Indirect Expropriation Research Articles

The Identification and Regulation of Expropriation in International Investment Law

This essay focuses on the concept of expropriation within the framework of international investment law. Expropriation has evolved from direct state appropriation of foreign investors’ property to indirect expropriation, a more covert measure without the transfer of ownership. This essay distinguishes between direct and indirect expropriation, explores the meaning of expropriation through key cases, and evaluates the challenges tribunals face in legal practices. Finally, this essay examines the role of fair and equitable treatment (FET) standards and compensation mechanisms. With an effective regulation of expropriation, the author believes that a balance between state sovereignty and investor protection can be achieved.

Rebalancing Investment Protection Standards

Abstract Treaty reform has largely focused on refining the various investment protection standards under IIAs to achieve a more appropriate balance between investment protection and preserving the state’s right to regulate. This article takes stock of the treaty language used to recalibrate investment protection standards and evaluates their effectiveness in preserving policy space. The article ultimately concludes that greater precision in the various investment protection standards has been effective in preserving regulatory space in some cases, notably in the case of indirect expropriation. By contrast, reform of the fair and equitable treatment may be of limited effectiveness, whereas the reforms of national treatment clauses and most favoured nation clauses have yet to be tested by arbitral treatment. While in principle the latter reforms appear to directly address the concerns raised by previous arbitral authority, it remains to be seen whether they will prove to be effective.

The indirect expropriation in the Colombian Model of bilateral Investment Treaty and its impact in Latin American BITS: an overview from Cuba

El objetivo principal de este artículo es examinar el pronunciamiento sobre la expropiación indirecta en el Modelo de Tratado de Inversión Bilateral Colombiano vigente y su incidencia en los Acuerdos de Inversión latinoamericanos rubricados, teniendo como antecedentes los dos (2) modelos anteriores adoptados por este pais. El método empleado ha consistido en el estudio de la expropiación indirecta del Modelo colombiano del 2017 y su comparación con la establecida en los Modelos del 2008 y 2011, con el propósito de conocer su admision o exclusión en los Acuerdos de Inversión de Colombia y demás naciones del área. Sobre el análisis de los Acuerdos de Inversión se identificó el Modelo Colombiano incorporado y por ende utilizado como fundamento en las demandas contra los Estados de la región posteriores al 2017 y hasta el 2021. El resultado principal de este trabajo ha sido la constatación de las falencias y disfuncionalidades de cada una de las claúsulas de expropiación incorporadas en relación con la expropiación indirecta a partir del Modelo de Tratado de Inversión colombiano abrazado y cual de ellos provee una mayor protección, convirtiéndose entonces en la claúsula referente para la región latinoamericana.

Article: A Case Note on the ICSID Tribunal’s Decision in Hydro and Others v. Albania: Indirect Expropriation and Proportionality

This case note delves into the complexities of balancing state regulatory authority and investor protections in the context of indirect expropriation, as exemplified in Hydro and Others v. Albania. The commentary scrutinizes the inherent structural bias of the Tribunal, which favoured the sole effects doctrine over the police powers doctrine, thereby slanting the scale towards investor interests. This focus often leaves states defending not just the merits of their regulations but also the extent to which these regulations impact the investor, shifting the tribunal’s attention from regulatory intent to merely quantifying investor detriment. Building on the notion of managerialism, the note argues that this bias makes it challenging for the Tribunal to shift away from its initial pro-investor stance. To restore balance, the commentary advocates for a framework guided by the police powers doctrine, enriched by the principle of proportionality. The note concludes by discussing the ramifications of continued bias, including the erosion of the regime’s legitimacy, evidenced by several countries, including Albania, reconsidering or severing their affiliations with the International Centre for Settlement of Investment Dispute (ICSID), thus signaling an urgent need for recalibration to preserve the legitimacy of the international arbitration regime. Indirect Expropriation, Legitimacy Crisis in Investment Arbitration, Sole Effects Doctrine, Police Powers Doctrine, Structural Bias, Principle of Proportionality, Host State Sovereignty, Investor Protection, Balkans in International Investment Arbitration, Managerialism

