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Published : March 2016
This article is part of the TDM CETA
special edited by Andrea Bjorklund,
John Gaffney, Fabien Glinas and
Herfried Wss.
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Electronic copy available at: https://ssrn.com/abstract=2931503
CETA's Definition of the Fair and Equitable
Treatment Standard: Toward a Guided and
Constrained Interpretation
by F. Jadeau and F. Glinas
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CETAs Definition of the Fair and Equitable Treatment
Standard: Toward a Guided and Constrained Interpretation
Flavien Jadeau and Fabien Glinas*

Abstract

The final text of the Comprehensive Economic and Trade Agreement (CETA) between
Canada and the European Union was released on February 29, 2016. CETA sets out a more
precise Fair and Equitable Treatment (FET) standard than was seen under past EU treaty
practice. A list of state actions and behaviours constituting a breach of FET will be adopted.
Efforts to give a more precise definition of FET are aimed at guiding and constraining the
interpretation of this standard. These efforts are not limited to the issue of the FET standard
and CETA, and may have broader implications. Greater precision may well become a key
element of future investment protection agreements.

Introduction
The campaign for the European elections of May 24, 2014, was an opportunity for a good
number of voters in member countries of the European Union to learn about the mechanisms
for the resolution of disputes relating to investment protection. Certain parties, with the green
and extreme-left parties leading the way, put a spotlight on the lack of transparency regarding
the negotiation of the Transatlantic Trade and Investment Partnership with the United States
(TTIP), and in particular, on the dangers of a chapter relating to investment protection.1

The Comprehensive Economic and Trade Agreement between Canada and the EU (CETA)
did not attract the same level of criticism. Yet, this agreement prefigured the one with the
United States. While both remain under negotiation, CETA, in contrast to TTIP, has entered
its final phase. On September 26, 2014, the formal conclusion of its negotiations was
announced during the EU-Canada summit in Ottawa,2 and the final text of the agreement was
released, following legal review, on February 29, 2016.3

The Treaty of Lisbon granted the EU jurisdiction over foreign direct investment, including
the negotiation of agreements on investment protection. 4 CETA represents the first

* The authors can be contacted via email at flavienjadeau@gmail.com and fabien.gelinas@mcgill.ca

respectively.
1
See Laure Equy, Libre-change : qui pense quoi sur le Tafta ? (Libration, 12 May 2014)
<http://www.liberation.fr/politiques/2014/05/12/libre-echange-qui-pense-quoi-sur-le-tafta_1015704> accessed
17 February 2016; and more precisely on investment arbitration Sonya Faure, Le trait transatlantique cre-t-il
une justice qui court-circuite les Etats ? (Libration, 16 May 2014)
<http://www.liberation.fr/societe/2014/05/16/le-traite-transatlantique-cree-t-il-une-justice-qui-court-circuite-les-
etats_1017306> accessed 17 February 2016 (quoting Professors Diego P. Fernandez Arroyo and Thomas Clay).
2
European Parliament, MEPs Split over EU Free Trade Deal with Canada (17 September 2014) Press Release.
The formal conclusion of negotiations was accompanied by the release of a consolidated draft of
CETA: Consolidated CETA Text (26 September 2014)
<http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf> accessed 17 February 2016.
3
Consolidated CETA Text (29 February 2016)
<http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf> accessed 15 March 2016 (CETA).
4
Treaty on the Functioning of the European Union, arts 206, 207 (TFEU); Commission, Protection des
investissements et rglement des diffrends entre investisseurs et Etats dans les accords de lUE (November
2013) Information Sheet 1.

Electronic copy available at: https://ssrn.com/abstract=2931503

manifestation of this new jurisdictional power. Other agreements are in the process of being
negotiated: the free trade agreement with the United States, of course, but also one
with Singaporea chapter on investment protection has been added to the
agreement of September 20, 2013, following the conclusion of negotiations and the
publication of a final text on October 17, 2014.5 Other agreements will follow.6 CETA
remains, however, the EUs first free trade agreement to include a chapter implementing a
mechanism for the resolution of disputes relating to the protection of foreign investment.
Studying CETA is thus particularly interesting because this agreement provides an
indication of possible future European treaty practice on this subject.

Even more interesting is the study of CETAs standard of Fair and Equitable Treatment
(FET). Before the publication of the final text, the EU had already made known its intent to
clarify the drafting of this standard:

A precise and specific standard of treatment of investors and investment is introduced. Unlike
other agreements, the standard of fair and equitable treatment in CETA is neither a floor or
a minimum standard nor an evolving concept. Rather, a clear, closed text defines precisely
the standard of treatment without leaving unwelcome discretion to CETAs permanent
investment tribunal.7

A reading of the final text makes clear that the provision on FET in CETA reflects this intent
(Part 1). The emphasis placed on efforts to define FET in the agreement suggests an attempt
to direct future panels exercising jurisdiction under CETA in their interpretation of this
standard (Part 2).

1. The Effort to Define FET in CETA in Order to Circumscribe Its

Interpretation
Concerned about limiting an interpretation of FET that would broaden their obligations
toward foreign investors (Part 1.A), Canada and the EU decided to clarify the drafting of this
standard in CETA (Part 1.B).

