Bridging the Gap: Public Health in International Investment Agreements

I. Introduction

Does public health play a significant role in contemporary international investment law? While public health is a core element of state sovereignty, economic globalization can both enhance and challenge global health governance. On one hand, the increase in global trade and Foreign Direct Investment (hereinafter FDI) can foster the accessibility of health products and services by increasing competition, lowering costs, and expanding capacity in the health sector. On the other hand, it has determined the creation of legally binding and highly effective regimes that demand states to promote and facilitate trade and FDI. When countries pursue economic growth, their policymakers may have an incentive to lower health standards to promote FDI. By the same token, less restrictive regulatory standards may entice foreign investors. More importantly, some international investment agreements (IIAs) can be perceived as restricting state sovereignty to regulate public matters.

Conflicts can arise between the host state and foreign investors since various state regulations allegedly aimed to protect public health can interfere with foreign investments. Three examples may well illustrate the issues at stake. After Uruguay adopted anti-smoking legislation requiring that eighty percent of every cigarette package show graphic images of the consequences of smoking, Phillip Morris and other tobacco manufacturers initiated proceedings against Uruguay before an ICSID tribunal. While the claimants did not contest the Uruguayan government’s “sovereign right to promote and protect public health,” they claimed that the government could not “abuse that right and invoke it as a pretext for disregarding the Claimant’s legal rights.” The companies alleged that the regulation constituted an indirect expropriation of their trademarks, because it prevented consumers from buying cigarettes. While Uruguay ultimately won the case, many states halted regulatory initiatives concerning tobacco control until the case was decided. Arguably, by filing an investor-state arbitration against Uruguay, a relatively small market, the tobacco companies aimed to deter other countries from adopting similar measures. Had the company won the case, such victory would have had broader repercussions, as other countries would have stalled anti-tobacco measures for fear of facing similar (expensive) investment claims. In other words, expensive litigation before arbitral tribunals can chill regulatory efforts in public policy areas.

If a state invalidated a patent, refused or withdrew a marketing authorization, or ended a monopoly, this action could be analyzed as a violation of investment treaty provisions, in particular, the obligation of fair and equitable treatment or the prohibition of unlawful expropriation. If a state required foreign companies to produce pharmaceuticals locally to qualify for government-provided health care reimbursements, this could amount to a breach of national treatment or the prohibition of performance requirements.

Finally, would a tax on fat goods to combat rising obesity rates and associated diseases comply with the host state’s duties under investment treaties? What if such a fat tax mainly affected foreign fast-food companies and these sought investor–state arbitration? Can states prevent fast-food companies from investing in historic centers for protecting local food on cultural grounds? Should the rights of investors prevail over public health? Could they prevail on cultural grounds as enhancing food diversity?

Due to the large number of investment arbitrations displaying public health elements, states have gradually recalibrated their investment treaties. Although public health concerns used to be uncommon in IIAs, over the past decade, this has steadily changed. As a result, states now more frequently refer to public health in their treaties. This trend has grown since the end of the COVID-19 pandemic.

This article aims to explore the recent treaty practice. While scholars have broadly discussed the interplay between public health and free trade and, increasingly, the interplay between public health and FDI, what is lacking is an updated analysis of how contemporary investment treaties are addressing the relationship between public health and international investment law. In addition, the article proposes interpretive pathways to bridge the gap between, and reconcile, FDI promotion and public health protection in international investment law. Given the broad policy implications that foreign investments provoke in host countries, in-depth scrutiny is needed. This study aims to fill this gap in academic literature and to contribute to the ongoing debate on the need of a “globalization with a human face.”

This article proceeds as follows. First, it briefly examines investment treaty practice before the pandemic. Second, it sheds light on post-pandemic developments. Third, it focuses on how international investment agreements govern patents, compulsory licensing, and parallel imports. After critically assessing these emerging trends, the article considers whether the absence of public health provisions in earlier treaties make host states vulnerable to expensive investment claims. The article concludes that treaties are living instruments that need to be interpreted holistically, having recourse not only to the treaty text but also to its context, object, and purpose. Accordingly, even those treaties that do not explicitly refer to public health cannot be interpreted to imply that states no longer have the right to regulate in this field after signing the BIT. Instead, general international law could provide arbitrators with a roadmap to reach an appropriate balance between private and public interests.