The impact of ISDS arbitration claims and adjudication on cross-border direct investment

This study investigates the impact of the arbitration cases under the Investor-State Dispute Settlement (ISDS) scheme on cross-border direct investment in the form of merger and acquisition deals. The initiation of ISDS claims has significant and negative effects on direct investment from the claimant home country to the developing or weak-institution responding country. Indirect expropriation claims often have stronger effects than direct expropriation claims. The investor-win arbitration cases produce a significant substantiation effect by reducing merger flows, while the state-win cases produce an acquittal effect that encourages the subsequent capital inflow to the respondent state. Both effects are more striking in weak-institution or less developed target countries. We also detect some spillover effects of ISDS arbitration.

Review of Crystallex International Corporation v. Bolivarian Republic of Venezuela Arbitration Case

The fair and equitable treatment provision and indirect expropriation provision are crucial elements within international investment agreements between foreign investors and the host countries. However, due to their vague meanings and criteria, the tribunals often interpret these issues broadly, leading foreign investors to regard them as tools to confront the administrative powers of the host country. In order to better balance the interests of both parties, this article analyzes the classic case of Crystallex v. Venezuela to clear the jurisdiction of the tribunals and the distinction between contract claims and treaty claims. Meanwhile summarizing the elements of fair and equitable treatment and indirect expropriation. Finally, this article proposes some recommendations to promote the sustainable development of international investment, therefore, the host countries can abide by regulations and administer in accordance with the law, as well as enhance stability, transparency, and predictability, so that can encourage investors to invest boldly and foster internationalization and facilitation of investments.

Indirect Expropriation Clause Clarified in Recent Colombian BITs

Over the past two decades, Caribbean states have been faced with a significant number of investment arbitration proceedings in which investors have claimed that public interest regulatory measures constitute indirect expropriations of foreign investment. As a result, arbitral tribunals have ordered host states to pay heavy compensation to foreign investors. To preserve its right to regulate in the public interest, Colombia has clarified the indirect expropriation clause in most of its recent international investment agreements, clarifying the extent to which a public interest regulation that affects foreign investment constitutes an indirect expropriation. This article seeks to determine to what extent the new clauses of the Colombian agreements contribute to preserving the state’s right to regulate in the public interest.

Constitutional Acquisition and Regulation of Property, Investment Treaties and Expropriation in Africa

Abstract The reforms of investment treaties include the incorporation of flexibilities into standards of investment protection such as indirect expropriation to accommodate public interest regulatory autonomy. In this article, I assess the efficacy of these reforms by analysing the intersection of constitutional provisions on compulsory acquisition and regulation of property in selected African constitutions and expropriation provisions in investment treaties. I argue that indirect expropriation provisions in investment treaties are unconstitutional. I also argue that the new generation investment treaties which incorporate these exceptions do not preserve African States’ authority to acquire and regulate private property. The exceptions do not resolve the incompatibility between the constitutional authority to take and regulate property without paying compensation and African States’ investment treaty obligations on indirect expropriation. By providing for precatory and inefficacious exceptions to indirect expropriation while leaving intact substantive standards of investment protection, the reforms of investment treaties preserve an investment treaty law and arbitration regime that remains skewed towards investors and covered investments.

