Chapter 9 examines security exceptions known to many investment treaties. These clauses are designed to expand the host state's room to adopt certain measures in the pursuit of security interests without having to compensate foreign investors. While seeking to enhance legal security, security exceptions remain ambiguous and controversial in many respects. The chapter conducts a comprehensive study of relevant case law, not only of recent investor-state arbitrations but also of the World Trade Organization’s dispute settlement body. On this basis, it offers guidance on the interpretation of elements common to security exceptions as well as on the level of review to be conducted by investment tribunals. The chapter delineates the limits of state discretion and proposes that international humanitarian law should have an impact on the application of security exceptions in the context of military operations. In evaluating drafting options, the chapter further assesses the merits of including a security exception in investment treaties and makes suggestions as to their wording and function.

The architects of the post-war international economic order set out for the legal framework for liberal international trade underpinned by the GATT regime. Nonetheless, the East–West division necessitated a regime regulating trade between these two camps with the main objective to prevent strategic and technological articles transferred to the Soviet Bloc. Russia joins the Wassenaar Arrangement (the successor of COCOM) while China is still out. The market economy oriented GATT/WTO widens its membership and importantly accepted China in 2001 and Russia in 2012. Its diversified memberships make it a real ‘world trade organisation’ but at the same time introduce huge challenges for its governance, as manifested in the proliferation of national security exception. Whether the national security exceptions is ‘self-judging’ has been debated since the GATT era, but intensified in the past decade owing to the transformation of ‘negative consensus’ to ‘positive consensus’. The ‘self-judging’ debates of national security points to the underlying tension between sovereign as masters of treaties and adjudicator as treaty-interpreters.

Deference may operate akin to an order, such that the second-order reasons for recognising a State’s authority shut off the adjudicator’s own exercise of decision-making authority. This is Raz’s understanding of the impact of recognising another actor’s authority; the recognition of authority creates in effect a duty to follow the authority’s decision. Two modes of deference reflect this understanding of authority. In a ‘deference as submission’ mode, a domestic decision becomes dispositive of the outcome of an international adjudicator’s enquiry on the issue to which deference relates. This mode of deference is introduced in Section A. At the other end of the deference spectrum, a ‘deference as control’ mode also reflects this approach to authority albeit in reverse: the international adjudicator’s authority is treated as dispositive, precluding any reference to second-order reasons for deference to a domestic decision-maker’s authority. This mode of deference is introduced in Section B. Although they sit at opposite ends of the deference spectrum, both modes of deference are considered together in this Chapter because a conclusive approach to authority informs their operation.