The concept of ‘necessity’ and non-precluded measures in international investment law: three lessons from WTO tribunals
The concept of ‘necessity’ is used in many legal systems - including international investment law, international trade law and human rights law - to delimit permissible measures from prohibited measures. Analysing a measure’s necessity entails determining whether other measures are available that would achieve the objective in question, yet impact less on the protected right or interest. The most well-known examples of necessity analysis in international investment law are cases involving Argentina’s emergency measures, where tribunals determined the applicability of the non-precluded measures clause of the Argentina-United States bilateral investment treaty. So far investment tribunals' approaches to necessity analysis have not delivered consistent and analytically robust results.
Analysing whether a measure is ‘necessary’ is by no means straightforward. In generating policy options and ranking them in terms of their efficacy at achieving the relevant objective and their effect on the foreign investor, tribunals cannot avoid passing judgment in relation to regulatory design, which they may not be well-positioned to do due to their institutional limitations and lack of expertise in relation to the policy area at issue. Investment tribunals have, in general, not paid adequate attention to these limitations and have adopted a relatively strict approach to the standard of review, such as by devising alternative measures without proper consideration of their feasibility or effectiveness. However, indications of a more structured and deferential approach are emerging. In Continental v. Argentina, the tribunal was strongly influenced by the World Trade Organization’s (WTO) approach to necessity analysis. The tribunal’s recourse to WTO jurisprudence deserves further exploration: WTO tribunals have developed relatively sophisticated methods for analysing a measure’s necessity that could assist in guiding investment tribunals.
- WTO tribunals will not find a measure unlawful where the only available alternatives would impose an undue burden on the State in terms of cost or technical problems. Investment tribunals would do well to consider whether a host State could actually adopt a proposed alternative measure, taking into account the State’s resources, technical and institutional capabilities and other circumstances.
- WTO tribunals also apply a more rigorous structure to their analysis: before identifying any alternative measures, WTO tribunals ensure that the challenged measure pursues a legitimate objective and is rationally connected to it. While assessing the legitimacy of a measure’s objective may be a matter of value judgment, to refrain from doing so risks the approval of measures with protectionist or other impermissible objectives. But tribunals should approach this question with a degree of deference, as WTO tribunals have done, so as to avoid undermining the right of States to determine their own legitimate policy goals.
- WTO tribunals assess the extent to which a measure achieves or is capable of achieving its objective, in order to ensure that any approved measure is sufficiently connected to its stated purpose. They afford substantial deference in this analysis, particularly where a measure forms part of a suite of interrelated measures directed at achieving a particular objective.
WTO law provides a rich source of jurisprudence for guiding investment tribunals in their analysis of the concept of necessity. Investment tribunals’ consideration of the WTO approach to necessity analysis would go some way towards the development of an appropriate means of distinguishing lawful state conduct from breaches of investment treaty obligations, providing greater certainty for both host States and investors.
This discussion note is based on Andrew Mitchell and Caroline Henckels, "Variations on a Theme: Comparing the Concept of ‘Necessity’ In International Investment Law and WTO Law", Chicago Journal of International Law (forthcoming, 2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2157250.
See also IPFSD clauses: