International Investment Law Symposium Online Publications

Shades of Green: Health, Safety, and Environmental Protections in China’s International Investment Agreements

Introduction:

Sixteen years ago, China succeeded in its campaign to join the World Trade Organization (“WTO”), following a series of dramatic reforms to its domestic economic system, and its assertion that global trade and international competition should benefit all States, regardless of their level of development.01China Joins the WTO – At Last, BBC News (Dec. 11, 2001), http://news.bbc.co.uk/2/hi/business/1702241.stm (supporting new trade negotiation rounds “on the basis of full consideration of the interests and reasonable requests of developing countries”). The very next day, China signed a new Bilateral Investment Treaty (“BIT”), a type of International Investment Agreement (“IIA”) in which two States mutually agree to promote and protect investments made within their territory by investors of the other State.02International Investment Agreements Navigator, UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA (last visited May 3, 2016). States who sign these IIAs consent to arbitrate investment-related disputes brought by individuals of the other contracting State, in a process independent of the domestic legal system, and frequently governed under the International Centre for Settlement of Investment Disputes (“ICSID”)03Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar. 18 1965, 575 UNTS 159 [hereinafter Washington Convention]. or United Nations Commission on International Trade Law (“UNCITRAL”)04Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Jun. 7 1959, 330 U.N.T.S. 38 [hereinafter New York Convention]. arbitration framework. Since its entry into the WTO, China has displayed a renewed focus toward the IIA regime, entering into forty-one BITs (twenty-eight of which are currently in-force), and even negotiating a trilateral investment treaty to promote an integrated and stable standard for foreign investment treatment.05China – Bilateral Investment Treaties (BITs), UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/42 (last visited May 3, 2016).

Although the IIA regime’s effects have been uneven overall, the system has the potential to greatly accelerate a State’s economic development, encouraging Foreign Direct Investment (“FDI”) flows and bringing capital, technology, skills, employment, and market access to States which may not be able to cultivate a sufficiently attractive investment environment absent such public international assurances.06Lisa E. Sachs & Karl P. Sauvant, BITs, DTTs, and FDI flows: An Overview, in The Effect of Treaties on Foreign Direct Investment xxvii, lx (Lisa E. Sachs & Karl P. Sauvant ed., 2009). This result is consistent with the ICSID Convention’s objective to promote “international cooperation for economic development” through the use of “private international investment.”07Washington Convention pmbl.

But the forces of globalization and international trade are not unassailable, and many critiques were emphatically raised in the New International Economic Order, a non-binding declaration designed “to eliminate the widening gap between developed and the developing countries and ensure steadily accelerating economic and social development.”08Declaration on the Establishment of a New International Economic Order, G.A. Res. 3201(VI), pmbl. U.N. Doc. A/3201 (May 1, 1974). The proposed reforms focused on reasserting meaningful control over natural resources, domestic regulations, economic policies, and foreign firm operations within the host State, free from the international system’s purportedly asymmetric State sovereignty restrictions.09Ruth Gordon, The Dawn of a New, New International Economic Order?, 72 Law & Contemp. Probs. 131, 142–43 (Fall 2009). Even today, the overwhelming majority of FDI flows to least-developed States remain devoted to natural resource extraction, a “race to the bottom” practice which does little to promote long-term economic development while frequently compromising the host State’s regulatory sovereignty and endangering its health, safety and local environment, all in pursuit of greater and more secure home State investment returns.10See United Nations Conference on Trade and Development, World Investment Report, Transnational Corporations And The Infrastructure Challenge 10–11 (2008).

Fortunately for developing States, the winds are shifting; a progressively greater portion of recent IIAs now include provisions which begin to address the effects of international investment protections on the host State, and specifically seeking long-term sustainability in the areas of health, safety, and the environment.11Chunbao Liu, The Evolution of Chinese Approaches to IIAs, in IMPROVING INTERNATIONAL INVESTMENT AGREEMENTS 59, 72–74 (Armand de Mestral ed., 2013). The gradation of these “health, safety, and environment” clauses vary, but generally speaking, they either (1) appear in the IIA’s preamble, promoting protection of health, safety and the environment as desirable, non-binding objectives, (2) appear in the IIA’s text as a “carve-out” to a specific international investment protection standard, potentially justifying an otherwise-nonconforming activity, or (3) appear in the IIA’s text as a “general exception,” reserving full sovereignty to the host State seeking to regulate in the interests of health, safety, or the environment, regardless of the potential effects to home State investment protections.12Id.

Here, China is no exception: While it remains a net FDI-importing State, China has blossomed into the largest exporter and second largest importer of goods in the world, having experienced a massive annual real GDP growth rate of 6–8% since joining the WTO.13Axel Berger, The Politics of China’s Investment Treaty-Making Program, in The Politics of International Economic Law 162, 168–69 (Tomer Broude et al. eds, 2011); The World Factbook: China, Central Intelligence Agency (Apr. 27, 2016), https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html (citing figures between 6.6% and 7.3%). Given its rapid growth and increasing role as a FDI-exporter, it is natural to ask how China’s IIA practices have evolved in the years following its ambitious vision to harmonize the disparate forces of investment protection and host State sovereignty. Have China’s IIA practices demonstrated a respect for key domestic policy objectives, such as regulating in the interests of sustainability in the areas of health, safety and the environment, or have they instead demonstrated a pursuit of greater returns and heightened protections of foreign investments at the expense of these domestic goals?14Liu, supra note 11, at 72–73.

