An Analysis Of The Prudential Carve-out In International Investment Agreements

The emergence of prudential carve-out in investment treaties is one of characteristics of the new generation of international investment agreements(IIAs),with the aim of ensuring that financial regulations taken by the host country based on its sovereignty do not violate their commitments or obligations under investment treaties.Although prudential carve-out in IIAs has been developing rapidly in recent years,its substantive rules and procedural rules are not entirely the same.Moreover,there are still no consensus on issues of the scope and conditions of application and the identification of prudential measures.So,this article is divided into four chapters to dissect the prudential carve-out under the background of IIAs.The main contents are as follows:Chapter ? is an overview of prudential carve-out in IIAs.It considers that financial prudential measures of states may violate their obligations or commitments under IIAs and are likely to arouse investment disputes,thus revealing reasons for the incorporation of the prudential carve-out into IIAs.In addition,this chapter introduces the elements of prudential carve-out and its development in IIAs.Chapter ? presents the prudential carve-out in IIAs from three aspects:the schema,the entity and the procedure.Schemata of prudential carve-out include generalization,mutatis mutandis and comprehensiveness.In the aspect of substantive rules,prudential carve-out shows two styles of different degrees of temperament,and IIAs also have financial exception rules related to capital transfers and financial policies.As for procedural rules,different from general investment dispute settlement procedures,IIAs set up a series of special dispute settlement procedures involving the invocation of prudential carve-out.Chapter ? discusses specific application of prudential carve-out in IIAs,including the scope and conditions of its application,dispute settlement procedures,and the cohesion between terms.when discussing specific application of prudential carve-out,we should consider characteristic factors of IIAs which involve investment access model of "negative list",broad definition of investment and the private claims right.Then this chapter draws several conclusions as follows:firstly,as a general exception,prudential carve-out shall be applied to all kinds of investments covered by IIAs and the capital transfer;secondly,preferring to arrange prudential carve-out as a self-judging clause,meanwhile,prudential measure shall be adopted or maintained in good faith to avoid abuse of prudential carve-out;thirdly,when host country invokes prudential carve-out,prudential measures of host country should not be required to be necessary,nor should be required to meet non-discriminatory conditions;in addition,procedures of dispute settlement concerns prudential carve-out should pay attention to the relationship between the state-state consultation and the investor-state arbitration.Finally,it emphasizes the correlation between the prudential carve-out and definition terms and transparency clauses in investment treaties.Chapter ? is about the prudential carve-out arrangement in Chinese investment treaties and gives some recommendations to improve it.Based on previous analysis and the current situation of China,this article provides the following recommendations.First,it's necessary to set up the detailed and elaborate prudential carve-out arrangement.Second,arranging reasonable prudential carve-out in order to balance interests of investors and host countries.Third,the application of the scope of MFN clause should exclude the prudential carve-out.