A. The Preservation, through Precise Drafting, of States Freedom to Legislate

i. An Imprecise FET Standard Prone to a Broad Interpretation and to Increased Obligations

for States

The clarification of FET in CETA was, to begin with, a result of its open texture. Certainly,
the legal instruments that define FET provide little guidance to assist the interpreter. 8
Professors Carreau and Julliard have quite rightly observed that [A]fter having noted that,
etymologically, fair treatment is simply that which is in conformity with the law, and that
equitable treatment is simply that which is conformity with equity, little progress has been

5
Commission, EU and Singapore Conclude Investment Talks (17 October 2014) Press Release.
6
Commission, Overview of FTA and Trade Negotiations (20 May 2014)
<http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf> accessed 17 February 2016.
7
Commission, Investment Provisions in the EU-Canada Free Trade Agreement (CETA)
<http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf> accessed 17 February 2016.
8
Mathieu Raux, La responsabilit de lEtat sur le fondement des traits de promotion et de protection
des investissements (Doctoral Thesis, Universit Panthon-Assas (Paris II), 29 June 2010) 179.

2
made. 9 Faced with this lack of a precise definition, arbitrators had the obligation of
interpreting this standard and, more precisely, of clarifying its limits and identifying its
content.10 Far from being uniform in its application, this standard was the object of diverging
interpretations by arbitrators, but also by states and specialists.11

Many favoured a restrictive approach to the interpretation of this standard. To do so, they had
recourse to a traditional, customary international law, which accords a Minimum Standard of
Treatment to foreign investors. Any treatment that falls below this minimum may render the
state liable.12 FET is thus understood as one of the elements of this customary standard.13
Certain concepts related to this standard can be discerned from international jurisprudence,
including the denial of justice,14 the treatment of individuals in custody,15 or full protection
and security.16 It is the Neer decision of 1926, however, that is considered to reflect
the Minimum Standard of Treatment. The Neer decision sets out the contents as well as the
threshold for recognizing a violation of this standard.17 From this award, even if it is
difficult to discern precise criteria for acts constituting unfair and inequitable
treatment,18 it can be concluded that the threshold of protection is set out in abstract but
distinct terms.19 Certain cases and awards have explicitly affirmed that the respect of FET
should be evaluated in terms of this Minimum Standard of Treatment.20

Another approach to FET has developed in parallel, detached from customary international
law and from the Minimum Standard of Treatment. This approach consists, firstly, of
understanding the concept of FET as not limited to the minimum standard as contained in the
international customary law but [as taking] into account the full range of international law
sources, including general principles and modern treaties and other conventional
obligations.21 A more liberal interpretation, secondly, appeared as a result of a movement in

9
Dominique Carreau and Patrick Juillard, Droit international conomique (3d ed, Dalloz 2007) 446 (translated
by author).
10
Raux (n 8) 179.
11
OECD, Directorate for Financial and Enterprise Affairs, Fair and Equitable Treatment Standard in
International Investment Law (September 2004) Working Papers on International Investment, Number 2004/3,
2.
12
ibid 9.
13
Stephen Vasciannie, The Fair and Equitable Treatment Standard in International Investment Law (1999) 70
BYBIL 99, 14344: [T]he traditional approach considers the FET standard as equivalent to the customary
international law MST.
14
UN, General Claims Commission, Affaire James (Etats-Unis c Mexique) (1926) 4 Recueil des
sentences arbitrales 82.
15
UN, General Claims Commission, Affaire Harry Roberts (Etats-Unis c Mexique) (1927) 4 Recueil des
sentences arbitrales77.
16
UN, General Claims Commission, Affaire Boffolo (1903) 10 Recueil des sentences arbitrales internationales
des Nations Unis 528.
17
UN, General Claims Commission, LFH Neer and Pauline Neer (United States) v Mexico (1926) 4 Report of
International Arbitral Awards 60, 6162: The treatment of an alien, in order to constitute an international
delinquency, should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of
governmental action so far short of international standards that every reasonable and impartial man would
readily recognize its insufficiency.
18
Martins Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (Oxford
University Press 2013) 83.
19
Rudolf Dolzer, Fair and Equitable Treatment: A Key Standard in Investment Treaties (2005) 39 The
International Lawyer 87, 93.
20
Elettronica Sicula SPA (ELSI) (Etats-Unis c Italie) [1989] ICJ Rep 15, 82 (and particularly paragraph 128);
International Centre for the Settlement of Investment Disputes, American Manufacturing & Trading, Inc (AMT)
v Rpublique Dmocratique du Congo, 21 February 1997, para 6.06.
21
OECD, Directorate for Financial and Enterprise Affairs (n 11) 20.

3
the literature seemingly led by F.A. Mann.22 This autonomous approach consists in viewing
FET as an obligation of primary importance that is much broader than only a prohibition on
arbitrary, discriminatory or abusive treatment. 23 For another author, 24 this autonomous
approach to FET can be justified in terms of the rules of interpretation of international law. 25
This latter approach was echoed in the famous Tecmed v Mexico award.26 Under Chapter 11
of the North American Free Trade Agreement (NAFTA), the imprecision of the provisions
relating to FET has also been taken to favour a broad interpretation as well. Article 1105 of
this treaty indeed lacked detail, defining FET only by reference to international law, without
any further precision.27 Only the title of the provision, Minimum Standard of Treatment,
provides some indication for interpreters. Many awards, on this basis, rejected a limitation of
the provisions interpretation by reference to customary international law. This was the case
of the tribunal in the Pope Talbot v Canada decision, which clearly dismissed the approach
founded on customary international law28 and the Neer decision.29 Indeed, the first awards
rendered under NAFTA instead broadened the obligations of states that could serve as the
basis for a violation of FET. This becomes particularly clear on reading the Metalclad v
Mexico award. The arbitrators affirmed that the obligation of transparency constituted one of
the elements of the Minimum Standard of Treatment under Article 1105.30 In the SD Myers v
Canada decision of November 13, 2000, the arbitrators found that the breach of Article 1102
(National Treatment) essentially established a breach of Article 1105: By taking this
decision, the Tribunal took a breach of a conventional international law rule (National
Treatment) and equated that with a breach of the minimum standard although the form,
contents and purposes of the two articles differ.31 The reasoning in each of these decisions
led to the same result: a broad interpretation of the scope of FET and an increasing number of
state obligations toward foreign investors. With CETA, Canada and the EU wanted to guard
against this broad interpretation of FET. Previously, the Member States of NAFTA had also
attempted to do so.32 CETA forms part of the same approach.

