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ADJUDGING THE EXCEPTIONAL AT INTERNATIONAL INVESTMENT LAW: SECURITY, PUBLIC ORDER AND FINANCIAL CRISIS

Published online by Cambridge University Press:  14 May 2010

Jürgen Kurtz
Jürgen Kurtz*
Affiliation:
International Investment Law Research Programme Director, Institute of International Law and the Humanities, University of Melbourne Law School.
*
Email: [email protected].
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Abstract

This article examines the impact of international law on the ability of States to mitigate the effects of financial crises. It focuses on the invocation of investment treaty disciplines in the aftermath of the 2001–2002 Argentine financial crisis, and the adjudication of Argentina's defence of a state of necessity under both subject treaties and at customary international law. The article uncovers three interpretative methods in the jurisprudence on the relationship between the treaty exception and customary plea of necessity: methodologies I (confluence), II (lex specialis) and III (primary-secondary applications). Method I is the dominant approach in the jurisprudence and the most restrictive of the three readings. The article argues that method I is mistaken both on a careful interpretation of the two legal standards and on a broader historical analysis of the emergence of investment treaty norms. Given these substantive flaws, the article isolates the motivations to account for the popularity of this method through a close reading of the awards. These reveal continuing tensions in the field, not least the problematic suggestion that a single value of protection should exclusively inform our understanding of the purpose of investment treaties. These sociological features of investor–State arbitration should, it is suggested, inform our choice on other interpretative methods. This comes down to an election between methods II (lex specialis) and III (primary–secondary applications). Method III is the most convincing and coherent reading of the relationship between the two legal standards. The article concludes by offering a framework to address the key interpretative questions implicated in that method: (a) the identification and scope of the notion of ‘public order’ and a State's ‘essential security interests’; and (b) the appropriate test of ‘necessity’ or means–end scrutiny.

Type
Article
Information
International & Comparative Law Quarterly , Volume 59 , Issue 2 , April 2010 , pp. 325 - 371
Copyright
Copyright © 2010 British Institute of International and Comparative Law

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References

1 See eg, JI Levinson, ‘A Perspective on the Debt Crisis’ (1989) 4 Am Univ J Int'l L & Pol 489; J Stiglitz, Globalization and Its Discontents (WW Norton, New York, 2002) 89–133; 195–214.

2 As of the end of 2008, State parties had concluded a total of 2676 Bilateral Investment Treaties (BITs). See UNCTAD, Recent Developments in International Investment Agreements, UNCTAD Doc UNCTAD/WEB/DIAE/IA/2009/8 IIA Monitor No 3, 2 (2009).

3 The total cumulative number of known investment treaty-based cases reached 317 at the end of 2008. Argentina has the highest number of claims of any State party in the system of investment treaty arbitration. There were a total of 48 claims against Argentina (at the end of 2008), most of which relate at least in part to that country's financial crisis. See UNCTAD, Latest Developments in Investor–State Dispute Settlement, UNCTAD Doc UNCTAD/WEB/DIAE/IA/2009/6/Rev.1 IIA Monitor No 1, 2–3 (2009).

4 For example, five awards concerning Argentina were issued in 2007 and each them ruled against Argentina. Out of a total of US$1,838 billion in claimed damages, the five tribunals awarded foreign investors a total of US$615 million (approximately 33 per cent of the claimed amount). UNCTAD, Latest Developments in Investor–State Dispute Settlement, UNCTAD Doc UNCTAD/WEB/ITE/IIA/2008/3 IIA Monitor No 1, 10 (2008).

5 Treaty Between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment, signed at Washington DC, Nov 14, 1991, entered into force Oct 20, 1994 [hereinafter US–Argentina BIT] art XI.

6 In particular, art XXI of the General Agreement on Tariffs and Trade 1947 offers an exception for the protection of ‘essential security interests’. General Agreement on Tariffs and Trade, Oct 30, 1947, TIAS No 1700, 55 UNTS 194 [hereinafter GATT] art XXI. For a comparative analysis of GATT art XX and the treaty exception in the US–Argentine BIT, see Part II(C)(2).

7 See eg, MJ Hahn, ‘Vital Interests and the Law of GATT: An Analysis of GATT's Security Exception’ (1991) 12 Mich J Int'l L 558; HL Schloemann and S Ohlhoff, ‘“Constitutionalization”’ and Dispute Settlement in the WTO: National Security as an Issue of Competence' (1999) 93 AJIL 424.

8 GATT art XXI has been examined in very general terms by four GATT panels that have offered little direct analysis of the scope of the exception for ‘essential security interests’. See discussion in Hahn (n 7).

9 There are few direct analyses of the implications of the interpretative methodology adopted in these cases. For three key analyses, see A Bjorklund, ‘Emergency Exceptions: State of Necessity and Force Majeure’ in P Muchlinski et al (eds), Oxford Handbook of International Investment Law (OUP, Oxford, 2008); Burke-White, W and von Staden, A, ‘Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties’ (2008) 48 Va J Int'l L 307–410Google Scholar; JE Alvarez and K Khamsi, ‘The Argentine Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime’ IILJ Working Paper 2008/5 <www.iilj.org>. For general analysis on the relationship between investment treaties and other sources of international law (with a short but careful account of the Argentine cases), see also McLachlan, C, ‘Investment Treaties and General International Law’ (2008) 57 ICLQ 361–401.CrossRefGoogle Scholar

10 International Law Commission, ‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts with Commentaries’ UN GAOR, 56th Sess, Supp 10, Ch 4, (2001) UN Doc A/56/10 [hereinafter ILC arts].

11 International Law Commission, ‘Report of the Study Group of the International Law Commission, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law’ (4 April 2006) UN Doc A/Cn.4/L.682 [hereinafter ILC Fragmentation Report].

12 On the notion of self-contained regimes at international law, see B Simma, ‘Self-Contained Regimes’ (1985) XVI Neth Ybk 111.

13 Compare Pope & Talbot v Canada, UNCITRAL Arbitration Award on the Merits of Phase 2 (Apr 10, 2001) paras 110–111; SD Myers v Canada, UNCITRAL Arbitration, Partial Award (Nov 13, 2000) paras 259–269 (both ruling that NAFTA art 1105 adopts an additive component that extends beyond the scope of protection at customary international law) with Judicial Review of Metalclad Arbitral Award by the Supreme Court of British Columbia (May 2, 2001) paras 64–66 (criticising the Pope & Talbot and Myers awards on the interpretation of NAFTA art 1105 as ignoring the plain text of that treaty provision).

14 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (July 31, 2001) Parts B(1) and (2) (confirming that NAFTA art 1105(1) ‘prescribes the customary international law minimum standard of treatment’ and that ‘the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens’).