II. Investment Treaty Practice Before the Pandemic

This section examines how early IIAs governed public health considerations. In the past, reference to public health used to be minimal in international economic law. For instance, Treaties of Friendship, Commerce, and Navigation (FCN treaties) allowed limiting the admissions of nationals or goods of the other Party necessary to maintain public health. For instance, the Treaty of Friendship, Commerce, and Navigation between the United States of America and the Republic of Korea provided that the provision concerning free trade and foreign direct investment would be “subject to the right of either Party to apply measures that are necessary to maintain public order and protect the public health, morals, and safety.” Many such treaties included a clause prohibiting the imposition of “duties or charges on account of . . . quarantine.”

Decades later, the very first BIT, the Germany–Pakistan BIT, excluded that measures taken for reasons of public health could be considered as discriminatory and therefore contrary to Article 2 of the treaty. More than 3000 IIAs were signed between 1959 and 2011 and most remain in force today. Nonetheless, most old-generation investment treaties did not generally contain any reference to public health. International investment agreements’ lack of, or limited reference to, public health considerations did not necessarily entail arbitral tribunals’ lack of deference to state actions to pursue the public interest; rather, it left to arbitrators to find the appropriate balance between private and public interests. Some tribunals showed a high level of deference to measures adopted for protecting public health, while others preferred to focus on the treaty text.

This uncertain state of affairs has prompted states to gradually change their approach to investment treaty-making. Since 2010, they have gradually restated their right to regulate and their right/duty to protect fundamental interests and values, including public health. In fact, without protecting the health of its population, a state would cease to exist, as its traditional components include a population, a territory and sovereignty. Accordingly, states have adopted a wide variety of measures to protect public health that could affect international trade and foreign investments and have gradually changed their approach to treaty making. According to a UNCTAD study, “more than 92 per cent of treaties concluded since 2018 . . . contain at least one explicit reference to health.”

For instance, the US 2012 Model BIT includes no less than seven references to health in its preamble, and various provisions relating to performance requirements, investment and labor, indirect expropriation, and the possibility for arbitral tribunals to ask for expert opinions on any factual issue concerning health, safety, or other scientific matters. Analogously, the 2015 Norwegian Model BIT includes extensive references to public health in its preamble, the non-discrimination provisions, expropriation, performance requirements, the prohibition on the lowering of standards, and the right to regulate African countries have also recalibrated their recent investment treaties. The 2019 Hungary–Cape Verde BIT, for instance, establishes that “[t]he provisions of this Agreement shall not affect the right of the Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection, or promotion and protection of cultural diversity.”

III. Bridging the Gap by Treaty Drafting

In analyzing the post-pandemic development of international investment law, a key question is whether, and if so how, states have inserted public health considerations in the IIAs signed during or after the pandemic. Has the pandemic accelerated a far-reaching IIA reform by spurring the insertion of public health-related clauses in new treaties? The scrutiny of the fifty-plus investment treaties signed during and after the pandemic reveals that public health has found an increasingly significant space in the new investment treaties. Nonetheless, states have not inserted revolutionary changes in their treaties, preferring an incremental approach. Accordingly, public health-related clauses already used in the past have proliferated and their scope has been expanded. Five types of health-related clauses can be identified: preambles; general provisions; clarifications; exceptions; and specific intellectual property provisions. The next five subsections will scrutinize these clauses.

A. Preambles

Some IIAs mention public health in their preambles stating that the parties aim to develop economic cooperation without relaxing the objective of public health protection. While it is generally held that preambles do not contain binding obligations, they are not merely symbolic; rather, they can influence the interpretation of treaties, because they explain the treaty philosophy, aim and objectives, and establish a dialogue between the treaty makers and the arbitrators. They are important preliminary steps to infuse investment treaties with public health considerations. While not creating new obligations for the parties to an agreement, this approach recognizes the potential for investment to affect public health and strives to prevent downward pressure on public health protection in the process of investment liberalization. This preambular language intends to provide interpretive context, preserve health policy space, and mitigate the risks posed by investment treaties for public health regulation.

