Fair and Equitable Treatment/Manifest Arbitrariness in the new EU-Mexico Global Agreement

Recall that CETA Article 8.10 identifies the following examples of "treatment" that is not "fair and equitable":

1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 through 7.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes:



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(c) manifest arbitrariness;

(d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;

Focusing on (c), what exactly makes arbitrariness "manifest"? How arbitrary must arbitrary treatment be in order to constitute "manifest arbitrariness"?

In the recently announced EU - Mexico Global Agreement, we now have some additional details on this in Article 15:

1. Each Party shall accord in its territory to covered investments of the other Party, and to investors with respect to their covered investments, fair and equitable treatment and full protection and security in accordance with the following paragraphs.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes

:

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(c) manifest arbitrariness, including targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; or

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For greater certainty, in determining whether a measure or series of measures amounts to a breach of fair and equitable treatment, a tribunal shall take into account, inter alia, the following:

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ii) With regard to the subparagraph 2 (c), whether the measure or series of measures were patently not founded on reason or fact, or were patently founded on illegitimate grounds such as prejudice or bias. The mere illegality, or a merely inconsistent or questionable application of a policy or procedure, does not in itself constitute manifest arbitrariness as referred to in the subparagraph 2 (c), while a total and unjustified repudiation of a law or regulation, or a measure without reason, or a conduct that is specifically targeted to the investor or its covered investment with the purpose of causing damage are likely to constitute manifest arbitrariness as referred to in the subparagraph 2 (c).

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There can be no doubt that the drafters have added more words. But have they clarified anything, or just raised more questions? Here are some questions I had:

-- With the merging of the manifest arbitrariness and targeted discrimination provisions, is a burqa ban now manifestly arbitrary in addition to being targeted religious discrimination?

-- What does it mean that a measure was "patently not founded on reason or fact"? What are some examples of this?

-- How do we know if measures were "patently founded on illegitimate grounds such as prejudice or bias"? Are we looking here at statements of legislators, such as those voting for burqa bans?

-- The provision makes clear that "[t]he mere illegality, or a merely inconsistent or questionable application of a policy or procedure" does not "in itself constitute manifest arbitrariness," but can these things nevertheless be looked at, along with other factors, as evidence of manifest arbitrariness?

-- What are some examples of "measures without reason"? Does this mean without good reason, or without any reason? Has there ever been a measure adopted without any reason at all?

It would definitely be interesting to litigate about this new language, at which point we would learn more about its precise scope. Overall, though, my sense of this standard is that it was originally broad and vague and it remains broad and vague, for better or worse.

If you are of the view that this standard is a problem (as I am), another way of dealing with it is through the use of exceptions. The new EU - Mexico agreement does have exceptions, but while they apply to many parts of the agreement, as usual for the EU, they do not apply to this part of the investment chapter, where they are most needed.  Some investment agreements do have exceptions that apply to this kind of standard, though, and perhaps the EU will come around on this at some point. I sense that some people think the obligation is written clearly enough to ensure that arbitrators take into account other policy goals, but I have serious doubts about this.