ii. The North American Precedent: Guiding the Interpretation of FET by Reference to
Customary International Law

The Member States of NAFTA quickly opposed the broad interpretation of FET in NAFTA
disputes by favouring an interpretation of Article 1105 based on customary international law
22
FA Mann, British Treaties for the Promotion and Protection of Investments (1981) 52 BYBIL 241, 244.
23
OECD, Directorate for Financial and Enterprise Affairs (n 11) 23.
24
Vasciannie (n 13) 103: The plain meaning approach is, no doubt, entirely consistent with canons of
interpretation in international law.
25
Convention de Vienne sur le droit des traits entre tats (adopted 23 May 1969) 1155 UNTS 331, art 31.
26
International Centre for the Settlement of Investment Disputes, Tecnicas Medioambientes Techmed SA v
Mexico, 29 May 2003, para 155: The Arbitral Tribunal understands that the scope of the undertaking of fair and
equitable treatment under Article 4(1) of the Agreement described above is that resulting from an autonomous
interpretation, taking into account the text of Article 4(1) of the Agreement according to its ordinary meaning
(Article 31(1) of the Vienna Convention).
27
North American Free Trade Agreement, Canada, the United States, and the United Mexican States (entered
into force 1 January 1994) art 1105(1) (NAFTA): Each Party shall accord to investments of investors
of another Party treatment in accordance with international law, including fair and equitable treatment and full
protection and security.
28
UNCITRAL, Pope and Talbot v Canada, 10 April 2001, paras 110, 111.
29
ibid para 118.
30
UNCITRAL, Metalclad Corporation v Mexico, Award, 30 August 2000, para 99.
31
OECD, Directorate for Financial and Enterprise Affairs (n 11) 23 (commenting on NAFTA Arbitration, SD
Myers, Inc v Canada, Partial Award, 13 November 2000).
32
See discussion below concerning the 2001 NAFTA note of interpretation, NAFTA Free Trade Commission,
Notes of Interpretation of Certain Chapter 11 Provisions (31 July 2001).

4
and the Neer decision.33 Concerned by the increasing number of requests for
arbitration,34 these countries responded by adopting a binding note of interpretation 35
under Article 1131(2) of NAFTA. 36 The Member States explicitly adopted a position in
favour of interpreting FET as limited to the Minimum Standard of Treatment of
customary international law.37 They aimed to invite, or more accurately to impose, a
rejection of the broad approach to FET.38 This response was brought about not only through
the note of interpretation of 2001. The United States39 and Canada40 each adopted a new
model treaty for the promotion and protection of investments in 2004. As in the note of
interpretation, FET is there defined by reference to customary international law,41 which
constitutes an innovation compared to the previous model treaty instruments of these two
countries.42

CETA is part of this same movement in favour of clarifying the definition of FET.
On Canadas side, this is consistent with the note of interpretation and with its model treaty.
On the EUs side, the Member States have rallied to clarify this standard because they
find themselves, today, in the same situation as the United States and Canada. Requests
for arbitration against them have increased dramatically.

iii. Member States as Respondents

To be sure, many Member States of the EU have been held liable by an arbitral tribunal for
violations of a bilateral investment treaty (hereinafter BIT).43 However, Western European
states had long been spared. This is no longer the case. In the past months, numerous requests
33
For Canada: Pope and Talbot v Canada (n 28) para 108. For the United States: ibid para 114.
34
For the United States: UNCITRAL, Mondev international LTD v United States, Request for Arbitration, 1
September 1999; UNCITRAL, The Loewen Group Inc and RL Loewen v United States, Request for Arbitration,
30 October 1998. For Canada: UNCITRAL, United Parcel Service of America v Canada, Request for
Arbitration, 19 April 2000.
35
NAFTA Free Trade Commission, Notes of Interpretation (n 32).
36
NAFTA (n 27) art 1131(2): An interpretation by the Commission of a provision of this Agreement shall be
binding on a Tribunal established under this Section.
37
NAFTA Free Trade Commission, Notes of Interpretation (n 32): The concepts of fair and equitable
treatment and full protection and security do not require treatment in addition to and beyond that which
is required by the customary international law minimum standard of treatment of aliens.
38
Margaret Clare Ryan, Glamis Gold, LTD v The United States and the Fair and Equitable Treatment Standard
(2011) 56 McGill LJ 919, 939.
39
US Model Bilateral Investment Treaty (US Department of State, November 2004)
<http://www.state.gov/documents/organization/117601.pdf> accessed 17 February 2016.
40
Canadian Model Foreign Investment Protection Agreement (Italaw, 20 May 2004)
<http://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf> accessed 17 February 2016.
41
ibid art 5: FET and full protection and security do not require treatment in addition to or beyond that which is
required by the customary international law minimum standard of treatment of aliens; US Model
Bilateral Investment Treaty, 2004 (n 39) art 5: FET and full protection and security do not require treatment in
addition to or beyond that which is required by that standard, and do not create additional substantive rights;
ibid annex A: The Parties confirm their shared understanding that customary international law generally
and as specifically referenced in article 5 [Minimum Standard of Treatment] and Annex B [Expropriation]
results from a general and consistent practice of States that they follow from a sense of legal obligation. With
regard to article 5 ... the customary international law minimum standard of treatment of aliens refers to
all customary international law principles that protect economic rights and interests of aliens.
42
US Model Bilateral Investment Treaty 1994 (Office of the United States Trade Representative) art 2(III)(a)
<https://ustr.gov/archive/Trade_Sectors/Investment/Model_BIT/Section_Index.html> : Each Party shall at
all times accord to covered investments fair and equitable treatment and full protection and security, and in no
case accord treatment shall less favorable than that required by international law.
43
For example : the Czech Republic, International Centre for the Settlement of Investment Disputes, Phoenix
Action v Czech Republic, 18 April 2008; and Hungary, International Centre for the Settlement of Investment

