“Pre-established” Regulations: A Limit on Change
By Loukas Kozonis
May 19, 2010
Harrison Institute for Public Law
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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.