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Published online by Cambridge University Press:  03 July 2020

Caroline Henckels*
Monash University,


The dyadic rule–exception structure common to many legal systems has posed particular interpretive difficulties in international trade and investment law. Adjudicators have interpreted general and security exceptions in GATT, GATS and cognate provisions of investment treaties in divergent ways, and the analytic character of these provisions is under-theorised in the literature. This article argues that we should understand exceptions from a deontological perspective as permissions that affirm governmental regulatory capacity and thus limit the scope of the commands set out in the treaty. This characterisation of exceptions has both symbolic and practical implications, of which this article discusses two: determining the exception's applicability as a preliminary matter rather than as a defence, which would in turn permit consideration of regulatory purpose at the point of obligation; and whether the applicability of an exception is properly a question of merits or jurisdiction.

Copyright © The Author(s) 2020. Published by Cambridge University Press for the British Institute of International and Comparative Law

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I am very grateful to Federica Paddeu for many conversations that inspired my interest in these issues. Earlier versions of this article were presented at events including the Society of International Economic Law Conference, Washington DC (2018), the Investment Law and Policy Workshop, University College London (2018) and the Monash-Warwick Alliance Workshop, University of Warwick (2017). For helpful comments and discussions, I also thank in particular Jonathan Bonnitcha, Tomer Broude, Eric de Brabandere, Patrick Emerton, Lise Johnston, Jan Kleinheisterkamp, Gabrielle Marceau, Andrew Newcombe, Federico Ortino, Mona Pinchis-Paulsen, Lauge Poulsen, Ira Ryk-Lakhman, Elizabeth Sheargold, Geraldo Vidigal, Markus Wagner and Michael Waibel. Any errors are mine.


1 See eg Pelc, K, Making and Bending International Rules: The Design of Exceptions and Escape Clauses in Trade Law (Cambridge University Press 2016) 2CrossRefGoogle Scholar.

2 Aaken, A van, ‘International Investment Law Between Commitment and Flexibility: A Contract Theory Analysis’ (2009) 12 JIEL 507Google Scholar, 509; Aaken, A van, ‘Smart Flexibility Clauses in International Investment Agreements: A Functional View’ (2014) 15 Journal of World Investment and Trade 827, 829–30Google Scholar.

3 Kurtz, J, The WTO and International Investment Law: Converging Systems (Cambridge University Press 2016) 169CrossRefGoogle Scholar.

4 See Hart, HLA, The Concept of Law (Clarendon Press 1961) 94Google Scholar.

5 Broude, T, ‘Genetically modified rules: the awkward rule exception–right distinction in EC–Biotech’ (2007) 6 World Trade Review 215CrossRefGoogle Scholar; Grando, M, Evidence, Proof and Fact-Finding in WTO Dispute Settlement (Oxford University Press 2010)Google Scholar.

6 Henckels, C, ‘Scope Limitation or Affirmative Defence? The Purpose and Role of Investment Treaty Exception Clauses’ in Bartels, L and Paddeu, F (eds), Exceptions in International Law (Oxford University Press 2020 forthcoming)Google Scholar; Henckels, C, ‘Should Investment Treaties Contain Public Policy Exceptions?’ (2018) 59 BCLRev 2825Google Scholar.

7 But see F Paddeu, Justification and Excuse in International Law: Concept and Theory of General Defences (Cambridge University Press 2018), discussing the concepts of justification (including its relationship to permission) and excuse as they pertain to the circumstances precluding wrongfulness at international law), and the contributions in Bartels and Paddeu (n 6).

8 H Kelsen, General Theory of Norms (Oxford University Press 1991); H Kelsen, ‘Derogation’ in Ralph Newman (ed), Essays in Jurisprudence in Honor of Roscoe Pound (Bobbs-Merrill 1962) 339–55.

9 Including investment chapters in preferential trade agreements.

10 eg Singapore–United Arab Emirates Bilateral Investment Treaty (BIT) art 2.4 provides that ‘Concessions to search for, cultivate, extract or exploit energy resources in the energy resources sector shall not be covered by this Agreement.’