5
Disputes, Telenor Mobile Communications v Hungary, 13 September 2006.

6
for arbitration have been filed against them. Germany has received a notice to arbitrate from
the Swedish business Vattenfall.44 The latter believes that it has been prejudiced by the vote
of the Bundestag of May 2011 ending Germanys nuclear program and, in consequence, has
claimed damages of a billion dollars. France was brought, for the first time, before a tribunal
constituted under the aegis of ICSID on September 10, 2013,45 for an alleged violation of the
BIT between France and Turkey. 46 Requests for arbitration have been brought against
Belgium47 by a Chinese financial services company following the bankruptcy of the Fortis
bank, of which it was the principal shareholder,48 and against Greece49 by Cypriot and Slovak
banks holding Greek bonds.50 Finally, Spain has received five notices of arbitration in less
than two years.51

These states, today, see the risks of an imprecise definition of FET that, by virtue of being
interpreted broadly, increases the obligations of states. To guard against this risk, Canada and
the EU have chosen to define this standard more precisely. This may explain the willingness
of the Member States of the EU, like the United States and Canada, to work toward clarifying
the definition in their new treaty instruments regarding investment protection, notably CETA.

B. The Increased Precision of the Definition of FET in CETA

The comparison between the BITs of Member States of the EU and the final text of CETA
clearly demonstrates an evolution in the drafting of provisions relating to FET. The EU, with
CETA, seems to have rallied to the Canadian position in favour of clarifying the FET
standard. Indeed, CETA goes even further in its effort to define this standard.

i. A Laconic Drafting of FET in the BITs of EU Member States

The treaty practice of European states, previously fragmented and today integrated under the
banner of the EU, has developed from an extremely sparse drafting of the FET standard.
Whether, for example, Article 3 of the French Model Treaty of 2006, Article 2.2 of
the German Model Treaty of 2008, or Article 3 of the Dutch Model Treaty, European BITs
are

44
International Centre for the Settlement of Investment Disputes, Vattenfal AB v Federal Republic of Germany,
Notice of Arbitration, 31 May 2012.
45
International Centre for the Settlement of Investment Disputes, Erbil Serter v French Republic, Notice of
Arbitration, 10 September 2013.
46
France Is Sued at ICSID by Turkish Investor in Relation to Ship Hull Design Controversy (Investment
Arbitration Reporter) <http://www.iareporter.com/articles/20130911_2> accessed 17 February 2016.
47
International Centre for the Settlement of Investment Disputes, Ping An Life Insurance Company v Kingdom
of Belgium, Notice of Arbitration, 19 September 2012.
48
Chinese Insurer Files ICSID Arbitration against Belgium; Ping An Lost $2.3 Billion when Fortis Bank
Crumbled (Investment Arbitration Reporter) <http://www.iareporter.com/articles/20120922_1> accessed 17
February 2016.
49
International Centre for the Settlement of Investment Disputes, Potov banka, as and ISTROKAPITAL SE v
Hellenic Republic, Notice of Arbitration, 20 May 2013.
50
Bondholders Claim against Greece Is Registered at ICSID, as Mandatory Wait-Period Expires on Another
Threatened Arbitration (Investment Arbitration Reporter) <http://www.iareporter.com/articles/20130530_2>
accessed 17 February 2016.
51
International Centre for the Settlement of Investment Disputes, Inversion y Gestion de Bienes v Spain, Notice
of Arbitration, 9 July 2012; Stockholm Chamber of Commerce, CSP Equity Investment v Spain, Notice of
Arbitration, 1 June 2013; International Centre for the Settlement of Investment Disputes, RREEF v Spain,
Notice of Arbitration, 22 November 2013; International Centre for the Settlement of Investment Disputes, Antin
Infrastructure v Spain, Notice of Arbitration, 22 November 2013; International Centre for the Settlement

7
of Investment Disputes, NextEra Energy Global v Spain, Notice of Arbitration, 23 May 2014.

8
limited, with little variation in their drafting, to defining the FET standard by
reference to principles of international law, without any further precision.52

ii. The FET in CETA: A Precise Drafting with Enumerated Examples

While the BITs of EU Member States have used just a few lines to describe obligations
relating to FET, CETA devotes not less than six paragraphs to the topic. The intent to render
this standard more precise is, indeed, reflected in the final text of CETA. This precision takes
the form, first of all, of a list enumerating actions and behaviour constituting a violation of
the obligation of Fair and Equitable Treatment:

1. Each Party shall accord in its territory to covered investments of the other Party
and to investors with respect to their covered investments fair and equitable
treatment and full protection and security in accordance with paragraphs 2 to 6.

2. A Party breaches the obligation of fair and equitable treatment referenced in

paragraph 1 where a measure or series of measures constitutes:

(a) denial of justice in criminal, civil or administrative proceedings;

(b) fundamental breach of due process, including a fundamental breach of
transparency, in judicial and administrative proceedings;
(c) manifest arbitrariness;
(d) targeted discrimination on manifestly wrongful grounds, such as gender, race
or religious belief;
(e) abusive treatment of investors, such as coercion, duress and harassment; or
(f) a breach of any further elements of the fair and equitable treatment obligation
adopted by the Parties in accordance with paragraph 3 of this Article.53

It is not entirely apparent from the text whether the list is intended to provide examples of the
kinds of actions and behaviour that are considered constitutive of a violation of FET or,
instead, if the list is intended to be exhaustive and watertight. One might argue, invoking the
maxim expressio unius est exclusio alterius, that the list is indeed exhaustive. One might also
argue, on the other side, that the wording is not grammatically exclusive. Even if the list is
not seen as exhaustive, however, one may well argue that the list must limit the scope of
application of the FET standard to the same kinds of actions and behaviour as found in the
list.