B. General Provisions

The most recent IIAs also include dedicated provisions relating to health. Some include a general provision consenting the adoption of appropriate measures to ensure that investment activity is undertaken in a manner sensitive to health concerns or that the encouragement of investment should not lead to a relaxation of health, safety, environmental, and labor standards.

Stronger treaty terms emphasize the linkage between public health and the state right to regulate. For instance, the 2023 EU–New Zealand FTA’s Investment Chapter expressly provides that “The Parties reaffirm each Party’s right to regulate within their territories to achieve legitimate policy objectives, such as the protection of human, animal or plant life or health . . . public education, safety, the environment, including climate change, public morals, social or consumer protection, animal welfare . . . the promotion and protection of cultural diversity and, in the case of New Zealand, the promotion or protection of the rights, interests, duties and responsibilities of Māori.”

A growing number of recent BITs, primarily from developing countries, also advance a comprehensive public health agenda by advancing health safety at work and health-related corporate social responsibility of investors. For example, one of the most innovative and interesting provisions concerning public health appears in the 2021 African, Caribbean, and Pacific (ACP) – EU Partnership Agreement. Although the provision is not included in the investment chapter, it can influence its interpretation of the same. Article 29 acknowledges that “health is central to people’s lives and a key indicator of sustainable development.” Accordingly, the parties “reaffirm their commitment to protecting and promoting the highest attainable standard of physical and mental health for all and “strengthen national health systems.” Emphasis is put on states’ promotion of “universal health coverage, equitable and universal access to comprehensive and quality healthcare services, and access to safe, effective, quality, and affordable essential medicines and vaccines.” Particular attention is also paid to the “integration of reproductive health into national strategies and programmes.” Finally, the Agreement requires states to “cooperate to prevent and address communicable diseases” and global health crises by, among other things, “support[ing] research and development, and the deployment of vaccines, diagnostics, and medicines.”

At first sight, this broad formulation seems too vague to have binding force; nonetheless, it is binding, as it reaffirms some of the main features of Article 12 of the International Covenant on Economic, Social, and Cultural Rights. Such provision refers to “the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.” It also clarifies that “steps to be taken” by states “to achieve the full realization of this right” include those necessary for “(a) the healthy development of the child; (b) environmental health; (c) the prevention, treatment, and control of epidemic, endemic, and other diseases; and (d) medical service in the event of sickness.” As the ICESCR has been signed widely, its legal value is uncontested for the states who have ratified it.

C. Clarifications: Public Health Measures do not Constitute Expropriation or Discrimination

Recent treaties explicitly govern the question of whether some regulatory measures aimed at protecting public health can constitute an indirect expropriation or discrimination. Regulatory actions to protect public health include measures concerning “the regulation, pricing and supply of, and reimbursement for, pharmaceuticals (including biological products), diagnostics, vaccines, medical devices, gene therapies and technologies, health-related aids and appliances, and blood and blood-related products.” They can also include regulations banning harmful chemicals or setting the patentability requirements for medicines or regulating the provision of health services.

Some IIAs clarify that non-discriminatory regulations that are designed and applied to protect public health do not constitute indirect expropriation. For instance, the Singapore–Rwanda BIT provides that “[n]on-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.”

Other treaties, including the Australia–UK FTA and the Indonesia–Switzerland BIT admit that “in rare circumstances” even such regulations can amount to indirect expropriation, but most recent treaties do not add such qualifier. The qualifier may engender confusion if treaties do not specify what are these rare circumstances. In this regard, the Indonesia–Switzerland BIT clarifies the meaning of the rare circumstances that can transform a state measure into an indirect taking. Such rare circumstances refer to those situations in which “the impact of an action . . . is so severe in light of its purpose that it appears manifestly excessive” in respect to the objective pursued.

D. Public Health Exceptions

Other treaties include a general exception for protecting public health. General exceptions concerning public health are variously articulated but usually provide that nothing in a given agreement shall be construed to prevent a party from adopting any non-discriminatory measure necessary to protect human, animal, or plant life or health.