11 eg Canada–Senegal BIT annex 1 provides a list of sectors in relation to which Canada reserves the right to adopt of maintain non-conforming measures, including telecommunications services and ‘the rights or preferences provided to socially or economically disadvantaged minorities’.

12 eg Agreement on the Application of Sanitary and Phytosanitary Measures art 3.3 permits governments to deviate from the obligation to base measures on relevant international standards ‘if there is a scientific justification, or as a consequence of the level of sanitary or phytosanitary protection a Member determines to be appropriate in accordance with the relevant provisions of paragraphs 1 through 8 of Article 5’. See also eg United States (US) Model Bilateral Investment Treaty (BIT) 2012 annex B: ‘except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives such as public health, safety and the environment, do not constitute indirect expropriations’.

13 F Schauer, ‘Rules, Defeasibility, and the Psychology of Exceptions’ in Bartels and Paddeu (n 6) (on file with author). See also CO Finkelstein, ‘When the Rule Swallows the Exception’ in L Meyer (ed), Rules and Reasoning – Essays in Honor of Fred Schauer (Hart 1999) 147, 150: an exception ‘stands outside the rule it qualifies’; that is, ‘a qualification included in a statement of the rule is not properly speaking an exception to it’.

14 An obvious example being the investment treaty obligation of fair and equitable treatment. See van Aaken, ‘Smart Flexibility Clauses’ (n 2) 822–33 (noting the distinction between ‘flexibility thorough indeterminate norms’ and ‘an explicit flexibility within the treaty’).

15 See GATT art XX, GATS art XIV and eg Canada–Slovak Republic BIT art IX:1; Japan–Iran BIT art 13; Rwanda–Turkey BIT art 5.

16 GATT art XX.

17 eg ASEAN Comprehensive Investment Agreement art 17(1)(a).

18 GATT art XX(g).

19 eg Common Market for Eastern and Southern Africa Investment Agreement art 22(1).

20 eg GATT art XX: ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade ….’

21 GATT art XXI, GATS art XIV bis and eg Argentina–United States BIT art XI.

22 For example, Argentina–US BIT art XI provides that ‘this Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests’. See also eg art 12 Germany–India BIT (1995): ‘Nothing in this Agreement shall prevent either Contracting Party from applying prohibitions or restrictions to the extent necessary for the protection of its essential security interests.’

23 eg GATT art XXI and art XIV bis GATS art XIV bis. See also eg US Model BIT (2012) art 18(2): ‘Nothing in this Treaty shall be construed … to preclude a Party from applying measures that it considers necessary for … the protection of its own essential security interests.’

24 As the Russia – Traffic in Transit panel found, this language precludes adjudicators from engaging in analysing the ‘necessity’ of a measure in the same way as GATT art XX jurisprudence requires (ie examining proposed alternative measures that would achieve the challenged measure's objective to the same degree while having a less deleterious effect on trade). Panel Report, Russia – Measures Concerning Traffic in Transit, WT/DS512/R (5 April 2019) para 7.108. This decision is discussed further in section III.B below.

25 eg the footnote to US–Peru Trade Promotion Agreement art 22.2: ‘For greater certainty, if a Party invokes Article 22.2 in an arbitral proceeding initiated under Chapter Ten (Investment) or Chapter Twenty-One (Dispute Settlement), the tribunal or panel hearing the matter shall find that the exception applies.’ Likewise, India Model BIT annex 1 provides that where the security exception is invoked, its applicability is ‘non-justiciable’.

26 cf J Viñuales, ‘Seven Ways of Escaping a Rule: Of Exceptions and Their Avatars in International Law’ in Bartels and Paddeu (n 6), <>, adopting a continuum of seven different types of exceptions that include the circumstances precluding wrongfulness at international law rather than just provisions internal to treaties.

27 See further, discussing different types of permissions, G Boella and L van der Torre ‘Permissions and Obligations in Hierarchical Normative Systems’ (2003) Proceedings of the 9th International Conference on Artificial Intelligence and Law 109.

28 See J Hage, A Waltermann and G Arosemena, ‘Exceptions in International Law’ in Bartels and Paddeu (n 6) <> 11–12, 18–19.

29 N Bobbio, Teoria della Norma Giuridica (G Giappichelli 1958), as discussed by Boella and van der Torre (n 27) 110.

30 See further K Greenawalt, ‘Distinguishing Justifications from Excuses’ (1986) 49 LCP 89; Paddeu (n 7) 27–34.

31 HLA Hart, ‘The Ascription of Responsibility and Rights’ (1949) 49 Proceedings of the Aristotelian Society 171, 174: ‘claims upon which law courts adjudicate can usually be challenged or opposed in two ways. First, by a denial of the facts upon which they are based … and secondly by something quite different, namely, a plea that although all the circumstances are present on which a claim could succeed, yet in the particular case, the claim or accusation should not succeed because other circumstances are present which brings the case under some recognized head of exception, the effect of which is … to defeat the claim or accusation altogether.’

32 An example from criminal law is the difference between a law that provides that proof of sex together with proof of the absence of consent is illegal, compared to a law that provides that proof of sex is prima facie illegal unless there is also proof of consent, raised as a defence. The latter is clearly a stronger type of prohibition than the former. See eg L Duarte d'Almeida, ‘‘‘O Call Me Not to Justify the Wrong’’: Criminal Answerability and the Offence/Defence Distinction’ (2012) 6 Criminal Law and Philosophy 227, 228.

33 See F Schauer, ‘Exceptions’ (1991) 58 UChiLRev 871, 872–3; C Foster, Science and the Precautionary Principle in International Courts and Tribunals (Cambridge University Press 2011) 214.

34 See Kurtz (n 3) 179–89: ‘One can … locate a deep symbolic reason for requiring consideration of state purpose the level of obligation where permitted by the terms of the treaty under review. There is something fundamentally mistaken in forcing a state – which, say, adopts an origin-neutral measure for a totally legitimate purpose, but which has a coincidental effect of advantaging domestic actors – to justify that measure before an international adjudicator.’

35 See J Gardner, Offences and Defences: Selected Essays in the Philosophy of Criminal Law (Oxford University Press 2007) 82, noting that justified wrongs attract ‘many types of normative consequences apart from liability to punishment’. The author's informal discussions with government officials working on WTO cases suggest that this is a keenly understood distinction.

36 Vienna Convention on the Law of Treaties art 31(1): ‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ Art 31(1) is regarded as a single rule comprising various techniques that should all be considered rather than prescribing any particular methodology or the weight to be attributed to the various factors, although the ordinary meaning of the text is the starting point. See eg R Gardiner, Treaty Interpretation (Oxford University Press 2010) 9, 141.

37 See also art XX(c) ‘relating to the importations or exportations of gold or silver’ and art XX(e) ‘relating to the products of prison labour’.

38 See Gardiner (n 35) 200: ‘Contextually, the title may be the obvious starting point for identifying the ambit of … a provision’, but ‘titles are often too general to provide precise guidance.’

39 eg the title of Canada–China BIT art 33 is ‘General Exceptions’, but the provision contains both a carve-out (art 33(1)) and an exception (art 33(2)), and the title of Comprehensive and Progressive Agreement for Trans-Pacific Partnership art 29.5 (a denial of benefits clause) is ‘Exceptions’.

40 eg US–Argentina BIT art XI (a security exception); US–Ecuador BIT art X(2) (a tax carve-out).

41 eg NAFTA art 2103; Energy Charter Treaty art 21.

42 See text accompanying fns 74, 77, 83, 98, 112 and 153 below.

43 Adapted from Finkelstein (n 13) 157, 168–9, 175.

44 ibid.

45 See I Van Damme, ‘Treaty Interpretation by the WTO Appellate Body’ (2010) 21 EJIL 605, 624, citing Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, at para 88. This layered approach can also be viewed as an exercise in contextual interpretation: examining concentric contextual circles of context surrounding the provision under interpretation in terms of art 31 VCLT: see M Huber, ‘Commentaire de l'interprétation des traités’ (1952) 44 Annuaire de l'Institut de droit international 198, 200 (author's translation). See also, in the context of the WTO, G Sacerdoti, ‘WTO Law and the “Fragmentation” of International Law: Specificity, Integration, Conflicts’ in M Janow, V Donaldson and A Yanovich (eds), WTO at Ten: Governance, Dispute Settlement and Developing Countries (Juris Publishing 2008) 595, 598. The Appellate Body has likewise employed this approach: G Cook, A Digest of WTO Jurisprudence on Public International Law: Concepts and Principles (Cambridge University Press 2015) 281.

46 Kurtz (n 3) 24.

47 J Trachtman, ‘WTO Trade and Environment Jurisprudence: Avoiding Environmental Catastrophe’ (2017) 58 HarvIntlLJ 273, 273.

48 See van Aaken, ‘Smart Flexibility Clauses’ (n 2) 859–60; F Ortino, ‘The Investment Treaty System as Judicial Review’ (2013) 24 American Review of International Arbitration 437, 439–42, both citing I Buffard and K Zemanek, ‘The “Object and Purpose” of a Treaty: An Enigma?’ (1998) 3 Austrian Review of International & European Law 311.

49 Appellate Body Report, Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (6 November 1998) para 153.

50 UNCTAD's International Investment Agreements Navigator lists 78 investment agreements (of 2577 that are mapped) as containing a preambular reference to sustainable development: see <>.

51 ibid, 223 agreements.

52 ibid, 143 agreements.

53 ibid, 45 agreements.

54 J Salacuse, The Law of Investment Treaties (2nd edn, Oxford University Press 2015) 126.

55 Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (29 April 1996) 1, 14, 16.

56 Pauwelyn suggests that WTO adjudicators ‘devote excessive attention to burden of proof’: J Pauwelyn, ‘Defenses and the Burden of Proof in International Law’ in Bartels and Paddeu (n 6) <>.

57 GATT art XI:(2)(c)(i) provides that the prohibition on quantitative restrictions ‘shall not apply’ to import restrictions in certain circumstances. I do not categorise this provision as an exception on the basis that it clarifies the scope of an obligation within the context of the clause itself. As such, it functions as an internal qualification to a rule, not an exception.

58 Appellate Body Report, United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R (25 April 1997) 17.

59 ibid, as described by Grando (n 5) 169.

60 Grando (n 5) 174–9.

61 Appellate Body Report, EC – Tariff Preferences, DS/246/AB/R (7 April 2004) para 88 (emphasis added).

62 ibid.

63 Grando (n 5) 169–73; 181–4. See also Broude (n 5) 221–7; J Pauwelyn in S Charnotivz et al., ‘Internet Roundtable: The Appellate Body's GSP Decision’ (2004) 3 WTR 239, 257.

64 GATT Panel Report, United States – Section 337 of the Tariff Act 1930, L/6439 - 36S/345 (7 November 1989) para 5.9.

65 eg Appellate Body Reports, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (29 April 1996) 22–3; United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (12 October 1998) paras 119–120; European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R (12 March 2001) para 115; Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R (11 December 2000) para 157. The only NAFTA Chapter 20 panel to have considered the issue seems to have followed this approach: United States – In the Matter of Cross Border Trucking Services, Case No. USA-MEX-98-2008-01 (6 February 2001) para 262: ‘safety measures adopted by a Party … may be justified only to the extent they are “necessary to secure compliance” with laws or regulations that are otherwise consistent with NAFTA’ (emphasis added). NAFTA art 2101:2 and GATT art XX are similarly worded.

66 Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/AB/R (17 June 2011) para 173.

67 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R (7 April 2005) para 291.

68 Copper Mesa Mining Corporation v Republic of Ecuador, PCA No. 2012-2, Award (15 March 2016) para 6.58 (art XVII Canada–Ecuador BIT).

69 eg Glanville Williams, ‘The Logic of “Exceptions”’ (1988) 47 CLJ 261, 276.