While a definition in the form of a list has now been achieved, the documents that were
leaked during negotiations, one in November 2013,54 another in April 2014,55 and finally a
consolidated version of the agreement in August 2014,56 diverged on certain points. These

52
For example: German Model Bilateral Investment Treaty of 2008 (Italaw) art 2.2
<http://www.italaw.com/sites/default/files/archive/ita1025.pdf> accessed 17 February 2016: Each Contracting
State shall in its territory in every case accord investments by investor of the other Contracting State fair and
equitable treatment as well as full protection under this Treaty.
53
CETA (n 3) art 8.10(1), (2).
54
Draft CETA Investment Text (Transnational Dispute Management, 21 November 2013)
<http://www.transnational-dispute-management.com/news.asp?key=522> accessed 17 February 2016 (Draft
CETA Investment Text of 21 November 2013).
55
Draft CETA Investment Text (Transnational Dispute Management, 4 April 2014)
<http://www.transnational-dispute-management.com/news.asp?key=522> accessed 17 February 2016.
56
Consolidated CETA Text (5 August 2014).

9
adjustments, over a period of months, simply reflect the questions to which the negotiators
had to respond. In reading these documents, it becomes clear that choices had to be made.

iii. A First Decision: Removing the Reference to Customary International Law

While the draft of November 2013 provided that a violation of FET could be characterized as
any state treatment of investors contrary to the general practice of states accepted as law,57 the
leaked text made available in April 2014, the version made public in March 2014, the
consolidated versions of August 2014 and September 2014, and the final text have
simply removed this provision.

iv. A Second Decision: The Possibility of Revising the List

The negotiators did not wish to carve in stone the definition of the FET to which they were
able to agree. In the August 2014 and September 2014 versions and in the final text of the
agreement, paragraph 3 of the provision contemplates the possibility of revising the
definition of FET:

The Parties shall regularly, or upon request of a Party, review the content of
the obligation to provide fair and equitable treatment. The Committee on Services
and Investment ... may develop recommendations in this regard and submit them to
the CETA Joint Committee for decision.58

Without a doubt, this provision, which should be read in conjunction with another provision
from the final version of February 2016,59 draws inspiration from Article 1131(2) of NAFTA,
which gives its members the possibility of adopting binding notes of interpretation.
Appearing in the first draft of CETA in November 2013 and unchanged since then, this
review clause reflects, above all, the will of states to retain control of the interpretation of
FET.

v. A Final Decision: The Protection of Legitimate Expectations, Part of FET but Not Part of
the List

In the final months, it seems that the negotiators favoured the removal of the frustration of
legitimate expectations from the list of actions or behaviours constituting a violation of FET.
Legitimate expectations remained, however, an element of FET in CETA. While the list of
the April 2014 draft included the provision on legitimate expectations by reference, those of
the consolidated drafts of August 2014 and of September 2014, as well as the final text, refer
only to the review clause. In other words, the list, in its final version, does not include a
reference to legitimate expectations. The protection of legitimate expectations thus remains
part of FET but is separated from the list. It may thus be considered as a semi-autonomous

57
Draft CETA Investment Text of 21 November 2013 (n 54) art X.9.3: In addition to paragraph 2, a breach of
fair and equitable treatment may also arise from any other treatment of covered investments or investors which
is contrary to the fair and equitable treatment obligation recognized in the general practice of States accepted as
law.
58
CETA (n 3) art 8.10(3).
59
ibid art 8.31(3): Where serious concerns arise as regards matters of interpretation that may affect investment,
the Committee on Services and Investment may, pursuant to Article 8.44(3)(a), recommend to the CETA Joint
Committee the adoption of interpretations of this Agreement. An interpretation adopted by the CETA
Joint Committee shall be binding on a Tribunal established under this Section. The CETA Joint
Committee may decide that an interpretation shall have binding effect from a specific date.

10
obligation in relation to FET: semi because it is connected to and dependent on the
standard; autonomous because it is excluded from the list:

When applying the above fair and equitable treatment obligation, a Tribunal may take
into account whether a Party made a specific representation to an investor to induce a
covered investment, that created a legitimate expectation, and upon which the investor
relied in deciding to make or maintain the covered investment, but that the
Party subsequently frustrated.60

The negotiations and the final text, on this point, can be deceiving, given that the European
Commission indicated an intent, in its communications, to limit legitimate expectations to
promises made by a state.61 First, in being excluded from the list, the provision regarding
legitimate expectations does not benefit from the primary advantage of the list: a
precise definition. Second, the wording contemplated, specific representation, remains
vague regarding the nature of the undertakings given by a state that would give rise to
legitimate expectations.

There is little doubt, in practice, that the violation of legitimate expectations will be
a provision that investors will continue to invoke. With this less precise provision, the risk
is increased that state behaviours could be found to constitute a violation of the
legitimate expectations of investors. Therefore, if a given behaviour, considered by the
investor to be a violation of FET, does not correspond to one of the listed examples, the
investor will certainly consider bringing a claim on the basis of a violation of legitimate
expectations.