15 See CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, Decision of the Ad Hoc Committee on the Application for Annulment, Sept 25, 2007 [hereinafter CMS Annulment Award] para 131.

16 Art 31 of the Vienna Convention on the Law of Treaties requires, among other things, treaty provisions to be given their ordinary meaning, in context and in light of the treaty's object and purpose. This is a compulsory set of interpretative methods and devices. On the other hand, resort to travaux préparatoires (or other evidence of the intentions of the parties) may, according to art 32, only be used to confirm a meaning from other sources (that is, the art 31 route) or where application of art 31 results in ambiguity or a result which is ‘manifestly absurd or unreasonable’. Vienna Convention on the Law of Treaties, 1155 UNTS 331 reprinted in 8 ILM 679 (1969) [hereinafter VCLT] arts 31–32. For analysis on the history of the Vienna Convention and its prioritization of particular interpretative techniques, see R Gardiner, Treaty Interpretation (OUP, Oxford, 2008) 51–69.

17 For excellent and careful analysis of the use of model treaty text by the US in this field, see Alvarez and Khamsi (n 9) 26–34.

18 The lack of evidence of Argentina's intentions in entering into the US–Argentina BIT was in fact noted by and analysed in the recent Continental award. See Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, Sept 5, 2008 [hereinafter Continental Award] paras 182–187 (and fn 279).

19 This is a marked and frank characteristic of the Alvarez and Khamsi analysis of the US–Argentine BIT and its adjudication in the aftermath of the Argentine financial crisis. Alvarez and Khamsi (n 9) 32 and 34.

20 For analysis of the role of the Argentine BIT program in these terms, see Part II(A). See also Ratner, S, ‘Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law’ (2008) 102 AJIL 3CrossRefGoogle Scholar, 475, 516 (noting that, given the asymmetry in power among State parties to BITs, ‘[t]he goals of the regime, then, may not be shared beyond a superficial level, making it difficult to suggest their effect on decision making’).

21 See eg, Burke-White and von Staden (n 9) 322; McLachlan (n 9) 390.

22 J Schvarzer, ‘The Costs of the Convertibility Plan’ in E Epstein and D Pion (eds), Broken Promises? The Argentine Crisis and Argentine Democracy (Edward Epstein, Berlin, 2006) 71–73.

23 ibid (detailing average annual inflation of 25 per cent in the period 1960 to 1974 rising to 35 per cent in the period 1975 to 1991 with no growth in GDP).

24 See P Blustein, And the Money Kept Rolling In (and Out): Wall Street, The IMF and the Bankrupting of Argentina (Public Affairs, New York, 2005) 23–24.

25 In fact, the Argentine government targeted foreign investors as preferred entrants into newly privatized utility sectors. This strategy is discussed in detail in the factual record of the LG&E ruling. See LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic, ICSID Case No ARB/02/1, Award, Oct 3, 2006 [hereinafter LG&E Award] para 49.

26 Argentina has a long history of defaulting on its foreign debt obligations. See generally C Marichal, A Century of Debt Crises in Latin America (Princeton University Press, Princeton, 1989). Moreover, a range of Argentine jurists and diplomats have actively sought to influence the content of international law to limit the ability of external lenders (and their States) to collect on defaulted sovereign obligations. See generally Hershey, AS, ‘The Calvo and Drago Doctrines’ (1907) 1 AJIL 26–27.CrossRefGoogle Scholar

27 See generally ‘A Decline without Parallel—Argentina's Collapse’ The Economist, Special Report, March 2, 2002.

28 CMS Annulment Committee Award (n 15) para 34.

29 For a useful chart of Argentina's overall BIT program showing initiation and peak activity throughout the 1990s, see Elkins, Z, Guzman, A and Simmons, B, ‘Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000’ (2006) 60 Int'l Org 811, 821Google Scholar (figure 5).

30 For recent discussion of the typical protections found in investment treaties, see R Dolzer and C Schreuer, Principles of International Investment Law (OUP, Oxford, 2008); C McLachlan et al, International Investment Arbitration: Substantive Principles (OUP, Oxford, 2007).

31 See eg, US–Argentina BIT (n 5) art II(1) (obligation to accord foreign investors both national and most-favored-nation treatment).

32 ibid art II(2)(a).

33 ibid art IV.

34 For detailed analysis of the customary rules on diplomatic protection and their displacement in modern investment treaties, see Part III(B)(2).

35 US–Argentina BIT (n 5) art VII.

36 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature Mar 18, 1965, 17 UST 1270, TIAS No 6090, 575 UNTS 159 (entered into force Oct 14, 1966) [hereinafter ICSID Convention].

37 Blustein (n 24) 21 (detailing the inflation rate of 17.5 per cent in 1992, falling to 7.4 per cent in 1993, 4.2 per cent in 1994 and then to ‘virtually zero’ for the rest of the 1990s).

38 ibid 21–24 (detailing 10 per cent annual increase in GDP in 1991 and 1992, followed by 6.3 per cent growth in 1993 and 5.8 per cent in 1994).

39 There was a sharp fall in the international price of key agricultural goods exported by Argentina (especially soybeans and grain). In 1999, Brazil—Argentina's principal trading partner—devalued its currency leading to a 28 per cent drop in Argentine exports to Brazil. This period also witnessed a rise in the value of the U.S dollar that in turn elevated the peso, further diminishing the export competitiveness of key Argentine goods. Schvarzer (n 26) 84.

40 See generally Blustein (n 24) 83–106.

41 Under this arrangement, Argentina's bondholders would swap bonds due for payment for others of longer maturation but with a higher interest rate. The objective—from Argentina's perspective—was to postpone the payment of interest and principal under the original bonds. See 124–134.

42 See 136–137.

43 ibid xx.

44 The Economist (n 27).

45 Blustein (n 24) 1.

46 The Economist (n 27).

47 Continental (n 18) para 142.

48 CMS Annulment Award (n 15) para 36.

49 They all, bar Continental, also track a similar fact-set involving foreign investment into utility concerns in the aftermath of the Argentine privatization program. Continental concerns the adverse impact of pesification on the portfolio of investment maintained by an insurance company in Argentina (with foreign ownership). The difference in fact-set is not, to my mind, material to the adjudication on the relationship between the treaty exception and the customary plea and as such, there is little attention devoted to this point in my analysis.

50 CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, Award, May 12, 2005 [hereinafter CMS Award].

51 LG&E Award (n 25).

52 Enron Corporation Ponderosa Assets LP v Argentine Republic, ICSID Case No ARB/01/3, Award, May 22, 2007 [hereinafter Enron Award].

53 Sempra Energy International v Argentine Republic, ICSID Case No ARB/02/16, Award, Sept 28, 2007 [hereinafter Sempra Award].