국제투자규범에서 유효수단 조항의 고찰

The International Investment Agreement (IIA) provides to investment and investor protection of contracting party’s obligations. It stipulates that if an investment and investor are damaged in violation of IIA’s protection clause, they will be subject to Investor-State Dispute Settlement (ISDS). Among the IIA's contracting party’s obligations, it does not provide for direct regulation of the conduct in judicial court of host countries.
 Regulations on the conduct of judicial courts are generally included in the category of ‘denial of justice’ in customary international law under the IIA’s ‘Minimum Standard of Treatment’ clause. It is established in the ISDS precedent. Recently, this is included in IIA's illegal indirect expropriation. The ISDS arbitral tribunal formed the legal principle of judicial expropriation. Judicial expropriation deals with deprivation of investment asset, indirect expropriation, and judicial procedures and substantive judgments.
 Regarding the conducts of the judicial authorities, it is regulated by the US model BIT and the Energy Charter Treaty (ECT) of the effective means clause of Article 12(10).
 The effective means clause provision be limited to the IIA. It was introduced as a US Model BIT policy in the 1980’s, and is regulated in a number of US BIT’s concluded by this model BIT. And, like the US model BIT, ECT also includes provisions on the receiving country's effective means clause for investor’s claims and rights enforcement.
 First, this paper examines the background of the introduction of the effective means clause in the IIA. Examining the legislative background can look into the criteria for interpreting provisions.
 Second, the specific types of violations of the provisions of effective means in ISDS arbitration cases were reviewed.
 Third, the relationship between the effective means clause of the IIA and judicial refusal was reviewed.
 In the case of the ISDS arbitration award, the violation of the ‘denial justice’ of the minimum standard treatment clause and the effective means clause was raised at the same time. The effective means clause is more flexible in interpretation and application than a denial justice. The effective means clause does not require the ‘Exhaustion of Local Remedies’ Rule. In the ISDS case of White vs. India, there is a case in which the MFN clause was invoked and an effective means clause was application. The effective means clause can be a useful guide for interpreting the access to justice clause in the Korea-Japan BIT and the Korea-China-Japan BIT.

Competing investor response to direct and indirect expropriation: evidence from the extractive sector

Some research shows that foreign investors generally respond negatively to expropriation by host governments, and other research reveals that investors cope with expropriation. Why are there varied responses to expropriation? The nature of the obsolescing bargain—expropriation—is under-explored and measured unclearly in the political risk literature. I argue that investors respond more negatively to direct than indirect expropriation because the former is a more perceptible policy with clearer consequences for investors’ control rights, which sets up expectations for comparatively worse predatory behavior by the government in the future. Additionally, investors could have a better chance to recover and profit from all of their investments after indirect expropriation compared to direct expropriation, therefore, investors would react more negatively to the latter. I conduct first-pass testing of this prediction using an original survey experiment focusing on the oil industry and using mass public subjects. Results show that the direct expropriation treatment group was less likely to want to reinvest, and the likelihood of wanting to exit to an outside option was higher for subjects who faced direct expropriation. I supplement the experimental findings with a quantitative analysis that is inconclusive and qualitative interviews of practitioners from the oil industry that support the experimental findings.

As inconsistências da solução investidor-Estado na proteção internacional do investidor estrangeiro: análise das principais cláusulas substantivas dos BITs a partir dos casos arbitrais ad hoc, sob a perspectiva dos países receptores de capital

International investment law is historically structured by the unilateral protection of the foreign investor. The dissemination of the Bilateral Investment Treaty (BIT) model dates back to the second half of the twentieth century, and its expansion occurred only after the 1980s. BITs consist of an international agreement comprising substantive and procedural rules, defining the protection of foreign investment and investors in a territory other than their nationality, as well as establishing a dispute resolution model, with the adoption of the Investor-State solution system via ad hoc arbitration. In the 21st century, after decades of prevalence of BITs, there have been numerous criticisms of this model, characterized by subjective and controversial decisions, incongruous interpretations and, above all, by blocking the legitimate exercise of the State to dispose of its public interest, such as environmental protection, health and economic measures. The article analyzes these substantive rules from ad hoc arbitration cases: (i) National Treatment (NT); (ii) Most-Favored-Nation Treatment (MFN); (iii) Minimum Standard of Treatment (MST) principle; (iv) Fair and Equitable Treatment (FET); (v) Full Protection and Security (FPS); (vi) Direct and Indirect Expropriations and Compensation; and (vii) Umbrella Clause. Finally, the article concludes that the arbitral awards are inconsistent and inflict serious damage to the exercise of the States, especially to host States, which is evidenced by the recent amendments of the BITs by more restrictive models of international investment protection.

