Report No. 260
A. Article 16. General exceptions.
(i) Analysis and comment:
6.1.1 The 2015 Model contains a separate chapter on exceptions covering both general and security exceptions. Article 16 contains general exceptions with a long list of permissible objectives, which includes not just health, environment, public order, public morals but also measures 'improving working conditions' (Article 16.1(vi)) and 'ensuring the integrity and stability of its financial system, banks and financial institutions' (Article 16.1(ii)). The inclusion of such a large number of permissible objectives is an example of India being a 'rule-maker' in formulating general exceptions to balance investment protection with the Host State's right to regulate.
6.1.2 However, other features of this provision tilt the balance towards the Host State's regulatory power. For example, the general exception clause is self-judging. Article 16.1 states that 'nothing in this Treaty precludes the Host State from taking actions or measures... which it considers necessary'. The result is limited scrutiny of the regulatory measure by an ITA tribunal.
6.1.3 Having a self-judging general exception is surely an example of India being a 'rule-maker' though this rule does not meet the objective of balancing investment protection with the Host State's regulatory power. While a self-judging security exception is a common feature, a self-judging general exception measure could result in possible abuse by the Host State.
6.1.4 Article 16 also does not contain any chapeau of the kind found in Article XX GATT or in the FTA investment chapters. As a result, it will be difficult to check the abusive application of 'general exception' measures by the Host State.96
96 It is important to recall that the Appellate Body has held that the purpose of the chapeau is to prevent the abuse of Article XX GATT. See WTO, United States: Standards for Reformulated and Conventional Gasoline - Report of the Appellate Body (29 April 1996) WT/DS2/AB/R, 22.
6.1.5 Further, Article 16.3 exempts the application of the treaty to regulatory measures adopted by local bodies or authorities. Thus, foreign investors have no protection from regulatory measures of local governments, which again means giving precedence to the Host State's regulatory power over protection of foreign investment.