54 ICSID Convention (n 36) art 52(1) (setting out the five grounds for annulment as: (a) tribunal was not properly constituted; (b) manifest excess of powers; (c) corruption; (d) serious departure from a fundamental rule of procedure; (e) failure to state reasons).

55 One can only speculate that this is perhaps natural given the make-up and credentials of the membership of that Committee. This comprised Judge Gilbert Guillaume (a former President of the ICJ), Judge Nabil Elaraby (a former judge of the ICJ) and notably, Professor James Crawford (ILC Special Rapporteur on State Responsibility).

56 CMS Annulment Award (n 15) paras 101–150.

57 For an overview of the constituent components of customary international law, see A Cassese, International Law (2nd edn, OUP, Oxford, 2005) 156–165.

58 See eg, Military and Paramilitary Activities (Nicaragua v US) [1984] ICJ Rep 14 (June 27) [hereinafter Nicaragua] paras 183–186 (ruling that inconsistent State practice need not bar the emergence of a customary prohibition on the use of force by states provided that such instances of state conduct ‘have been treated as breaches of that rule, not as indications of the recognition of a new rule’).

59 For an example of the use of case-law to distil the elements of the customary plea of necessity, see B Cheng, General Principles of Law as Applied by International Courts and Tribunals (CUP, Cambridge, 1953) 69–77.

60 ILC arts (n 10).

61 GA Res 174 II, (Nov 21 1947). On the work of the ILC, see generally S Rosenne, ‘Codification of International Law’ R Bernhardt (ed), 1 Encyclopaedia of Public International Law (1992) 632–640.

62 See eg, Advisory Opinion, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory [2004] ICJ Rep 131 (July 9) paras 140–142 (drawing on ILC art 25 in its discussion of the state of necessity at customary international law); United Postal Service of America Inc v Government of Canada, ICSID Arbitration, Award on the Merits (May 24, 2007) paras 45–76 (identifying the rules on attribution in ILC arts 4 and 5 as representing customary international law).

63 The articles were forwarded to the United Nations General Assembly by the ILC after its 2001 session. In Resolution 56/83, the General Assembly ‘takes note of the articles’ and then ‘commends them to the attention of Governments without prejudice to the question of their future adoption or other appropriate action’. GA Res 56/83 (Dec 12, 2001).

64 Caron, DD, ‘The ILC Articles on State Responsibility: The Paradoxical Relationship Between Form and Authority’ (2002) 96 AJIL 857CrossRefGoogle Scholar, 858.

65 ibid 861.

66 ILC arts (n 10) art 25.

67 The six circumstances precluding wrongfulness comprise: (i) consent, (ii) self-defence, (iii) countermeasures, (iv) force majeure, (v) distress and (vi) necessity. See ibid Chapter V.

68 See eg, FV García Amador, Special Rapporteur, Responsibility of the State for Injuries Caused in its Territory to the Person or Property of the Alien, Part II: The International Claim, Third Report on State Responsibility, UN Doc A/CN.4/111, in 2 YB Int'l L Comm'n 47 [1958]. For a careful analysis of the work of the ILC, see Bjorklund (n 9).

69 See Cassese (n 57) 244; Rosentock, R, ‘The ILC and State Responsibility’ (2002) 96 AJIL 792CrossRefGoogle Scholar (linking Roberto Ago's focus on secondary rules to a desire to avoid ‘the bigger fights over nationalization’).

70 On this distinction between ‘primary’ and ‘secondary’ rules, see generally Combacau, J and Alland, D, ‘Primary and Secondary Rules in the Law of State Responsibility: Categorizing International Obligations’ (1995) 16 Neth YB Int'l L 81CrossRefGoogle Scholar.

71 In the General Commentary to the ILC arts, the following is made abundantly clear: ‘[I]t is not the function of the articles to specify the content of the obligations laid down by particular primary rules, or their interpretation … The articles take the existence and content of the primary rules of international law as they are at the relevant time …’. ILC arts (n 10) 31.

72 See J Crawford, The International Law Commission's Articles on State Responsibility: Introduction, Text and Commentaries (CUP, Cambridge, 2002) 185 (affirming that ‘as embodied in art 25, the plea of necessity is not intended to cover conduct which is in principle regulated by the primary obligations’).

73 ibid 178 (noting that the special features of the plea mean that ‘necessity will only rarely be available to excuse non-performance of an obligation and that it is subject to strict limitations to safeguard against potential abuse’).

74 GATT (n 6) art XX.

75 WTO Korea: Measures Affecting Imports of Fresh, Chilled and Frozen Beef—Report of the Appellate Body (December 11, 2000) WT/DS161/AB/R, WT/DS169/AB/R, para 161.

76 See, eg, Libyan Arab Foreign Investment Company v Republic of Burundi, Ad Hoc Arbitration, 96 ILR 279, 319 (Mar 4, 1991); Case Concerning the Gabčíkovo-Nagymaros Project (Hung v Slov) [1997] ICJ Rep 7 (Sep 25) para 56; M/V Saiga (No 2) Case, ITLOS 38 ILM 1323 (1999) para 135.

77 See generally Crawford (n 72) 179.

78 ibid. (emphasis added). See also ILC arts (n 10) 81.

79 For a review of these substantive obligations, see text accompanying (n 34–40).

80 US–Argentina BIT (n 5) art XI.

81 GATT (n 6) arts XXI(b), (c).

82 For an extended and convincing analysis along these lines, see Alvarez and Khamsi (n 9) 34–42.

83 Nicaragua (n 58) para 222.

84 The difficulty of accepting supranational adjudication on these delicate questions while appreciating the need for some level of oversight is incisively touched on in the individual opinion of Judge Anzilotti in the Oscar Chinn case. See Oscar Chinn, 1934 PCIJ (ser A/B) No 61 (Dec 12) (separate opinion of Judge Anzilotti) 113–114.

85 UN Charter art 39. Chapter VII of the United Nations Charter sets out a series of pre-conditions to the eventual possibility of authorization of use of force by the Security Council. These include, most notably, measures not involving use of force including ‘complete or partial interruption of economic relations’ under art 41. This can encompass a call by the Security Council for states to impound or otherwise restrict the assets of private nationals of the state subject to a Chapter VII process. Such an obligation would normally breach the guarantees of protection in a typical BIT. For an example of Security Council invocation of art 41 against the Federal Republic of Yugoslavia, see UN SC Res 757 (1992).

86 See eg, Continental Award (n 18) para 163 and fn 234 (characterizing this branch as ‘irrelevant in the context of the present arbitration’); Alvarez and Khamsi (n 9) 301 (offering brief analysis of this branch in comparison with extended attention to notions of ‘public order’ and ‘essential security interests’).

