United Nations Conference on Trade and Development (UNCTAD) Series on Issues in International Investment Agreements II

2414-7141 (online)
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UNCTAD's Series on International Investment Agreements analyses the key concepts of core IIA provisions. The "First-generation Pink Series" (1999-2005) sought to help countries participate as effectively as possible in international investment rule-making. The "Sequels" update and complement this Series analysing how key issues in IIA provisions have evolved, particularly focusing on treaty practice and arbitral decisions. In line with UNCTAD's mandate the Sequels analyse the development impact of IIA provisions and their respective formulations, and give policy options that strengthen the sustainable-development aspect of IIAs. Both generations represent a standard reference tool for IIA negotiators, policymakers, the private sector, academia and other stakeholders.
Expropriation - A Sequel

Expropriation - A Sequel

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21 Feb 2013
9789210554176 (PDF)

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In this publication, Section I defines the concepts of direct and indirect expropriation and reviews the variety of measures that can constitute an expropriation. Section II focuses on the core issue of establishing an indirect expropriation: the recent treaty practice on defining indirect expropriation as well as arbitral practice. Section III discusses the differences between compensation for a lawful expropriation and reparation for unlawful expropriations, as well as the question of valuation of investments. Section IV offers options which policy makers and negotiators may wish to consider.
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  • Preface
    This volume is part of a series of revised editions – sequels – to UNCTAD’s Series on Issues in International Investment Agreements. The first generation of this series (also called the Pink Series) was published between 1999 and 2005 as part of UNCTAD’s work programme on international investment agreements (IIAs). It aimed at helping developing countries to participate as effectively as possible in international investment rulemaking at the bilateral, regional, plurilateral and multilateral levels. The series sought to provide balanced analyses of issues that may arise in discussions about IIAs, and has since then become a standard reference tool for IIA negotiators, policymakers, the private sector, academia and other stakeholders.
  • Abbreviations
  • Executive summary
    The protection of foreign investors from uncompensated expropriations traditionally has been one of the main guarantees found in international investment agreements (IIAs). Direct takings involve the transfer of title and/or outright physical seizure of the property. Some measures short of physical takings may also amount to takings in that they permanently destroy the economic value of the investment or deprive the owner of its ability to manage, use or control its property in a meaningful way. These measures are categorized as indirect expropriations. Finally, there are also nondiscriminatory regulatory measures, i.e. acts taken by States in the exercise of their right to regulate in the public interest that may lead to effects similar to indirect expropriation but at the same time are not classified as expropriation and do not give rise to the obligation to compensate those affected.
  • Introduction
    States have a sovereign right under international law to take property held by nationals or aliens through nationalization or expropriation for economic, political, social or other reasons. In order to be lawful, the exercise of this sovereign right requires, under international law, that the following conditions be met
  • Categories of expropriation, requisite elements and conditions of lawfulness
    Through IIAs, States have established a guarantee for foreign investors against the expropriation of their investments without compensation. Today virtually all bilateral investment treaties (BITs) contain an expropriation provision. Customary international law also contains rules on the expropriation of foreignowned property and continues to supplement IIAs on those issues where the latter leave gaps or require interpretation.
  • Establishing an indirect expropriation and distinguishing it from non-compensable regulation
    The matter of establishing an indirect expropriation without impeding the right of States to regulate in the public interest has been one of the more challenging problems in recent years. This section aims to review the relevant treaty and arbitral practice and contribute to the development of an appropriate analytical framework.
  • Remedies and valuation
    As discussed in section I.F, expropriations can be lawful and unlawful. The first is a legitimate act not sanctioned under international law, whereas the second is an international wrongdoing: the first requires compensation, the second, reparation.
  • Policy options
    The policy choices with respect to expropriation provisions can be grouped into three main models – a “high protection” model, an “increased predictability” model and a “qualified” model. The high protection model is more or less uniform and can be found in many existing treaties. The “increased predictability” model refers to the clarifications of the type introduced by Canada and the United States in their model BITs in 2004, which give additional guidance as regards indirect expropriation and reaffirm the right to regulate. Finally, there is the “qualified” model, which may feature a variety of limitations and qualifications to the expropriation provision in order to respond to States' particular policy objectives and concerns. The three models are discussed in turn.
  • Conclusions
    The right to expropriate is an undisputed prerogative of sovereign States. This right is, however, conditioned by principles of international law as well as by domestic law in most States, in the sense that the taking must be for a public purpose, on a nondiscriminatory basis, under due process of law and upon payment of compensation. The meaning of each of these requirements, which display a high degree of convergence in treaty practice, has been discussed in this paper.
  • References
  • Cases and arbitral awards
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