From a public health perspective, introducing public health considerations as an exception to investment or trade rules admittedly is at odds with the alleged importance of public health. Exceptions are traditionally interpreted in a restrictive way and operate in limited cases. The resulting interpretation can be more restrictive than the original intentions of the parties to the treaty. Moreover, the implementation and functioning of such a clause very much depends on the specific circumstances of the case, the arguments presented by the parties, and the composition of the arbitral tribunal. Respondents bear the burden of proof when they rely on a general exception clause.

E. Specific Intellectual Property Provisions on Patents and Compulsory Licensing

The most recent investment treaties contain sophisticated provisions relating to patents, compulsory licenses, and parallel imports. As is known, IIAs generally provide a broad definition of investment which includes intellectual property rights, including pharmaceutical patents. The main policy justification for protecting pharmaceutical patents through investment treaties is that they induce foreign direct investment in the research and development (R&D) of new medicines, stimulating local inventive activities and encouraging voluntary transfer of technology into the country. IIAs generally do not include detailed regulation of intellectual property; the implicit point of reference is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) that provides for minimum standards of treatment. Instead, FTAs often include a chapter dedicated to intellectual property that confirms or strengthens the TRIPS standards of protection.

Compulsory licensing is a regulatory tool that allows governments to temporarily authorize the production of a patented invention without the patent owner’s consent for public policy reasons. While compulsory licenses generally provide for some remuneration of the patent holder, this is usually a fraction of the sum the patent holder would get through voluntary licensing. Compulsory licensing is one of the flexibilities on patent protection included in most domestic intellectual property systems and permitted under the Agreement on Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement). On the one hand, compulsory licenses constitute a natural emanation of the state’s regulatory power, provided that they follow certain requirements. On the other hand, compulsory licenses limit the exercise of the patent rights. In fact, patent holders remain free to use their inventions and collect royalties. But they cannot abuse their patents to severely limit public access to medicines.

As WTO members experienced difficulties in reconciling patent protection with access to essential medicines, the 2001 Doha Declaration on the TRIPS Agreement and Public Health clarified the content of this flexibility stating that each WTO member has the right to grant compulsory licenses, the freedom to determine the grounds on which such licenses are granted, and the right to determine what constitutes a national emergency or other circumstances of extreme urgency. It also restated that the TRIPS Agreement “can and should be interpreted in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access for all.” The 2003 waiver and the TRIPS Amendment have relaxed some requirement for the issuance of compulsory licensing, allowing developing countries that lack pharmaceutical manufacturing capacity to import medicines under compulsory licenses.

More recently, the WTO Ministerial Decision on June 17, 2022, on the TRIPS Agreement in the context of the COVID–19 pandemic has reaffirmed the WTO members’ right to issue compulsory licenses for producing COVID vaccines. The WTO Decision affirms that “members shall not challenge any measures taken in conformity with this decision.” Therefore, compulsory licensing should not be the object of specific disputes. The Decision also waives the need “to make efforts to obtain an authorization from the right holder” under Article 31(b) of the TRIPS Agreement and the requirement that compulsory licenses “be predominantly to supply its domestic market” under Article 31(f). The decision will last five years, with the possibility of future extension.

The pandemic triggered a massive global demand for medicines, vaccines, and health technologies to respond to COVID-19. Although states scaled up their manufacturing capacity, most countries did not have sufficient production to cover the growing demand for IP-protected diagnostics, medicines, and vaccines. Therefore, both developing and industrialized countries enacted regulations that recognized the pandemic as a health emergency and facilitated the grant of compulsory licenses and other flexibilities to make use of existing technologies. These regulatory instruments enabled authorities to issue an authorization if a government entity or third party asked permission to use IP-protected technology in relation to the health emergency. This approach aimed at facilitating a rapid access to IP-protected technologies. For instance, in Germany, legislation authorized the Federal Ministry for Health to authorize the use of patent-protected inventions to ensure the supply of diagnostics, medicines, and personal protective equipment on grounds of public interest and national security. Israel similarly issued a government-use license for importing a COVID-19 treatment. Bolivia notified the TRIPS Council that it needed 15 million doses of COVID–19 vaccines, and signed an agreement with a Canadian generic manufacturer to import the generic version of such vaccines.