Perhaps it would have been preferable to follow the example of the provision regarding
legitimate expectations included in the final text of the EUs agreement with
Singapore, which appears much more satisfying in this sense:

Where a party, itself or through any entity mentioned in article 1 paragraph 5, had
given any specific and clearly spelt out commitment in a contractual written
obligation towards an investor of the other Party with respect to the investors
investment or towards such an investment, that Party shall not frustrate or undermine
the said commitment through the exercise of its governmental authority either:

(a) deliberately; or
(b) in a way which substantially alters the balance of rights and obligation in the
contractual written obligation unless the Party provides reasonable compensation
to restore the investor or investment to a position which it would have been in
had the frustration or undermining not occurred.62

By virtue of a footnote, the effort to improve precision extends here to the definition of the
undertaking made by a state that can be the basis for a violation of legitimate expectations of
an investor:

For the purposes of this paragraph, a contractual written agreement means an

agreement in writing, entered into by both parties, whether in a single instrument or

60
ibid art 8.10(4).
61
Commission, Investment Provisions in CETA (n 6) 2: The concept of legitimate expectations is
limited to situations where a specific promise or representation was made by the State.
62
Draft EU-Singapore FTA (October 2014) ch 9, art 9.4

11
<http://trade.ec.europa.eu/doclib/docs/2014/october/tradoc_152844.pdf> accessed 17 February 2016.

12
 multiple instruments, that creates an exchange of rights and obligations, binding
both parties.63

Only the breach of an undertaking made by a state to a specific, designated investor can thus
result in a violation of FET. By contrast, the adoption of a law of general application that has
an effect on a foreign investment cannot, in itself, be the basis for an investors claim.

The provisions relating to FET in the agreement with Singapore will certainly avoid this
pitfall. Uncertainties persist regarding CETA. Though the intent to bring about precision is
clearly evident in the introduction of the list and the removal of the reference to customary
international law, the notion of legitimate expectations remains subject to interpretation.

2. An Emphasis on Precision to Achieve a More Circumscribed

Interpretation
The effort to clarify the drafting of the FET standard in CETA seems to create a better basis
for circumscribing the interpretation of this standard (Part 2.B). It avoids, at least, the pitfalls
of a definition by reference to customary international law (Part 2.A).

A. The Limitations of Defining FET by Reference to Customary International Law

i. The Limitations of Guiding Interpretation by Referring to Customary International Law

Previous attempts to clarify the definition of FET did not achieve the desired results. In the
case of NAFTA, the note of interpretation of 2001, which limited this standard by reference
to customary international law, did not fully succeed in circumscribing its interpretation.

The reference to customary international law nevertheless had an effect on the interpretation
of FET by arbitral tribunals exercising jurisdiction under Chapter 11 of NAFTA. Because of
this reference, certain arbitrators limited the contents of FET to only the elements recognized
by this source of international law. Many awards, as a result, narrowed the interpretation of
the FET standard. This was done by requiring that claimants prove that the element of FET
invoked formed part of customary international law. This was the case, notably, in the Glamis
Gold64 and Cargill65 awards, where the arbitrators affirmed that the burden of proof was on
the investors. In determining whether the custom in question had been proven, the arbitrators
rejected66 a reference to the Tecmed award67 and, more generally, to any decision based on a
BIT that did not limit the elements of FET by reference to customary international
law.68 Therefore, the investors being unable to establish these elements, the arbitrators could
reject certain elements of FET previously recognized by decisions adopting a broader
interpretation

63
ibid.
64
UNCITRAL, Glamis Gold Ltd v United States, Award, 8 June 2009, paras 600, 601.
65
International Centre for the Settlement of Investment Disputes, Cargill Inc v Mexico, Award, 18
September 2009, para 273: The burden of establishing any new elements of this custom is on Claimant.
66
ibid para 286: The Tribunal thus holds that Claimant has failed to establish that the standard present
for
example in the Tecmed award reflects the content of customary international law.
67
ibid para 279: Claimants effort to establish the current customary content of fair and equitable
treatment relies rather heavily on the award rendered in Tecmed, a reliance that Respondent contends is
misplaced. The
13
Tribunal agrees.
68
ibid para 278.

14
of the concept. For example, the fact of provid[ing] a predictable investment environment69
or, in general, the obligation of transparency70 were not recognized as elements of FET.

The note of interpretation did not, however, have the result of imposing on arbitral tribunals a
return to the threshold and content for FET established in the Neer award.71 Certain awards,
in effect, adopted a flexible interpretation of the requirement to refer to customary
international law. They did not, for example, scrutinize whether given behaviours fulfilled the
conditions necessary to be considered as belonging to customary international law. Instead,
they insisted on the evolving and flexible character of custom.72 The reference to customary
international law also had only a limited effect on the recognition of legitimate expectations
as an element of FET. Certain NAFTA arbitral tribunals specified that legitimate expectations
could be considered an element of FET by virtue of Article 1105(1).73 The United States74
and Canada75 affirmed, however, that they were not an element of FET under Article 1105.
Other awards, by contrast, refused to recognize legitimate expectations.76

It must be concluded that the reference to customary international law in the note of
interpretation has not, thus, had the consequence, on the one hand, of harmonizing the
interpretation of FET and, on the other hand, of imposing a strict return to the content and
threshold set out by the Neer decision: If the purpose of NAFTA interpretation was to cabin
FET to a particular narrow meaning and excluding the possibility that FET may evolve over
time, that effort did not succeed.77

ii. A Reference to Customary International Law Prone to Generating Contradiction and

Disagreement.

