CYIL vol. 14 (2023)

CYIL 14 (2023) ASSET FREEZING IN INVESTMENT ARBITRATION: LESSONS LEARNED … order, 78 or for the maintenance and restoration of international peace and security. 79 While such provisions have been often perceived as self-judging, this attribute must be in fact expressly reflected in their language, otherwise the exceptions are subject to an objective judicial review. 80 In contrast to the above mentioned, the recent interpretation of the standard of review of a security exception related to armed conflicts under Art. XXI(b)(iii) of the 1994 GATT in a dispute between Russia and Ukraine has, however, muddied the waters. In 2019, this clause was successfully invoked by the Russian Federation in Measures Concerning Traffic in Transit in response to a complaint by Ukraine which challenged travel restrictions at the Russian Ukrainian border for traffic destined to Kazakhstan and the Kyrgyz Republic. In its report, the Panel developed a two-prong test, requiring first an objective assessment of the existence of an emergency in international relations as well as the purpose of the State’s actions, and second imposing an obligation of good faith interpretation on World Trade Organization (“WTO”) Member States to specify their essential security interests and prove a link between the respective measures to such interests. 81 Interestingly, the Panel agreed that Russia was free to determine the content of its essential security interests in connection with the annexation of Crimea and upheld the plausibility of Russia’s measures which were not so ‘remote from, or unrelated to the emergency’, without engaging into any discussion on the issue of State responsibility. 82 Noting that Art. XXI of the 1994 GATT was not open for abuse due to the control elements in this clause that was not entirely self-judging, 83 the Panel effectively set a very low threshold, allowing States to rely on the provision even when they trigger the events warranting its application themselves. While the WTO law has been famously coined a self-contained regime, it is by far not unusual for arbitral tribunals to cite the WTO jurisprudence in their reasoning. 84 In investment disputes dealing with unilateral coercive measures, the conclusions of the WTO Panel could have serious repercussions for State responsibility as the imposition of such measures would be easily justified even in situations of a sanction spiral. As a result, the respondent State would be able to escape its secondary obligations arising from its unlawful interferences with foreign direct investments despite its own wrongful acts that had spun the wheel of 79 Apart from the dubious legality of unilateral sanctions, numerous studies have equally questioned their effectiveness and pointed to their potentially negative impact on the escalation of conflicts. See e.g. PAPE, R. A. (1997). Why economic sanctions do not work. International Security, Vol. 22, No. 2, 90; EARLY, B. (2015). Busted Sanctions: Explaining Why Economic Sanctions Fail (Palo Alto: Stanford University Press) . As such effects could arguably run against the obligations of States in relation to the maintenance of international peace and security, this exception seems to be unsuitable to justify the adoption of similar measures. For the sake of conceptual clarity, this type of essential security clauses is out of the scope of this paper. 80 ZRILIČ (n 55), pp. 143-146. 81 Measures concerning Traffic in Transit , paras. 7.71, 7.77, 7.132-7.133 and 7.138-7.139. 82 Ibid., paras. 7.123-7.126, 7.139, 7.145 and 7.5. 83 Ibid., para. 7.102. 84 Continental Casualty , para. 192; Methanex Corporation v. United States of America , UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, para. 6. For a detailed analysis, see TEREPOSKY, G. and MAGUIRE, M. (2011). Utilizing WTO Law In Investor-State Arbitration. In: ROVINE, A. W. (ed.), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (2010) , Vol. 4 (Leiden: Brill, Nijhoff), pp. 247–283. 78 On the distinction between public order and security interests, see Continental Casualty Company v. The Argentine Republic , ICSID Case No. ARB/03/9, Award, 5 September 2008 (“ Continental Casualty ”), para. 174.

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