Arato: The Institutions of Exceptions

Julian Arato (Univ. of Michigan - Law) has posted The Institutions of Exceptions (Michigan Journal of International Law, forthcoming). Here's the abstract:

International economic law binds states’ hands in the interest of liberalizing markets in various ways, including cross border trade in goods and services (trade) and capital (investment). The treaty regimes for both trade and investment do this by disciplining states through legal rules, while preserving a modicum of governmental power over policy. Though not always recognized as such, the preservation of policy space in these regimes typically involves exceptions-style reasoning by adjudicators – formally in the case of most trade and some investment treaties, and informally in the investment treaty regime more generally. This "exceptions paradigm" of justification has worked well in the trade regime, where it has been especially key to securing a workable balance between market disciplines and regulatory policy space in the WTO/GATT context. But it has been less successful at striking a reasonable balance in the investment regime – irrespective of whether the paradigm has been formally codified in an exceptions clause. This Article seeks to explain why, by focusing on the institutions within which this mode of justification is embedded. Certain institutional differences between these regimes help explain the varied success of exceptionalism in trade and investment, in particular: the right of action (public vs private); the degree of judicial centralization (ad hoc arbitration vs court system); and the available remedies (retrospective compensation vs prospective injunctive relief). I argue that it is trade law’s public-oriented institutions that have made the exceptions clause workable – not the other way around. By contrast, investment law’s private-oriented institutions make that system particularly inhospitable to exceptions-style justification.