Regulatory measures such as compulsory licenses cannot be categorized as a case of direct expropriation. Indeed, the patent owner maintains the title of the property and the possibility to commercialize the pharmaceutical product although non-exclusively. But, it may be asked whether compulsory licenses can effectively neutralize the enjoyment and economic value of pharmaceutical patents and thus constitute indirect expropriation.

Reportedly, less than two percent of IIAs signed between 1959 and 2011 explicitly exclude that compulsory licenses amount to an indirect expropriation. Instead, new generation IIAs often exclude compulsory licensing from the applicability of the IIA or the expropriation provision, provided that compulsory licenses were adopted in conformity with the TRIPS Agreement. For instance, under chapter nine of the 2021 Israel–Republic of Korea FTA, the provisions on expropriation shall not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation, or creation of intellectual property rights, to the extent that such issuance, revocation, limitation, or creation is consistent with . . . the TRIPS Agreement.

Almost identical provisions appear in other recent investment treaties. More interestingly, the 2020 India–Brazil BIT excludes the issuance of compulsory licensing from the scope of protection of the treaty:

This Treaty shall not apply to the issuance of compulsory licenses granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with the international obligations of Parties under the WTO Agreement.

Reference to WTO law enables the parties to clarify the content of their obligations in light of the TRIPS Agreement. Some IIAs also refer to the Doha Declaration, the 2003 waiver, and the Amendment.

The conditions for lawfully granting a compulsory license are listed in Article 31 of the TRIPS Agreement as clarified by the Doha Declaration, the TRIPS Amendment, and the 2022 Ministerial Decision on the TRIPS Agreement in the context of the COVID–19 pandemic. The patent owner still has rights over the patent, including a right to be paid compensation for copies of the products made under the compulsory license. Determination of adequate remuneration under Article 31(h) may consider “the humanitarian and not-for-profit purpose” of state intervention aimed at providing equitable access to medicines or vaccines. The TRIPS Agreement does not specifically list the reasons that might be used to justify compulsory licensing. But the Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licenses and to determine what constitutes a national emergency. Generally, the company applying for a license has to have tried, within a reasonable period of time, to negotiate a voluntary license with the patent holder on reasonable commercial terms. Only if that fails can a compulsory license be issued. For national emergencies, like the COVID-19 pandemic, or other circumstances of extreme urgency, or “government use,” there is no need to try first for a voluntary license. The license must be limited in scope and duration, it cannot be given exclusively to licensees, and it should be subject to legal review. While compulsory licenses are intended to serve the domestic market, Developing Countries and Least Developed Countries that lack adequate production capacity can issue compulsory licenses for importing medicines. As long as these requirements are fulfilled, no violation of intellectual property occurs. If no breach of intellectual property occurs, no international responsibility arises.

IV. Critical Assessment

After examining the most recent investment treaty provisions, one may wonder whether these are entirely new and should be considered essential for enabling an appropriate balance between private and public interests. With regard to their novelty, the provisions of the new treaties tend to reflect the state-of-art in treaty drafting with respect to compulsory licensing. Earlier treaties already excluded that compulsory licenses could amount to an indirect expropriation. The 2018 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), for example, excludes claims of alleged unlawful expropriation and prohibited performance requirements based upon the issuance of a compulsory license as long as the compulsory license complies with the TRIPS Agreement and “Chapter 18 (Intellectual Property)” of the CPTPP. Other treaties, such as the 2018 United States-Mexico-Canada Agreement (USMCA), recognized the flexibilities afforded in the 2001 Declaration on TRIPS and Public Health, thus reaffirming the states’ right to issue compulsory licensing of patented medicines. Similarly, the 2017 CETA expressly recognized the importance of the Doha Declaration on the TRIPS Agreement and Public Health, the subsequent waiver, and Amendment:

In interpreting and implementing the rights and obligations under this Chapter, the Parties shall ensure consistency with [the Doha] Declaration. The Parties shall contribute to the implementation of and respect the Decision of the WTO General Council of 30 August 2003 on Paragraph 6 of the Doha Declaration, as well as the Protocol amending the TRIPS Agreement.

