This is a guest post from law professor Ben Heath:
There is growing concern in some quarters that international investment law and arbitration will limit national governments’ ability to respond to the Covid-19 pandemic and its economic fallout. Last week saw the rollout of two related but distinct non-governmental initiatives designed to reduce this risk. Last Monday, the International Institute for Sustainable Development (IISD) began soliciting comments on its draft proposal for an agreement suspending investor-state dispute settlement for Covid-19 related measures. Then, on Wednesday, the Columbia Center on Sustainable Investment issued a letter, signed by economist Jeffrey Sachs and six other experts in human rights and development, calling for a moratorium on all investment claims during the pandemic.
These proposals are certainly timely. Over the past four months, governments have taken a wide range of measures to address the pandemic, including restricting non-essential services, restrictions on travel and movement, issuing compulsory licenses, temporarily nationalizing hospitals, screening foreign investment, and restricting exports (see the IISD’s summary here). Prominent investment lawyers have already predicted that such measures, depending on their design and implementation, could give rise to investment claims. Already, at least one government has been warned of potential investment claims arising from Covid-19 related measures.
In my view, these proposals for suspensions and moratoria on investment claims are seriously worth considering. In that spirit, yesterday I submitted the below comments to the IISD regarding their draft suspension. (IISD is currently engaged in a public consultation process on their draft text, and is seeking feedback through the end of the month here.). My comments support a strong agreement that effectively suspends any investment claim connected with Covid-19 related measures, even at the risk of shutting out some legitimate grievances. Even a broad suspension, I argue, is a modest and reasonable response, which facilitates diplomatic problem-solving in the face of a global crisis.
I am reposting the comments below because I think this initiative, as well as the parallel proposed moratorium on investment claims, deserve substantial consideration. In addition, the IISD draft suspension agreement raises a number of difficult questions of international law that are not addressed in my comments, except perhaps in passing. I encourage others to engage with these proposals.
General comments
I fully support this project’s aim to find a coordinated solution to suspending investment treaty claims relating to the Covid-19 response. Such a measure would significantly reduce concerns about regulatory chill and the anti-democratic effects of international investment law. The proposed measure is also modest in scope, and appears calibrated to creating the necessary space for states to seek coordinated diplomatic solutions to what is undoubtedly a worldwide crisis.
The proposed suspension responds directly to concerns that investor-state dispute settlement may “chill” legitimate health and safety regulation in response to a pandemic. The empirical basis for regulatory chill remains contested, but it is not necessary to pick a side in that debate to support the proposed text. The prospect that threatened investment claims would chill legitimate regulation is supported by theory, confirmed in our anecdotal experience, and not contradicted by empirical study. Caution counsels that we should remove this potential chilling effect in order to enable states to respond freely to a global health and economic crisis. We can leave to another day the debate over whether and how investment treaties must be recalibrated to avoid chilling regulation in the future.
The suspension of investor-state proceedings relating to Covid-19 also responds to potential anti-democratic and, more broadly, anti-political tendencies in investment arbitration. As Jonathan Bonnitcha and Zoe Williams recently noted, investment tribunals tend to display a “reflexive distrust” of state measures that are seen to be “politically motivated.” This can be especially problematic in times of emergency, where crisis responses inevitably take on a political character and are rarely dictated by science, economics, or administrative rationality alone. In the context of crisis, states should retain the ability to respond in ways that are politically feasible, even if those responses disadvantage foreign investors.
A suspension of investor-state claims is also a modest intervention. First, it maintains the substantive obligations of investment treaties, meaning that, as a matter of law, states are not permitted to discriminate among investors, to take property without compensation, or to treat investments inequitably without regard to the underlying treaties. Second, treaty partners may still enforce these obligations through any means available under the treaties or general international law, including interstate arbitration, if provided for in the underlying treaty. Third, the proposed agreement is merely a suspension of investor-state claims: it would not necessarily preclude investment claims for Covid 19-related measures if the suspension is lifted, provided those claims are valid and consistent with any underlying limitations period.
These elements of the proposal facilitate diplomatic problem-solving in the face of a global crisis. States can continue to rely on the substantive investor protections to evaluate each other’s ongoing responses to Covid-19. In the event of disagreement, governments can seek to reach a mutually agreeable solution through good-faith negotiations, diplomacy, or interstate arbitration. Most critically, in interstate arbitration, state governments control the initiation of the claim, the pleading, and settlement. Compared with investors, who have no reciprocal obligations under most investment treaties, states are less likely to to push draconian interpretations of investment protections, and they may be more open to reaching settlement. Finally, states could agree to allow investor-state claims at some future date as part of a mutually agreed settlement, similar to other claims settlement agreements from the past.