70 Canada–Peru FTA annex 812.1(c): ‘except in rare circumstances … non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives … do not constitute indirect expropriation’.

71 Canada–Peru FTA art 2201.1 (incorporating GATT art XX by reference).

72 See fns 12 and 13 above.

73 Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/2, Award (30 November 2017) paras 473–474.

74 Bear Creek v Peru (n 73) paras 475, 477. One could, however, argue that the tribunal's reference to the exception being invoked to ‘justify’ government conduct suggests the opposite, but as noted in section II.C.1 above, tribunals appear to use such terms without regard to their technical meaning.

75 Art XXI provides, in relevant part: ‘Nothing in this Agreement shall be construed … (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests …’.

76 Russia – Traffic in Transit; United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade-Related Aspects of Intellectual Property Rights (DS526); US – Certain Measures on Steel and Aluminium Products (DS544, 547, 548, 550, 551, 552, 554, 556).

77 See Appellate Body Report, Argentina – Measures Affecting the Importation of Goods, WT/DS348/AB/R (26 January 2015) para 5.220: ‘We acknowledge that certain provisions of the GATT 1994, such as Articles … XX, and XXI, permit a Member, in certain specified circumstances, to be excused from its obligations under Article XI:1 of the GATT 1994.’

78 Panel Report, Russia – Traffic in Transit (n 24).

79 Russia – Traffic in Transit (n 24) paras 7.23, 7.103. The panel concluded that the question of the applicability of the exception was not one of jurisdiction: paras 7.102–7.104.

80 ibid, para 7.24.

81 ibid, para 7.58.

82 ibid, para 7.107.

83 ibid, paras 7.31, 7.37, 7.41, 7.45 and fn 109 (Brazil, China, the EU, and Japan). The panel did, however, refer on several occasions to Russia's reliance on the exception to ‘justify any inconsistency’ with its obligations, at paras 7.238, 7.245, 7.250, 7.255, 7.256, but I suggest that the use of this word should not be afforded great weight in relation to the question of characterisation.

84 ibid, para 7.108.

85 CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/08, Award (12 May 2005).

86 Enron Corporation Ponderosa Assets L.P. v Argentine Republic, ICSID Case No ARB/01/3, Award (22 May 2007).

87 Sempra Energy International v Argentina, ICSID Case No ARB/02/16, Award (18 September 2007).

88 See CMS v Argentina, Decision of the Ad Hoc Committee on the Application for Annulment of the Argentine Republic (25 September 2007) para 129; Enron v Argentina, Decision on the Application for Annulment of the Argentine Republic (30 July 2010) paras 355–395; 400–407; Sempra v Argentina, Decision on the Argentine Republic's Application for Annulment of the Award (29 June 2010) paras 130–131, 208–209.

89 See eg J Kurtz, ‘Adjudging the Exceptional at International Investment Law: Security, Public Order and Financial Crisis’ (2010) 59 ICLQ 325, 341–51.

90 LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v Argentine Republic, ICSID Case No ARB/02/1, Decision on Liability (3 October 2006) paras 229, 257, 261.

91 El Paso Energy International Company v Argentine Republic, ICSID Case No ARB/03/15, Award (31 October 2011) para 552.

92 Others briefly mention the exception's possible characterisation as a lex specialis: CMS v Argentina, Annulment (n 88) paras 132–133. See also Bear Creek v Peru (n 73), Partial Dissenting Opinion of Professor Philippe Sands QC, para 41 (referring to the relationship between the defence of necessity and a lex specialis rule in a BIT, noting that such a lex specialis would not supplant the residual application of the defence).

93 LG&E v Argentina (n 91) paras 229, 261. See Paddeu (n 7) 8, referring to justifications as preclusions from wrongfulness and distinguishing this concept from excuses, which preclude responsibility.

94 See, developing this argument further, Henckels, ‘Scope Limitation or Affirmative Defence?’ (n 6).

95 CMS v Argentina, Annulment (n 88) para 129.

96 Continental Casualty v Argentina, ICSID Case No ARB/03/09, Award (5 September 2008) para 168.

97 ibid, paras 164, 168 and fn 236.

