A Sustainability Toolkit for Trade Negotiators:

Trade and investment as vehicles for achieving the 2030 Sustainable Development Agenda

5.4.1 Right to regulate

Provisions affirming states’ right to regulate are another way of reconciling investment objectives with environmental and social principles.

Some treaties incorporate a general exception clause adapted from GATT Article XX, which covers a wide range of exceptions including those relating to environmental protection (see Section 3.6). Other treaties have developed more refined texts exclusively addressing environment, safety and public health concerns. The question is whether such general exceptions actually cover the investment provisions of the agreement—many will specify which sections of the agreement they cover and will omit the investment chapter.

Another approach is to make it clear that states’ right to regulate is not an exception to investors’ treaty-based rights, but rather a pre-existing right, not limited by other clauses in the agreement. It is, therefore, more effective to draft and label these clauses in an affirmative approach, making it explicit that the state has the right to regulate in those areas.24

Option 1:Treat the right to regulate as a general exception to states’ obligations, and ensure that the exception covers the investment provisions of the agreement

These provisions cover a wide range of exceptions, including those relating to environmental protection


See Section 3.6.

How Commonly Used

Option 2:Affirmatively provide the state parties with the right to regulate

Reaffirms a state’s right to regulate in the public interest and confirms that the treaty does not alter the state’s basic right to regulate. Can be combined with the above option.


“In accordance with customary international law and other general principles of international law, the Host State has the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives.

Except where the rights of a Host State are expressly stated as an exception to the obligations of this Agreement, a Host State’s pursuit of its rights to regulate shall be understood as embodied within a balance of the rights and obligations of Investors and Investments and Host States, as set out in this Agreement.

For greater certainty, non-discriminatory measures taken by a State Party to comply with its international obligations under other treaties shall not constitute a breach of this Agreement.”  (SADC Model BIT, Article 20)

How Commonly Used


“The Parties reaffirm the right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity.” (EU – Vietnam FTA, Chapter 8, Chapter II (Investment), Article 13bis(1))

How Commonly Used


“Recognising the right of each Party to establish that Party’s own levels of environmental protection, and to adopt or modify accordingly that Party’s relevant laws and policies, each Party shall seek to ensure that those laws and policies provide for and encourage high levels of environmental protection, and where relevant, are consistent with the agreements referred to in Article [listing MEAs], and shall strive to continue to improve those laws and policies.” (Canada – Korea FTA, Article 17.2)

How Commonly Used

  • 24

    See, for example, SADC Model BIT, supra note 2, pp. 39-40, Article 20 (Right of States to Regulate). Also see Indian Model BIT, supra note 8, Article 2 (Scope and General Provisions.

Previous Scroll to top Next