I have a short piece in Investment Treaty News, in which I raise some issues related to how a general exceptions clause for investment like the one in the Australia-Korea FTA would work:
First, there is a question as to how such an exception would apply in the investment context. Note the language: “nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures.” It could be argued that investment obligations only require compensation, and do not actually prevent any measures. A government can still take the measure; it simply has to pay. So if a government measure violates the rules, and the government has to pay compensation, would that “prevent” a party from adopting or enforcing measures? Presumably, the answer has to be yes, or else the provision would have no meaning. Indeed, even in the WTO context, measures are not “prevented,” as governments are able to maintain measures that violate WTO obligations if they are willing to accept trade retaliation.
Second, the requirement that “such measures are not applied in a manner which would constitute arbitrary or unjustifiable discrimination between investments or between investors” is different than what is used in the GATT context. There, the discrimination at issue is between “countries where the same conditions prevail.” Thus, it is nationality-based discrimination. It is arguably much more difficult to satisfy a standard relying on investor-based discrimination.
Another question is whether the listed policies are sufficient. Are there additional policy reasons that might eventually be included in such an exception, beyond the four sub-paragraphs listed here? Can those provisions be interpreted broadly enough to cover most policy goals? A classic GATT dispute involved a “luxury tax” in the form of a higher tax rate on expensive automobiles. It is not clear that such a policy would fall within the exceptions in Article 22.1, and thus a broader list of policy exceptions might be useful.
Finally, in the WTO context, the legal obligations are narrow and bounded, for the most part. By contrast, a “fair and equitable treatment” requirement is extremely broad and vague. How would the Article 22.1 exception be applied in that context? When “due process” concerns have led to a violation, can general exceptions of this kind function as an exception? There is no experience with this situation, so the outcome remains to be seen, but there may be some doubt as to whether it will work to soften the impact of such rules.