98 Sempra v Argentina, Annulment (n 88) para 187 (also, confusingly, referring to the provision as something that ‘excuses’ such conduct).

99 El Paso v Argentina, Award, paras 553–554.

100 Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability (10 April 2013).

101 ibid, para 1024.

102 ibid, para 1028.

103 ibid, para 1060.

104 ibid, Heading XII, at 306: ‘Are the Violations Committed by Argentina Excluded from the Scope of the BIT under Article XI?’ paras 1025, 2016.

105 Mobil v Argentina (n 100), Separate Opinion of Professor Antonio Remiro Brotons (27 March 2013) para 12.

106 Mobil v Argentina (n 100) paras 1015, 1063–1066.

107 Mobil v Argentina, Separate Opinion (n 105) paras 25–34.

108 Article 11(3) Mauritius–India BIT.

109 CC Devas v India, PCA Case No 2013-09, Award on Jurisdiction and Merits (25 July 2016) para 293, citing CMS v Argentina, Annulment (n 88) para 146.

110 CC Devas v India (n 109) para 293, citing Continental v Argentina (n 96) fn 236.

111 Deutsche Telekom v India, PCA Case No. 2014-10, Interim Award (13 December 2017) para 227.

112 ibid, para 291. Confusingly, however, the tribunal also referred to the exception as a ‘defense’ at para 337.

113 In international investment law, Henckels, ‘Should Investment Treaties Contain Public Policy Exceptions?’ (n 6) and in WTO law, Grando (n 5); B Condon, ‘Treaty Structure and Public Interest Regulation in International Economic Law’ (2014) 17 JIEL 333, 343–4.

114 Boella and van der Torre (n 27) 110–11.

115 See Broude (n 5) 228–9. Broude goes much further in arguing that the distinction is inutile. However see eg Luís Duarte d'Almeida, Allowing for Exceptions: A Theory of Defences and Defeasibility in Law (Oxford University Press 2015), arguing that the structure of norms in this way is an important phenomenon; see also Duarte d'Almeida (n 32).

116 See the discussion in section II.B.

117 See eg U Linderfalk, On the Interpretation of Treaties: The Modern International Law as Expressed in the 1969 Vienna Convention on the Law of Treaties (Springer 2007) 393; Gardiner (n 36) 180. See also Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (20 May 1996) at 23: a treaty interpreter ‘must give meaning and effect to all the terms of the treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.’

118 See, in WTO law, Condon (n 113) 342–3; in international investment law, C Lévesque, ‘The inclusion of GATT XX exceptions in IIAs: A potentially risky policy’ in R Echandi and P Sauvé (eds), Prospects in International Investment Law and Policy (Cambridge University Press 2013) 363, 366–7.

119 GATT Panel Report, United States – Measures Affecting Alcoholic and Malt Beverages, adopted 19 June 1992, GATT Doc. BISD 39S/206.

120 GATT Panel Report, United States – Taxes on Automobiles (11 October 1994) unadopted, GATT Doc DS31/R.

121 See, discussing the trajectory of reasoning in the decided cases since the creation of GATT 1947 in N DiMascio and J Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?’ (2008) 102 AJIL 48, 62–6.

122 R Hudec, ‘GATT/WTO Constraints and National Regulation: Requiem for an “Aim and Effect” Test’ (1998) 32 IntlLaw 619, 628.

123 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, paras 216, 241.

124 Panel Report, Japan – Alcoholic Beverages II, para 6.17. The other concerns were that the aims and effects approach did not have textual hook to art III:2, first sentence; and that a measure's aims were sometimes indiscernible or multifaceted and that the relevant inquiry might require consideration of legislators’ subjective motivations (which is not only difficult to prove, but is somewhat improper for an international adjudicator to inquire into): Panel Report, Japan – Alcoholic Beverages II, para 6.16.