This article will examine the text of each publicly-available IIA signed by China since joining the WTO, specifically tracking the presence and evolution of clauses which promote domestic sovereignty over issues of health, safety, and the environment. Of the thirty-two available IIAs,15China – Bilateral Investment Treaties (BITs), UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/42 (last visited May 3, 2016). twenty-one lack any reference to “health,” “safety,” or the “environment,” and will not be discussed further here.16Specifically, Chinese BITs conducted with Myanmar, Bosnia-Herzegovina, Cote d’Ivoire, Djibouti, Benin, Latvia, Uganda, Tunisia, Finland, North Korea, Belgium-Luxembourg, Spain, Czech-Republic, Russia, India, Korea, France, Mexico, Switzerland, Mali, and Malta. However, the eleven remaining investment treaties provide a unique lens by which to view China’s evolving understanding and growing commitment towards these issues, and they effectively illustrate the trend of using investment treaties as a tool to advance global standards and promote reforms with effects reaching beyond the investment world. This article will focus on nine Chinese BITs currently in-force (Trinidad & Tobago, Guyana, Germany, Madagascar, Portugal, Colombia, Uzbekistan, Canada, and Tanzania),17Agreement on the Promotion and Protection of Investments, China-Trin. & Tobago, July 22 2002, available at http://tfs.mofcom.gov.cn/article/h/bk/201002/20100206785133.shtml [hereinafter Trinidad-Tobago BIT]; Agreement on the Protection and Protection of Investments, China-Guy., Mar. 27 2003, available at http://tfs.mofcom.gov.cn/article/h/bk/200405/20040500218589.shtml [hereinafter Guyana BIT]; Agreement on the Encouragement and Reciprocal Protection of Investments, China-Ger., Dec. 1 2003, available at http://tfs.mofcom.gov.cn/aarticle/h/au/201001/20100106725086.html [hereinafter Germany BIT]; Accord sur la Promotion et la Protection Réciproques des Investissements, China-Madag., Nov. 21 2005, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/758 [hereinafter Madagascar BIT]; Agreement on the Encouragement and Reciprocal Protection of Investments, China-Port., Dec. 9 2005, available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206775363.html [hereinafter Portugal BIT]; Bilateral Agreement for the Promotion and Protection of Investments, China-Colom., Nov. 22 2008, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/720 [hereinafter Colombia BIT]; Agreement on the Promotion and Reciprocal Protection of Investments, China-Uzb., Apr. 19 2011, available at http://tfs.mofcom.gov.cn/article/h/au/201111/20111107819511.shtml [hereinafter Uzbekistan BIT]; Agreement for the Promotion and Reciprocal Protection of Investments, Can.-China, Sept. 9 2012, available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/china-text-chine.aspx?lang=eng [hereinafter Canada BIT]; Agreement Concerning the Promotion and Reciprocal Protection of Investments, China-Tanz., Mar. 24 2013, available at http://english.mofcom.gov.cn/article/bilateralchanges/201309/20140928170911164.doc [hereinafter Tanzania BIT]. one trilateral investment treaty (China-Japan-Korea),18Agreement for the Promotion, Facilitation and Protection of Investment, China-Japan-S. Kor., May 13 2012, available at http://www.mofa.go.jp/announce/announce/2012/5/pdfs/0513_01_01.pdf [hereinafter China-Japan-Korea IIA]. and one Chinese BIT which has been signed but is not yet in-force (Turkey).19Yatırımların Karşılıklı Teşviki ve Korunmasına İlişkin Anlaşma, China-Turk., July 29 2015, available at http://www2.tbmm.gov.tr/d26/1/1-0691.pdf [hereinafter Turkey BIT].

Overall, China’s evolving IIA practices over the last sixteen years have furthered its WTO-era vision, forging a new generation of IIAs which have progressively focused on long-term security and sustainability as critical goals, both for foreign investment returns as well as the host State’s sovereignty to regulate issues of health, safety, and the environment.20Liu, supra note 11, at 73, 75.

Treaty Interpretation under the Vienna Convention:

Before reviewing the text of China’s recent IIAs, some reference must be made to the Vienna Convention on the Law of Treaties, which governs, either as a binding international treaty or as a reflection of customary international law, the manner in which treaties are to be interpreted. While ad hoc investment tribunals recite Article 31 almost reflexively when facing a treaty interpretation dispute, the requirement that treaties be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose” still confers a great deal of interpretive discretion on tribunals.21Vienna Convention on the Law of Treaties art. 31, May 23, 1969, 1155 U.N.T.S. 331 [hereinafter VCLT]. Each tribunal brings their own subjective judicial and policy preferences to the table, and one tribunal’s “clear, common-sense” interpretation may vary widely from what another tribunal would have determined had the issue been before them; indeed, if the issues were so easily resolvable, a tribunal would not have been needed in the first place.22Andrés Sureda, Investment Treaty Arbitration 24 (2012). Of course, it is easier to outline a treaty interpretation process than to actually apply it to resolve a given dispute,23Id. at 23. especially since a treaty’s main source of “context” simply refers to its “text, including its preamble and annexes.”24VCLT art. 32.

Aware of the unpredictability and inherent risk associated with tribunal adjudications, and never knowing in advance whether a given tribunal will interpret a treaty broadly or narrowly, the contracting States have a powerful motivation to furnish treaties whose terms clearly and accurately outline their desired mutual sovereignty restrictions.25Sureda, supra note 22, at 10. In some cases, where the States’ intentions are clear, where the text at issue proposes a clear-cut rule, and where the rule is both unequivocal and mandatory, a tribunal’s discretion should be minimal at most, exercised only where necessary to maintain the legitimacy of the adjudication process.26Neil MacCormick, Legal Reasoning and Legal Theory 212–13 (1978); Sureda, supra note 22, at 11.