THE ENVIRONMENTAL FUNCTION OF FOREST PROPERTY

The article analyzes the effects of the environmental function of forest property in Brazil, based on recent decisions by the Superior Court of Justice on the delimitation of property content and the appropriateness of compensation referring to restrictions on the use of protected forest areas. The aim is to demonstrate that there was a significant redefinition of the dogmatic institute of indirect expropriation and a strong conditioning of the owners’ right to compensation. The jurisprudential and doctrinal bases of the social and environmental function of real estate in Germany are also discussed, in the context of forest protection and conservation, in order to compare the feasibility and coherence of the solutions adopted in the two countries. The research makes use of bibliographical and documentary survey, based on theoretical models, normative provisions and court-judged cases. It is concluded that the national legal system of forest protection has already advanced a lot, but it still needs to improve its instrumental framework, including on the basis of other legal systems’ experiences.

A tale of policy carve-outs and general exceptions: Eco Oro v Colombia as a case study

ABSTRACT The Eco Oro v. Colombia Decision has garnered immediate public and academic attention and generated immense controversy. One of the reasons for its notoriety was the arbitral tribunal’s unconventional take on the general exceptions clause of the Canada–Colombia Free Trade Agreement and its contention that, even when a challenged measure fulfils the requirements of this exception, a host state’s duty to compensate remained. This conclusion has since been interpreted as an indication that, in spite of states’ attempts to carve certain regulatory and/or administrative measures motivated by public interest out of the protective scope of some recent international investment agreements (IIAs), such as environmental protection, arbitral tribunals continue to disregard these sensitivities. In light of this background, this article will focus on the parties’ arguments, the Tribunal’s analysis, as well as the interpretative implications of the Decision, focusing on indirect expropriation, the fair and equitable treatment, and the application of the general exception clause.

Regulatory Expropriation – A New Hope: The Use of Legal Theory for Investment Law

Abstract What use could legal theory be for international investment law? This article shows that theoretical and doctrinal arguments are inextricably linked, using regulatory expropriation as a case-study. It proceeds from mainstream investment lawyers’ doctrinal arguments to the theoretical questions that are engendered by them and does this in three steps. First, it analyses the common debate on regulatory expropriation whose participants, while offering outwardly different solutions, actually see the problem the same way and draw the same conclusion. Second, it engages in a structural analysis of the traditional international investment agreement (IIA) expropriation clause. Third, it analyses one of the structural limits engendered by the relation between IIAs and customary international law in detail: we cannot assume that expropriation clauses ‘incorporate’ or ‘are to be interpreted while taking into account’ general law. This relationship is much less straightforward and helpful for defining the limits of indirect expropriation than is commonly argued.

A Study on the Relationship between the Establishment of Urban Planning for the Use Zoning System and the Indirect Expropriation System in International Investment Agreements: Focusing on the Designation System of Urban Natural Park Zones under the Parks and Greenery Act and the Indirect Expropriation System of the Korea-US FTA

A Study on the Relationship between the Establishment of Urban Planning for the Use Zoning System and the Indirect Expropriation System in International Investment Agreements: Focusing on the Designation System of Urban Natural Park Zones under the Parks and Greenery Act and the Indirect Expropriation System of the Korea-US FTA

Cidades conquistadas: a dogmática ascendente da desapropriação indireta em ocupações urbanas

Abstract Starting from the disciplinary concerns about the obsolescence and loss of normative autonomy of Civil Law, this article aims to establish, from a concrete case about the indirect expropriation of an occupied urban land, the concept of "ascending dogmatics" as an alternative to theoretical procedures that seek only in the constitutionalization or publicization of Private Law the mechanisms of its updating. It then demonstrates the power that would be implied in a recovery, for Civil Law, of one of its most traditional tasks: the encoding and recoding of everyday relationships.