87 On the other hand, Alvarez and Khamsi seem to suggest that the inclusion of ‘public order’ in art XI of the US–Argentine BIT was intended to clarify that the customary defence of distress would apply. See Alvarez and Khamsi (n 9) 47 and 66. Aside from the obvious naming point, their suggestion seems unlikely given that, as the ILC has documented, ‘cases of distress have mostly involved aircraft or ships entering State territory under stress of weather or following mechanical or navigational failure’: ILC arts (n 10) 78. I argue later that ‘public order’ here is best understood as engaging the precepts underlying the concept of ordre public, typical in many civil law systems. See Part V(B.1).

88 See CMS Award (n 50) paras 315–352 (reviewing the state of necessity under customary international law); 353–378 (reviewing the treaty's clauses on emergency). See also CMS Annulment Award (n 15) paras 128 (noting that the CMS Tribunal ‘dealt with the defense based on customary law before dealing with the defense drawn from Article XI’).

89 Sempra Award (n 53) para 376. This approach is also adopted by the Enron Tribunal. See Enron Award (n 52) para 333.

90 Sempra Award (n 53) para 378.

91 This dynamic is also at play in the deliberations of the Enron Tribunal. See Enron Award (n 52) para 333.

92 CMS Award (n 50) para 359.

93 ibid paras 319–359.

94 Sempra Award (n 53) para 348. See also Enron Award (n 52) para 306.

95 CMS Award (n 50) para 323. See also Sempra Award (n 58) para 350–351.

96 This is noted by the Enron Tribunal: ‘A rather sad world comparative experience in the handling of economic crises, shows that there are always many approaches to address and correct such critical events, and it is difficult to justify that none of them were available in the Argentine case.’ (emphasis added) Enron Award (n 52) para 308.

97 See Enron Award (n 52) para 311–312; Sempra Award (n 53) paras 311–313.

98 CMS Award (n 50) para 329.

99 ILC arts (n 10), art 27(b) (emphasis added).

100 This is made clear in the commentary to art 27(b): ‘Subparagraph (b) of article 27 is a reservation as to questions of possible compensation for damage in cases covered in chapter V’ and ‘Subparagraph (b) does not attempt to specify in what circumstances compensation should be payable. Generally the range of possible situations covered by chapter V is such that to lay down a detailed regime for compensation is not appropriate. It will be for the State invoking a circumstance precluding wrongfulness to agree with any affected States on the possibility and extent of compensation payable in a given case.’ ILC arts (n 10) 86 (paras 4 and 6). This point is explicitly endorsed by the later CMS Annulment Committee. See (n 15) para 147. Argentina and its expert witness use this as a key aspect in contentions in a later arbitration. See BG Group Plc v Argentina, UNCITRAL Arbitration, Dec 24, 2007 para 398 (‘Objecting to BG's reliance on Article 27 of the ILC Draft Articles, Argentina referred to its expert witness Prof. Kingsbury, stating that the ILC Articles do not set forth that compensation should be granted in all cases where the state of necessity is alleged.’).

101 CMS Award (n 50) para 390.

102 ibid para 388 (emphasis added).

103 See Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award, July 24, 2008 paras 461–47.

104 For example, Alvarez and Khamsi suggest that: ‘It is also anachronistic to assume … that the negotiators of US BITs (and prior FCNs with comparable NPM clauses) had, long before the ILC completed and released its Articles of State Responsibility, not only readily absorbed the implications of the ILC's distinctions between ‘primary’ or ‘secondary’ rules of international law but had sought to replicate these (sub silentio) in these treaties.' Alvarez and Khamsi (n 9) 47–48. Yet, as we have seen, this distinction had been in place since the appointment and work of ILC Rapporteur Ago in the early 1960s. It would be surprising if US BIT negotiators knew nothing of that important shift in the strategy of the ILC. This though is simple conjecture as to the subjective intent of those actors, a point at odds with my chosen method in this article.

105 Customary protections were not aimed solely at foreign investors nor were they concerned explicitly with an investor's competitive position in a host state. The customary standard was instead directed at ‘aliens’ and largely designed to counter risks specific to individuals present in another State. The typical complaint of the late nineteenth century in this field concerned the unlawful arrest and detention of individual aliens rather than the later strategic concern surrounding the competitive opportunities and treatment of foreign economic actors. See generally F Dunn, The Protection of Nationals: A Study in the Application of International Law (Johns Hopkins Press, Baltimore, 1932) 54; International Law Commission, ‘Report on International Responsibility by Mr FV García Amador, Special Rapporteur’ UN Doc A/CN.4/96 (1956), reprinted in [1956] YB Int'l L Comm'n 173, para 43.

106 TL Brewer and S Young, The Multilateral Investment System and Multinational Enterprises (OUP, Oxford, 1998). 53 Their table 2.3 summarizes trends in expropriation from 1960 to 1992. The mean number of expropriations in this period were as follows: 1960–1964: 11; 1965–1969: 16; 1970–1974: 51; 1975–1979: 34; 1980–1984: 3; 1985–1989: 0.4 and 1990–1992: 0.

107 Case Concerning the Factory at Chorzów (Germany v Poland) [1928] PCIJ Rep Series A No 13.

108 See eg, Guha Roy, SN, ‘Is the Law of Responsibility of States for Injuries to Aliens a Part of Universal International Law?’ (1961) 55 AJIL 4, 866–886Google Scholar (detailing the attempts to characterize the law of state responsibility as an instrument of imperialism and criticizing its application to newly independent states in the post-colonial period).

109 See CF Amerasinghe, State Responsibility for Injuries to Aliens (Clarendon Press, London, 1967) 128–129 (describing nationalization as a species of expropriation but subject to special rules ‘differentiated from the rules relating to other cases of expropriation’).

110 The narrative of newly independent States advancing claims to changes in customary rules on expropriation through the 1960s (including the critical General Assembly Resolution 1803) and 1970s is well known. It is important also to recognize that by the mid-1970s, a range of lump sum settlement tribunals had begun to identify some of those resolutions (particularly 1803) as reflecting ‘the state of customary law in the field’. See TOPCO v Libya, 17 ILM 3, 27–31 (1974). Similar methodologies and findings were adopted in the 1983 AMINOIL award (involving the 1977 nationalization of Kuwait's oil industry) and the 1994 Ebrahimi award (of the Iran–US Claims Tribunal).

111 See generally Dolzer and Schreuer (n 30) 89–115.

112 International Law Commission, ‘Draft Articles on Diplomatic Protection with Commentaries’ (2001) UN Doc A/61/10, art 1. See also Case Concerning Ahmadou Sadio Diallo (Guinea v Congo) (Preliminary Objections) [2007] ICJ Rep 103 para 39.

113 Barcelona Traction, Light and Power Company, Limited [1970] ICJ Rep3 paras 41–47.

114 US–Argentina BIT (n 5) arts I(a) (definition of ‘investment’); VII (investor—State dispute resolution).

115 See, eg, US–Argentina BIT (n 5) art II(2)(a) (‘Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.’)

116 This perspective—which I base on my method of analysis of objective factors (text, context and history)—is also reflected in the account of Kenneth Vandevelde, who had advised on US BIT negotiations in the early to mid 1980s. See K Vandevelde, United States Investment Treaties, Policy and Practice (Kluwer Law, Boston, 1992) 222.

117 In Nicaragua, the US had argued that the provisions on use of force in the United Nations Charter had subsumed similar rules of customary international law. See Nicaragua (n 58) paras 173–174. The ICJ rejected this argument and found pertinent differences between the two sources of law that meant custom continued to exist alongside the treaty provision of the Charter. The Court particularly noted that the Charter provision does not regulate all aspects of the content of the use of force in self-defence. In particular, art 51 of the Charter ‘does not contain any specific rule whereby self-defence would warrant only measures which are proportional to the armed attack and necessary to respond to it, a rule well established in customary international law’ (emphasis added). Nicaragua (n 58) para 176.

118 This is in striking contrast to certain arbitrations under the investment chapter 11 of the NAFTA such as UPS v Canada and Methanex v USA where both the pleadings and transcript of proceedings are publicly available and offer important insights into the deliberations of the parties and tribunals in those cases.

119 My working (and perhaps crude) definition of sociological inquiry in this context is whether adjudicatory behaviour and normative choices are affected by social factors, specifically the ideas, identities and shared understanding of particular agents (claimants, states, arbitrators) as they interact within the system. For a fuller analysis of the use of sociological methods to examine the question of regulation of regional and bilateral trade agreements, see Hirsch, M, ‘The Sociology of International Economic Law: Sociological Analysis of the Regulation of Regional Agreements in the World Trading System’ (2008) 19 EJIL 2 277–299.CrossRefGoogle Scholar

120 This is clearly evident throughout the awards; see CMS Award (n 55) paras 366–373; Enron Award, (n 52) paras 335–339; Sempra Award (n 53) paras 279–388. The later CMS Annulment Committee appears puzzled by the insistence on litigating this marginal point. See CMS Annulment Award (n 15) para 122 (‘Then [the CMS Tribunal] addressed the debate which the parties had chosen to engage in as to whether art XI is self-judging.’ (emphasis added)).

121 For an extended treatment of the implications of this sort of personal dimension in the shift to legalization in the WTO, see Weiler, JHH, ‘The Rule of Lawyers and the Ethos of Diplomats: Reflections on the Internal and External Legitimacy of WTO Dispute Settlement’ (2001) 35 J World Trade 2CrossRefGoogle Scholar, 198. See also Burley, A-M and Mattli, W, ‘Europe Before The Court: A Political Theory of Legal Integration’ (1993) 41 Int Org 1Google Scholar, 58–62 (examining the role of self-interest in a range of supra-and sub-national actors within the European legal system).

122 There is of course nothing to prevent arbitrators—like domestic judges particularly in civil law systems—from conducting their own research and independently coming to a conclusion on the correctness of a particular legal position. I am grateful to Gus Van Harten for raising this point which I accept in principle but see no evidence of its application in the awards. There is, for example, no footnote citation of relevant sources other than the obvious (such as the ILC articles) and the party submissions on the analysis of the treaty exception and its relationship to customary law. In fact, my argument here is strengthened when we compare the method I awards with the different methodology adopted by the Continental Tribunal. The Continental award is littered with footnote citation of sources separate from party submissions with a particular emphasis on WTO jurisprudence. The latter may be accounted for by the presidency of Giorgio Sacerdoti, a member of the WTO Appellate Body, on the Continental Tribunal.

123 See generally P McConnaughay, ‘The Risks and Virtues of Lawlessness: A ‘Second Look’ at International Commercial Arbitration' (1999) 93 NW U L Rev 453.

124 For a thoughtful overview of this aspect of investment treaty arbitration, see Dolzer and Schreuer (n 30) 211–290.

125 ICSID Convention (n 36) art 37(2)(b).

126 See Caron (n 64) 868. See also Kurtz, J, ‘The Use and Abuse of WTO Law in Investor—State Arbitration: Competition and its Discontents’ (2009) 20 EJIL 749CrossRefGoogle Scholar.

127 L Silberman, ‘International Arbitration: Comments From A Critic’ (2002) 13 Am Rev Int'l Arbn 9, 11

128 See also Ratner (n 20) 517 (as part of a review of the institutional design of investor–State arbitration, Ratner suggests ‘arbitrators typically aspire to appointment to future arbitrations, as a result of which they will not write opinions that deviate too far from the mainstream of legal opinion’).

129 Enron Award (n 57) para 331 (emphasis added).

130 See eg, Azurix Corp v The Argentine Republic, ICSID Case No AB/01/12, Award (Jul 14, 2006), para 372; SGS Societe de Surveillance v Republic of the Philippines, ICSID Case No ARB/02/6, Decision on Jurisdiction (Jan 29, 2004) para 116.

131 VCLT (n 17) art 31(1).

132 ibid.

133 For an insightful analysis of this point in the context of the shift in interpretative methods from the GATT to WTO dispute settlement systems, see R Howse, ‘Adjudicative Legitimacy and Treaty Interpretation in International Trade Law: The Early Years of the WTO’ in JHH Weiler (ed), The EU, The WTO and The NAFTA: Towards a Common Law of International Trade (OUP, USA, 2000) 35, 51–61. See also WTO United States: Import Prohibition of Certain Shrimp and Shrimp Products—Report of the Appellate Body (Oct 12, 1998) WT/DS58/AB/R, paras 121–122 (where the Appellate Body criticizes the Panel for ‘constructing an a priori test’ that has no basis in the text of the treaty clause at issue).

134 But cf Alvarez and Khamsi (n 9) 80–81 (contesting that the US–Argentina BIT preambular recitals of, inter alia, ‘greater economic cooperation’, ‘economic development’, ‘effective use of economic resources’ and the ‘well-being of workers’ can be used to identify and justify a telos other than ‘protecting investors’ rights').

135 See eg, Saluka Investments BV v Czech Republic, UNCITRAL Arbitration, Partial Award (Mar 17 2006) paras 296–308 (in its review of the preambular recitals of the subject investment treaty the arbitral tribunal ruled: ‘This is a more subtle and balanced statement of the Treaty's aims than is sometimes appreciated. The protection of foreign investment is not the sole aim of the Treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and extending and intensifying the parties’ economic relations.').

