Study On Essential Security Interests Exceptions Provisions Under International Investment Law

The right to protect essential security interests of the state, as an exception to treaty commitments, has been well established in treaty practice. It has been expressly included in international agreements, in OECD investment instruments and a number of bilateral investment treaties. In some cases, treaty provisions stating the exception are expressly limited, with the covered security interests precisely defined and circumscribed.The right of nations to defend themselves is one of the oldest principles in international law. Under many international agreements, states have negotiated language which provides that even when states have entered into treaty commitments, such commitments do not prevent them from taking measures in order to protect their essential security interests.How often are provisions on essential security interests found in investment agreements? What is their scope? Is the state entitled to be the sole judge for invoking these provisions, i.e. are they self-judging? Is there relevant customary international law on this issue? How have arbitral tribunals interpreted essential security provisions? How does china deal with exceptions related to the protection of essential security interests in international investment agreements?The history of Essential Security Exceptions Provisions reaches back far beyond Argentina's BIT concluded in the 1980s and 1990s. Essential Security Exceptions Provisions were regular elements of U.S. Friendship, Commerce, and Navigation (FCN) treaties beginning in the post-war II era.The Essential Security Exceptions Provisions in the U.S.- Nicaragua FCN treaty was raised before the International Court of Justice (ICJ) in the 1984 Nicaragua case and an equivalent clause in the U.S.-Iran Treaty of Amity played an important part in the Oil Platforms case. Essential Security Exceptions Provisions migrated from the early FCN treaties to the international investment regime beginning with the establishment of the German BIT program in the late 1950s. The first known investment treaty with an Essential Security Exceptions Provisions was Germany's first BIT, which was concluded with Pakistan in 1959, and Essential Security Exceptions Provisions can be found in nearly every subsequent German BIT. Likewise, the first ever U.S. BIT, concluded with Panama in 1982, contained an Essential Security Exceptions Provisions Again, each subsequent U.S. BIT has contained such a clause.Though BITs have been the subject of considerable academic inquiry, the Essential Security Exceptions Provisions are relatively wide-spread in the legal regime governing international investment.They appear regularly in the BIT of states that play a major role in the international financial system, such as Germany, India, the Belguim-Netherlands and Luxembourg Economic Union, Canada, and the United States. They also arise sporadically in particular BIT relationships of numerous other states. Of the 2000 BITs presently in force, Essential Security Exceptions Provisions appear in at least 200 such treaties.The prevalence of Essential Security Exceptions Provisions in BIT has significant implications for the international investment regime more generally. BITs have long been understood as extremely strong"legalized"instruments of investor protection, providing far-reaching guarantees for cross-border investment. For example, the U.S. Senate Foreign Relations Committee report affirmed that the"principal purpose of the bilateral investment treaties is to encourage and protect U.S. investment in developing countries". Yet, the presence of Essential Security Exceptions Provisions in BIT suggests that those protections do not apply in exceptional or crisis situations, when international investments are at most risk. The traditional understanding of BIT is that host states commit through such treaties not to injure foreign investors or, at least, to bear the costs if they do.Essential Security Exceptions Provisions perform a risk-allocation function, transferring the costs of harming an investment from host states to investors in exceptional circumstances. Under BIT that include Essential Security Exceptions Provisions, the state must compensate investors for harms that breach the treaty in ordinary circumstances, but in exceptional circumstances, such as the Argentine financial crisis, Essential Security Exceptions Provisions transfer those risks to the investor, and the state will not be liable for actions that would ordinarily breach the BIT. In an ever more globalized world in which the very kinds of exceptional circumstances covered by Essential Security Exceptions Provisions—financial crises, terrorist threats, and public health emergencies—are all too common, Essential Security Exceptions Provisions fundamentally limit the legal regime protecting foreign investors.The interpretation and application of Essential Security Exceptions Provisions will therefore prove critical to determining both state freedom to respond to exceptional circumstances and the scope of investment protections accorded under BIT. Arbitral awards have recently been handed down by ICSID panels in the first four of the many cases brought against Argentina under the U.S.-Argentina BIT as a result of the economic crises. The four tribunals, however, took diametrically different approaches to the Essential Security Exceptions Provisions of the U.S.-Argentina BIT. On identical facts, two tribunals found the Essential Security Exceptions Provisions inapplicable and held Argentina liable for damages to investors in breach of the BIT. The other two tribunals found Argentina's invocation of the clause justified and held Argentina not liable for harms to investors caused during the period of necessity created by the economic crisis. The split decisions of these tribunals raise important questions about the interpretation and application of Essential Security Exceptions Provisions.The importance of the Argentina cases for the future of investor-State arbitration can hardly be exaggerated. The four awards issued to date have adopted wildly inconsistent approaches to the most important politico-legal question raised in these cases. Namely, were the measures adopted by Argentina to meet the economic crisis"necessary"to preserve public order and security, and therefore"non-precluded measures"under Article XI of the U.S.-Argentina BIT? Four tribunals answered this question directly: two accepted Argentina's"necessity"defense;the other two rejected it. For readers of this special issue, this series of awards deserves attention, not least, because it has placed the choice of adopting a mature version of the proportionality framework squarely on ICSID's agenda. Being deeply political, these challenges are not purely doctrinal.The Argentine cases raise crucial issues,How should arbitral tribunals resolve clashes between investors' rights, on the one hand, and a State's interest or duty to respond to economic crisis, on the other? I argue that adopting proportionality would give ICSID tribunals important advantages in coping with investor-State arbitration. How much freedom do Essential Security Exceptions Provisions give states to take actions in extraordinary circumstances that would otherwise breach a BIT? Are BIT really as strong a form of investor protection as they have been understood to be? In what sorts of situations can such clauses be invoked? What are the consequences of Essential Security Exceptions Provisions for states and investors in terms of liability and compensation? Ultimately, should states or investors bear the risks and costs of actions by states to respond to extraordinary circumstances?The article consists of six chapters and is organized as follows:In chapter 1, it outlines international investment law, include its content system and its Sources of law, it analyzes the trend of the international investment law. And, it outlines the essential security exceptions provisions in international investment law. Include its definitions and characteristics. Then, analyzes its formation and functions, its legal basis, and introduces in what sorts of situations can such clauses be invoked? Ultimately, it analyzes the influence of the interpretation and application of the essential security exceptions provisions.In chapter2, it briefly introduces the background and development of the essential security exceptions provisions in America. Then it specifically introduces content of the provisions. And it analyzes the value and defect of the essential security exceptions provisions in America.In chapter3, it briefly introduces the essential security exceptions provisions of NAFTA. Then it analyzes several typical cases related of such provisions. Ultimately, it analyzes the value and defect of the essential security exceptions provisions in NAFTA. In chapter4, it briefly introduces the essential security exceptions provisions of EU. Then it analyzes several typical cases related of such provisions. Ultimately, it analyzes the value and defect of the essential security exceptions provisions in EU.In chapter5, it introduces the content of the essential security exceptions provisions of ICSID, reviews four cases of Argentina. Then, summarizes the reasons of the different awards .Ultimately, analyzes the problems of such provisions between Argentina and America BIT in arbitration.In chapter6, it introduces the content of the essential security exceptions provisions of China, reviews its value and defect. Then it analyzes the BIT negotiation between China and America. And it summarizes Chinese international investment. Ultimately, it provides some suggestions for Chinese international investment law.