Some of us would hope that a suspension of investment claims relating to Covid-19 will lead to a broader rethinking of investment law and the role of investor-state arbitration. Already, there is some discussion of using multilateral agreements to effect a coordinated withdrawal from investor-state arbitration altogether. Proposals similar to this one could be used to exclude other sectors from investor-state dispute settlement, such as climate-related measures. With respect to Covid-19, a group of experts has recently called for a moratorium on all arbitration claims during the pandemic, as well as a “permanent restriction on all arbitration claims related to government measures targeting health, economic, and social dimensions of the pandemic and its effects.” These are proposals worth considering.
The proposed text, however, is far more modest. It leaves for another day discussions about the appropriate scope of investment law, the value of investor-state dispute settlement, and the benefits of politicized versus “depoliticized” approaches to investment protection. It is a targeted measure to prevent investment law from undermining national responses to an unprecedented and ongoing crisis, and it should be readily endorsed by all sides in the ongoing debate over investment arbitration.
Specific comments
The remainder of this comment offers specific suggestions on the proposed text. It focuses on the suspension provided for in paragraph 1, the definition of “Covid 19 related measures” in paragraph 4, and the linkage to international health law. This is not meant to be exhaustive of all the legal issues raised by the agreement, and in particular it does not discuss the implications for the law of treaties.
Paragraph 1: The Justiciability of the Suspension Obligation
The drafters of the proposed text may wish to consider redrafting Paragraph 1 to address or limit its justiciability. As written, Paragraph 1 suspends the operation of investor-state provisions in respect of claims “over Covid-19 related measures.” For a tribunal exercising its authority to decide its own jurisdiction (kompetenz-kompetenz), this will raise at least two issues: whether the measures at issue concern “Covid-19 related measures” (a defined term), and whether the investment claims at issue are “over” such measures. Either of these points can create opportunities for claimants to prolong investment claims or potentially to circumvent the suspension.
These problems could be mitigated by amending the text. The requirement that a claim be “over” Covid-19 related measures could be adjusted to provide for a broader nexus, such as “claims directly or indirectly concerning Covid-19 related measures.” And the definition of “Covid-19 related measures” could be streamlined to minimize points of contention, as I discuss further below.
It is also worth considering whether self-judging language is appropriate here. Self-judging terms are common in provisions that concern states’ vital interests, such as security exceptions in trade and investment treaties. Self-judging language would, with one caveat, remove the question from the authority of a tribunal, and empower the host state to declare for itself that a claim relates to the Covid-19 pandemic. It would thus provide a measure of assurance that, in extraordinary times, the signatories’ agreement to suspend recourse to investor-state dispute settlement would not be disrupted.
The caveat is that such “self-judging” provisions are subject to an overarching requirement that treaties be performed and interpreted in good faith, and the weight of opinion suggests that this good-faith requirement is justiciable. There is a wide range of opinions in the literature on what “good faith” requires in connection with a self-judging provision. While the international courts and tribunals to address the question have so far been relatively conservative, there remains a risk that a state’s genuine decision that a claim concerns Covid-19 related measures might be overturned by an overreaching application of the good faith requirement.
This risk could be sharply reduced by using language such as that which appears in the security exception to the U.S.-Panama Trade Promotion Agreement. That agreement provides: “For greater certainty, if a Party invokes Article 21.2 [(Essential Security)] in an arbitral proceeding initiated under Chapter Ten (Investment) or Chapter Twenty (Dispute Settlement), the tribunal or panel hearing the matter shall find that the exception applies.” This is understood to reduce or even eliminate a tribunal’s ability to overturn a state’s determination based on the principle of good faith, though it does not impact the general obligation of treaty partners exercise good faith in the performance and interpretation of their obligations.
In light of this discussion, Paragraph 1 could be reformulated along the following lines:
The operation of the provision or provisions of any Investment Treaty in force between two or more signatories to this agreement providing for the settlement of disputes between an investor and a state are hereby suspended in respect of claims that the respondent state considers to concern COVID-19 related measures.