136 The CMS Annulment Committee ruled: ‘Those two texts having a different operation and content, it was necessary for the Tribunal to take a position on their relationship and to decide whether they were both applicable in the present case. The Tribunal did not enter into such an analysis, simply assuming article XI and article 25 are on the same footing.' CMS Annulment Award (n 16) para 131.

137 ILC art 55 provides: ‘These articles do not apply where and to the extent that the condition for the existence of an internationally wrongful act or the content or implementation of the international responsibility of a State are governed by special rules of international law.’ ILC arts (n 10) art 55.

138 See eg, Burke-White and von Staden (n 9) 322; McLachlan (n 9) 390.

139 Crawford (n 77) 307.

140 McLachlan comes closest to addressing this issue but does so only tangentially: ‘Where, as here, the customary rule lays down a stricter test than the treaty language, it is unlikely that there will be a need for separate resort to custom.’ McLachlan (n 9) 390.

141 Simma and Pulkowski present these different approaches as weak and strong forms of lex specialis respectively. See Simma, B and Pulkowski, D, ‘Of Planets and Self-Contained Regimes at International Law’ (2006) 17 EJIL 3, 490–491.CrossRefGoogle Scholar

142 ILC arts (n 10) Commentary paras 2–3 (p 140).

143 ibid Commentary para 3 (p 140)

144 ILC Fragmentation Report (n 11) para 102.

145 Case Concerning Oil Platforms (Iran v USA) [2003] ICJ Rep 90 (Nov 6) [hereinafter Oil Platforms].

146 See Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v The United Mexican States, ICSID Case No ARB(AF)/04/05, Nov 21, 2007 paras 113–123 (identifying NAFTA Chapter 11 as lex specialis but accepting the customary international law on countermeasures as applicable in all matters not specifically addressed in Chapter 11).

147 The relevant part of the exception in the 1955 Treaty of Amity, Economic Relations and Consular Rights between the US and Iran reads:

The present Treaty shall not preclude the application of measures:

(d) necessary to fulfil the obligations of a High Contracting Party for the maintenance or restoration of international peace and security, or necessary to protect its essential security interests.

Oil Platforms (n 145) para 32.

148 ibid para 73.

149 ibid para 41.

150 The pertinent part of the judgment reads:

The Court will thus examine first the application of Article XX, paragraph 1(d) of the 1955 Treaty, which in the circumstances of this case, as explained above, involves the principles of the prohibition in international law of the use of force, and the qualification to it constituted by the right of self-defence. On the basis of that provision, a party to the Treaty may be justified in taking certain measures which it considers ‘necessary’ for the protection of its essential security interests … [I]n the present case, the question whether the measures taken were ‘necessary’ overlaps with the question of their validity as acts of self—defence. As the Court observed in [the Nicaragua case] the criteria of necessity and proportionality must be observed if a measure is to be qualified as self—defence. (emphasis added)

ibid para 43.

151 ibid para 73.

152 This was in fact an argument expressly made by the investor in the Continental award: ‘[The Claimant] relies also on the ILC commentary on art 25(1)(a) stating that the ‘plea is excluded if there are other (otherwise lawful) means available, even if they may be more costly or less convenient’ (ILC commentary para 15). This ought to be considered not only as a more precise explanation of the term ‘necessary’ with regard to the invocation of the defence of necessity under customary international law, but also as a standard applicable in interpreting Art XI of the BIT.' (emphasis added). Continental (n 18) para 191.

153 United Postal Service of America Inc v Canada, ICSID Arbitration, Award on the Merits (May 24, 2007) [hereinafter UPS v Canada].

154 ibid paras 59–62.

155 Case Concerning Electronica Sicvla SpA (USA v Italy), 1989 ICJ 15 (July 15) para 50. ELSI (n 79). For analysis of this point within the context of the WTO dispute settlement system and its relation to the law of state responsibility, see R Howse and RW Staiger, ‘United States—Anti Dumping Act of 1916 (Original Complaint by the European Communities)—Recourse to Arbitration by the United States under 22.6 of the DSU WT/DS136/ARB, 24 February 2004: A Legal and Economic Analysis’ in H Horn and P Mavroidis (eds), The WTO Case Law of 2003 (CUP, Cambridge, 2006) 254, 276–267. See also Simma and Pulkowski (n 148) 495.

156 There may also be a specific barrier to the adoption of this reading in the text of the treaty at question. Art X of the US–Argentine BIT provides that: ‘This Treaty shall not derogate from:..(b) international legal obligations … that entitle investments or associated activities to treatment more favourable than that accorded by this Treaty in like situations’. US–Argentina BIT (n 5) art X. A reading of lex specialis that would seek to displace the entire customary norm (if the customary standard offers more favourable treatment than the treaty reading) would be at odds with the constraint against derogation in this clause.

157 Continental (n 18) para 168.

158 LG&E Award (n 25) para 229.

159 The LG&E Tribunal engages in an extensive if descriptive review of the consequences of the financial crisis to conclude: ‘All of these devastating conditions—economic, political, social—in the aggregate triggered the protections afforded under Article XI of the Treaty to maintain order and control the civil unrest.’ ibid paras 231–237.

160 ibid para 245.

161 The Tribunal ruled:

Claimants contend that the necessity defence should not be applied here because the measures implemented by Argentina were not the only means available to respond to the crisis. The Tribunal rejects this assertion. Article XI refers to situations in which a State has no choice but to act. A State may have several responses at its disposal to maintain public order or protect its essential security interests. In this sense, it is recognized that Argentina's suspension of the calculation of tariffs in U.S. dollars and the PPI adjustment of tariffs was a legitimate way of protecting its social and economic system.

ibid para 239.

162 ibid para 257.

163 Continental Award (n 18) paras 166–167.

164 CMS Annulment Award (n 16) para 129 (emphasis added).

165 See Part II(C)(1). See also CMS Annulment Award (n 16) para 134 (noting that the position that the state of necessity at customary international law is a secondary rule of international law is ‘the position taken by the ILC’).

166 Case Concerning the Gabčíkovo—Nagymaros Project (Hungary v Slovakia) 1997 ICJ 7 (Sep 25) para 48.

167 For a similar endorsement of the need to examine treaty ‘provision by provision’ vis-à-vis general international law, see J Pauwelyn, Conflict of Norms in Public International Law (CUP, Cambridge, 2003) 213–214.

168 McLachlan (n 9) 390.

169 The principle of effectiveness in treaty interpretation (ut res agis valeat quam pereat) obliges an adjudicator to give effect to all the terms of a treaty and avoid a reading that would reduce whole clauses or paragraphs of a treaty to redundancy. For expressions of this principle in the jurisprudence of the WTO, see WTO United States: Standards for Reformulated Gasoline—Report of the Appellate Body, (May 20, 1996) WT/DS2/9, 23; WTO Japan: Taxes on Alcoholic Beverages—Report of the Appellate Body (October 4, 1996) WT/DS11/AB/R, 10–11.