Conquered cities: the ascending dogmatic of indirect expropriation in urban occupations

Resumo Partindo das preocupações disciplinares sobre a obsolescência e a perda de autonomia normativa do Direito Civil, este artigo tem como objetivo estabelecer, a partir de um caso concreto sobre a desapropriação indireta de um terreno urbano ocupado, o conceito de “dogmática ascendente” como alternativa aos procedimentos teóricos que buscam apenas na constitucionalização ou na publicização do Direito Privado os mecanismos de sua atualização. Demonstra-se então a potência que estaria implicada numa retomada, para o Direito Civil, de uma de suas tarefas mais tradicionais: a codificação e a recodificação das relações cotidianas.

An epistemological approach to the study of the features of indirect expropriation in the modern realities of the international legal context

This article examines approaches to defining the concept and content of indirect expropriation, the current state of legislation and law enforcement practice regarding the protection of foreign investments from the above-mentioned actions. The findings show that judicial and arbitral institutions often avoid the need to make clear conclusions regarding the presence/absence of indirect expropriation without adequate compensation in the host state's actions. The analysis of modern international legal acts and arbitration practice indicates that there are different approaches to determining the legality of indirect expropriation or measures equated to the latter and disregarding the possibility of regulatory expropriation by the host state. The proportionality approach is insufficient to preserve the distinction between indirect expropriation and regulatory expropriation in international investment law. Having identified weaknesses in the analytical framework that tribunals use in attempting to distinguish between indirect and regulatory expropriation, the question remains whether the concepts of indirect and regulatory expropriation are treated more consistently and predictably as distinct practices that must be reliably support. It is presented that regulatory expropriation is identical to direct expropriation, when the host state complies with the criteria of legality of expropriation, in addition, there is a clearly expressed public necessity, it is not subject to dispute, including by a foreign investor. The demands of the foreign investor must be met with immediate, proper, full compensation for the investments made, and there is no need to appeal the decision on the transfer of property into state ownership. In other cases, when the basis for confiscation of property is the adopted legal acts that violate the regime of the greatest support for the investment activity of foreign investors, do not have a justification of social necessity for their adoption and are aimed at depriving a person of the title of ownership of the property without payment of compensation – such actions can qualify as indirect (hidden) expropriation.

INDIRECT EXPROPRIATION AND THE PROTECTION OF PUBLIC INTERESTS

AbstractThis article analyses what is widely known as the police powers exemption found in modern international investment agreements, with a focus on mega-regional trade and investment agreements. It explores its legal nature and requirements, the burden of proof and issues of compensation. In an attempt to curb (indirect) expropriation claims, the exemption carves out non-discriminatory regulatory measures from the scope of indirect expropriation and in such situations no compensation needs to be paid. It follows that, as a rule, foreign investors are not protected against the adverse economic effects of regulatory measures. The key question addressed is whether host States can increase the level of protection given to public welfare objectives through the use of this exemption without having to compensate investors for the measures taken. The article argues that, under the proportionality test embodied in the exemption, States can provide the level of protection that they desire without incurring a risk of liability as regards expropriation claims.

Investor Legitimate Expectation and Indirect Expropriation in Domestic Regulation Concerning the Application of Domestic Raw Application

Law No 11/2020 concerning Job Creation (Omnibus Law’) mandates the use of domestic raw materials for all industries in Indonesia. Following the passage of the Omnibus Law, Indonesia issued Government Regulation No 28/2021 concerning Industrial Management and Presidential Regulation No 12/2021 concerning the amendment of Presidential Regulation No 16/2018 concerning Government Procurement of Goods and Services. Both regulations oblige all industries in Indonesia to use domestic raw materials pursuant to the Omnibus Law. In investment law, this kind of policy could lead to indirect expropriation because when an investor makes an investment in a host country, the raw material and machines for production might come from their home state or other states. Furthermore, a public-private partnership contract with investors funding infrastructure projects for at least 50 years using materials agreed upon in advance will lead to indirect expropriation. The method used in this research was legal research theory with statute and conceptual approaches. From this research, the policy of the Indonesian government can be described as indirect expropriation because the regulation is effective and enforced.