Research Methodology
Exploratory Research: Given the evolving nature of the topic, an exploratory research design will be employed to gather a comprehensive understanding of the relationship between sovereign investors and national security exceptions in the WTO and investment law.

• Data Collection:
  • Documentary Analysis: Extensive analysis of legal texts, treaties, agreements, and case law related to the WTO and investment law.
  • Case Studies: In-depth examination of specific cases where national security exceptions were invoked in the context of sovereign investments.
  • Primary Data: Interviews, official legal texts, and case records.
  • Secondary Data: Academic articles, reports, and analysis by reputable institutions.
     
• Interdisciplinary Approach: Employ an interdisciplinary approach, combining legal, economic, and political science perspectives to provide a holistic analysis.
   
• Peer Review: Seek peer review and feedback from experts in international law, trade, and investment to enhance the research's credibility.

This research methodology aims to provide a rigorous and comprehensive analysis of the relationship between sovereign investors and national security exceptions in WTO and investment law, contributing to a better understanding of this complex and evolving issue.

BACKGROUND AND SCOPE OF THE PAPER
The idea of national security has changed to include a variety of dangers, such as non-State actors, non-military, and non-human threats, like economic crises, cybersecurity threats, terrorism, and climate change. Particularly, some States are actively extending the definition of national security to cover economic security, protection of vital infrastructure, communications assets, cutting-edge technology, and data security.

National security, however, cannot be viewed in a purely theoretical sense. Instead, the well-established justification for security exclusions to protect nations' autonomy in matters of national security and defence must be understood within the constraints imposed by substantive responsibilities in international economic agreements. It entails striking a balance between competing demands for predictability, transparency, due process, and non-discrimination.

This chapter makes the case for a consistent approach to the examination of security exclusions under international trade and investment law in light of the general desire of the international community to handle global issues on a multilateral basis. It begins by outlining the shape and organisation of security exceptions under both regimes.

The choice of the standard of review and the most significant concerns arising from the resolution of national security conflicts are covered second. Thirdly, it examines the developments in security exception interpretation in WTO and investment law, as well as the consequences for sovereign investors.

The consistent application by international adjudicators under both regimes could assist in taming the released opportunistic impulses by catalysing domestic legal and policy reforms that would provide some degree of constraint and scrutiny in the implementation of protectionist measures. In particular, it might encourage trade and investment liberalisation while guarding against the emergence of sovereign investments as instruments of political sabotage and diplomatic evasion.

INTRODUCTION
Political or judicial trade and investment forums are rife with talk about security.

An abrupt change from a protracted period of restraint regarding the use of security exclusions before international trade and investment courts can be seen in this pattern. In that sense, we see the passing of youth: after a period of fairly stable global trade relations that produced mutually beneficial, if unbalanced, outcomes, comes a period in which trade regulation takes on its unpleasant face, reminding us of how closely tied trade is to foreign policy and power politics. The evolving geoeconomic environment has raised the stakes of international competition and newforms of economic warfare.

Trade flows are being instrumentalized, as States look to turn the increasing dependence of businesses on global markets and supply chains into leverage and choose to use tariffs and blockades aimed to protect their national security interests as instruments of choice in pressure campaigns. This is the result of a gradual reversal of a centuries-long reality of virtual exclusivity of foreign direct investment (FDI) flows from the developed world to the developing world, coupled with an important rise of FDIs from emerging economies, such as:

China.
An agenda of economic nationalism driven by politics and centred on issues of national security and autonomy, geopolitical positioning, and national competitiveness is arguably strengthened by the resurgence of the trend towards the creation of national industry champions and the Chinese government's acquisition of resources from abroad.

Particularly, the FDIs of State-Owned Enterprises (SOEs), Sovereign Wealth Funds (SWFs), and other State-influenced enterprises (together defined as "sovereign investments") are the subject of the issues addressed. These worries are a result of the worry that such investments would no longer operate under a strict market-based logic but rather under geopolitical pressure. As a result, host States are starting to rethink their strategy with regard to the creation of investment agreements in particular so that they move away from protecting investments and towards giving the State a suitable regulatory margin of manoeuvre.

States also implement investment screening tools in addition to greater latitude in the interpretation and execution of investment agreements. Such forces that view every economic transaction as possibly having an influence on national security interests have been unleashed by protectionist language and a new variety of contemporary mercantilism. This does not imply that security was never the topic of contentious debates within the framework of the international economic order. On the contrary, political forums were rife with these events over a large portion of the Cold War era. Such conversations were, however, exempt from court review. However, security issues have recently resurfaced, necessitating a review of the definition, boundaries, and extent of national security exceptions.