In other cases, States may find judicial discretion both necessary and desirable, such as where an investment treaty outlines a mere “standard of conduct,” as opposed to stating a clear-cut series of “rules.”27Sureda, supra note 22, at 9. Where the contracting States fail to clarify the meaning of a standard of conduct in an IIA, they may have decided to leave the matter to tribunal adjudication, especially where the States hold diverging notions of their substantive obligations, where a factor-analysis approach would not further the underlying goals, or where the subject matter demands further development before more specific commitments can be made.28Id. To resolve issues related to vaguely worded standards, a tribunal may, at its own discretion, attempt to strike a balance between broader policy goals and the specific text at issue in the treaty, but the tribunal is not obliged to adopt a specific balancing methodology, if indeed it elects to strike a balance at all.29Id. at 28.

The Presence and Strength of Health, Safety, and Environmental Clauses in Chinese IIAs

The first three generations of Chinese IIAs (from 1980–2000) lacked any specific references to preserving the health, safety, or environment of the host State. This is unsurprising, considering the 1997 Chinese Model BIT’s brief preamble, written in the wake of the Asian Financial Crisis, which declared the intentions of the slowly-growing State quite clearly: to “create favorable conditions for investment” and “stimulat[e] business initiative of the investors,” in order to “increase prosperity in both States.”30China Model BIT pmbl. (1997) in Norah Gallagher & Wenhua Shan, Chinese Investment Treaties, 433–37 (2009). At the time, China wanted to attract major foreign investment, but viewed the ICSID system as a threat to its sovereignty and national jurisdiction.31Liu, supra note 11, at 62, 67.

To clarify that it intended to retain domestic regulatory authority over foreign investments, even to the point of discrimination, China revised some key IIA definitions.32Id. at 66. First, China revised the meaning of a protected “investment” in its Model BIT, restricting it to assets invested “in accordance with the laws and regulations of the other Contracting Party.”33China Model BIT, supra note 30, at art. 1(1) (emphasis added). Second, China revised the National Treatment standard in its Model BIT, adding the reservation “[w]ithout prejudice to its laws and regulations.”34Id. at art. 3(2) (emphasis added). By making the National Treatment obligation contingent upon the host State’s domestic laws, China freed its legislature to enact even potentially discriminatory regulations without a home State investor successfully claiming for breach of a National Treatment duty.35Liu, supra note 11, at 66–67. These revisions, or close variants, are present in the majority of Chinese BITs signed since 2001.36E.g. Trinidad-Tobago BIT, supra note 17, at art 4(2); Madagascar BIT, supra note 17, at art. 4(1); Tanzania BIT, supra note 17, at art. 3(1). Starting with Germany, the language of select recent BITs have replaced China’s National Treatment exception with a “grandfather clause,” permitting any “non-conforming measures” that are currently in-place, as well as their “continuation or prompt renewal,” while prohibiting the introduction of new measures which may prove discriminatory.37Germany BIT, supra note 17, at ad. art. 3(a); Portugal BIT, supra note 17, at ad. art. 2(3); Canada BIT, supra note 17, at art. 8(2); Turkey BIT, supra note 19, at art. 3(3); Liu, supra note 11, at 67. Critically, while China’s most-recent BIT (Turkey) contains the grandfather clause, it also commits both States to “take appropriate steps in order to progressively remove the nonconfirming [sic] measures,” potentially signaling China’s general intent to gradually phase out discrimination exceptions over time.38Turkey BIT, supra note 19, at art. 3(3).

After joining the WTO in 2001, China did not suddenly add health, safety, and environment clauses into all of its subsequent IIAs; in fact, of the thirty-four IIAs made after 2001, only eleven include clauses on health, while nine include clauses on safety, and nine include clauses on the environment.39See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17. Generally speaking, however, both the presence and strength of China’s health, safety, and environment clauses have increased over time, and excluding the China-Japan-Korea agreement, every Chinese IIA signed since 2011 includes a specific carve-out or a general exception permitting host States to regulate in the interests of health, safety or the environment.40Id.

A Survey of Textual Changes to Health, Safety, and Environment Clauses in China’s IIAs

Phase I: Sustainability Clauses as Preambular Texts

The first direct reference to health, safety, and the environment appears in the preambular text of the 2002 Trinidad & Tobago BIT, which declares that “[the] objectives can be achieved without relaxing health, safety and environmental measures of general application.”41Trinidad-Tobago BIT, supra note 17, at pmbl. While the clause helps to clarify the intentions of the parties and provides useful aspirational language to inform the BIT context for treaty interpretation purposes, the preambular text does not create any substantive obligations for either party, nor does it provide the host State with an independent cause of action in the event that its health, safety, or environmental measures were relaxed as a result of the BIT.42Id. Despite these limitations, the addition of preambular language is significant, as it signals China’s public recognition of the need to balance sustainability and economic growth in the long-term. Compared with previous BITs conducted by Trinidad & Tobago, the relevant preambular text in China’s BIT is identical to that of the 1994 United States BIT,43Treaty Concerning the Encouragement and Reciprocal Protection of Investment, U.S.-Trin & Tobago, pmbl., Sept. 26 1994, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/2349. and it is roughly equivalent to that of the 1999 Spain BIT,44Acuerdo para la Promoción y Protección Recíproca de Inversiones, Spain-Trin. & Tobago, pmbl., July 3 1999, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/2283. but it uses far weaker language than the general exception found in the 1995 Canada BIT.45Agreement for the Reciprocal Promotion and Protection of Investments, Can.-Trin & Tobago, art. 3(a–b), Sept. 11 1995, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/639 (“[N]othing in this Agreement shall be construed to prevent a Contracting Party from adopting or maintaining measures, including environmental measures […] necessary to protect human, animal or plant life or health; or relating to the conservation of living or non-living exhaustible natural resources”). In light of the historic absence of similar language in Chinese BITs, this may suggest that China adopted the preambular text not as part of its own initiative, but rather as the result of direct negotiations with Trinidad & Tobago, whose interests were more likely geared towards sustainability.