125 In relation to the Appellate Body's point that art III:2 first sentence did not have a textual connection to art III:1, which ignores the overall tenor of the provision, which is directed at protectionism. See eg Hudec (n 127); Regan, D, and, ‘Regulatory Purpose‘Like Products’’ in art 111:4 of the GATT (With Additional Remarks on art 111:2)’ (2002) 36 JWT 443–78Google Scholar; Regan, D, ‘Further Thoughts on the Role of Regulatory Purpose under art III of the General Agreement on Tariffs and Trade: A Tribute to Bob Hudec’ (2003) 37 JWT 737Google Scholar; Porges, A and Trachtman, J, ‘Robert Hudec and Domestic Regulation: The Resurrection of Aim and Effects’ (2003) 37 JWT 783Google Scholar; Roessler, F, ‘Beyond the Ostensible – A Tribute to Professor Robert Hudec's Insights on the Determination of the Likeness of Products under the National Treatment Provisions of the General Agreement on Tariffs and Trade’ (2003) 37 JWT 771Google Scholar.

126 Howse, R, ‘The World Trade Organization 20 Years On: Global Governance by Judiciary’ (2016) 27 EJIL 9CrossRefGoogle Scholar, 47.

127 Zhou, W, ‘US – Clove Cigarettes and US – Tuna II (Mexico): Implications for the Role of Regulatory Purpose under Article III:4 of the GATT’ (2012) 15 JIEL 1075CrossRefGoogle Scholar, 1080: ‘a determination on the NT-inconsistency of origin-neutral measures without an assessment of declared policy objectives may mistakenly invalidate those measures which merely incidentally impose adverse effects on imports while genuinely serving bona fide policy objectives’.

128 See further Kurtz (n 3) 198.

129 See Mitchell, A, Heaton, D and Henckels, C, Non-Discrimination and the Role of Regulatory Purpose in International Trade and Investment Law (Edward Elgar 2016) 133CrossRefGoogle Scholar (noting other objectives that would not come within art XX).

130 In US – Gambling, the Appellate Body held that a responding government ‘need not identify the universe of less trade-restrictive alternative measures and then show that none of those measures achieves the desired objective’. Rather, a complaining government must point to an alternative measure that it asserts the responding government should have taken, at which point the responding government would be required to demonstrate that the proposed alternative would not have achieved the objective or was not otherwise feasible: paras 309, 311. See further, in relation to various types of burdens (raising, production, persuasion), Pauwelyn (n 56).

131 In Brazil – Tyres (2007), the Appellate Body held that where a measure was novel or part of a suite of interrelated interventions, a government could establish that the measure was apt to achieve its objective in future through quantitative projections or qualitative reasoning. Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres WT/DS332/AB/R (3 December 2007) paras 151, 156.

132 Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted 24 April 2012, paras 174, 182 and 215; Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted 13 June 2012, paras 215–216, 284; Appellate Body Report, United States – Certain Country of Origin Labelling (COOL) Requirements WT/DS384/AB/R, adopted 23 July 2012, paras 271–272, 293–294.

133 Appellate Body Reports, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, adopted 18 June 2014, paras 2.178–2.185. On the EC's approach, the relevance of art XX would be preserved for de jure discrimination claims and claims under other provisions such as XI: Appellate Body Report, para 2.184. On this point see also DiMascio and Pauwelyn (n 121) 87, text accompanying fn 200.

134 Trachtman (n 47) 286–7.

135 EC – Seal Products (n 133) para 5.125.

136 The upshot of this distinction is that governments enjoy more regulatory space in relation to technical regulations than other types of measures.

137 See eg, Canada–EU Comprehensive Economic and Trade Agreement art 28.3.1.

138 Kurtz (n 3) 179 notes that national treatment ‘is an area where the direction of parts of investment arbitral jurisprudence … is decidedly superior to that of the WTO’.

139 LG&E v Argentina (n 90) paras 132–139.

140 However, whether a responding government would advocate for this approach might depend not only on the strength of the complaining party's case but also on the wording of the exception: in particular, the stringency of the nexus requirement.

