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“Pre-established” Regulations: A Limit on Change

By Loukas Kozonis
May 19, 2010
Harrison Institute for Public Law

To read the publication click here (PDF, 27 pages, 838 KB)

Abstract

The World Trade Organization is negotiating “disciplines” on domestic regulation, which is essential for both development and environmental protection. Often ambiguous, some of the draft disciplines can be interpreted as a radical departure from the practice of most nations. They could change the course of regulation and development, particularly within federal systems and in small and vulnerable economies, where government systems are changing.

Three generally applicable disciplines are contained in one sentence that requires regulations to be “pre-established, based on objective and transparent criteria and relevant to the supply of the services to which they apply.” If these terms are interpreted according to their ordinary meaning, conflicts with domestic regulations are foreseeable.

There is little history for this term in WTO law, and without clarification, it is ambiguous. It could mean, establish regulations before government applies them (not retroactive, the predominant practice); or it could mean, establish regulations before service suppliers rely on pre-existing law then they invest. The latter meaning invites future conflict in a number of situations when governments seek to change regulations. For example: when elections produce a change in the governing party or coalition, when environmental impact studies reveal a threat to public health, when regulators impose conditions on a license to mitigate environmental impact, or when national and local governments make dissonant decisions regarding the same service supplier.

These scenarios for conflict have already arisen in disputes under bilateral investment treaties

(BITs). This paper examines BIT cases as a likely source of guidance for resolving the ambiguity of a “pre-established” discipline. If WTO panels follow the same logic as BIT arbitrators, the result could be a significant departure from the practice of many nations. Moreover, investors might be able to incorporate a “pre-established” discipline to strengthen their BIT claims. We conclude with questions for WPDR negotiators, which give them clear alternative meanings, which they can accept or reject in order to avoid a discipline that is unpredictable and invites conflict.

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