While China did not proactively implement the new preambular language in its next BIT with Cote d’Ivoire, it did include the same preambular text in a BIT with Guyana several months later.46Guyana BIT, supra note 17, at pmbl. Compared with previous Guyanese BITs, it is the first known time that any preambular language on health, safety, and the environment was used. Further, with the exception of China-Japan-Korea, the Guyana BIT is also the last time that preambular language played a key role in China’s IIA strategy; future Chinese IIAs either provide substantive protections in the text, or they refrain from mentioning health, safety, and the environment in the agreement.47See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17. This may suggest that China’s interests in these sustainability objectives were modified by a growing desire for operational transparency and a more clearly stated declaration of the expected standard.

Phase II: Sustainability Clauses as FET, MFN, and National Treatment Carve-Outs

The first substantive obligation to address some of these sustainability objectives originates in the 2003 Protocol to the China-Germany BIT, in the form of a carve-out from Article 3’s National Treatment and Most Favored Nation standards, stating that “[m]easures that have to be taken for reasons of [. . .] public health shall not be deemed ‘treatment less favourable’ within the meaning of Article 3.”48Germany BIT, supra note 17, at ad. art. 3(a). The carve-out language used in the Germany BIT corresponds exactly to the preferred standard language on the same subject in Germany’s Model BIT.491991 German Model BIT ad. art. 3, in 11 ICSID Rev. — Foreign Investment. L.J. 221, 226 (1996). The remainder of the German Model BIT differs significantly in structure and substance from the Protocol to the China-Germany BIT, suggesting that Germany had specifically proposed inclusion of this carve-out during negotiations, and that China was either amenable to the carve-out, or was unwilling to risk its rejection. Considering China’s history of promoting State sovereignty over domestic regulatory affairs, the former case is most likely. As if to confirm China’s interest in this carve-out, two years later, in the 2005 Protocol to the China-Portugal BIT, China agreed to a carve-out exception to the National Treatment and Most Favored Nation standards which implemented language identical to the China-German BIT, despite the absence of any similar clauses or variations in any of Portugal’s prior IIAs.50Portugal BIT, supra note 17, at ad. art. 3(1).

China’s first true “health, safety, and environment” carve-out is often missed, as it appears in the 2005 Madagascar BIT, which was only executed in French and Mandarin.51Madagascar BIT, supra note 17. The BIT first lists several activities which would violate the Fair and Equitable Treatment standard, before clarifying in Article 3(2) that any measures taken for reasons of security, public order, public health/morals, and environmental protection are not considered violations.52Id. at art. 3(2) (“Les mesures prises pour des raisons de sécurité, d’ordre public et de sante publique ou de moralité et de protection de l’environnement ne seront pas considérées comme des entraves.”). When compared with previous Madagascan BITs, the Fair and Equitable carve-out language in the 2005 Chinese BIT is broader in scope but weaker in application than the “general exception” type of language used in the 2004 Mauritius BIT, which granted the domestic legislature blanket authority to enact regulations and otherwise act, but only where “necessary to protect its essential interests” in the limited areas of security, public order, the environment, public health and the prevention of diseases affecting plants and animals.53Accord de Promotion et de la Protection Réciproque Des Investissements, China-Mauritius, Apr. 6 2004, art. 3(c), available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/1952 (emphasis added). A similar issue arises in the 2005 Belgium-Luxembourg BIT, in which the guarantee of “constant protection and security” may only be overcome by the domestic legislature where the proposed regulation is both “necessary” and “related” to public health, public order, or the environment – a high standard.54Accord Concernant L’Encouragement et la Protection Réciproques des Investissements, China-Belg.-Lux., Sept. 29 2005, art. 3(2), avalable at http://investmentpolicyhub.unctad.org/Download/TreatyFile/382 (emphasis added). After considering Madagascar’s history of negotiating sustainability clauses, the prior drawbacks in Madagascan BITs, and the dissimilarity of this carve-out language to any prior agreements conducted by either China or Madagascar, it is quite possible that China took the initiative in this portion of the BIT, collaborating with Madagascar to craft a “test” carve-out clause, one which offers the broadest area of State regulatory sovereignty, bound within the limited scope of Fair and Equitable Treatment disputes.

Phase III: Sustainability Clauses as Expropriation Carve-Outs and General Exceptions

Starting in 2006, the Chinese domestic government launched its 11th Foreign Investment Plan, with a goal of “propel[ing] the utilization of foreign investments to be fundamentally converted from ‘quantity oriented’ to ‘quality oriented.’”55Gallagher & Shan, supra note 30, at 9–10. The definition of “quality orientation” included a renewed focus on “environment-friendliness” and “pay[ing] more attention to ecological construction, environmental protection, conservation and comprehensive utilization of resources and energies.”56Id. While industrialization assisted China in its development during the early 1990’s, its reliance on heavy industry had resulted in record levels of pollution in the air, water and soil, which created a growing public health and political crisis.57Air Pollution in China Is Killing 4,000 People Every Day, a New Study Finds, Guardian (Aug. 13, 2015, 9:24 PM), http://www.theguardian.com/world/2015/aug/14/air-pollution-in-china-is-killing-4000-people-every-day-a-new-study-finds. See also Air Pollution in China: Real-time Air Quality Index Map, http://aqicn.org/map/china/. The effects of this shift cannot be easily observed, as China did not sign any BITs with clauses related to health, safety, or the environment for five years (2006–2011).58See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17. The only exception was in the Colombia BIT, China’s first attempt to reframe its prior conception of sustainability clauses by articulating that the hidden threat of oppressive regulatory schemes did not lie in some speculative disparity or theoretically discriminatory treatment between domestic and foreign investors; after all, most regulatory reforms tended to affect all similar businesses operating within a State, regardless of the nationality of its investor. Instead, China advanced the proposal that oppressive regulatory schemes were primarily dangerous where they threatened to effectively deprive investors of the use of their asset through a “creeping” or indirect expropriation.59Restatement (Third) of Foreign Relations Law § 712, comment g (1987) (finding no expropriation liability for non-discriminatory, bona fide, regulations that are commonly accepted as falling within a State’s police power).

