Arbitrating the public interest.

Author:Lalonde, Marc
Position:Proceedings of the 110th Annual Meeting of the American Society of International Law: Charting New Frontiers in International Law

The panel was convened at 1 pm on Friday, April 1, 2016, by its moderator, Rumiana Yotova from the University of Cambridge, who introduced the panelists: Marc Lalonde, international arbitrator and former Canadian Cabinet Minister; Yongjie Li, Deputy Director General and Legal Counsel of China's Department of Treaty and Law at the Ministry of Commerce; N. Jansen Calamita, Director of the Investment Treaty Forum at the British Institute of International and Comparative Law; and Noradele Radjai, a partner at LALIVE LLC. *

INTRODUCTORY REMARKS BY RUMIANA YOTOVA ([dagger])

Arbitrating the public interest can be characterized as a new frontier of international investment law given the detectable increase in challenges brought by investors against the regulatory measures adopted by states to protect the public interest. Correspondingly, there is a more frequent if not emphatic reliance by host states on customary international law defenses such as the "police powers" doctrine and the sovereign right to regulate. However, arbitral tribunals vary considerably in their interpretations of the scope, content, and consequences of these concepts. Such types of challenges raise fundamental questions as to how much regulatory space is actually left to states once they have signed up to the investment treaty regime and where and how should arbitrators draw the line between legitimate measures adopted by the state to protect the public interest and illegitimate interferences with the economic rights of the foreign investors. Vaughan Lowe's description of these issues as "one of the most controversial and fast-developing areas of international law"1 still holds true today.

The increasing number of cases brought against regulatory measures adopted by host states is giving rise to three key developments in international investment law and arbitration.

First, states are responding by revising their approaches toward investment treaty making--the newest generation of investment agreements is tailored at better preserving the ability of states to regulate to protect the public interest by including express provisions to this effect. Recent examples in this respect can be seen in the Trans-Pacific Partnership (TPP) and in the Canada-EU Comprehensive Economic and Trade Agreement (CETA). The trend is also reflected in the 2015 United Nations Conference on Trade and Development (UNCTAD) World Investment Report, observing that out of the eighteen investment treaties concluded in 2014, fourteen contained a clause referring to the public interest, including the protection of public health, safety, and the environment. The integration of the public interest in the new investment agreements is done in a variety of ways--some treaties contain references to the public interest and/or the right to regulate to protect it solely in their preambles, others incorporate such general clauses in the main body of the treaty and some confine the public interest to the specific standards of treatment, most commonly, to indirect expropriation and fair and equitable treatment. Finally, there are agreements that carve out public interest-based measures in the general exceptions to the treaty or in the dispute settlement provisions. For example, the TPP contains a clause allowing states to opt out of investor-state dispute settlement in relation to tobacco control measures even after arbitration has been initiated.

Seen in the context of the current investment regime, it is unclear whether the new agreements actually rebalance the protection of the public interest and of the economic rights, or whether they merely stabilize the existing balance by codifying certain lines of case law. Ultimately, whether and to what extent the new generation of investment treaties better guarantees the integration of the public interest in investment arbitration remains to be tested in practice through their interpretation and application by arbitral tribunals.

The second key development is the adaptation of the arbitral process in public interest disputes by increasing transparency, non-disputing party intervention and the acceptance of amicus curiae briefs. In this context, one can recall the approaches of the tribunals in Methanex v. USA and in Philip Morris v. Uruguay accepting amicus curiae briefs due to the public interest involved and despite the absence of procedural requirements to this effect. The strengthening of transparency and third-party participation undoubtedly enhances the legitimacy of investment arbitration as a process for resolving public interest disputes and has the potential to contribute to the better integration of the public interest considerations. However, the practice of tribunals with respect to the extent to which transparency is adhered to and amicus curiae briefs are allowed is far from consistent. While there seems to be a general trend in favor of transparency in public interest arbitrations, the question of the degree to which it is allowed remains unsettled.

The third development is the evolving jurisprudence on the substantive consequences, if any, of qualifying a dispute as one involving the public interest. This remains one of the least settled frontiers in investment law. Some tribunals, i.e., in Methanex v. USA and S.D. Myers v. Canada, take the view that the public interest can serve as a complete justification for good faith, nondiscriminatory regulation of the state even where it affects the economic interests of the foreign investor. Others, i.e., in Santa Elena v. Costa Rica and SPP v. Egypt, opine that the public interest merely renders the challenged measures lawful but that the obligation to compensate the investor remains. A third group of tribunals, including in SAUR v. Argentina, engage in a proportionality-type of analysis, weighing and balancing the competing objectives of protecting the public interest on the one side and the economic interests of the individual investor on the other. The fundamental question as to how to integrate or weigh the public interest in the interpretation and application of investment treaties, however, is neither consistently addressed nor coherently answered. The new generation of investment treaties, regrettably, does not seem to offer much normative guidance in this respect either.

This roundtable is going to discuss these recent developments and the key issues arising out of arbitrating the public interest in order to draw some tentative conclusions about to the way forward. As you can see from their backgrounds, our distinguished speakers bring very diverse perspectives to the topic, including that of the arbitrator, the counsel, the Government treaty negotiator and the policy-maker...

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