In addition to non-State actors, non-military, and non-human threats like economic crises, cybersecurity, terrorism, infectious disease, and climate change, the notion of national security has developed to address a variety of threats. Particularly, some States are actively extending the definition of national security to cover economic security, protection of vital infrastructure, communications assets, cutting-edge technology, and data security.

It might be argued that the idea of national security cannot be understood in isolation. Instead, the well-established justification for security exclusions to protect nations' autonomy in matters of national security and defence must be considered within the constraints imposed by substantive responsibilities in international economic agreements. It entails striking a balance between competing demands for predictability, openness, due process, and the absence of discrimination.

Modern free trade agreements (FTAs) sometimes include investment-related rules in addition to those governing trade. The natural connections between commerce and investment have been strengthened by global value chains as well. Both regimes set limits on governmental actions that are taken in the public interest but also have an impact on business enterprises. In this way, they serve similar purposes.Furthermore, regardless of the particular treaty's content, exception clauses under all international economic agreements must be interpreted in accordance with the customary principles of treaty interpretation outlined in the Vienna Convention on the Law of Treaties (VCLT).

This chapter makes an argument for a consistent approach to the examination of security exclusions under international trade and investment law in light of the general desire of the international community to handle global challenges on a multilateral basis. It begins by outlining the shape and organisation of security exceptions under both regimes. The choice of the standard of review and the most significant concerns arising from the resolution of national security conflicts are covered second.

Thirdly, it examines the developments in security exception interpretation in WTO and investment law, as well as the consequences for sovereign investors. This chapter comes to the conclusion that by ensuring a certain degree of restraint and scrutiny in the implementation of protectionist measures, the clarification of the scope of the security exceptions clauses and their coherent application by international adjudicators under both regimes could help tame the unleashed opportunistic forces. In particular, it might encourage trade and investment liberalisation while guarding against the emergence of sovereign investments as instruments of political sabotage and diplomatic evasion.

National Security Exceptions in WTO and Investment Law
Much of the discussion to this point has been filtered via a set of legal principles that may describe the connections between international economic law and security. For instance, the General Agreement on Tariffs and Trade (1994) (GATT), Art. XIVbis General Agreement on Trade in Services (GATS), and Art. 73 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) all govern how trade and national security are related within the framework of international trade. They provide potential escape routes for States looking to defend legitimate non-trade policy interests, together with general exceptions under individual accords (such Art. XX GATT).

A wide carve-out is implied by GATT's Art. XXI, which stipulates that "nothing in this Agreement" shall be interpreted as prohibiting WTO Members from taking actions "which it considers necessary" as specified by this clause. Despite fundamental differences in their subject matter and application to products, services, and intellectual property rights, respectively, all WTO law rules relevant to national security generally use the same wording. A number of FTAs similarly replicate the language and organisation of GATT Article XXI.

Security is a concept that can also be found in bilateral investment treaties (BITs) and the investment chapters of free trade agreements (collectively known as IIAs). It is frequently used to refer to the obligation of the host State to safeguard the investor and its investment against negative outcomes. To safeguard physically against violations by government agencies or private parties, such clauses are generally grouped under the general heading "full protection and security."

Currently, the GATT's Art. XXI section on security exclusions that can be used to stifle commerce in products has some of the most complex language ever written. General or security exceptions of the type outlined in GATT Articles XX and XXI. However, as a matter of more recent treaty practise, security exceptions in the IIAs have been promulgated in a binary fashion: either IIAs (notably those concluded by the United States (US)) include a broad, undefined carve-out vis-à-vis any treaty obligations if a State's essential security interest is at stake, or IIAs incorporate a more elaborated exceptions clause, frequently by way of cross-references to WTO law or by including However, in other agreements, we also see Parties' willingness to provide the arbitrator with as much assistance as possible by combining language from WTO law and other countries.

Having said that, even though the drafters in both situations wanted to be more specific and limit the parties' ability to act unilaterally, they lacked the knowledge necessary to create a comprehensive contract that would have addressed all conceivable future emergencies. Giving host countries the necessary-and occasionally excessive-discretion to respond to internal or external economic or political shocks and crises without compensating foreign investors increases risk for the investor but may be necessary to maintain the agreement's long-term effectiveness and implementation.

This leads to the identification of three categories of security exceptions under international economic agreements: exceptions allowing a State to take security measures as "it considers necessary" subject to good faith scrutiny (WTO-style exceptions); exceptions subject to the full scrutiny of the adjudicator; and exceptions that expressly exclude any security measures from judicial review (self-judging). Because the wording of the various trade and investment agreement clauses falls into the first two categories, adjudicators can infer a consistent threshold of scrutiny for the two categories of exceptions under international trade and investment law.

