Bryan Mercurio and I have a new IIEL Issue Brief in which we argue against using industry (e.g. tobacco) carveouts as a way to ensure policy space in investment agreements. Instead of carveouts, we think that well drafted general exceptions clauses are more useful (well drafted obligations are also important, of course, but we focus here on the exceptions).
There's plenty to argue about on that issue alone, but I want to raise something more specific and see if it generates any discussion here. In the paper, we make the following points:
The wording of exception clauses is still a work in progress, and more precision may be needed. For example, there is no need to slavishly conform to existing WTO language. Instead, the scope of the list of permissible objectives, and the use of “relating to” rather than “necessary,” could dramatically change the usefulness of the provision. In this regard, governments could shift the textual language so that the exception applies to measures “relating to” (as opposed to the stricter “necessary”) policies such as the protection of human, animal or plant life or health. Such language would greatly assist in assuring governments that non-discriminatory regulatory measures would not be affected by the agreement.
Governments could also establish a flexible and comprehensive list of potential policies to be covered, perhaps even relying on a non-exhaustive list. ...
Let me go a little deeper on the first point, which is the distinction between "relating to" and "necessary." The reason -- speaking for myself here, not Bryan -- for pushing "relating to" over "necessary" is that, as applied by panels and the Appellate Body, the former appears to be easier to satisfy. In this regard, in Korea - Beef, the Appellate Body said the following about the meaning of "necessary" in the context of GATT Article XX(d):
160. The word "necessary" normally denotes something "that cannot be dispensed with or done without, requisite, essential, needful". 102 We note, however, that a standard law dictionary cautions that:
[t]his word must be considered in the connection in which it is used, as it is a word susceptible of various meanings. It may import absolute physical necessity or inevitability, or it may import that which is only convenient, useful, appropriate, suitable, proper, or conducive to the end sought. It is an adjective expressing degrees, and may express mere convenience or that which is indispensable or an absolute physical necessity". 103
161. We believe that, as used in the context of Article XX(d), the reach of the word "necessary" is not limited to that which is "indispensable" or "of absolute necessity" or "inevitable". Measures which are indispensable or of absolute necessity or inevitable to secure compliance certainly fulfil the requirements of Article XX(d). But other measures, too, may fall within the ambit of this exception. As used in Article XX(d), the term "necessary" refers, in our view, to a range of degrees of necessity. At one end of this continuum lies "necessary" understood as "indispensable"; at the other end, is "necessary" taken to mean as "making a contribution to." We consider that a "necessary" measure is, in this continuum, located significantly closer to the pole of "indispensable" than to the opposite pole of simply "making a contribution to". 104
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102 The New Shorter Oxford English Dictionary, (Clarendon Press, 1993), Vol. II, p. 1895.
103 Black’s Law Dictionary, (West Publishing, 1995), p. 1029.
104 We recall that we have twice interpreted Article XX(g), which requires a measure "relating to the conservation of exhaustible natural resources". (emphasis added). This requirement is more flexible textually than the "necessity" requirement found in Article XX(d). We note that, under the more flexible "relating to" standard of Article XX(g), we accepted in United States – Gasoline a measure because it presented a "substantial relationship", (emphasis added) i.e., a close and genuine relationship of ends and means, with the conservation of clean air. Supra, footnote 98, p.19. In United States – Shrimp we accepted a measure because it was "reasonably related" to the protection and conservation of sea turtles. Supra, footnote 98, at para. 141.
So there were two steps to this analysis. Step 1: Necessary has a range of meanings. Step 2: The meaning of necessary in Article XX(d) is closer to "indispensable" than to "making a contribution to." In footnote 104, the Appellate Body points out the "more flexible textually" language of Article XX(g), which uses "relating to" rather than "necessary."
At the risk of committing trade law heresy, let me ask this: Are we sure this is the correct choice for the meaning of "necessary" in Article XX? Looked at in context, why shouldn't "necessary" in Article XX mean pretty much the same thing as "relating to" in Article XX?
One argument for different meanings is that the different word choice must lead to a different meaning. If the drafters had wanted the meaning of "relating to" in Article XX(d) and other sub-provisions, they clearly knew how to get it, because they used it in other provisions. By deciding not to use "relating to" in Article XX(a), (b), and (d), they rejected the "more flexible" standard.
On the other hand, if you look at the various Article XX sub-provisions, you see that "necessary" is used whenever the infinitive verb form follows: "to protect" or "to secure." By contrast, "relating to" is used with nouns ("the products" or "the conservation"). (A couple other variations are thrown in as well). So maybe "necessary" was used simply for stylistic purposes, with no change in meaning presumed. "Necessary to conserve exhaustible natural resources" just didn't sound as good to the drafters as "relating to the conservation of exhaustible natural resources."
In support of this view, consider the following. Everyone agrees that "relating to" is easier to satisfy than "necessary," as they are currently interpreted, and thus it is easier to justify a measure taken for "the conservation of exhaustible natural resources" under Article XX(g) than one taken "to protect human life" under Article XX(b). But is there any reason the drafters would have intended this result? I can't think of one. Even if the drafters were working on these issues today, it would be hard to think of a reason, and it's even harder to imagine they would reach that conclusion back in 1947. Is there any policy reason for favoring conservation of exhaustible natural resources over protecting human life? It seems like a stretch to think there is. (Of course, you might be able to think of an example here or there where the environment is more important than a human life. But saying that, as a general matter, the conservation of exhaustible natural resources is more important than protecting human life, well, that just doesn't seem credible.)
With all that as background, let me return to the drafting of exceptions clauses in investment agreements. Should we stick with the current use of both "necessary" and "relating to" (plus a couple others) as a way to define the required connection between measures and their policy goals? There's an opportunity here to rethink all this, if anyone wants to take it. Maybe some people prefer "necessary" for certain policies. But we should at least think about the implications of the different levels of connection that are possible between the measure and the policy goal. If people are concerned with balancing economic objectives and other policy concerns, and the prevailing interpretation of "necessary" does not change, "relating to" may be the better choice.