The benefit of this new conception was that it allowed China’s domestic legislature to enact regulations, even strong ones, without the looming threat of expropriation claims, provided that the regulations were created for a proper purpose and investors could still retain use of their asset, albeit at a potential reduction in profitability.60Id. Where domestic reforms follow this guideline, there are few (if any) grounds for recourse at the international level, even if the reforms are objectively unwise or clearly harmful to businesses.61Muthucumaraswamy Sornarajah, The International Law on Foreign Investment 299 (1994) (“If, each time there is a [regulatory] measure against a foreign investor, he could allege a taking in international law which needs to be compensated, regulatory measures against foreign investors could become impossible.”). Indeed, as it relates to sustainability clauses, this reformulation represented one of China’s clearest opportunities to reclaim its long-treasured State sovereignty over domestic regulations, as the State acts well within its traditional police power when it enacts regulations to improve public health, safety, and the environment.62Id. at 299 (“Obviously, infringements of property rights in controlling hazardous or environmentally sound use of property … are regulatory takings that require no compensation…It cannot be claimed by the citizens of these states that compensation is due to them when there is such regulatory intervention.”).

With this fact in mind, the majority of contemporary IIAs are overwhelmingly concerned with carve-outs to limit the definition of indirect expropriation, unless an even-broader “general exception” clause is brokered between States. For example, the 2008 Colombia BIT explicitly clarified the States’ mutual understanding that:

Non-discriminatory measures of a Contracting Party designed and applied for public purposes or social interest or with objectives such as public health, safety and environment protection, do not constitute indirect expropriation. Except in rare circumstances, such as a measure or series of measures being so severe in light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith.63Colombia BIT, supra note 17, at art. 4(2)(c).

When compared with Colombia’s prior BITs, for example with Peru, which primarily excluded matters of “public necessity or national security” from expropriation, the China-Colombia BIT provides far greater room for States to regulate in this sphere, given the vagueness of terms such as “public purposes or social interest,” as well as the low-bar that a regulation need only be “reasonably adopted” to accomplish objectives related to health, safety, and the environment (with such “objectives” stated as part of a non-exhaustive list).64Acuerdo Sobre Promoción y Protección Recíproca de las Inversiones, Peru-Colom., art. 9, 11, Nov. 12 2007, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/798. However, the Chinese-Colombia BIT is significantly more restrictive than the other Colombian BITs, and it sacrifices much in the area of general exceptions, which may only be triggered “to protect the essential security interests…where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.”65Colombia BIT, supra note 17, at art. 12. General exceptions have the potential to signal to other States that protection of foreign investment should not be the only objective of an IIA, and that external goals can be equally important as investment protections in some cases; to that extent, the restricted general exceptions clause in the Chinese BIT could have done more to advance sustainability as a normative objective.66Liu, supra note 11, at 73. Along the same lines, while other Colombian BITs begin to outline a new independent standard for health, safety, and environmental regulations, clarifying that “it is inappropriate to encourage investment by relaxing” them and that contracting States “shall not” offer to do so when encouraging investments, the Chinese BIT lacks any comparable independent standard for health, safety, and environmental regulations.67Peru-Colombia BIT, supra note 64, at art. 9(1). While the standard’s absence is striking, the reasons behind it remain unknown.

The 2011 Uzbekistan BIT features a similar indirect expropriation carve-out as the Colombia-Chinese BIT, excluding “non-discriminatory regulatory measures adopted […] for the purpose of legitimate public welfare, such as public health, safety and environment” from the definition of expropriation.68Uzbekistan BIT, supra note 17, at art. 6(3). Other Uzbekistan BITs have begun to move sustainability regulations to the area of general exceptions, although not all at once, as shown by the Uzbekistan-Singapore BIT permitting the host State to “take any action that is directed to the protection of its essential security interests, protection of public health or prevention of diseases and pests in animals or plants.”69Agreement on the Promotion and Protection of Investments, Sing.-Uzb., art. 11, Jul. 15 2003, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/3122. This discrepancy could suggest that China desired to maintain sustainability as an expropriation-specific carve-out exception and therefore resisted Uzbekistan’s trajectory in this area, or it could also suggest that Uzbekistan simply found China’s implementation of sustainability carve-outs more desirable.