A number of BITs use the third category of security exceptions, which appears to totally exclude any security measure from being subject to arbitral review, regardless of whether it was adopted in good faith.The explicit, self-evaluative language of security exceptions hasn't yet prevented any panel from reviewing a dispute. This can imply that the parties are hesitant to use security exceptions during the proceedings if they are clear about their aim to preclude adjudication of security measures.

Adjudication of National Security Disputes
The International Court of Justice (ICJ), WTO panels, and investment tribunals have all accepted jurisdiction in cases involving economic agreements when confronted with the issue in order to determine whether or not national security issues were involved and whether or not the adoption of the in question measures, which deviated from the State's international legal obligations, was justified.

The case of Djibouti v. France is noteworthy because it is the first time the International Court of Justice (ICJ) has been asked to review a self-judging provision of the Mutual Assistance Convention's Article 2(c), which states that a state may refuse to provide assistance in criminal proceedings "if it considers that the execution of the request is likely to prejudice its sovereignty, its security, its ordre public, or other of its essential interests."

In a few cases, the ICJ was required to make decisions regarding the application of security exceptions that lacked self-judging language. The ICJ rejected the US-Nicaragua security treaty's absolute self-judging nature of exception in Nicaragua v. United States, saying that it "does not restrict [the Court's] jurisdiction in the present case, but is confined to affording the Parties a possible defence on the merits to be used should the occasion arise." The ICJ commented on a similar clause included in the US-Iran treaty that allowed for the measures "necessary to protect [State's] essential security interests" in Oil Platform and Iran v. United States.

The Panel argued that it should assess security policies that have an impact on international trade and put forth a nimble and politically sensible framework for deciding security-related disputes. Because of its "adjudicative function," it emphasised that it had "inherent jurisdiction" over the matter, especially since the matter Settlement Understanding (DSU) doesn't contain any additional or unique rules for disputes involving the provisions of Article XXI.

The language of security exceptions does not expressly call for a WTO panel to be disqualified from hearing instances concerning the application of exceptions. Due to this, a panel that has been constituted has the authority to hear a complaint and to handle all legal matters associated with that disagreement, even if only one party is involved.

Choice of Standard of Review
In an international setting, the standard of review establishes the scope of the latitude that national authorities have in making particular choices and has an impact on how much authority is divided between the national and international levels. While the common law gives rise to the legal doctrine governing standards of review, the idea of a margin of appreciation has its roots in European legal heritage.

The margin of appreciation notion, which is typically linked with international human rights legislation, can be defined as the amount of deference an adjudicator is ready to provide to national decision-makers in the international environment. The terms "standard of review" and "margin of appreciation" could be seen as referring to the same thing, albeit in the opposite sense (i.e., a large margin).

When a panel or the Appellate Body examines the degree of a WTO Member's compliance with WTO commitments in accordance with Article 11 DSU, the standard of review for WTO disputes comes into question. The thoroughness and rigour of the WTO judicial organ's evaluation of the WTO Member's national measure is based on the standard of review.

As a result, this establishes the WTO Members' vertical power allocation and margin of discretion. However, Article 11 does not explicitly state when adjudicators should conduct a de novo assessment of a case or when a more deferential approach is required.The pendulum of security exceptions appears to be tilting towards deference, at least according to WTO practise up to this point. The Panel's decisions in Saudi Arabia, Russia, and Traffic in Transit.

In comparison to other fields of public international law, international investment law has perhaps a far less developed and consistent understanding of the standard of review. Because of the concept of state sovereignty, states have the power to control economic and business operations that take place on their soil.Investment tribunals are frequently asked to weigh the regulatory authority of host States against the protections granted to foreign investors by IIAs, particularly during economic downturns.

Due to the hybrid (public/private) structure of investment arbitration, where the concept of equality of the parties will be mitigated by the presence of a sovereign entity, tribunals are expected to accord due weight to the sovereign functions of a State in any such balancing procedure.

Trends in the Interpretation of Security Exceptions in WTO and Investment Law
The Evolving Concept of National Security
The WTO Agreements' security exceptions can only be interpreted in light of the idea of "essential security interests." The phrases "essential," "security," and "interest," regardless of how WTO Members interpret the scope of their own national security, have common meanings. While "security" refers to the state of being shielded from or not exposed to risk, "interest" refers to the relationship of being involved or concerned with prospective harm or (especially) advantage.

'Essential' is defined as '[t]hat is such in the utmost or highest meaning' and '[a]ffecting the essence of anything; significant, important'. As a result, not all security interests are related to national security and not all security interests are "essential."In the absence of, the security exemption requires a qualified interest.

According to the Panel in Russia - Traffic in Transit, "essential security interests" refer to "those interests relating to the quintessential functions of the State, namely the protection of its territory and its population from external threats, and the maintenance of law and public order internally."