In light of past developments, the content and the threshold for the application of the FET
standard remain imprecise and controversial. It is not surprising that arbitral tribunals often
specify that the determination of this threshold requires a case-by-case approach. 78
Additionally, tribunals are conscious that their room to manoeuvre with respect to the
interpretation of FET remains broad: The Tribunal grants that these words are imprecise and
thus leave a measure of discretion to tribunals. But this is not unusual.79 The reference to
customary international law is part of the reason for this lack of precision, in that it does not
69
ibid para 290.
70
ibid para 294: The Tribunal holds that Claimant has not established that a general duty of transparency is
included in the customary international law minimum standard of treatment owed to foreign investors per
Article 1105s requirement to afford fair and equitable treatment.
71
International Centre for the Settlement of Investment Disputes, Mondev International LTD v United States,11
October 2002; International Centre for the Settlement of Investment Disputes, ADF Group v United States,
Award, 9 January 2003.
72
International Centre for the Settlement of Investment Disputes, Waste Management Inc v Mexico (No II),
Award, 3 April 2004, para 99.
73
UNCITRAL, International Thunderbird Gaming Corporation v The United Mexican States, Award, 26
January 2006, para 147; UNCITRAL, Grand River Enterprises v United States, 12 January 2011, para 140.
74
UNCITRAL, Grand River v United States, US Counter-Memorial, 22 December 2008, 96.
75
UNCITRAL, Merrill & Ring Forestry LP v Government of Canada, Canadas Counter-Memorial, 13 May
2008, para 508.
76
Cargill Inc v Mexico (n 65) para 290: No evidence, however, has been placed before the Tribunal that
there is such a requirement in the NAFTA or in customary international law, at least where such
expectations do not
arise from a contract or quasi-contractual basis.
77
Jos E Alvarez, The Public International Law Regime Governing International Investment (Pocketbooks
of the Hague Academy of International Law 2011) 192.
78
International Thunderbird Gaming Corporation v United Mexican States (n 73) para 148.
79
Cargill Inc v Mexico (n 65) para 285.
15
appear to contribute to a clarification of FET. Instead, for certain authors, the only clear result
of this reference to customary international law is to have strengthened the contentions of
scholars and arbitrators that the international investment regime has affected evolving norms
of customary international law.80

Given the current state of investment law, customary international law cannot, in our view,
realistically supply a precise definition of the concept of FET. In other words, it
cannot establish the clear limits of this concept. As one author remarks, One is still unable
to see how we hope to define the standard of fair and equitable treatment by reference to a
second concept when we know it to be extremely hazardous to suggest that, contrary to the
first, it is perfectly circumscribed.81 In effect, the reference to customary international law
implicates an extremely broad notion: To a considerable extent the meaning of that standard
remains as elusive as ever.82 Some go further (possibly too far?), asserting that Though they
have all insisted in particular on the necessity of identifying the standard of fair and
equitable treatment with the minimum standard of custom, it seems that the American
drafters [of the model treaty] had no precise idea of what the latter signified exactly. 83 For
P. Dumberry, the lack of precision resulting from the reference to customary international law
is explained by its circularity.84 Beginning from the observation of the former president of the
International Court of Justice, S. Schwebel, who asserted that this reference drew upon
standards of international law contained in the corpus of international treaties,85 he
demonstrates that it is of no use to determine the content of custom, given its general
reference to hundreds of BITs. According to this same author, reference to customary
international law has only a gap- filling86 role. For others, it is, more generally, the entirety
of sources that are not treaties that hinder a uniform interpretation of FET: Unlike a treaty
whose beginning and end are usually precisely drawn and whose interpretation is subject to
at least some distinct rules, the existence of (and even the distinction between) rules of
custom and general principles leads to disagreements.87

The provisions of CETA, by including a list of behaviours constituting a violation of FET,

could serve to avoid this pitfall.

80
Alvarez (n 77) 194.
81
Raux (n 8) 180 (translated by author).
82
ibid 207.
83
ibid 182 (translated by author).
84
Patrick Dumberry, Are BITs Representing the New Customary International Law in
International Investment Law? (2010) 28 Penn State International Law Review 683.
85
Stephen M Schwebel, The Influence of Bilateral Investment Treaties on Customary International Law,
Proceedings of the 98th Annual Meeting of the American Society of International Law, 31 March, 3 April 2004,
2930: The result is that, when BITs prescribe treating the foreign investor in accordance with customary
international law, they should be understood to mean the standard of international law embodied in the terms of
some two thousand concordant BITs.
86
Dumberry (n 84) 700.
87
Alvarez (n 77) .228.

16
B. CETA: Forgoing a Definition by Reference in Favour of a Precise List; A More
Guided Form of Interpretation?

Considering the final text of CETA, one cannot help but notice that the drafting of the
provisions relating to FET differs from the past treaty practice of the EU Member States and
of North American countries. This agreement appears to favour a list of
measures constituting a violation of FET. Canada and the EU have demonstrated an effort to
clarify these measures by bringing them into focus and delineating them. For example, these
states have not undertaken a general obligation of transparency but rather have limited
this obligation in terms of both its intensity, a fundamental breach of transparency, and its
scope of application, in judicial and administrative proceedings. As a further example, a
measure that constitutes an abusive treatment of investors is illustrated by precise examples,
coercion, duress and harassment.

More generally, no reference is made to principles of international law, such as in BITs of

Member States of the EU or customary international law, as in the recent agreements of the
United States and of Canada. The negotiators appear to have wanted to avoid all definitions
of FET by reference, which as we have seen above, have not had the effect of increasing the
precision of the definition.

Does this mean that we can expect a more hemmed-in interpretation of FET by the permanent
investment tribunal exercising jurisdiction over CETA disputes? The forgoing of a definition
by reference and the adoption, at the same time, of a precise list will certainly guide and
constrain interpreters, who will no longer have to determine the content of principles of
international law or of customary international law. Panels will, however, have some leeway
with respect to the provision concerning legitimate expectations. This element of FET is still
fairly open-ended.88 The effort to define FET more precisely could have been extended to
this provision, as was the case in the agreement between the EU and Singapore.