141 See section III.B above.

142 This scenario would also be relevant to a situation where the measure did not conform with the chapeau, although a measure that did not comply with the chapeau would, by implication, fail to comply with the ‘stems exclusively from a legitimate regulatory distinction’ test: see Mitchell et al. (n 129) 134, arguing that a measure that satisfied the TBT art 2.1 test would, by implication, ‘satisfy the Article XX chapeau’.

143 See Zhou (n 127); Trachtman (n 47) 275.

144 DiMascio and Pauwelyn (n 121) 87.

145 ibid.

146 In Korea – Beef, the Appellate Body held that WTO tribunals could, in applying a necessity test, ‘take into account the relative importance of the common interests or values that the law or regulation’ is intended to protect because ‘[t]he more vital or important those common interests or values are, the easier it would be to accept as ‘‘necessary’’ a measure designed as an enforcement instrument’ (para 162). However, it is difficult to see precisely how panels and the Appellate Body have applied this approach in the decided cases.

147 DiMascio and Pauwelyn (n 121) 87.

148 See Howse, R, ‘Managing the Interface between International Trade Law and the Regulatory State: What Lessons Should (and Should Not) Be Drawn from the Jurisprudence of the United States Dormant Commerce Clause’ in Cottier, T and Mavroidis, P (eds), Regulatory Barriers and the Principle of Non-Discrimination in World Trade Law: Past, Present and Future (University of Michigan Press 2000) 139Google Scholar; Regan, D, ‘The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause’ (1986) 84 MichLRev 1091Google Scholar.

149 Mitchell et al. (n 129) suggest, however, that a measure that apparently comes within art XX should be considered under that provision in the usual way (ie as a defence), whereas measures that do not come within art XX's scope should be considered using the ‘stems exclusively from a legitimate regulatory distinction’ test. I no longer agree with this bipartite approach.

150 Alschner, W and Hui, K, ‘Missing in Action: General Public Policy Exceptions in Investment Treaties’ in Sachs, L, Coleman, J and Johnson, L (eds), Yearbook on International Investment Law and Policy 2018 (Oxford University Press 2019, 363, 375376Google Scholar.

151 Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 art V:1(c) (acting in excess of authority).

152 ICSID Convention art 51(1)(b).

153 Republic of India v Deutsche Telekom, Swiss Federal Court, 4A_65/2018, Judgment of 11 December 2018, section 3.2.3 (author's translation). The Court referred to the exception as a ‘defence on the merits’, although it is unclear whether it considered the conceptual distinction between permission and defence. Likewise, in Ryan, Schooner & Atlantic v Poland, the investor unsuccessfully argued before the Paris Court of Appeals that the tribunal had exceeded jurisdiction by wrongly applying a taxation carve-out in the Poland–US BIT: see Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland, Judgment of the Paris Court of Appeal on Claimants’ Set-Aside Application (2 April 2019) (author's translation).

154 Treaty of Friendship, Commerce and Navigation between the United States and Nicaragua (1956) art XXI(1)(d) and Treaty of Amity, Economic Relations and Consular Rights between the United States and Iran (1955) art XX(1)(d).

155 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America), Merits, Judgment (1986) ICJ Rep 14, para 222.

156 Case Concerning Oil Platforms (Islamic Republic of Iran v United States of America), Preliminary Objection, Judgment, ICJ Rep 1996, at 811, para 20; Alleged Violations of the 1955 Treaty of Amity, Economic Relations, and Consular Rights (Islamic Republic of Iran v United States of America), Provisional Measures, Order of 3 October 2018, paras 41–42; Certain Iranian Assets (Islamic Republic of Iran v United States of America), Preliminary Objections, Judgment of 13 February 2019, para 47.

157 However, the ICJ's position on the analytic character of exceptions in these treaties remains unclear: see Henckels, ‘Scope Limitation or Affirmative Defence?’ (n 6).

158 Z Douglas, The International Law of Investment Claims (Cambridge University Press 2009) 143–50. This is not to suggest that there will not be cases in which adjudicators decline jurisdiction on the basis that there was no possible breach of the treaty on the facts pleaded; in such cases the exception is not even engaged.

159 Russia – Traffic in Transit (n 24) para 7.54.