State Responsibility and Investment Protection in the Time of Pandemic
Forthcoming in Rainer Hofmann, Julian Scheu, Stephan Schill, Christian Tams (eds), Investment Protection, Human Rights, and International Arbitration in Extraordinary Times (Nomos, 2021)
38 Pages Posted: 2 Oct 2020
Date Written: October 1, 2020
To contain the spread of the global pandemic and to prevent the overburdening of their health systems, States worldwide have taken a host of previously unimaginable measures. While these measures ostensibly serve to mitigate the effects of the global pandemic, they also have an immediate impact on the commercial interests not only of domestic actors but of foreign investors. Some of these investors may feel disproportionately, or too undifferentiatedly, impacted by these policies, and therefore be drawn to the possibility of claiming on the more than 3,000 bilateral investment treaties (BITs) and regional treaties in force around the world.
Affected investors may argue, in this potential ‘new frontier’ of investment treaty claims, that there can be no reason in principle why they, through no fault of their own, should be required to bear the expense of such measures for the benefit of wider society. In answer to such claims, States may seek to rely on general doctrines of customary international law such as ‘police powers’ or ‘state of necessity’. However, a closer look at these doctrines might reveal that they are not entirely free from contradictions, and that the risk allocations on which they are premised may be in need of some refinement.
While the police powers doctrine (also referred to as the ‘right to regulate’) empowers governments to implement measures for the protection of health, often in spite of the potential adverse consequences to certain parties, it is important to ask where the boundaries of the doctrine are to be set. Is the authorization that it offers unlimited? Or does it require—perhaps in order to more clearly differentiate (non-compensable) police powers from (compensable) indirect expropriation—a proportional relationship between the public purpose fostered by the measure and the interference with the investors’ property rights? How would this apply in a global health emergency? Regarding the customary international law defence of necessity, it is well known that its 'only way' condition is interpreted comparatively strictly as an ‘only one single means’ requirement. One might wonder whether, in view of contemporary necessity situations, this interpretation is still realistic, and whether a broader approach might not prove much more appropriate? For one thing is certain: the next great risk, such as a global pandemic of similar proportions, is already on the horizon.
Keywords: global pandemic, bilateral investment treaties, international investment law, public international law, police powers doctrine, state of necessity
JEL Classification: K33
Suggested Citation: Suggested Citation