Benn McGrady says the following about the fair and equitable treatment standard in international investment law:
Older cases from the days of diplomatic protection (when a state would bring a claim on behalf of its nationals) suggest that it is very difficult to establish a violation by the host state. However, some argue that the standard evolves over time and that it is now easier to establish a violation. At one extreme, Neer v Mexico is often cited as the customary standard. In that case it was stated that “the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.” At the other extreme, in the claims Philip Morris has brought against Uruguay and Australia, investors argue that any form of unreasonableness in the treatment accorded to them, or a violation of their legitimate expectations, violates the fair and equitable treatment standard. To be clear, these arguments are made first on the basis that the treaties relied on incorporate a standard above and beyond that found in customary international law. However, in the alternative, the argument might be made that customary international law has evolved since Neer v Mexico to hold host states to a more demanding standard of treatment. There is some case law, such as Mondev v United States, to support the theory that the standard may be an evolving one.
Clearly, there is an issue of legal uncertainty here. That uncertainty is likely to benefit investors to the detriment of host states. Investors can threaten or bring claims on the basis of a contested standard and host states are left to make an informed guess about the applicable standard to which they will be held. If the customary standard were clear it would be easy enough to elaborate that standard in the text of the agreement. In this context, one possible explanation for the draft is that the states negotiating the TPP cannot agree on the standard. Another explanation, which is credible given that this clause comes from the US model bilateral investment treaty, is that US firms would prefer ambiguity to clarity.
He may have a point there about the preference for uncertainty. But this makes me wonder about the meaning of important trade law principles more generally. What do any of them mean? What is non-discrimination? What does "necessary" mean? How about "less favorable treatment"? With these and other terms, there is a lot of ambiguity, and I'm not sure it is always intended. If I were in a position of official power within the trade law regime (not likely!), one of my first acts would be to convene a conference in which high-ranking government officials would talk about some of these basic principles of trade law. They might not reach agreement, but nevertheless I think it would be of great value for them to have a discussion of these kinds of issues outside the context of particular disputes.
