Indirect Expropriation and Regulation - Essay Example

Name Tutor Course Date Indirect Expropriation and Regulation Introduction There has been an increase in the foreign direct investment in different parts of the world. The foreign direct investment has positive impacts on the economy of the country. The issues such as environmental concerns have led to the countries introducing some strict laws with regards to the foreign direct investments. This has brought about the concept of indirect expropriation where the legal action of the government denies the investor profits and it is not a reasonable predictable action by the government. The differences between regulation and indirect expropriation is therefore of concern among most of the international investors. According to the international investment law, interference with the alien property or any action that leads to the permanent destruction of value of an investment amounts to indirect expropriation1. The investment tribunals are usually responsible in moist countries for identifying whether a state has exercised its sovereignty to regulate or it has been engaged in indirect expropriation. The paper discusses how an investment tribunal should identify whether indirect expropriation has taken place or a state has exercised its sovereignty to invest. Discussion The European Convention of Human Rights recognizes the right to posses and enjoys property. According to Article 1, every natural or legal person is entitled to posses and enjoys their property. Any form of expropriation should only for public interest under the guidance of the national and international laws. This should form the basis by the investment tribunal for determine whether the state has been engaged in indirect expropriation or regulation. OECD is has also put in place some guidelines that can be used by the member states for enabling the investment tribunal to establish where indirect expropriation has taken place. This is under the Draft Convention of the Protection of Foreign Property. According to article 3 of the convention, no party should take any measures that directly or indirectly deprives a party of their property unless four conditions which are recognized by the international law are met2. The international law therefore forms an important basis for the determining whether a country has been involved in indirect expropriation or regulation. The state under the international law has the obligation of ensuring that the property of the alien is not deprived. The state has the obligation of protecting the property of the aliens in order to ensure that they enjoy. Deprivation may lead to the permanent change of value or making it impossible for the investment to make profits. This amounts to the indirect expropriation which should be considered by an investment tribunal. The environmental concern is one of the major factors that contribute to regulations as it is aimed at protecting the members of the public. However some of the states are usually involved in indirect expropriation due to a certain reasons. The political reasons in most cases are not due to any public interest but purely to deny the investor an opportunity to make profits. In the case of Starret Housing Corp. v. Iran, the tribunal found that Iran had engaged in indirect expropriation3. This is after the Iranian managers were appointed in the American housing projects. The appointments resulted to property rights which rendered the rights of the organization useless and hence affecting the operations of the company. The decision was also political as there was political tension between the two countries at the time. The tribunal therefore needs to identify whether the reason for the regulation is reasonable or not. The right to regulate is one of the provisions of Article 3 of NAFTA provisions. According to the article, a contracting party has a right to adopt, enforce or maintain any appropriate measures that will ensure activities of investments are sensitive to health, safety and environment4. The investment tribunal should therefore consider whether the regulation is aimed at enhancing health, safety and environment. This is important in terms of determining whether the states have been involved in the indirect expropriation or not. The state should be considered not to have engaged in indirect expropriation if the action is intended to promote health, safety and environment. The degree of interference with the property rights is one of the factors that should be identified by the investment tribunal to determine whether the state has been involved in indirect expropriation or regulation. According to the international investments law, the severity of the government action plays an important role in determining whether indirect expropriation has taken place. This is considering that most of the investments tribunal does not recommend for any compensation if the degree of interference did not remove most or all of the economic value of the property. The investment tribunal should identify whether the action by the state has impaired the economic rights of the investors. According to the international investments laws, the economic rights include ownership, use or enjoyment of business. In the case of Tippetts v. TAMS-AFFA Consulting Engineers of Iran, the tribunal found that the state had been involved in indirect expropriation5. This was due to the action of the government appointed manager. Deprivation of property rights occurred after the manager broke off communication with the parent company in America by refusing to respond to letters and telexes. In the event that the investor may still continue to enjoy most of the benefits of the business, the investment tribunal should not consider it as a case of indirect expropriation despite the presence of a government action. This should be more of a regulation as compared to the government action as some of the regulations may have impacts on the investments but are not intended to cause any deprivation. The character of government measure is also an important factor that should be considered by the tribunal in order to identify the whether the state has been involved in indirect expropriation or regulation. The state may take a legal action for the purposes of promoting general welfare or social regulation. The measure may be for the purposes of common good of the members of the public but in some instances it may still amount to indirect expropriation. The action of the government can be considered as a recognized consideration and this may not amount to indirect expropriation. In case the action non discriminatory, the tribunal should consider it a regulation. The essential to the functioning of the state should not be considered as indirect expropriation. Some of the essentials of a functioning state include non-discriminatory measures dealing with anti-trust, securities, environmental protection, and land planning and consumer protection. In the case of James v. United Kingdom, it was established that the state was acting in the best interest of the public and could therefore transfer the property of an individual6. The actions of the state were considered as a regulation as opposed to being indirect expropriation. In the case, it was also established that the states is in a better position to determine what is good for the citizens as opposed to the international bodies. However, it is also important for the investment tribunal to consider the interest of an individual as some of the cases may require compensation even if there is no indirect expropriation. The police power of the state is one of the factors that should be considered by the tribunal in determining whether an action is a regulation or indirect expropriation. The police powers of the state are acceptable if the action is not discriminatory. In the case of Too v. Greater Modesto Insurance Associates, the investments tribunal found that there was no incidence of indirect expropriation7. This is after the liquor license of the claimant was seized by the United States Internal Revenue Service. As a result of the seizure of the license the business could not operate and therefore failed to obtain any profit. The case was determined based on the police powers of the state. The tribunal should also consider if there is an interference of the expectations of the investor by the government. The governments can make changes to the existing laws and regulations from time to time depending on the economic situation. The changes may be considered as regulations if it is applied equally in the industry. In some instances, the government regulations may also be changed for the purposes of giving undue advantage to some companies or creating a monopoly. Such actions should be considered as indirect expropriation. In some instances, fair and equitable treatment can be used to determine whether indirect expropriation action has taken place. This should however be considered on a cases to case basis as some of the treatment may not be fair and equitable but does not co9ntribute to indirect expropriation. Conclusion In conclusion, it is evident that some of the government actions constitutes to indirect expropriation while some actions are for regulatory purposes. The internal law plays an important role in terms of establishing the actions that may be considered indirect expropriation or regulation. The states have the powers to come up with regulations for public interest. It is evident that some of the actions of the state that amounts to indirect expropriation include purposes of the state action, effect on investor, expectations of the investor and the police powers of the state. It is evident that the degree of the government interference is also a factor that affects the activities of the investors. It is also evident that the regulations may be for the public interest. The health, safety and environmental factors may lead to the development of regulations that may affect the investments but may not necessarily cause indirect expropriation. It is evident that the investment tribunal should ensure that it has also made considerations based on a case to case basis. Works Cited Starret Housing Corp. v. Iran, 4 Iran-United States Cl. Trib. Rep. 122, 154 (1983). Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Cl. Trib. 219 (1984) James v. United Kingdom, 98 Eur. Ct. H.R. (ser. A) 9, 32 (1986). Too v. Greater Modesto Insurance Associates. 23 Iran-USCTR 378 (1989). Henckels, Caroline. "Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration." Journal of International Economic Law 15.1 (2012): 223-255. Escarcena, Sebastián López. Indirect expropriation in international law. Edward Elgar Publishing, 2014. Lo, C. F. "Plain packaging and indirect expropriation of trademark rights under BITs: does FCTC help to establish a right to regulate tobacco products?" Medicine and law 31.4 (2012): 521-551. Read More