Are these provisions, appearing in new IIAs, essential to avoid that compulsory licensing and similar flexibilities can be seen as indirect expropriations or other investment treaty breaches before arbitral tribunals? In theory, in the absence of such provisions, the police powers doctrine, and contextual, purposive, and evolutionary interpretation criteria can and should inform arbitral tribunals’ reasoning. Given the varying economic, social, and cultural conditions of states, arbitral tribunals should recognize some margin of appreciation to states in addressing public health emergencies. As noted by Arbitrator Professor Sands, ‘tribunals must be sensitive to the difficulties of government decision-making in the face of legitimate objectives that pull in different directions’. Some states have even justified their measures to protect public health using the language of state security.

In practice, however, it remains unclear how arbitral tribunals would concretely balance the private and public interests at stake. Fears of expensive investor-state arbitration and resulting compensation can lead state to a ‘regulatory chill.’ Instead, the introduction of such clauses can assuage states’ concerns. Such clauses clarify the extent of states’ obligations under international investment treaties by anchoring their interpretation to international standards. Reference to the existing flexibilities under international intellectual property law is a way to strengthen states’ inherent right to regulate to protect public health and shield state measures from investor-state arbitration.

In conclusion, states have become more explicit in safeguarding their regulatory space in response to some high-profile disputes. Recent treaty practice can guide future treaty drafting. The select examples discussed in this article demonstrate that both industrialized and developing countries have included more and more references to public health in their recent treaties. In the loop, states can choose the number and caliber of such clauses. The quantity has certainly increased after the pandemic. The language of health-related provisions spans from soft to binding law in terms of quality.

V. Making the Leap?

What if the applicable investment treaty does not refer to public health? Can general international law provide arbitrators with a roadmap to reach an appropriate balance between public and private interests? Some investment treaties and conventions explicitly refer to the applicability of international law to the dispute. For instance, they may state that arbitral tribunals shall decide on the basis of the investment treaty and other treaties in force between the parties. In these scenarios, arbitral tribunals can certainly apply general international law to settle a given investment dispute.

What if the applicable investment treaty does not mention other norms of international law as the applicable law? The interplay between general international law and international investment law is complex and multifaceted. International investment treaties are creatures of international law. They are living instruments that must be interpreted according to customary rules of treaty interpretation as restated by the Vienna Convention on the Law of Treaties (VCLT). While these rules were hotly contested during their drafting, they are now universally accepted and apply to the interpretation of all treaties concluded by states regardless of their ratification of the VCLT. Therefore, the question is not whether such rules apply to investment treaties but how they operate. In fact, interpretation is not a mechanical process and can reach various results.

Treaty provisions must be interpreted holistically, considering the treaty text, its context, object, and purpose. While these elements follow a logical order, “there is no hierarchy amongst such factors;” rather, they “complete each other” and provide “the meaning that objectively best corresponds to the solution of the issues posed.” As Professor Abi-Saab noted, treaty interpretation is “one integrated operation which uses several tools simultaneously to shed light from different angles on the interpreted text; these tools should not be seen as watertight compartments . . . but, rather, as connected . . . and mutually reinforcing parts of a whole.” The interpretive process “cannot be reduced to a mechanical operation” and “partakes as much of art (the art of judgment) as of science (the science of law).”

The treaty text constitutes the logical point of departure. The object and purpose of a treaty often appears in its preamble or in some of its provisions. Most investment treaties refer to the protection of investments and development in their preamble. If a treaty preamble mentions the promotion and protection of foreign investments, it does not mean that arbitral tribunals should focus on investment protection only. In fact, a balanced interpretative approach is required: ‘an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade the host states from admitting [and protecting] foreign investments.’ Such an approach would ultimately jeopardize the economic relations among signatory states. If a treaty preamble also lists development among the treaty objectives, this should not be interpreted as referring to mere economic growth. Treaty terms must be interpreted to evolve in response to social or legal changes. While traditional economic theory conceives development as “the expansion of wealth and production”, this notion has been “progressively redefined . . . by combining economic indicators such as GDP with non-economic indicators such as health, education, and life expectancy.” Nowadays, the concept of development goes beyond a purely economic understanding and includes environmental, cultural, and social considerations. Sustainable development links “economic growth, environmental protection, and quality of life”, including public health.