170 Even in the investment field, not all investment treaties have a preclusion clause such as art XI of the US–Argentine BIT. For example, neither of the UK–Argentine BIT nor the Australia–Argentine BIT have a preclusion clause for measures of ‘public order’ or ‘essential security interests’. See Agreement Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments, signed Dec 11, 1990, UK Doc—Argentina No 1, CM 1449 (1991); Agreement Between the Government of Australia and the Government of the Argentine Republic on the Promotion and Protection of Investments and Protocol, signed Aug 23, 1995, ATS No 4 (1997).

171 For a precise example of this sort of case, see BG Group Plc v Republic of Argentina, UNCITRAL Arbitration, Final Award (Dec 24, 2007) paras 369–398 (analysing the customary plea of necessity in the absence of a specific treaty exception in the Argentina–UK BIT).

172 A range of State parties are demanding changes to both existing and newer investment treaty rules. See text accompanying fn 15 (detailing the NAFTA Free Trade Commission's interpretation of July 31 2001). See also text accompanying fn 233 (detailing changes to the US Model BIT).

173 See eg, Ecuador's Notification under Article 25(4) of the ICSID Convention, ICSID News Release (Dec 5, 2007) (detailing Ecuador's withdrawal of its consent to ICSID jurisdiction over disputes concerning, among others, its petroleum, gas and mineral sectors); Bolivia Submits a Notice under Article 71 of the ICSID Convention, ICSID News Release (May 16, 2007) (detailing Bolivia's denunciation of the ICSID Convention).

174 On the inter-relation between concepts of ‘voice’, ‘exit’ and ‘loyalty’ in various settings, see A Hirschmann, Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States (Harvard University Press, Cambridge, 1970).

175 See UNCTAD (n 4) 1 (tracking exponential growth in investment treaty arbitration from 1987 to 2007).

176 It is for this second factor that I am less convinced than Alvarez and Khamsi that simple amendment (‘BIT parties can change the treaties that they ratify … to incorporate more sovereignty—protective provisions’) offers a comprehensive solution to the problems thrown up by the Argentine cases. Alvarez and Khamsi (n 9) 87.

177 There is remarkably little application of this aspect of economic theory to international investment treaties. One notable and insightful exception is van Aaken, A, ‘International Investment Law Between Commitment and Flexibility: A Contract Theory Analysis’ (2009) 12 (2) J Int'l Econ L 507CrossRefGoogle Scholar. See generally Battigalli, P and Maggi, G, ‘Rigidity, Discretion and the Costs of Writing Contracts’ (2002) 92 Am Econ Rev 798CrossRefGoogle Scholar; R Scott and P Stephan, The Limits of Leviathan: Contract Theory and the Enforcement of International Law (CUP, Cambridge, 2006).

178 General Agreement on Trade in Services, Apr 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, in World Trade Organization, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 325, reprinted in 33 ILM 81 (1994) art XIV(a).

179 ibid.

180 WTO United States: Measures Affecting the Cross-Border Supply of Gambling and Betting Services—Report of the Panel (Nov 10, 2004) WT/DS285/R.

181 These were identified as heightened risk of social exploitation; corruption and subversion of the democratic process; economic losses and instability and diminution of the domestic security and welfare of the United States and its peoples. ibid para 3.279.

182 ibid para 6.461.

183 The Panel ruled: ‘Members should be given some scope to define and apply for themselves the concepts of “public morals” and “public order” in their respective territories, according to their own systems and scales of values.’ ibid para 6.461.

184 ibid para 6.462.

185 ibid para 6.465.

186 ibid para 6.467.

187 ibid para 6.469.

188 See Bernier, MJB, ‘Droit Public and Ordre Public’ (1929) 15 Trans of the Grotius Soc 84Google Scholar.

189 Continental (n 18) para 174.

190 ibid.

191 Perhaps unsurprisingly, this is a feature of the arguments made by investors in the Argentine cases. ibid para 170.

192 This is most evident in GATT art XXI(b) which confines the concept of essential security interests to traditional defense or military concerns. See the quoted extracts from GATT art XXI in Part II(3)(3.2).

193 US–Argentina BIT (n 5) art IV(3).

194 For example, the CMS Tribunal ruled:

If the concept of essential security interests were to be limited to immediate political and national security concerns, particularly of an international character, and were to exclude other interests, for example, major economic emergencies, it could well result in an unbalanced understanding of Article XI. Such an approach would not be entirely consistent with the rules governing the interpretation of treaties.

CMS Award (n 55) para 360.

195 VCLT (n 17) art 31(3)(c).

196 McLachlan, C, ‘The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention’ (2005) 54 ICLQ 279CrossRefGoogle Scholar, 280.

197 ILC Fragmentation Report (n 11) para 423.

198 Continental Award (n 18) para 175.

199 Commission on Human Security, Human Security Now (2003) [hereinafter Human Security Commission]. I am indebted to Rob Howse for raising the work of this Commission with me in discussions on the Argentine cases. I have also benefited greatly from the following article in understanding the potential interpretative role of the Commission's work on human security: R Howse and RG Teitel, Beyond the Divide: The Covenant on Economic, Social and Cultural Rights and the World Trade Organization Dialogue on Globalization: Friedrich Ebert Stiftung No 30 (Apr 2007).

200 ibid 11.

201 This is presented in the following terms: ‘This understanding of human security does not replace the security of the state with the security of people. It sees the two aspects as mutually dependent. Security between states remains a necessary condition for the security of people, but national security is not sufficient to guarantee people's security.’ ibid 3.

202 See the extended discussion on financial crisis, ibid 73–90.

203 ibid 82–83.

204 ibid 86.

205 ibid 90. See also Report of the High Commissioner for Human Rights: Human Rights, Trade and Investment, UN Economic and Social Council, 55th Sess, Agenda Item 4, at 9, UN Doc E/CN.4/Sub/2/2003/9 (2003) (finding that: ‘Economic instability can in turn have negative effects on the enjoyment of human rights, straining available resources in national budgets needed for the progressive realization of economic, social and cultural rights and the right to development.’).

206 International Covenant on Economic, Social and Cultural Rights, GA Res 2200A, UN GAOR, 21st Sess, Supp No 16 at 49, UN Doc A/6316 (1966), 993 UNTS 3, entered into force Jan 3, 1976 [hereinafter ICESCR].

207 Human Security Commission (n 208) 10.

208 ICESCR (n 216) art 11(1).

209 ibid art 12(1).

210 ibid art 2(1).