[optional: For greater certainty, if the host state considers that a claim concerns a Covid-19 related measure or measures, then the tribunal hearing that claim shall determine that the suspension in Paragraph 1 of this agreement applies.]
Including self-judging language of this nature may heighten concerns about the already open-ended language of the suspension. As written, the proposed draft text does not contemplate a particular endpoint for the emergency period, at which point suspensions will be lifted. This is sensible, given that the public health and economic fallout could be with us for some time. Nevertheless, the drafters should consider whether some mechanism — such as a sunset clause or a periodic review period — would be appropriate. The drafters may also wish to consider stating explicitly under what conditions states could withdraw from the suspension agreement — either unilaterally, bilaterally, or plurilaterally — without seeking the consent of all signatories. The threat of unilateral withdrawal from the suspension agreement could significantly reduce the possibility that signatories would abuse a self-judging suspension of claims. It is therefore important to give further consideration under the law of treaties to issues of withdrawal, denunciation, suspension, or termination of the suspension agreement itself.
Paragraph 4: The definition of Covid-19 related measures
The definition of “Covid-19 related measures” in the draft text is useful for drawing public attention to the range of measures that may be necessary to address this crisis, but as a legal text it is unduly complex. If the text is not streamlined significantly, it is likely to simply create a new legal battleground, which could undermine the purpose of imposing a quick and efficient suspension on claims concerning Covid-19 related measures.
The text advisedly creates an open, rather than closed, list for what constitutes a Covid-19 related measure. Even so, the itemized types of measures, state actors, and regulatory aims set out in Paragraph 4 can provide relevant context for an arbitral tribunal, exercising its kompetenz-kompetenz, to limit the scope of “Covid-19 related measures.” The complexity of this text creates substantial opportunity for mischief.
First, as written the definition does not explicitly cover all conduct attributable to a state under international law. While the first line references “any conduct by a signatory,” the subparagraphs (a) through (c) could be understood as limitations on this reference. These subparagraphs, while broad, do not necessarily include: conduct of organs placed at the disposal of one state by another state; conduct by a person or group acting on the instructions of, or under the direction or control, of a state; conduct carried out in the absence or default of official authorities; conduct of an insurrectional or other movement; conduct acknowledged or adopted by a state as its own; actions ultra vires; or any applicable lex specialis.
Second, the types of measures listed in subparagraphs (i) to (iv) provide extensive language that litigants will point to as “context” to limit the suspension in Paragraph 1. The reference to “preventing or slowing” transmission of disease could drag a tribunal into deeply disputed questions about whether certain types of orders are effective health measures. Likewise, there is significant dispute—which quickly takes on an ideological character—about whether export controls or stockpiling are measures that “ensur[e]” the availability of essential goods. The reference to economic “impacts” in subparagraph (iii) could raise difficult questions of causation. The examples of economic measures may be too narrow, in that dual-purpose interventions to address Covid-19 impacts but also to redress preexisting issues may be seen as falling outside the scope. And the phrase “consistent with international practice” could be read to suggest that such measures must be in compliance with instruments of international health law — an issue discussed further below in connection with the International Health Regulations.
These issues could be mitigated by including self-judging language, either as described above or, alternatively, in Paragraph 4 itself.
They could also be significantly reduced by streamlining the formulation in the final text, along the lines of the following:
The term “COVID-19 related measures” includes any conduct attributable to a signatory to this agreement taken on or after December 1, 2019, in connection with the Covid-19 virus. For greater certainty, this term includes any conduct relating to the transmission of the virus; to the availability of goods, services, materials, or technology; or to national economic recovery, stability or development during or following the spread of the virus and the international response; as well as to any other objective relevant to the Covid-19 virus and its spread.
Preamble: Reference to International Health Law Instruments
The drafters may wish to reconsider the preamble’s reference to the International Health Regulations (2005). The preamble appears to understand the Regulations as primarily an instrument of global health law, affirming the sovereign right of states to regulate to attain the highest attainable level of physical and mental health. These are of course admirable aims, and they are consistent with the objective of the Constitution of the World Health Organization. But the reference to the Regulations complicates matters, and, insofar as the suspension provision in paragraph 1 is justiciable (see above), this reference may create problems for host states.