The VCLT clarifies that the context of the treaty also includes “any relevant rules of international law applicable in the relations between the parties.” If duly implemented, Article 31(3)(c) could result in the systemic integration of investment law within international law and lessen the rising criticism that the protection of investments inevitably results in disregarding other significant international law principles. Arbitral tribunals should refer to these rules when interpreting the treaty. In fact, they should not interpret international investment treaties in clinical isolation from public international law. Rather, they have to be envisaged within “a wider . . . context”.

For instance, if an arbitral tribunal had to determine whether a compulsory license amounts to an indirect expropriation, it could refer to international intellectual property law. Such reference should provide arbitrators with a roadmap to reach an appropriate balance between private and public interests. Article 5A(2) of the 1883 Paris Convention on Intellectual Property Rights refers to the right of states to adopt compulsory licensing. The provision does not treat compulsory licensing as an exception but as a state right. By the end of the nineteenth century, most countries adopted compulsory licensing in their patent laws in various forms.

In parallel, while the TRIPS Agreement does not explicitly mention compulsory licenses, it governs them as “other uses without authorization of the right holder” under Article 31. Compulsory licensing was one of the most contested topics during the TRIPS negotiations: while industrialized countries desired to limit the scope of application of the provision, developing countries favored its broad applicability. Like the Paris Convention, the TRIPS Agreement does not consider compulsory licensing as an exception. Moreover, as it does not specifically list the reasons that might be used to justify compulsory licensing, it is up to WTO members to define the criteria for issuing compulsory licenses. The 2001 Doha Ministerial Declaration on TRIPS and Public Health reaffirmed that each member had the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted. A temporary waiver subsequently became the first-ever amendment of a WTO agreement enabling countries lacking manufacturing capacity to import medicines manufactured under a compulsory license. The 2022 Ministerial Decision on the TRIPS Agreement in the context of the COVID–19 pandemic further highlights the importance of protecting public health during pandemics. These developments constitute ‘context’ to a tribunal’s interpretation of investment treaties under Article 31 of the Vienna Convention on the Law of Treaties.

The fact that many domestic instruments have traditionally allowed the expropriation of intellectual property for national defense reasons indicates that intellectual property law has historically distinguished expropriation from compulsory licensing. The former was limited to requisitions in times of war or takings for public policy reasons in times of peace; the latter intended to remedy a grave disproportion between the state need for a given invention and its availability on the market. A compulsory license does not prevent the owner from producing the invention. Moreover, the right holder must receive “adequate remuneration”. Paragraph 3(d) of the 2022 Ministerial Decision on the TRIPS Agreement has further clarified that the

Determination of adequate remuneration under Article 31(h) may take account of the humanitarian and not-for-profit purpose of specific vaccine distribution programs aimed at providing equitable access to COVID-19 vaccines to support manufacturers in eligible Members to produce and supply these vaccines at affordable prices for eligible Members. In setting adequate remuneration in these cases, eligible Members may take into consideration existing good practices in instances of national emergencies, pandemics, or similar circumstances.

The expropriation analogy is historically and morally inappropriate and unduly “constrains policy choices and government actions, overly extending the boundaries of the patent grant beyond the social bargain” inherent to it. From a legal perspective, compulsory licenses certainly do not constitute cases of direct expropriation, as the patent holder retains the patent and the right to commercialize its invention. Whether a given compulsory license amounts to an indirect expropriation requires a case-by-case assessment. The arbitrators will have to verify whether the license meets the requirements under Article 31 of the TRIPS Agreement, in light of the Doha Declaration, the amendment, and the 2022 Ministerial Declaration. More importantly, they must interpret compulsory licenses in light of numerous UN General Assembly resolutions, calling member states to use to the full the flexibilities contained in the TRIPS Agreement. Even the UN Security Council has called for equitable access to medicines and vaccines to all.

