POTENTIAL INVESTMENT TREATY CLAIMS

Arising Out of Measures Implementing Chile's International Climate Change Commitments

Clinic: Queen Mary University, Pilot Clinic, Spring 2022

Beneficiary: Government of Chile

Executive Summary

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This report appraises the extent to which Chile’s obligations under international investment agreements may thwart Chile’s implementation of its international and domestic climate change commitments under the 2015 Paris Agreement, its 2020 Updated Nationally Determined Contributions and its 2022 Framework Law on Climate Change. Chile’s predicament, similar to many other countries, is how to maintain sufficient regulatory space to adopt climate change related mitigation and adaptation measures while remaining credibly committed to attracting foreign investment through existing or future international investment agreements.

The key features of this report are as follows:

Analysing the elements of relevant clauses –particularly fair and equitable treatment and expropriation clauses –in light of the relevant jurisprudence of arbitral tribunals (Section 2.1);
Analysing Chile’s regulatory space using a sample of first-generation international investment agreements: the Chile-France BIT (signed in 1992), and the Chile-United Kingdom BIT (signed in 1996) (Section 2.2);
Analysing Chile’s regulatory space using a sample of next-generation international investment agreements: the investment chapter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (signed in 2018), and the investment chapter of the Canada-Chile Free Trade Agreement (signed in 1996, amended in 2019) (Section 2.3);
Providing an analysis of Chile’s evolving regulatory space over time in light of the contrast provided by the sample of agreements from distinct generations (Section 2.4);
Identifying and analysing the potential investment treaty claims arising in connection with a hypothetical climate change mitigation measure (Section 3).

The reports answers two fundamental questions:

To what extent have the international investment agreements that Chile has entered over the decades affected Chile’s regulatory space? (Section 2)
What are the risks of investment treaty claims arising from measures adopted to implement Chile’s international climate change commitments? (Section 3)

Evolution of Chile’s Regulatory Space

Section 1 introduces the report and highlights the significance of the questions examined.

Section 2 examines the evolution of Chile’s regulatory space. In this section, the report compares a sample of first-generation international investment agreements to a sample of next-generation investment agreements concluded by Chile so as to determine the extent to which Chile’s regulatory space has shrunk or has been shielded over time. The first-generation agreements reviewed in the report are (1) the 1992 Chile-France BIT and (2) the 1996 Chile-United Kingdom BIT, and the next-generation agreements reviewed are (3) the investment chapter of the 2018 Comprehensive and Progressive Agreement for Trans-Pacific Partnership and (4) the investment chapter of the 2019 revised Canada-Chile Free Trade Agreement. The report focuses on a number of key provisions in these agreements, namely fair and equitable treatment clauses, expropriation clauses, as well as exception clauses in the next-generation agreements. Based on the analysis of these clauses, the report concludes that Chile’s regulatory space has been increasingly protected against potential investment treaty claims in the drafting of its international investment agreements over time.

Risks of Potential Investment Treaty Claims

Section 3 of the report examines the risks of potential investment treaty claims arising out of the adoption of climate change measures by Chile. The report considers these risks in light of a hypothetical mitigation measure in relation to black carbon emissions that Chile might adopt as part of its 2020 Updated Nationally Determined Contributions. The report considers whether such a measure could trigger investment treaty claims based on fair and equitable treatment and expropriation clauses and the likelihood that these may succeed before an investment tribunal. The report finds that Chile can pursue climate change measures, such as the reduction of its black carbon emissions, so long as any measure taken is pursued for a legitimate public purpose, in a non-discriminatory manner and in good faith. Given the global commitments on curbing climate change, any measure for this purpose will most likely meet the legitimate public purpose requirement. The measure must be designed carefully so as not to violate any specific representations (and thus, legitimate expectations) made to a foreign investor. In addition, the measure must apply to all relevant businesses across the industry so as not to be discriminatory.

Section 4 of the report concludes that there is ample scope for Chile to adopt its climate change policies to implement its international commitments.

Read the full report here.