Public interest is one of the most common exceptions/defences used by States, although there is not a uniform definition of public interest under international law provisions or customary international law.¹

States may invoke public interest as a defence against an investor’s claims for breach of treaty standards of protections (e.g., Fair and equitable treatment, National treatment, or unlawful expropriation) to justify “regulation[s] with a basis other than a state of necessity, national security or the public order.”² Public interest exceptions may also be incorporated into treaties to safeguard the state’s ability to regulate. See further State regulatory power; Police powers.

Public interest exceptions/defences commonly cover the areas, among others, of (i) environment;³ (ii) health;⁴ (iii) labour rights;⁵ (iv) culture;⁶ (v) taxation or financial services⁷ (vi) public morals;⁸ and (vi) social or consumer protection.⁹

State regulatory power on the relationship between the State’s right to regulate and different standards of protection including expropriation, fair and equitable treatment, full protection and security, etc.

Police powers, Regulatory expropriation and Right to regulate in expropriation for a specific analysis on the State’s right to regulate under expropriation claims.

Customary international law and investment treaties (in particular, bilateral investment treaties) may provide for Public Interest exceptions.¹⁰ The reach of such provisions may vary significantly from treaty to treaty.¹¹

Treaties may contain explicit references and refer to (i) States’ the right to regulate to protect the environment)¹² or (ii) positive obligations by which investors should abide (e.g., corporate social responsibility obligations).¹³ Increasingly, investment agreements contain exceptions that incorporate or resemble the general exceptions provided by GATT, Article XX, and GATS, Article XIV-bis.¹⁴

Treaties may also contain unqualified,¹⁵ or implicit¹⁶ references. While the determination of the scope of unqualified exceptions requires a case-by-case assessment, the scope of implicit public interest exceptions can be derived from other elements or from the wording of more general treaty provisions.¹⁷

References to the public interest may also be incorporated in the preamble of an investment treaty,¹⁸ such as providing that “investment protection is to be realised without compromising public policy objectives.”¹⁹ Although such an incorporation in the preamble of an investment treaty does not grant States any specific right to regulate, it may serve as an interpretative tool for tribunals when assessing the legality of a State’s challenged measure.²⁰

Where treaty provisions do not explicitly mention the State’s right to regulate, some tribunals have relied on customary international law as well.²¹

When States raise a defence based on public interest, tribunals have mainly taken into account the following two considerations:

Since customary international law as well as express treaty provisions allow States to regulate in the public interest, tribunals have taken care to give deference to the State’s decision to regulate²² but have confirmed that this right is not absolute.²³ See further Section IV.B. below. 

In the context of national security clauses, tribunals have found that States may “derogate from an international obligation based on unilateral considerations” if this is expressly provided for in the treaty (self-judging clauses).²⁴ However, when the applicable treaty contains a compromissory clause or if the relevant provision is conditioned (e.g., by subjecting the application of the provision to non-discriminatory treatment), tribunals tend to consider that it is not self-judging, thus submitting the regulations to review.²⁵ Tribunals have also posited that even if arguendo the provision could be considered self-judging, the regulation at stake would be subject to a good faith review.²⁶ See further Necessity.

If the investor claims that the State has interfered with its rights, tribunals have usually engaged in a proportionality analysis to balance investors' rights under the investment agreement with the host State’s sovereign right to implement public Interest reforms.²⁷ Furthermore, tribunals have held that the State’s conduct should be bona fide and not “manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination”;²⁸ and that the State should not “unreasonabl[y] or inequitabl[y] exercise [...] its legislative power”.²⁹

See further State Regulatory Power, Section III for a detailed overview of the criteria tribunals take into consideration with regards to regulations and Police powers, Section III for a specific analysis on criteria used for expropriation claims.

Investors have prevailed, inter alia, in cases concerning:

• the introduction of restrictive tender requirements for frequencies and broadcasting;³⁰
• specific measures in the context of broad economic reforms;³¹ and
• denial of permits for socio-political concerns (as opposed to genuine public Interest).³²

Tribunals have instead upheld States’ public interest defences, based either on specific treaty provisions, customary international law or implicit obligations stemming from the text of the relevant treaty, in support of among others:

• gambling industry regulations based on general public interest;³³ 
• tobacco industry regulations based on the protection of public health;³⁴ 
• public parking regulations based on the protection of culture;³⁵ and
• gasoline manufacturing regulations based on the protection of the environment.³⁶

In accepting or rejecting amicus curiae petitions from third parties, tribunals tend to assess whether the petitioner addressed matters of public interest.³⁷ See further Amicus curiae, Sections IV and V.

Tribunals have also taken care to consider whether the granting of provisional measures would infringe on a State’s sovereignty and public interests.³⁸ 

Tribunals may choose to keep arbitration documents confidential in the name of public interest.³⁹ See further Transparency in investor-State arbitration; Confidentiality.

Arcuri, A. and Montanaro, F., Justice for all? Protecting the public interest in investment treaties, Boston College Law Review, Vol. 59, Issue 8, 2018, pp. 2791-2824.

Bonzon, A., Balance between investment protection and sustainable development in BITs, Journal of World Investment & Trade, Vol. 15, Issue 5-6, 2014, pp. 809-826.

Cai, L., Where does China Stand: the Evolving National Treatment Standard in BITs, Journal of World Investment & Trade, Vol. 13, Issue 3, 2012, 373-389.

Choudhury, B., Exception provisions as gateway to incorporating human rights issues into international investment agreements, Columbia Journal of Transnational Law, Vol. 49, Issue 3, 2011, pp. 670-716.

Gibson, C. H., Beyond self-judgment: Exceptions clauses in US BITs, Fordham International Law Journal, Vol. 38, Issue 1, 2015, pp. 1-56.

Giest, A., Interpreting Public Interest Provisions in International Investment Treaties, Chicago Journal of International Law, 2017,  pp. 321, 337-338.

Henckels, C., Should Investment Treaties Contain Public Policy Exceptions, Boston College Law Review, 2018, p. 2825-2844. 

Kingsbury, B. and Schill, S.W., Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest: The Concept of Proportionality, in Schill, S.W. (ed.), International Investment Law and Comparative Public Law, 2010, pp. 75, 78.

Martinez-Fraga, P.J. and Reetz, R.C., Public Purpose in International Law: Rethinking Regulatory Sovereignty in the Global Era, 2015, p. 126. 

Sappideen, R., and He, L. L., Dispute Resolution in Investment Treaties: Balancing the Rights of Investors and Host States, Journal of World Trade, 2015, pp. 85, 112. 

Sauvant, K.P. and Ong, M., with Lama, K., and Petersen, T., The rise of self-judging essential security interest clauses in international investment agreements, Columbia FDI Perspectives No. 188, 5 December 2016, pp. 1-8. 

Schill, S.W., Briese, R., “If the State Considers”: Self-Judging Clauses in International Dispute Settlement, Max Planck Yearbook of United Nations Law, 2009, pp. 61-140. 

Schill, S.W., and Djanic, V., Wherefore Art Thou? Towards a Public Interest-Based Justification of International Investment Law, ICSID Review-Foreign Investment Law Journal, 2018, pp. 29, 43.

Sinha, A., Non-precluded measures provisions in bilateral investment treaties of South Asian countries, Asian Journal of International Law, Vol. 7, Issue 2, 2017, pp. 227-263.

Titi, C., The Right to Regulate in International Investment Law, Studies in International Investment Law, 2014, p. 101.

Wang, W., The Non-Precluded Measure Type Clause in International Investment Agreements: Significances, Challenges, and Reactions, ICSID Review, 2017, pp. 447-456.