Chicago Journal of International Law


Siqing LiFollow

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Since the 1950s, the international community has increasingly recognized the fragmentation of international law, including of international dispute resolution. Inconsistent interpretations by different dispute settlement mechanisms have led to uncertain and confusing outcomes. In a recent case, Phillip Morris Asia v. Australia, the investor subjected disputes arising under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), a World Trade Organization (WTO) agreement to an investor-state arbitral tribunal rather than to the WTO. The investor claimed that the host state, by failing to keep its promise under TRIPS, violated the umbrella clause in the bilateral investment treaty (BIT) between it and the investor’s home state. An umbrella clause requires a state party to observe any obligation or commitments it enters into with respect to investments of the other state party. Investors frequently use umbrella clauses to bring claims arising outside of the BIT in investorstate arbitral tribunals. The Phillip Morris Asia v. Australia tribunal dismissed the case without answering its jurisdiction over TRIPS claims. Yet the investor’s argument here further broadened the scope of the umbrella clause and garnered much attention. This Comment analyzes the validity of this argument and asserts that a broad interpretation may violate the WTO’s exclusive and compulsory jurisdiction under the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It also argues the scope of the umbrella clause largely depends on its language and context. The Comment proposes two solutions for this issue: first, states should clarify the scope of the umbrella clause through its drafting; second, the WTO should clarify its jurisdiction over WTO claims.