Until this point, China’s BIT trajectory had evolved alongside its partner contracting States, being lenient in some cases and restrictive in others; however, the China-Japan-Korea trilateral investment treaty took several critical steps backward.70China-Japan-Korea IIA, supra note 18. The IIA begins on a promising note by restating the preambular aspirations of achieving investor returns “without relaxing health, safety and environmental measures of general application,” but unfortunately, the preamble remains the strongest text in favor of sustainability.71Id. at pmbl. While the agreement attempts to establish an independent standard for environmental protections, it merely “recognizes that it is inappropriate to encourage investment […] by relaxing its environmental measures,” and advises that contracting States “should” not do so.72Id. at art. 23. When compared with the 2012 U.S. Model BIT, the obligation in the China-Japan-Korea pact is significantly weaker, using only the aspirational language of “should,” as opposed to the U.S. Model BIT’s obligation that each State “shall ensure that it does not” waive, derogate from or offer to waive or derogate from its environmental laws, or “fail to effectively enforce those laws.”732012 U.S. Model BIT, art. 12(2), available at http://www.state.gov/documents/organization/188371.pdf. The alleged reason for such lenience in the areas of sustainability was that Japan and Korea “did not press China hard in these areas;” regardless, the final IIA remains a missed opportunity for all three parties to cultivate a regional consensus on the balance between investor protections and State sovereignty over sustainability regulations.74Jeffrey Schott & Cathleen Cimino, The China-Japan-Korea Trilateral Investment Agreement, in Toward a US-China Investment Treaty 6, 13 (2015), available at http://www.goldmansachs.com/our-thinking/pages/us-china-bilateral-investment-dialogue/multimedia/papers/toward-a-us-china-investment-treaty.pdf.

Fortunately, the 2012 Canada BIT does a great deal to return confidence in a general trend towards greater consideration of sustainability, condensing many of the recent advances into a single agreement. For example, it uses an independent sustainability standard to clarify “that it is inappropriate to encourage investment by waiving, relaxing, or otherwise derogating from domestic health, safety or environmental measures.”75Canada BIT, supra note 17, at art. 18(3). It also utilizes a general exception, explicitly reserving sovereignty of the domestic legislature over “measures, including environmental measures, [. . .] necessary to protect human, animal or plant life or health.”76Id. at art. 33(1–2). Finally, it provides an additional protection from expropriation claims by permitting nondiscriminatory measures “designed and applied to protect the legitimate public objectives for the well-being of citizens, such as health, safety and the environment.”77Id. at annex B-10. Compared with Canada’s 2004 Model BIT, the independent sustainability standard in the Chinese BIT fails to advise that States “should not” relax or derogate from their domestic health, safety, and environmental obligations, although the practical effect of such soft language is unlikely to be particularly impactful.782004 Can. Model BIT, art. 11, available at http://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf. Further, while the Model BIT fails to underscore “environmental measures” as included under its general exception provision “to protect, human, animal or plant life or health,” it also offers an alternative general exception provision for measures necessary “for the conservation of living or non-living exhaustible natural resources,” which essentially accomplishes the same purpose.79 Id. at art. 10(1)(a, c). Finally, while the expropriation portion of the Model BIT fails to include “for the well-being of citizens,” in its own limitation on potentially-expropriating activity, the fact that the Model BIT continues to characterize the sustainability goals as “legitimate public welfare objectives” suggests that the well-being language fails to have much, if any, independent effect.80Id. at annex B.13(1)(c). The presence of so many diverse and overlapping factors between IIAs suggests the commencement of a converging understanding between China and Canada, at least in relation to their BIT practices, obligations, and expectations with regards to sustainability clauses.

The 2013 Tanzania BIT mirrors the 2012 Canada BIT in many ways, featuring slight variances whose practical effects remain to be seen. Both BITs clarify that it is “inappropriate” to waive, relax, or derogate from domestic sustainability obligations, but only the Tanzania BIT advises that parties “should not” do so.81Tanzania BIT, supra note 17, at art. 10(1). Both BITs offer a general exception in the areas of health and the environment, but the Tanzania BIT’s general exception clause is broader, as it only precludes measures that “constitute a disguised restriction on international investment,” as opposed to “international trade or investment” as seen in the Canada BIT.82Compare Tanzania BIT, supra note 17, at art. 10(2) with Canada BIT, supra note 17, at annex B-10. Finally, both BITs use very similar expropriation provisions, but the Tanzania BIT restricts the “rare circumstances” limitations to situations which exceed the necessary measures for maintaining “reasonable public welfare,” a concept that China had only previously referred to in its 2011 Uzbekistan BIT.83Tanzania BIT, supra note 17, at art. 6(3); Uzbekistan BIT, supra note 17, at art. 6(3). Beyond these relatively minor changes, the substance of the agreement is very similar to that of the Canada BIT, suggesting China’s comfort with its IIA trajectory, as well as the balance struck between sustainability goals and investor protections.

The final available IIA, the 2015 Turkey BIT, represents China’s clearest formulation of the general exceptions approach to protecting health and environmental goals:

(1) Nothing in this Agreement shall be construed to prevent a Contracting Party from adopting, maintaining, or enforcing any non-discriminatory and necessary measures:
(a) designed and applied for the protection of human, animal or plant life or health, or the environment;
(b) related to the conservation of living or non-living exhaustible natural resources.84Turkey BIT, supra note 19, at art. 4.

While the Turkey BIT lacks any independent health, safety, and environmental standards advising that States “should not” waive, relax, or derogate from their domestic sustainability obligations, it is unlikely that this change, being purely advisory, will have any practical effect. Additionally, the Turkey BIT’s expropriation provision replicates the unusual clause in the Tanzania and Uzbekistan BIT, restricting the “rare circumstances” limitations to situations which exceed the necessary measures for maintaining “reasonable public welfare,” although the practical effects of this phrase also remain to be seen.85Id. at art. 5(3).

While future BITs may benefit from the addition of “safety” to the list of acceptable general exceptions, the continued persistence of the BIT’s form and overall substance from the previous Tanzania incarnation once again suggests China’s growing comfort and familiarity with its IIA position, and it reflects a slowly-growing multilateral consensus on the balance between sustainability goals and investor protections.

