The Colombian state is skilled in Investor-State Dispute Settlement (ISDS). By June 2023, it has been part of 19 ISDS as a respondent state and it has emerged victorious in 5 of 7 decided cases brought by investors against it.¹ However, in September 2021 a controversial award was issued by an arbitral tribunal in a dispute raised by Eco Oro, a Canadian enterprise that was entitled to a concession contract to explore and exploit the gold-silver deposit in the Santurbán Páramo.²  The controversy, as well as the award rendered by the arbitral tribunal, was of public interest since, firstly, the power of the Colombian state to regulate in the public interest (eg. protect the environment) was at stake and, secondly, in the response to the arbitral claim, Colombia argued that its liability was limited by Article 2201(3) of the Canada – Colombia Free Trade Agreement (Canada-Colombia FTA) which mirrors the general exception provision incorporated in Article XX of the General Agreement on Tariffs and Trade (GATT) and Article XIV of the General Agreement on Trade on Services (GATS). In the following sections, it will be discussed, on the first hand, the extent to which states, like Colombia, can regulate in the public interest to protect the environment and avoid international liability, while, on the other hand, addressing the legal analysis made by the arbitral tribunal regarding the construction of WTO-style general exceptions incorporated in International Investment Agreements (IIA).

I. Avoiding liability for indirect expropriation when regulating in the public interest

 The International Investment Regime (IIR) is known, among other things, for its dispersion and lack of cohesion. Although arbitral tribunals have tried to tackle this flaw in the system by applying a pseudo doctrine of precedent, usually awards contradict each other despite similarities between facts and legal issues between cases. Yet, one doctrine that has underpinned the IIR regarding states’ defence against investors’ claims, is the police powers doctrine. Under such doctrine, the bona fide exercise of the States’ sovereign powers to regulate in the public interest, does not amount to indirect expropriation even when damage is caused to investors.³ Hence, investors are not entitled to compensation.

Following this doctrine, states have entered into better treaty practice by clarifying the scope of primary obligations such as compensation for expropriation. This is the case with the Eco Oro award. In Annex 811 of the Canada-Colombia FTA, the treaty parties agreed that non-discriminatory measures that are designed and applied to protect legitimate public objectives, should not amount to indirect expropriation as defined in Article 811, except in rare circumstances. In the Eco Oro case, the Constitutional Court issued judgement C-35 of 2016 whereby it declared the unconstitutionality of the provisions in Law 1753 de 2015 by which the Congress established exceptions to the general prohibition to perform mining operations in paramo areas of Law 1753 of 2015, such as the Santurbán Páramo, where Eco Oro had its investment. After the latter judgement, the Minister of Environment had to perform a new delimitation of the Santurbán Páramo that overlaps more than 60% of the area to which Eco Oro was entitled by the concession contract. Thus, the new delimitation of the Santurbán paramo by the Minister of Environment lead to the prohibition of exploration and exploitation of minerals in such area, to which Eco Oro used to be entitled under the concession contract, causing further damage to the investor.

Despite the claims of the investor that such regulation should amount to an indirect expropriation of its investment in Colombia, the arbitral tribunal held that in Annex 811 of the Canada-Colombia FTA, the treaty parties incorporated a waiver for liability that mirrors the doctrine of police powers. In its analysis, the arbitral tribunal argued that the measures adopted by Colombia were non-discriminatory and aimed to achieve a legitimate public objective, namely, the protection of the environment which prevents the investor to claim damages and compensation.^4[1] Furthermore, the analysis of the tribunal goes even beyond and asserts that Colombia did not breach its obligations under the treaty regarding expropriation.⁵ As such, Eco Oro was not entitled to any compensation for indirect expropriation a fortiori that it was aware of the Colombian restrictions to mining activities in paramo areas. In the latter award, the analysis of the arbitral tribunal of Annex 811 is in opposition to the analysis that the Bear Creek arbitral tribunal did of the same provision prescribed in Article 812 and Annex 812 of the Canada – Perú Free Trade Agreement (Canada – Peru FTA).⁶ In Bear Creek, the arbitral tribunal stressed that the express words used by the treaty parties in Article 812 and Annex 812 exclude any other exception under international law, including, of course, the doctrine of police powers.⁷ Thus, while in Eco Oro, for the arbitral tribunal, Annex 811 mirrored the doctrine of police powers, in Bear Creek for the arbitral tribunal that same provision not only exclude such defence but, furthermore, the conduct of the respondent state did not fall within the scope of such exception.

Regardless of the contradictions of both arbitral tribunals, provisions akin to those found in Annex 812 and 811 of the FTA signed by Canada with Peru and Colombia, respectively, are more likely to allow states to avoid international liability for indirect expropriation when adopting measures in the public interest that aim to protect legitimate objectives. To fulfil the bar set out in such provisions, the measures are to be designed and applied in a non-discriminatory manner. But is it enough for states to avoid liability and compensation to investors?

II. WTO-style general exceptions and Fair and Equitable Treatment

After the end of the 20^th century, States faced a growing number of ISDS. To tackle such a trend, some states have incorporated provisions which aim to reduce the scope of the protection granted to investors by older IIAs. One of the most recent provisions incorporated within these international instruments is the so-called WTO-style general exception provisions that mirror Article XX of the GATT and Article XIV of the GATS. Article XX of the GATT prescribes that provided that such measures are adopted in a non-discriminatory manner, members of the international trade system should not be prevented to adopt measures that are, inter alia, necessary to protect human, animal or plant life or health, or related to the conservation of exhaustible natural resources. In simple words, Article XX of the GATT is meant to provide a waiver for liability to members of the WTO when one of them issues a measure that, prima facie, is deemed incompatible with the obligations and duties of its members under the international trade system.

