Embedded Liberalism and IIAs: The Future of the Right to Regulate, with Reflections on WTO Law

Abstract

The embedded liberalism of the law of the World Trade Organization (WTO) is often contrasted to a common laissez-faire liberalism of old generation investment agreements (IIAs). While WTO law broadly attempts to reconcile trade liberalisation with regulatory flexibility, old generation IIAs have been liberal instruments overly protective of investor interests at the expense of the state’s right to regulate in the public interest. But the unharnessed liberalism of these international investment treaties, although still largely persistent due to the slow reform of international investment law, progressively gives way to new more balanced instruments and a paradigm shift is witnessed towards a model that is closer to WTO law’s embedded liberalism. The chapter explores this shift in international investment law towards treaty models that radically change the landscape of the discipline, through the widespread use of exceptions for public policy measures and other provisions aiming to safeguard the state’s regulatory flexibility. The focus of the chapter is on very new investment agreements, including megaregionals, such as the 2016 Trans-Pacific Partnership (TPP), the 2016 EU-Canada Comprehensive Economic and Trade Agreement (CETA), and the under negotiation Transatlantic Trade and Investment Partnership (TTIP), and recently-adopted model bilateral investment treaties, such as the 2015 Brazilian model ‘cooperation and facilitation investment agreement’ (CFIA), and India’s 2015 model BIT. In light of these instruments, it examines how embedded liberalism and the state’s right to regulate from ‘emergent’ concepts in international investment law are becoming the quintessence of new IIAs.

Keywords: Embedded liberalism, right to regulate, international investment law, IIAs, WTO law, TTIP, CETA, TPP, Brazilian CFIAs, Indian model BIT

JEL Classification: F02, F13, F21, F53, K41, K39, K40, K10, K33, K49, K12, K19, K20, K29, H70, E22, H87, F50, F52