Author

Ms Sudipta Purkayastha

Legal Assistant - Global Rights Compliance/United Nations International Residual Mechanism for Criminal Tribunals

Editors
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Natural Resources Exclusions

I. Introduction

1.

It is an established principle under international law that States possess permanent sovereignty over natural resources.1 However, this sovereignty may be limited by the various substantive protections granted to foreign investors under bilateral and multilateral investment treaties. 

2.

Such limitation or exclusion of treaty application may be effectuated either through a reservation (usually for multilateral treaties), or by including an unequivocal limitation clause in the treaty itself,2 having the effect of a Public Interest clause. 

II. Rationale for treaty exclusions for natural resources

3.

Treaty exclusions for natural resources direct the tribunal to assess whether the alleged treaty breach is excused on the basis of the exception. This differs from a situation where a tribunal balances the competing interests of investor protection with societal or environmental protection in determining a treaty breach, as is the case, for instance, where investment treaties simply emphasise on the importance of principles such as environmental protection and sustainable development in their preambles3 or special provisions.4 

III. Types of treaty exclusions for natural resources

4.

Natural resources exclusions may specify areas such as ownership of land; conservation of living or non-living exhaustible natural resources; protection or conservation of wild flora or fauna; and protected natural areas in the State’s territory, amongst others.5 

5.

Investment treaties may incorporate natural resources exclusions in numerous ways:

  1. Excluding the application of the treaty protections with respect to measures relating to the conservation of living or non-living exhaustible natural resources,6 with certain exceptions, inter alia, for when the measures are arbitrary or unjustifiable, or discriminatory.7 This may sometimes take the language from GATT Article XX;8
  2. Excluding the application of certain substantive protections, such as fair and equitable treatment, national treatment,9 most favoured nation treatment,10 or performance requirements11 to natural resources;
  3. Defining the scope of indirect expropriation to exclude regulatory actions taken to protect legitimate public welfare objectives, such as public health, safety, and the environment;12
  4. Excluding the application of the treaty’s dispute settlement mechanisms for the provisions regarding environmental concerns;13 or
  5. Excluding certain investments from the scope of the investment treaty protection through a general reference to legality of investments under national law. Such investments will fall outside the jurisdiction of the arbitral tribunal constituted under the treaty if compliance with domestic laws is not respected, including in the sphere of natural resources.14

Bibliography

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Gordon, K. and Pohl, J., Environmental Concerns in International Investment Agreements: A Survey, OECD Working Papers on International Investment, 2011, pp. 3-32.

Hindelang, S. and Krajewski, M. (eds.), Shifting Paradigms in International Investment Law: More Balanced, Less Isolated, Increasingly Diversified, 2016.

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Rabinowitz, R.W., Japan's Foreign Investment Law of 1950: A Natural History, 2003.

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Cosbey, A. and Mann, H., Bilateral Investment Treaties, Mining and National Champions: Making it work, International Institution for Sustainable Development, 2014

Vielleville, D.E. and Vasani, B.S., Sovereignty Over Natural Resources Versus Rights Under Investment Contracts: Which One Prevails?, Transnational Dispute Management, 2008, pp. 1-22

Viñuales, J.E., International Investment Law and Natural Resource Governance, E15 Initiative: Strengthening the Global Trade and Investment in Extractive Industries, 2015.

Yannaca-Small, K., Arbitration Under International Investment Agreements: A Guide to the Key Issues, 2010.

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