211 UN Committee on Economic, Social and Cultural Rights, General Comment No 3, The Nature of State Parties Obligations, UN Doc E/1991/23, para 10, 5th Sess (Dec 14, 1990).

212 On this point, it is worth recalling the Separate Opinion of Judge Weeramantry in the Gabčíkovo-Nagymaro Case: ‘Treaties that affect human rights cannot be applied in such a manner as to constitute a denial of human rights as understood at the time of their application.’ Case Concerning the Gabčíkovo-Nagymaros Project (Hung v Slov), 1997 ICJ Rep 7 (Sep 25) 114 (Separate Opinion of Judge Weeramantry).

213 Continental (n 18) para 181.

214 On this critical distinction, see Oil Platforms (n 145) para 33 (Separate Opinion of Judge Higgins). For an extended and careful analysis of these separate concepts within the law of the WTO, see also H Horn and J Weiler, ‘European Communities—Trade Description of Sardines: Textualism and its Discontent’ in H Horn and P Mavroidis (eds), The WTO Case Law of 2002 (Cambridge University Press, Cambridge, 2005) 261–273.

215 Continental (n 18) para 221–222.

216 W Burke-White and A von Staden, ‘Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures in Bilateral Investment Treaties’ (2007) Univ Of Penn Law School Working Paper No 152, 49–50 (footnotes omitted, emphasis added).

217 For another endorsement of proportionality review in this field, see Reinisch, A, ‘Necessity in International Investment Arbitration—An Unnecessary Split of Opinions in Recent ICSID Cases?’ (2007) 8 J Wor Inv and Trade 191Google Scholar, 201 (arguing that a more appropriate approach in cases involving financial crises ‘would probably have to incorporate considerations of adequacy and proportionality’). See also Oil Platforms (n 145) para 33 (Separate Opinion of Judge Higgins) (suggesting that “in general international law, ‘necessary’ is understood also as incorporating a need for ‘proportionality’”).

218 See generally Stone Sweet, A and Mathews, J, ‘Proportionality Balancing and Global Constitutionalism’ (2008) 47 Colum J of Transnat'l L 74, 74–80.Google Scholar

219 For an excellent analysis of this aspect of proportionality review (termed as cost-benefit balancing by the author) and whether that test finds reflection in the law of the WTO, see Regan, D, ‘The Meaning of “Necessary” in GATT art XX and GATS art XIV: The Myth of Cost-Benefit Balancing’ (2007) 6 World Trade Rev 3CrossRefGoogle Scholar, 1–23. See also F Ortino, ‘From “Non-Discrimination” to “Reasonableness”: A Paradigm Shift in International Economic Law’ (Jean Monnet Working Paper No 01/05, Apr 2005).

220 Regan, DH, ‘Judicial Review of Member-State Regulation of Trade Within a Federal or Quasi-Federal System: Protectionism and Balancing, Da Capo’ (2001) 99 Mich L Rev 8CrossRefGoogle Scholar, 1853, 1901.

221 This is a notable feature of the jurisprudence of the Canadian Supreme Court. It is also a feature of the rulings of the European Court of Justice on art 30 of the 1957 Treaty Establishing the European Economic Community. On the other hand, the European Court of Human Rights tends to balance without significant LRM testing. On each of these systems, see Stone Sweet and Mathews (n 218) 113–123 and 139–153.

222 E Stein and T Sandalow, ‘On the Two Systems: An Overview’ in T Sandalow and E Stein (eds), Courts and Free Markets: Perspectives from the United States and Europe (Clarendon Press, New York, 1982) 29–30.

223 JH Ely, Democracy and Distrust: A Theory of Judicial Review (Harvard Paperbacks, Cambridge) 1980) 102.

224 M Maduro, We the Court, The ECJ and the European Economic Constitution—A Critical Reading of Article 30 of the EC Treaty 88 (Hart Publishing, Oxford, 1998).

225 ibid 98.

226 This term was coined by Steven Ratner who has persuasively argued that the specific institutional context of different legal regimes (including that of BITs) should inform doctrinal choices on the question of regulatory takings. Interestingly, Ratner also questions the appropriateness of the move by certain investor–State arbitral tribunals to adopt proportionality review drawn from the European context in assessing breach of BIT guarantees against expropriation. See Ratner (n 20) 525–527.

227 There are two key extracts from the Continental award in this respect:

‘The Tribunal will look … to alternatives to the Measures, not in breach of the BIT, that might have been reasonably available when the Measures challenged were taken (thus from November 2001 onwards) and that would have yielded equivalent results/relief …’ (emphasis added)

‘In evaluating whether these alternatives were in fact reasonably available and would have avoided the adoption of the challenged Measures, the Tribunal is mindful that it is not its mandate to pass judgment upon Argentina's economic policy during 2001—2002, nor to censure Argentina's sovereign choices as an independent state. Our task is more modestly to evaluate only if the plea of necessity by Argentina is well-founded, in that Argentina had no other reasonable choices available, in order to protect its essential interests at the time, than to adopt these Measures.’ (emphasis added)

Continental Award (n 15) paras 198–199.

228 CMS Award (n 50) para 323.

229 See eg, Korea-Beef (n 75) para 166. There is a regrettable perception among commentators that the WTO Appellate Body's ruling in Korea-Beef endorses direct proportionality review. For an extended critique of this claim and insightful argument that the case turns on a reasonable LRM test, see Regan (n 220).

230 This is by no means an unlikely occurrence. There are parts of the Continental award (that on the whole endorses a reasonable LRM test) which veer towards full blown proportionality review. Take for example the strange election of that Tribunal, given its otherwise disciplined analytical structure, to assess ‘whether Argentina could have adopted at some earlier time different policies, that would have avoided or prevented the situation that brought about the adoption of the measures challenged’. Continental (n 18) para 198.

231 LG&E Award (n 25) para 241.

232 It is notable that the 2004 revisions to the Model U.S BIT adopts language indicating auto-interpretation on the question of a state's ‘essential security interests’ while removing the public order component of the defence. See 2004 US Model BIT, art 13, available at http://www.ustr.gov/Trade_Sectors/Investment/Model_BIT/Section_Index.html. The 2006 Peru–US Free Trade Agreement incorporates this provision in art 22.2 with an added gloss further pointing towards auto-interpretation. Footnote two provides: ‘For greater certainty, if a Party invokes art 22.2 in an arbitral proceeding initiated under Chapter 10 (Investment) or Chapter 21 (Dispute Settlement), the tribunal or panel hearing the matter shall find that the exception applies.’ Peru–US Free Trade Agreement, signed Apr 12, 2006 available at http://www.ustr.gov/Trade_Agreements/Bilateral/Peru_TPA/Final_Texts/Section_Index.html.