A Study Of The Adjusting Mechanism Between Environmental Measures And Investment Protection Under USMCA Expropriation Clause

Since the 1990s,with the increasing global economic development,environmental protection has gradually become a hot issue.More and more countries have realized the importance of environmental protection to sustainable development,thus they have started to add articles or clauses about environmental protection into their various economic activities or agreements,both at home and abroad.The most representative product among them is the North American Free Trade Agreement(NAFTA),it is the first international investment agreement that has included environmental clauses,therefore,it is called by the academia as the greenest free trade agreement.NAFTA was replaced by USMCA since July 1st,2020,but USMCA has not made any changes or amendments to the clauses discussed in this thesis,they remained intact in USMCA.It is noteworthy that although USMCA paid close attention to environmental regulation,it also has many investment protection clauses.It is provided that the home country’s environmental regulation must not infringe on the foreign investor’s special treatments granted by NAFTA.For instance,foreign investors enjoy National Treatment,Most-Favored-Nation Treatment and Minimum Standard of Treatment,meanwhile they have the right to claim compensation to home countries’direct or indirect expropriation2.To some extent,these investment protections have restricted the home country’s autonomy in terms of environmental protection.Therefore,once the home country’s environmental regulations hurt foreign investors’ rights,and those regulations constitute violations of USMCA’s various investment protection clauses,investment disputes will be incurred between the home country and foreign investors.Once the environmental measures implemented by the home country have some bad effects on foreign investments,usually the foreign investors will raise objections to those environmental measures and invoke either the expropriation clause or the other clauses about unjust treatments.However,compared with the latter,the violation of the former is a bigger burden on the home country,they have to pay a large sum of money as compensation.Therefore,the conflicts between environmental measures and investment protection is centered on the expropriation clause.The expropriation clause has been applied widely and controversially.Expropriation is sub-divided into direct expropriation and indirect expropriation,and indirect expropriation covers a wider scope than the direct one.Once a foreign investor claimed that the home country’s policies or regulations prevented the investor’s factories or companies from functioning normally,he/she can invoke the expropriation clause for compensation.For this reason,there are plenty of relevant cases and adjudications for the author to analyze this topic from multiple perspectives.It can be said that the expropriation clause and relevant cases is a manifestation of the conflicts between environmental measures and investment protection and their balance and adjustments in USMCA.This thesis will be based on the relevant clauses about USMCA expropriation clause.Through analysis of the adjustments under the expropriation clause and of the past case law,the author will extract some lessons for China to learn from them in the area of Free Trade Agreement.China has made significant progress in the field of Free Trade Agreements development,from the earlier China ASEAN Free Trade Area Agreement to the more recent free trade activities with the "Belt and Road" member countries,and most notably,the recent Regional Comprehensive Economic Partnership.China needs experiences in this field to improve the operation of economic activities with foreign countries and to better cooperate with themThis thesis is divided into five parts.The first part is a general introduction of the conflicts between environmental measures and investment protection in USMCA.The author will,after introducing the background information of USMCA,elaborate on the major manifestations of the conflicts between environmental measures and investment protection and then point out the reasons for it.The second part is about the balances and adjustments made to solve the conflicts.The author will first listed and commented on the clauses and articles in USMCA about environmental measures and investment protection.Among these clauses,there are more than what is relevant to the expropriation clause,as the whole USMCA adjustments is an organic system and cannot be easily severed.For the wholeness and to make it easier for the readers,the author will have a comprehensive introduction of the relevant articles.The rest part of the second chapter will focus on the adjustments and efforts USMCA has made to balance the two.The third part is about these adjustments and efforts’ application in real practice.The author will discuss the adjustment mechanism together with three case studies.In the last part the author will try to give an objective and comprehensive comment on the adjustments between environmental measures and investment protection based on the analysis in the first three parts.The author will also extract some lessons from the above analysis for our country.The research method applied by this thesis is mainly by analyzing relevant cases,reading academic materials and critical thinking.The author will thoroughly explore the conflicts between environmental regulation and investment protection through clauses study and case reading;the author will study this topic by researching and reading both Chinese and English journals and thesis;and the author will analyze the reasons for the conflicts in a critical way on multiple levels and from different perspectives in order to have a comprehensive and objective analysis.The topic studied by this thesis is innovative.Since USMCA has just taken effect on July 1st,2020,all of the material the author searched are thesis or articles about NAFTA.Till now,there are three thesis on the same topic published abroad,but they are all detailed introduction of the contents of the expropriation clause,and have pointed our the conflicts it has with the investment protection clause.Very few was mentioned about case study and no conclusions have been made about what other countries can learn from these conflicts.Fewer published works were found in China.Although there are some journal articles and thesis focusing on the adjustments and mechanisms to dissolve the conflicts between environmental measures and investment protection,the analysis is not deep enough,and they did not put much emphasis on the expropriation clause.Compared with these publications,this thesis is innovative in that it will have a deep analysis on the expropriation clause in USMCA,which will be completed with relevant case studies,and the author will accordingly give some precious lessons for our country to learn from.