments
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Reinforcing the police powers rule
 Preamble and objectives provisions
 Use of regulatory measures provisions
 Recognizing need for ongoing regulation
 Recognizing right/duty to regulate
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Limitations on scope of expropriation
US: reflects C.I.L.; only in rare instances will a reg. be an
expropriation
 Canadian BITs: rare circumstances, such as lack of bona
fides
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Relation to bright line in Methanex case unclear
Some responses: towards clarity
and certainty for governments
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Other Treaty-based mechanisms
 General exclusions through annexes (sectors,
measures)
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Specific exclusions from expropriation provisions
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Investment liberalization session
Tax, national security
General exclusion clauses based on Article XX of
GATT
Variations on the theme
 Some uncertainty on impact in dispute settlement
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Clarity of key terms
Final thoughts
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Uncertainty disadvantages governments
Facility of initiating an investor-state a growing level of
awards increases disadvantages of states
Can and does lead to regulatory chill impact
Greater certainty can be created, mechanisms exist
Some need more study, but do exist
Negotiators need to be more aware of need