The interpretation of general exceptions in international trade and investment law: is a sustainable development interpretive approach possible?

Author:Gagliani, Gabriele
  1. Introduction

    Although there is no conclusive evidence of a perfect correlation between the level of income and quality of life, economic growth has a direct connection to development. (1) Economic growth and industrialization can be negative for the environment, but endemic poverty and inequality seem to be strongly connected to ecological and other types of crises. (2) International trade and foreign direct investment can play a major role in a country's economic, environmental, and social development. (3) Whether the multilateral trading system and the investment treaty system, as currently structured, foster development in practice, remains subject to debate. (4) Lengthy, heated discussions have focused on this subject, questioning for instance whether international investment agreements ("IIAs") between states help attract foreign investment at all. (5) The purpose of this paper is not to examine arguments and counter arguments on the subject.

    Nevertheless, it is worth noting that states have expressed much discontent in respect of this matter. (6) Some developing countries have complained that their interests and rights, as enshrined in the World Trade Organization ("WTO") Agreement, have been prejudiced by panels and the Appellate Body together with their development prospects. (7) Similarly, the system of foreign investment protection, with the unrestrained possibility for foreign investors to bring investment claims against states, has been questioned. (8) Developing and least-developed countries have emphasized the alleged pressure they were subjected to during the Uruguay Round negotiations. (9) Also, it is alleged that these countries apparently ignored the real impact of IIAs, the signing of which were perceived as merely photo opportunities during visits of high-level delegations from other countries. (10) Without delving into these claims, simple and unfettered trade liberalization and foreign investment protection do not appear to be necessarily conducive to sustainable development. This is not to imply, contrarily, that the WTO, free trade agreements ("FTAs"), or international bilateral and multilateral investment agreements, should become the primary forum or instruments to promote development, a situation some have warned against. (11)

    Although several proposals to reform the trade and investment systems have been put forward, (12) it seems that the focus has been mainly on the institutional structure of the WTO and investment arbitral tribunals and the drafting of the relevant agreements. The value of these proposals, which have considered, among others, the creation of an obligation (as opposed to the current possibility) for developed countries to give special attention to problems and interests of developing country Members, (13) or the clarification and tailoring of IIAs' provisions, (14) is not to be underestimated. Nonetheless, the design and drafting of WTO and investment agreements as they stand at present already partially allow the WTO panels, the Appellate Body, and investment tribunals to address developing and least-developed countries' developmental interests. (15)

    This paper will focus on the interpretation of general exceptions provisions in international trade and investment law. Under international law, exceptions are justifications that, under certain conditions, exclude a state's responsibility when it would be otherwise engaged for the violation of an international obligation. (16) Exception clauses have been referred to with many terms, such as defenses, non-precluded measures clauses, or circumstances precluding wrongfulness. The nomen juris does not alter their purpose, which is to preclude the wrongfulness of a conduct that would otherwise not be in conformity with the international obligations of the state concerned. (17) General exceptions provisions in the WTO context are no different. (18) These provisions allow WTO Members to adopt measures that pursue the promotion and protection of other societal values and interests and are inconsistent with other provisions of the relevant Agreements, justifying them. (10) Currently, General Agreement on Tariffs and Trade ("GATT") and General Agreement on Trade in Services ("GATS")-style general exceptions are included in several IIAs and FTAs in respect of investments.

    The main argument of this paper is that a sustainable development interpretive approach to general exceptions (that is, the explicit consideration of states' developmental needs) is possible. When interpreting general exceptions provisions, trade and investment adjudicatory bodies can take into account the developmental condition of the state adopting a measure at issue, the condition of the states affected by the measure (in the case of the WTO), and the developmental objective and impact of the measure itself. In the WTO context, some decisions of the Appellate Body have paved the way in this direction. (20) This has been done in a rather implicit way. However, there seems to be enough interpretative space for a more explicit development-oriented approach, as further discussed below. This interpretative approach could have a direct bearing on the interpretation of general exceptions in IIAs and FTAs with an investment chapter, and it could allow consideration on a case-by-case basis of the needs of the specific country under scrutiny. It would avoid the common grouping of developing and least developed countries with very diverse developmental interests and bypass difficulties related to the crystallization of countries' dynamic needs into legal provisions. In sum, it would serve the interests and the needs of developing and least developed countries better.

    More specifically, the sustainable development interpretive approach (21) alluded to in this paper calls for a balancing interpretative technique, which tries to integrate economic development with social development and environmental protection (22) in the interpretation of legal provisions. With a view towards achieving this purpose, adjudicatory bodies should always give due consideration to the developmental situation of the countries concerned and to the developmental impact of the measure at issue in a given case. This interpretative approach should not be conceived of as a way to create new legal obligations.

    After some general considerations, the interpretation of exceptions provisions in the WTO context will be discussed. Later in the paper, the inclusion of general exceptions provisions in the investment domain will be examined together with a brief analysis of how general exceptions provisions might be applied in practice in an investment law context. Finally, general conclusions will be drawn.


    1. General Considerations

      As already mentioned above, a development-oriented interpretation of general exceptions is possible. WTO panels and the Appellate Body have already done this implicitly. However, a further step towards an explicit development-oriented interpretative approach could also be possible, moving within the borders of general rules of treaty interpretation under international law. The customary rules of treaty interpretation fully support such an interpretative approach. Under Article 31 (1) of the Vienna Convention on the Law of Treaties ("VCLT"), "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." (23) Article 31, together with Article 32, of the VCLT is widely considered a codification of customary rules on treaty interpretation. (24) Article 3.2 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") makes the "customary rules of interpretation of public international law" explicitly applicable in the WTO context. (25) WTO panels and the Appellate Body have commonly resorted to these rules. (26) Indeed, WTO law can be considered a part of public international law. (27) Due to its private-public mixed nature, the possibility of applying customary rules of public international law is still an unresolved, controversial point in investor-state arbitration. (28) Nevertheless, these disputes relate to treaties and investment tribunals have shown varying degrees of acceptance of the customary rules of treaty interpretation. (29)

      Article 31 (1) of the VCLT makes a clear reference to treaties' objects and purposes, as relevant elements to be taken into consideration. (30) These are normally expressed in the preamble of a given agreement, although they could be detected in the operative clauses of the agreement taken as a whole. (31) However, since Article 31(1) refers to different elements (terms of the treaty, its context, its object and its purpose), it is essential to understand how to consider all these elements together. WTO panels and the Appellate Body have clarified that the principles of interpretation that are set out in Articles 31 and 32 are to be followed in a holistic fashion, "so as to yield an interpretation that is harmonious and coherent and fits comfortably in the treaty as a whole in order to render the treaty provision legally effective." (32) This approach has been supported by some developing countries. (33) In the WTO Preamble, WTO Members explicitly recognized the need for fostering development. This has been expressed through the recognition of the need for developing and least-developed countries to develop their economies, the need for raising the standards of living, for ensuring full employment, for growing of real income, and for optimally using the world's resources. (34)

      Nonetheless, only through due consideration of developmental concerns is it possible to reach one of the main purposes of the WTO, that is, "to develop an integrated, more viable and...

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