Expropriation (direct and indirect)

Transcription

1 Expropriation (direct and indirect) Training course for economies in transition on a new generation of international investment policies Dr. Marc Jacob, LL.M. Sarajevo, 2 October 2013

2 Overview 1. Essence of expropriation 2. Public policy challenges 3. Select policy options Training course for economies in transition - Sarajevo 2

3 Part 1 Essence of expropriation (direct and indirect)

4 Essence of expropriation States are obliged to protect foreign investors from deprivation of their investments Expropriation is a core component of investment treaties (IIAs) and part of customary international law One of the "big three" substantive standards of treatment Training course for economies in transition - Sarajevo 4

5 Terminology Expropriation Nationalization Requisition Actions having equivalent effect Dispossession rarely defined in IIAs, often treated as synonyms Training course for economies in transition - Sarajevo 5

6 Types of expropriation Direct expropriation Taking of title or possession Tangible or intangible assets Dispossession of certain duration Relatively rare in recent times Training course for economies in transition - Sarajevo 6

7 Types of expropriation (cont.) Indirect expropriation Substantial deprivation of economic benefit of investment Destruction of value and enjoyment of investment Title and possession retained Different names ("regulatory taking", "de facto expropriation" etc.) More common type nowadays Training course for economies in transition - Sarajevo 7

8 Types of expropriation (cont.) Difficult to determine indirect expropriation: not decisive: State characterization, State measure, State intent effect or economic impact expectations legitimately held by investors duration of State action character of State action (transparent, equal, rational etc.) case-by-case assessment; IIAs still often silent Training course for economies in transition - Sarajevo 8

9 Types of expropriation (cont.) Creeping expropriation Series of events, not a single act Start matters Valuation of expropriation End matters Limitation period, Interest Training course for economies in transition - Sarajevo 9

10 Rationale of law on expropriation Sovereign States have the right to regulate their own affairs But property protection known to international law Therefore conditions attached to expropriation how to expropriate Training course for economies in transition - Sarajevo 10

11 Conditions for expropriation States may typically expropriate, provided: 1. Public purpose 2. Non-discriminatory 3. Due process 4. Compensation if conditions met, lawful expropriation Training course for economies in transition - Sarajevo 11

12 Valuation and damages Important for at least two reasons: 1. How much will the State have to pay in case of expropriation? 2. Did an indirect expropriation occur? Three main questions: 1. Date of valuation when? 2. Measure of damages how much? 3. Method how will this be calculated? Training course for economies in transition - Sarajevo 12

13 Part 2 Public policy challenges

14 The fundamental challenge Balance between: (a) attracting foreign investors and protecting their interests; and (b) preserving the regulatory autonomy of the State. Will general, non-discriminatory State regulation in good faith for a public purpose be considered an indirect expropriation? social legislation? tax legislation? environmental legislation? Training course for economies in transition - Sarajevo 14

15 Part 3 Select policy options

16 Possible modifications for IIAs 1. Addition of hortatory language (e.g. in Preamble) 2. Specification of general exceptions (e.g. in Scope of Application) 3. Specification of conditions 4. Clarification of limits of indirect expropriation (e.g. in Annex): Factors indicative of an expropriation economic impact etc. General exceptions non-discriminatory public welfare regulation Specific exceptions compliance with other international obligations Training course for economies in transition - Sarajevo 16

17 Possible modifications for IIAs (cont.) U.S. Model BIT (2012), Annex B, Expropriation "4. (a) The determination of whether an action or series of actions by a Party constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: (i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investmentbacked expectations; and (iii) the character of the government action." Training course for economies in transition - Sarajevo 17

18 Possible modifications for IIAs (cont.) 5. Clarification of valuation and compensation: Measure of damages "appropriate", "just", "fair" instead of "full" Method of calculation conservative NBV (net book value) Interest rate, no compounding? Training course for economies in transition - Sarajevo 18

19 Thank you!