In the dispute brought by Eco Oro against Colombia, the latter argued that Article 2201(3) of the Canada-Colombia FTA mirrors Article XX of the GATT and, thus, such provision should be construed akin to the interpretation that the Appellate Body of the WTO has done in trade disputes among its members. Notably, in US – Shrimp the Appellate Body asserted that whenever the challenged measures overcome the two-tier analysis, namely, compliance with any of the scenarios describe in Article XX. (e.g. measures issued to protect human, animal or plant life or health, or related to the conservation of exhaustible natural resources) and compliance with the chapeau of such provision (e.g. that measures are adopted and applied in a non-discriminatory manner), then the member has not breached its obligations under the WTO regime.⁸ Furthermore, for the Appellate Body, the general exceptions under GATT should be read in light of the values states aim to protect, such as the preservation of exhaustible natural resources.⁹

In the Eco Oro award, despite the defence raised by Colombia, the arbitral tribunal found it liable for breach of the minimum standards of protection of investors.  Whilst the arbitral tribunal denied the claims of the investor related to indirect expropriation, it holds Colombia liable for breach of the Fair and Equitable Treatment (FET) since it considered that the respondent state had delayed the final delimitation of the Santurbán Páramo in such a way that affected the legitimate expectations of the investor. In fact, by the time the arbitral tribunal rendered its award, the Minister of Environment had not delimited the Santurbán Páramo. Yet, if under the international trade system, it is common ground that the general exception incorporated in Article XX of the GATT provides an exception for measures that were otherwise inconsistent with the WTO rules,^10[2] then why the arbitral tribunal in Eco Oro found Colombia liable after it raised a defence based on a provision of the FTA that mirrors such waiver for liability?

The arbitral tribunal in Eco Oro held that the drafting of Article 2201(3) of the Canada-Colombia FTA failed to introduce a waiver for liability of the treaty parties when issuing measures in the protection of human, animal, or plant life or health.¹¹ Moreover, it argued that if the treaty parties had intended to introduce such a waiver, they will have drafted Article 2201(3) in similar terms as the Annex of Article 811(2)(b).¹² Consequently, whilst neglecting the construction of WTO general exceptions by the Appellate Body under the WTO regime, the arbitral tribunal loosened the interpretative issue of Article 2201(3) of the Canada – Colombia FTA to a mere textual analysis. In sum, for the arbitral tribunal, the only way in which Colombia would have precluded liability for breach of the FET standard was by clarifying the scope of such obligation in the treaty in a similar way as to the expropriation obligation found in Annex of Article 811(2)(b) of the FTA.

The latter analysis of the arbitral tribunal signals numerous things. Firstly, regarding WTO-style general exception provisions in IIA, arbitral tribunals are not quite keen to use cross-treaty interpretation nor interpretative analysis of the Appellate Body of the WTO. Secondly, drafting matters and matters a lot. If Article 2201(3) of the Canada – Colombia FTA was drafted similarly to Annex 811 perhaps the conclusion of the tribunal regarding the breach of the FET standard would have been the opposite, namely, that the Colombian state was not liable for breach of its international obligations to protect investors. Thirdly, the breach of the FET standard has a very low bar. The delay in the delimitation of the Santurbán Páramo, although justified by a lack of economic and technological resources,¹³ was the main reason for which the arbitral tribunal found Colombia liable for breach of its international obligations. As a result, if Colombia was of the view to reduce the odds of international liability in ISDS it should resort to renegotiation of existing IIA that incorporate WTO-style general exceptions, to clarify such provisions. In the meantime, similar approaches are being discussed by other states, such as Australia which is reviewing the IIAs in force.¹⁴

References: 

1. UNCTAD, ‘International Dispute Settlement Navigator’ (UNCTAD, 2023) <https://investmentpolicy.unctad.org/investment-dispute-settlement/country/45/colombia> accessed 26 June 2023
2. Eco Oro Minerals Corp. v The Republic of Colombia (ICSID Case No. ARB/16/41), Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021
3. Philip Morris Brands Sàrl and others v the Oriental Republic of Uruguay (ICSID Case No. ARB/10/7) Award, 8 July 2016, para 294-299
4. Ibid, paras 644-699
5. Ibid, paras 698-699
6. Bear Creek Mining Corporation v Republic of Perú (ICSID Case No. ARB/14/21), Award, 30 November 2017, paras 473-475
7. Ibid
8. Ibid, paras 148-160
9. Ibid, paras 128-134
10. Appellate Body Report, United States – Importing Prohibition of Certain Shrimp and Shrimp Products (WT/DS58/AB/R) 12 October 1998, paras 147, 150, 151
11. Eco Oro Minerals Corp. v The Republic of Colombia (ICSID Case No. ARB/16/41), Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, para 829
12. Ibid
13. Eco Oro Minerals Corp. v The Republic of Colombia (ICSID Case No. ARB/16/41), Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras 31, 129, 138, 745, 746, 749, 751, 764, 767, 768, and 777
14. Australian Government – Department of Foreign Affairs and Trade, ‘Review of Australia’s Bilateral Investment Treaties’ (AGDFAT, 2020) < https://www.dfat.gov.au/sites/default/files/review-australia-bilateral-investment-treaties.pdf> accessed 21 April 2023