Canada and the EU have, however, retained the ability to revise the content of the FET
standard in order to react to a potentially broad interpretation by CETAs investment tribunal.
The parallel with Article 1131(2) of NAFTA is clear. The two parties wish to stay vigilant
with respect to the interpretation of FET. Canada and the EU, both concerned about
preserving their freedom to regulate without incurring liability, can exercise this right as the
Member States of NAFTA did with the drafting of the note of interpretation of 2001.

The effort to achieve precision in the drafting of the provisions concerning FET is thus
strengthened by the ability to revise the text. As a result, all these elements militate in favour
of a strictly circumscribed interpretation of FET by panels exercising jurisdiction under
CETA in the future.

Conclusion
Clarifying in order to guide and constrain interpretation: this was the principal objective of
the drafters of CETA. The effort to define FET, in the form of a precise list, aimed to clarify
the behaviours of states that would constitute a violation of FET. This search for stability in
the law on the part of the EU and Canada is not limited only to FET. The goal of precision
permeates the entirety of the text. The new treaty practice of the EU, symbolized by CETA, is

88
See Part 1.B.

13
characterized by provisions giving greater direction to interpreters. This is the case, for
example, in the new definition of investment, which incorporates objective elements from
case law serving to distinguish it from other economic operations.89 The provision regarding
Indirect Expropriation aims for this same objective of precision. The intent of the European
Commission is clear on this point: For the first time in an EU agreement, detailed language
has been agreed upon to clarify what constitutes indirect expropriation. 90 This intent is
reiterated in one of the provisions of the final text.91

Beyond just CETA, the new generation of agreements between states regarding the protection
of foreign investment is informed by this intent to bring about precision. Numerous states,
with differing legal cultures and with commercial power that is not negligible have already
adopted a reference to customary international law in order to define and limit violations of
FET: Turkey,92 Nigeria,93 South Korea,94 Peru, Mexico,95 Singapore, but especially India and
Japan,96 and even China97 and the United Kingdom.98 CETA is thus aligning itself with a
new generation of BITs. The evolution is clear. While, before, BITs were limited to laconic
provisions with few indications to guide and constrain interpretation, the new treaty
instruments adopted by many states are much more precise, detailed, and voluminous. The
free trade agreement between the EU and Canada, even today, continues to lead this
movement, as the state of the art in the treaty practice of states concerning
investment protection.

Certain observers forecasted, a few months ago, a refusal on the part of the EU to see its
99
treaty practice contaminated by the NAFTA framework for arbitration. On reading the
final text, however, there is little doubt that the EU will adopt, with CETA and later
with TTIP, provisions that are part of the movement toward precision and the guiding
of the

89
CETA (n 3) art 8.1: [I]nvestment means every kind of asset that an investor owns or controls, directly or
indirectly, that has the characteristics of an investment, which includes a certain duration and other
characteristics such as the commitment of capital or other resources, the expectation of gain or profit, or the
assumption of risk.
90
Commission, Investment Provisions in CETA (n 6) 2.
91
CETA (n 3) annex 8-A(3): For greater certainty, except in the rare circumstance where the impact of the
measure or series of measures is so severe in light of its purpose that it appears manifestly excessive,
non-
discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives,
such as health, safety and the environment, do not constitute indirect expropriations.
92
BIT between Turkey and Tanzania. See World Investment Report 2012 (UNCTAD 2012) 90.
93
BIT between Nigeria and Turkey. See World Investment Report 2012 (n 92) 90.
94
Republic of KoreaPeru Free Trade Agreement. See World Investment Report 2012 (n 92) 90.
95
Agreement between the Government of the United Mexican States and the Government of the Republic of
Singapore on the Promotion and Reciprocal Protection of Investments (adopted 12 November 2009) art 4.
96
Comprehensive Economic Partnership Agreement between Japan and the Republic of India (adopted
16 February 2011) art 87.
97
BIT between Colombia and China (2008) (UNCTAD) art 2
<http://investmentpolicyhub.unctad.org/IIA/country/45/treaty/880> accessed 17 February 2016; Agreement
Between the Government of Canada and the Government of the Peoples Republic of China for the Promotion
and Reciprocal Protection of Investments (2012) (UNCTAD) art 4(2)
<http://investmentpolicyhub.unctad.org/IIA/country/42/treaty/778> accessed 17 February 2016: The
concepts of fair and equitable treatment and full protection and security in paragraph 1 do not require
treatment in addition to or beyond that which is required by the international law minimum standard of
treatment of aliens as evidenced by general State practice accepted as law.
98
BIT between Colombia and the United Kingdom (2010) (UNCTAD) art 2
<http://investmentpolicyhub.unctad.org/Download/TreatyFile/3253> accessed 17 February 2016.
99
Luke Eric Peterson, EU Member-States Approve Negotiating Guidelines For India, Singapore And Canada

14
Investment Protection Talks; Some European Governments Fear NAFTA-Contamination (2011) 4
Investment Arbitration Reporter 9.

15
interpretation carried out by CETAs permanent investment tribunal. This movement, today,
seems increasingly widespread, which indicates a shared reaction on the part of states to the
threat that investment arbitration poses to their freedom to legislate, notably concerning
ecological, social, health, and security measures. The new treaty practice of the EU and its
Member States concerning investment protection seems to respond to this objective. This is
the price that the EU must pay in order to calm the most ardent opposition to CETA and to
future EU free trade agreements. This is the price of Trade Commissioner K. De Gucht being
able, during the vote on CETA, to win the support of the members of the European
Parliament, many of whom are concerned about CETAs mechanism for dispute
resolution.100

100
European Parliament, MEPs Split over EU Free Trade Deal with Canada (n 2).

16