The International Health Regulations (2005) are in many ways a trade treaty, and they reinforce certain principles and norms of international economic law. The objective of the IHR is to provide for a response to the international spread of disease “in ways that are commensurate with and restricted to public health risks, and which avoid unnecessary interference with international traffic and trade.” This objective reflects a longstanding preference for free trade and international commerce, and for narrowly tailored public health interventions.
Other provisions of the Regulations confirm this preference for limited state intervention. Articles 24-41 place some limits — albeit flexible ones — on states’ ability to place restrictions on arriving ships and other conveyances, on the treatment of travelers and goods, on the use of health documents, and on charges for inspections and other health measures. Article 42 imposes a general requirement that health measures be implemented “without delay, and applied in a transparent and non-discriminatory manner.” Article 43 affirms the right of states to impose measures that go beyond those permitted by the Regulations or by WHO recommendations, but such measures “shall not be more restrictive of international traffic and not more invasive or intrusive to persons than reasonably available alternatives that would achieve the appropriate level of health protection.” Measures covered by Article 43 are also subject to certain procedural requirements. As other scholars have noted, these disciplines mirror the requirements of scientific rationality and strict proportionality reflected in some trade and investment treaties and in arbitral decisions.
States are frequently accused of violating the International Health Regulations during emergencies, and the Covid-19 pandemic is no exception. Here the recent history of travel restrictions is instructive. In January 2020, the WHO declared a public health emergency with respect to Covid-19, and issued a “temporary recommendation” advising states that it did not recommend restricting travel from affected territories. Many states nonetheless did so — some almost immediately after the WHO’s declaration. (Indeed, one report suggests that public health experts in the United States switched position and began supporting travel restrictions on the day following the WHO’s announcement.) These travel restrictions, while not necessarily violations of the Regulations, trigger the states’ substantive and procedural obligations under Article 43. Some health advocates thus argued that the travel restrictions violated the Regulations. But legal experts have also suggested that the WHO’s recommendation—which has since been modified—was unduly restrictive, and did not account for political and social realities or for the need for governments to “manage uncertainties” during a crisis.
Signatories to the proposed agreement should not want investment arbitral tribunals to get involved in these disputes. While the reference to the Regulations in the proposed text is preambular and should not itself give rise to binding obligations, there is some risk that it could draw tribunals into interpreting states’ obligations under global health law. As noted above, Paragraph 1 of the proposed agreement is likely justiciable, meaning that a tribunal could adjudicate whether a claim falls within the suspension. A tribunal could read the preambular reference to the International Health Regulations to suggest that claims are suspended only for measures that are broadly consistent with the Regulations. While this would not be the best reading of the text, it would be consistent with the practice of some tribunals to use preambles to narrowly construe limits on their jurisdiction.
This result should be avoided. The obligations in the International Health Regulations are complex, and investment arbitrators have neither the expertise nor the mandate to interpret the Regulations or resolve their ambiguities. Moreover, the Regulations’ preoccupation with avoiding undue restrictions on international commerce could, if imported into the hotly contested world of investment arbitration, have negative consequences for the right of states to regulate to attain the highest achievable standard of health.
Conclusion
This is a valuable and worthwhile project. While I have no special insight into the political feasibility of adopting an agreement of this sort, it is a timely and modest intervention that addresses significant legal risk in the face of a global emergency. Even if this project should prove unsuccessful, an open and frank conversation about this proposal would go some way toward reassuring states and educating potential arbitrators about the need to protect regulatory flexibility during this crisis.
The specific proposals offered here are meant to maximize states’ regulatory flexibility. This is in line with the draft agreement’s intention to eliminate the negative effects of threatened or actual investor-state claims on the global response to this pandemic. As of this writing, it appears that the great majority of measures adopted by states to address Covid-19 are genuine attempts to limit the virus’s spread and mitigate the damage. These are not the kinds of measures that should be deterred by investment treaties, or for which states should owe full compensation after the fact.
Of course, we should not be naïve. There are already indications that some states have used Covid-19 as an excuse for measures that violate human rights and further entrench authoritarian regimes. International institutions can and do have many roles to play in combatting these tendencies.
But to suggest that investor-state arbitration can prevent such authoritarian measures in the midst of a global emergency is either a delusion or a deception. Investment treaties are not general human rights treaties. They provide a special set of protections for a special class of individuals and corporations — namely, “investors” with “investments.” The question is whether these special protections outweigh the risk that states will be deterred from, or made to compensate for, enacting legitimate regulations to address a global crisis. Put this way, the answer is clear.