References   [ + ]

01. China Joins the WTO – At Last, BBC News (Dec. 11, 2001), http://news.bbc.co.uk/2/hi/business/1702241.stm (supporting new trade negotiation rounds “on the basis of full consideration of the interests and reasonable requests of developing countries”).
02. International Investment Agreements Navigator, UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA (last visited May 3, 2016).
03. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar. 18 1965, 575 UNTS 159 [hereinafter Washington Convention].
04. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Jun. 7 1959, 330 U.N.T.S. 38 [hereinafter New York Convention].
05. China – Bilateral Investment Treaties (BITs), UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/42 (last visited May 3, 2016).
06. Lisa E. Sachs & Karl P. Sauvant, BITs, DTTs, and FDI flows: An Overview, in The Effect of Treaties on Foreign Direct Investment xxvii, lx (Lisa E. Sachs & Karl P. Sauvant ed., 2009).
07. Washington Convention pmbl.
08. Declaration on the Establishment of a New International Economic Order, G.A. Res. 3201(VI), pmbl. U.N. Doc. A/3201 (May 1, 1974).
09. Ruth Gordon, The Dawn of a New, New International Economic Order?, 72 Law & Contemp. Probs. 131, 142–43 (Fall 2009).
10. See United Nations Conference on Trade and Development, World Investment Report, Transnational Corporations And The Infrastructure Challenge 10–11 (2008).
11. Chunbao Liu, The Evolution of Chinese Approaches to IIAs, in IMPROVING INTERNATIONAL INVESTMENT AGREEMENTS 59, 72–74 (Armand de Mestral ed., 2013).
12. Id.
13. Axel Berger, The Politics of China’s Investment Treaty-Making Program, in The Politics of International Economic Law 162, 168–69 (Tomer Broude et al. eds, 2011); The World Factbook: China, Central Intelligence Agency (Apr. 27, 2016), https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html (citing figures between 6.6% and 7.3%).
14. Liu, supra note 11, at 72–73.
15. China – Bilateral Investment Treaties (BITs), UNCTAD Investment Policy Hub, http://investmentpolicyhub.unctad.org/IIA/CountryBits/42 (last visited May 3, 2016).
16. Specifically, Chinese BITs conducted with Myanmar, Bosnia-Herzegovina, Cote d’Ivoire, Djibouti, Benin, Latvia, Uganda, Tunisia, Finland, North Korea, Belgium-Luxembourg, Spain, Czech-Republic, Russia, India, Korea, France, Mexico, Switzerland, Mali, and Malta.
17. Agreement on the Promotion and Protection of Investments, China-Trin. & Tobago, July 22 2002, available at http://tfs.mofcom.gov.cn/article/h/bk/201002/20100206785133.shtml [hereinafter Trinidad-Tobago BIT]; Agreement on the Protection and Protection of Investments, China-Guy., Mar. 27 2003, available at http://tfs.mofcom.gov.cn/article/h/bk/200405/20040500218589.shtml [hereinafter Guyana BIT]; Agreement on the Encouragement and Reciprocal Protection of Investments, China-Ger., Dec. 1 2003, available at http://tfs.mofcom.gov.cn/aarticle/h/au/201001/20100106725086.html [hereinafter Germany BIT]; Accord sur la Promotion et la Protection Réciproques des Investissements, China-Madag., Nov. 21 2005, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/758 [hereinafter Madagascar BIT]; Agreement on the Encouragement and Reciprocal Protection of Investments, China-Port., Dec. 9 2005, available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206775363.html [hereinafter Portugal BIT]; Bilateral Agreement for the Promotion and Protection of Investments, China-Colom., Nov. 22 2008, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/720 [hereinafter Colombia BIT]; Agreement on the Promotion and Reciprocal Protection of Investments, China-Uzb., Apr. 19 2011, available at http://tfs.mofcom.gov.cn/article/h/au/201111/20111107819511.shtml [hereinafter Uzbekistan BIT]; Agreement for the Promotion and Reciprocal Protection of Investments, Can.-China, Sept. 9 2012, available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/china-text-chine.aspx?lang=eng [hereinafter Canada BIT]; Agreement Concerning the Promotion and Reciprocal Protection of Investments, China-Tanz., Mar. 24 2013, available at http://english.mofcom.gov.cn/article/bilateralchanges/201309/20140928170911164.doc [hereinafter Tanzania BIT].
18. Agreement for the Promotion, Facilitation and Protection of Investment, China-Japan-S. Kor., May 13 2012, available at http://www.mofa.go.jp/announce/announce/2012/5/pdfs/0513_01_01.pdf [hereinafter China-Japan-Korea IIA].
19. Yatırımların Karşılıklı Teşviki ve Korunmasına İlişkin Anlaşma, China-Turk., July 29 2015, available at http://www2.tbmm.gov.tr/d26/1/1-0691.pdf [hereinafter Turkey BIT].
20. Liu, supra note 11, at 73, 75.
21. Vienna Convention on the Law of Treaties art. 31, May 23, 1969, 1155 U.N.T.S. 331 [hereinafter VCLT].
22. Andrés Sureda, Investment Treaty Arbitration 24 (2012).
23. Id. at 23.
24. VCLT art. 32.
25. Sureda, supra note 22, at 10.
26. Neil MacCormick, Legal Reasoning and Legal Theory 212–13 (1978); Sureda, supra note 22, at 11.
27. Sureda, supra note 22, at 9.
28. Id.
29. Id. at 28.
30. China Model BIT pmbl. (1997) in Norah Gallagher & Wenhua Shan, Chinese Investment Treaties, 433–37 (2009).
31. Liu, supra note 11, at 62, 67.
32. Id. at 66.
33. China Model BIT, supra note 30, at art. 1(1) (emphasis added).
34. Id. at art. 3(2) (emphasis added).
35. Liu, supra note 11, at 66–67.
36. E.g. Trinidad-Tobago BIT, supra note 17, at art 4(2); Madagascar BIT, supra note 17, at art. 4(1); Tanzania BIT, supra note 17, at art. 3(1).