In conclusion, even those treaties that do not explicitly refer to public health cannot be interpreted so as to imply that states no longer have the right to regulate in this field after signing the BIT. As an arbitral tribunal put it, treaty “interpretation requires elements of reasonableness that go beyond the mere verbal or purely literal analysis.” A good faith interpretation of the treaty should not lead to unreasonable results.

Conclusions

While international investment agreements generally aim to protect investors’ rights and further sustainable development, they are not intended to restrain the states’ inherent right to regulate and power to pursues the public interest. Old-generation treaties generally lacked reference to the right to regulate and protect state fundamental interests and values, thus leaving arbitral tribunals the task of balancing private and public interests in specific arbitrations. Given the uncertainty raised by conflicting arbitral awards and diverging jurisprudential approaches, since 2010, this attitude has started to change, and states have gradually reaffirmed their right to take measures in the public interest. The pandemic has confirmed and intensified this trend.

States have variously reformed the text of their treaties. In the most recent international investment treaties, the pendulum has swung toward reducing the scope of substantive standards of treatment by expanding the states’ right to regulate. In reforming their treaties, states have not used a revolutionary approach; rather, they have used provisions that had already been used in earlier treaties. Nonetheless, they have intensified their reference to the public interest.

Public health-related provisions have multiplied in IIAs signed during and after the COVID-19 pandemic. By exposing common problems in the health sectors of most countries, the pandemic has led states to take a range of policy measures to cope with the lack of facilities and infrastructure and the inadequate production of, and distribution systems for, essential medicines and vaccines. In order to shield such measures from the scrutiny of international economic courts and tribunals, states have adopted the 2022 WTO Decision on the TRIPS Agreement and gradually reformed the language of their new investment treaties. Under the newest IIAs, compulsory licenses are seen as flexibilities that do not amount to indirect expropriation. More generally, the newest investment treaties reaffirm the state right to protect public health, linking it to the more general right to regulate or including it in the form of an exception. Taken together, these provisions, which sparsely appeared in elder treaties, can advance the right to health and emphasize the vital role of law in addressing the challenges of our times.

After examining the most recent investment treaty provisions, one may wonder whether these are entirely new and should be considered essential for enabling an appropriate balance between private and public interests. The provisions of the new treaties are not novel; rather, they tend to reflect the state-of-art in treaty drafting. The main difference between the newest treaties and the earlier one lies in the growing number of safeguards, exceptions, and statements reaffirming the state right to regulate. Some newest provisions also include a qualitative step forward making implicit reference to the right to health, by listing the key areas of state action in the field under international human rights law.

Are public health provisions, appearing in new IIAs, essential to ensure a fair balance between private and public interests? In theory, in the absence of such provisions, the police powers doctrine and contextual, purposive, and evolutionary interpretation criteria for treaty interpretation can and should inform arbitral tribunals’ reasoning. Given the varying economic, social, and cultural conditions of states, arbitral tribunals should recognize some margin of appreciation to states in addressing issues of public concerns. At the end of the day, IIAs are not intended to promote regulatory harmonization among state parties. General international law could provide arbitrators with a roadmap to reach an appropriate balance between private and public interests.

In practice, however, in the absence of specific provisions, it remains unclear how arbitral tribunals would concretely balance the private and public interests at stake. Fears of expensive investor-state arbitration and resulting compensation can lead state to a regulatory chill. Instead, the introduction of such clauses can assuage states’ concerns by reaffirming the state right to regulate in general, and its duties under general international law, including international trade law and international human rights law. If arbitral tribunals did not adequately take into account these newest formulations, states could seek the annulment of erroneous awards on the basis of manifest excess of powers by the Tribunal for deviation from the arbitration agreement or failure to apply the proper law. In case of non-ICSID arbitration, states could resist recognition and enforcement of investment awards before national courts on grounds of public policy.