Since "[t]he specific interests that are considered directly relevant to the protection of a State from such external or internal threats will depend on the particular situation and perceptions of the State in question, and can be expected to vary with changing circumstances," the designation of essential security interests is generally left to the WTO Member. Therefore, non-military security can be viewed as vital due to new risks and circumstances just as non-military security, for example, can be generally judged essential.

Good Faith Review
The function of good faith does not seem to be to establish a precise code of conduct, but rather to serve as an interpretive principle that would be crucial in the interpretation and application of the relevant rules, both procedural and substantive, as it emerged from the galleries of cases of international courts and tribunals. Given the numerous inconsistencies in the law caused by various methods of interpreting security exceptions, good faith as a doctrine that exists above the law may have a corrective and harmonising role to play that is crucial when dealing with security measures.

WTO adjudicators have inferred the assumption that WTO Members have behaved in good faith in upholding their WTO obligations from the rule of pacta sunt servanda stated in Art. 26 VCLT. The Appellate Body explained in US - Continued Suspension that "the presumption of good faith attaches to the actor, but not to the action itself." As a result, even while the presumption of good faith focuses on the motivations behind a Member's actions, it does not address the issue of whether the implementing Member's action actually resulted in substantive conformity.

Necessity of Security Measures:
In many legal systems, the concept of necessity is utilised to draw the line between allowed and banned actions when those actions are inimical to the values of the system. As previously mentioned, exceptions under many economic agreements specify a "necessity" nexus between the government action and the permissible objective, such as that "it considers necessary to protect" certain interests, or that:
"it considers necessary for the fulfilment" of certain obligations, to protect its security interests.The necessity requirement of the treaty exception examines the degree to which the chosen measures are acceptable for the State in question's claimed regulatory objective. In many regimes, the necessity criteria restricts only means and calls for an adjudicating body to inquire whether the purpose could have been achieved without moderate restrictions.

Many security exceptions include ratione materiae limitations, meaning that they only apply to particular items or circumstances.148 As an example, a WTO Member can defend trade restrictions that serve to safeguard its crucial national security interests by citing GATT Article XXI(b):

nuclear fission and fusion; (ii) referring to the services supporting a military establishment; (iii) implemented in times of war or other crises in international affairs. Since national security can be understood to cover a wide range of domestic businesses or areas, Art. XXI makes an effort to define it more specifically. Problems primarily arise in accordance with Art. XXI(b)

(iii). and the scope of the terms 'other emergency in international relations'. Indeed, the case law reveals that it was under this catch-all provision that most cases were brought before the contracting parties during the GATT years and then before the WTO.[4]

Sovereign Investors and Security Exceptions:
State capitalism is a global phenomena, especially if we also consider State-driven institutions that seek to regulate capital allocation based on security interests, in addition to direct State ownership. There are approximately 1'600 worldwide operating SOEs in 2020, up 7% from 2019. The pandemic has forced several governments to postpone their privatisation plans or take ownership stakes in businesses as part of a corporate rescue plan. Overall, it is possible to see a longer-term trend of SOEs engaging in less cross-border activities. Originally, sovereign investments were meant to be truly made for business interests.

Conclusion
It is intended to increase assurance about the regulatory role of States and provide additional direction regarding their comprehension and execution of public policy and national security in international economic relations by including specific exceptions in international economic accords. The purpose of this chapter was to show that, given the similarity of the treaty language employed, such assurance and clarity can be achieved provided security exceptions are, to some extent, interpreted consistently across different treaty regimes.

The purpose of the drafters to confine judicial review to their use in good faith is indicated by the specific phrase of "it considers necessary for the protection of [State's] essential security interests." Therefore, adjudicators should only consider whether the State sufficiently proved its important security interests to prove their validity and established the plausibility that the measures were put in place to protect those interests. Adjudicators must examine objective aspects of the exception clause, if any, in addition to a good faith examination that focuses on the measures to prevent abuse, such as whether the measure was implemented during a "other emergency in international relations" as defined by GATT Article XXI(b)(iii).

In the Nicaragua and Oil Platforms decisions, as well as in investment tribunal proceedings, the ICJ underlined that a stronger standard of review is required for the evaluation of security exceptions without the phrase "it considers necessary."

On the one hand, substantive review raises the possibility that international courts and tribunals may ignore the changing national security interests of States and will reimpose security concepts based on traditional military doctrine. However, as the current practise demonstrates, international courts and tribunals can and do afford some deference to a state's decision through customary legal procedures.

For instance, when interpreting the constantly evolving term "essential security interests" or the concept of "necessity," which inherently varies depending on the specific facts and its application.

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• Giacomo Rojas, Elgueta, Benedetta Mauro - The Paradoxical Relationship between 'Foreign Direct Investment Screening' and International Investment Law: What Role for Investor-State Arbitration? Posted: 2018-10
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