37. Germany BIT, supra note 17, at ad. art. 3(a); Portugal BIT, supra note 17, at ad. art. 2(3); Canada BIT, supra note 17, at art. 8(2); Turkey BIT, supra note 19, at art. 3(3); Liu, supra note 11, at 67.
38. Turkey BIT, supra note 19, at art. 3(3).
39. See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17.
40. Id.
41. Trinidad-Tobago BIT, supra note 17, at pmbl.
42. Id.
43. Treaty Concerning the Encouragement and Reciprocal Protection of Investment, U.S.-Trin & Tobago, pmbl., Sept. 26 1994, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/2349.
44. Acuerdo para la Promoción y Protección Recíproca de Inversiones, Spain-Trin. & Tobago, pmbl., July 3 1999, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/2283.
45. Agreement for the Reciprocal Promotion and Protection of Investments, Can.-Trin & Tobago, art. 3(a–b), Sept. 11 1995, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/639 (“[N]othing in this Agreement shall be construed to prevent a Contracting Party from adopting or maintaining measures, including environmental measures […] necessary to protect human, animal or plant life or health; or relating to the conservation of living or non-living exhaustible natural resources”).
46. Guyana BIT, supra note 17, at pmbl.
47. See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17.
48. Germany BIT, supra note 17, at ad. art. 3(a).
49. 1991 German Model BIT ad. art. 3, in 11 ICSID Rev. — Foreign Investment. L.J. 221, 226 (1996).
50. Portugal BIT, supra note 17, at ad. art. 3(1).
51. Madagascar BIT, supra note 17.
52. Id. at art. 3(2) (“Les mesures prises pour des raisons de sécurité, d’ordre public et de sante publique ou de moralité et de protection de l’environnement ne seront pas considérées comme des entraves.”).
53. Accord de Promotion et de la Protection Réciproque Des Investissements, China-Mauritius, Apr. 6 2004, art. 3(c), available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/1952 (emphasis added).
54. Accord Concernant L’Encouragement et la Protection Réciproques des Investissements, China-Belg.-Lux., Sept. 29 2005, art. 3(2), avalable at http://investmentpolicyhub.unctad.org/Download/TreatyFile/382 (emphasis added).
55. Gallagher & Shan, supra note 30, at 9–10.
56. Id.
57. Air Pollution in China Is Killing 4,000 People Every Day, a New Study Finds, Guardian (Aug. 13, 2015, 9:24 PM), http://www.theguardian.com/world/2015/aug/14/air-pollution-in-china-is-killing-4000-people-every-day-a-new-study-finds. See also Air Pollution in China: Real-time Air Quality Index Map, http://aqicn.org/map/china/.
58. See Trinidad-Tobago BIT, supra note 17; Guyana BIT, supra note 17; Germany BIT, supra note 17; Madagascar BIT, supra note 17; Portugal BIT, supra note 17; Colombia BIT, supra note 17; Uzbekistan BIT, supra note 17; Canada BIT, supra note 17; Tanzania BIT, supra note 17.
59. Restatement (Third) of Foreign Relations Law § 712, comment g (1987) (finding no expropriation liability for non-discriminatory, bona fide, regulations that are commonly accepted as falling within a State’s police power).
60. Id.
61. Muthucumaraswamy Sornarajah, The International Law on Foreign Investment 299 (1994) (“If, each time there is a [regulatory] measure against a foreign investor, he could allege a taking in international law which needs to be compensated, regulatory measures against foreign investors could become impossible.”).
62. Id. at 299 (“Obviously, infringements of property rights in controlling hazardous or environmentally sound use of property … are regulatory takings that require no compensation…It cannot be claimed by the citizens of these states that compensation is due to them when there is such regulatory intervention.”).
63. Colombia BIT, supra note 17, at art. 4(2)(c).
64. Acuerdo Sobre Promoción y Protección Recíproca de las Inversiones, Peru-Colom., art. 9, 11, Nov. 12 2007, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/798.
65. Colombia BIT, supra note 17, at art. 12.
66. Liu, supra note 11, at 73.
67. Peru-Colombia BIT, supra note 64, at art. 9(1).
68. Uzbekistan BIT, supra note 17, at art. 6(3).
69. Agreement on the Promotion and Protection of Investments, Sing.-Uzb., art. 11, Jul. 15 2003, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/3122.
70. China-Japan-Korea IIA, supra note 18.
71. Id. at pmbl.
72. Id. at art. 23.
73. 2012 U.S. Model BIT, art. 12(2), available at http://www.state.gov/documents/organization/188371.pdf.
74. Jeffrey Schott & Cathleen Cimino, The China-Japan-Korea Trilateral Investment Agreement, in Toward a US-China Investment Treaty 6, 13 (2015), available at http://www.goldmansachs.com/our-thinking/pages/us-china-bilateral-investment-dialogue/multimedia/papers/toward-a-us-china-investment-treaty.pdf.
75. Canada BIT, supra note 17, at art. 18(3).
76. Id. at art. 33(1–2).
77. Id. at annex B-10.
78. 2004 Can. Model BIT, art. 11, available at http://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf.
79. Id. at art. 10(1)(a, c).
80. Id. at annex B.13(1)(c).
81. Tanzania BIT, supra note 17, at art. 10(1).
82. Compare Tanzania BIT, supra note 17, at art. 10(2) with Canada BIT, supra note 17, at annex B-10.
83. Tanzania BIT, supra note 17, at art. 6(3); Uzbekistan BIT, supra note 17, at art. 6(3).
84. Turkey BIT, supra note 19, at art. 4.
85. Id. at art. 5(3).

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