Study On Expropriation Clauses In International Treaties

Expropriation Clause is one of the most fundamental substantive clauses in investment treaties. During the development process of international investment law, the initial meaning of protecting foreign investors equals to protecting them from illegal expropriation by the host countries. The trend of investment liberalization is marked with and resulted from the conclusion of most BITs and some important regional investment treaties since nineties of the 20th Century, the existing of all the stereotype expropriation clauses have confirmed the principle that host countries must compensate the foreign investors due to expropriation. The problem concerning compensation standard, which is once sensitive and disputable, has also led to a specific and unanimous answer. The composition and finding of expropriation are much clear for a long period of time. However the answer becomes unclear again with the rapid expansion of expropriation concept. The modern investment treaties define the expropriation clause in three forms, direct expropriation, indirect expropriation and any measure equivalent to or similar to expropriation. Although it is held that the so called“equivalent to or similar to”do not create the third form of expropriation, the expression of indirect or similar expropriation will continue to be widely used and will expand the concept of expropriation in an effective way. The expropriation clause has become the first choice for the investors to claim the host country for compensation. The claims of indirect expropriation have been regarded as a threat to the regulation power of host country in the current international law. And the inconsistent findings of disputes mean uncertainties both to the foreign investors and the host countries. If the balance between the protection over investor property and the regulation power of the host country cannot resolved thoroughly, it will undoubtedly endanger the application and development of expropriation clause in the future.Firstly, the dissertation will analyze the concept and legal basis of expropriation and expropriation on foreign investment. Combined with the provisions of international investment treaties and other international files on expropriation clauses, the dissertation summarizes the content, history, requirements as well as the disputes settlement practice of investment arbitration or judicial organs based on international treaties. Secondly, the dissertation emphasizes on the analysis of the concept, classification and finding rules of indirect expropriation both in the theory and practice. On this basis, the dissertation will summarize and comment on the problems of expropriation clauses existing in the international treaties and will make some prospects on its possible development trends in the future. In the last, the dissertation will put forward corresponding advices to China for signing the investment treaties with expropriation clauses as well as its application of this clause in the future. The dissertation divides into seven chapters, consisting of 200.000 words. In the First Chapter, the dissertation analyzes the basic concept of expropriation on foreign investment. As the sovereign power for the government to acquire or change private property rights, the concept of expropriation differs slightly with that of requisition and nationalization both in the intension or extension. The dissertation prefers to use the word of expropriation with some neutral features. The earliest concept of expropriation originated from the concept of eminent domain put forward by Grotius, there exist a lot of theories on the legal basis of expropriation, however, the notion of socialization of property rights illustrates the reason of expropriation properly. As a result, the domestic expropriation legal system had begun to be established in some countries with relatively complete property legal system. When the expropriation involved the investment of foreign investors, the expropriation system began to intersect with international law. The process for the expropriation clause to take into form in the international treaties is just that of the duties for the host countries to protect the foreign investors. The international treaties failed to provide a specific definition for expropriation but generally provide four requirements. Although the concept of investment does not belong to the extent of expropriation clause, it is the application foundation of this clause. The dissertation, therefore, makes some analysis and explanation on the concept, scope as well as its expansion trend of investment.The Second Chapter summarizes each provision on expropriation clause appeared in the current international treaties and other legal documents. Considering the importance of expropriation system and the confirmation of expropriation power of the developing countries, expropriation clauses are provided in the international documents including the Resolution and Declaration of UN. These documents made great compromise between the developed and developing countries in terms of the compensation standard. That is the Appropriate Compensation Standard. However, the developing countries quitted from the unified interests group gradually due to their endeavors to attract more FDI. And also the developed countries had never given up their endeavors to conclude a multilateral investment treaty with much higher protection standard for their investors, which had finally ended with failure due to the imbalance between the host countries and the investors. With the success of NAFTA and the rapid increase of BITs as well as RTAs, most host counties have accepted the existence of Hull Formula and indirect expropriation. The investment arbitration and judicial organs have developed precedents on the expropriation findings. The dissertation will summarize and illustrate their practice of Iran-US Claims Tribunal, ICSID, NAFTA, ECT and ECHR.The Third Chapter will analyze the four requirements included in the expropriation clauses. Although the existence of these requirements has confirmed by most of the investment treaties, the specific explanation of each requirement as well as its understanding and application in the practice are insufficient. Public interest is the purpose requirement of expropriation, which is a flexible and difficult term to define. It is not an easy job to challenge it successfully in the practice. It must be determined combined with the non-discrimination requirement. Due Process is the procedure requirement of expropriation, which is the administrative principle in the domestic law, and there is no unified provision or definite content in the international law. Therefore, the due process for the expropriation to follow shall be the legal procedure provided by the domestic law. Non-discrimination principle is the application requirement of expropriation, which shows much more importance among the four requirements. It has become the complementary standard when deciding the public interest. As a result, it has become the first choice preferred by the investors and the tribunals with its definite content. Hull Formula has become the compensation standard generally used in the international treaties, whereas there is no definite provision and practice to define the so-called“Full, Timely and Effective”, especially the application of Fair Market Value to calculate the compensation. The dissertation will illustrate more on this issue.The Fourth Chapter will emphasize on the provision and practice of indirect expropriation in the international treaties. The core of the finding on expropriation lies in that whether the measures taken by the host countries have deprived the use or benefit of the investors over their investment. But almost all the investment treaties failed to define expropriation or its finding rules until the legal documents represented by 2004 Model BIT of the US set up the rule of“facts inquiry and case by case analysis”. In terms of the finding on expropriation, it gives rise to the disputes among the Sole Effects Doctrine, Police Power Doctrine and the Combined Doctrine. Although the latter has gained the most support, its specific application rules have not come into being. The Creeping Expropriation and Regulatory Expropriation are often deemed as the synonyms with the Indirect Expropriation. But the emphasis of each concept is different. The former emphasizes its feature as hard-to-define and depriving the investor gradually and slowly, while the latter refers to that the police power of the host country will also produce the effects equivalent to the expropriation. The finding of creeping expropriation should be ascertained with the method of retrospect; while the finding and compensation of regulatory expropriation are the share of economic burden resulted by the public interests. The tribunal should follow the principle of efficiency and fairness on the basis of case-by-case analysis to resort to the balance between the investors and host countries.The Fifth Chapter will differentiate between the compensable indirect expropriation and incompensable regulatory measures of the government. The boundary of them will lead to different compensation results and will also decide the extent for the government to regulate its economic or social affairs or that for the investors to assume their investment risks. The investor property protection level is the fundamental notion for differentiating these two concepts, and reasonableness, non-discrimination as well as the interference of investment is the specific determination standards. The newly concluded BITs and FTAs have adopted the exclusion provision on indirect expropriation and refers to that apart from the rare circumstances, the regulatory measures adopted or enforced by the host countries in order to protect legitimate public interests, in a non-discrimination manner, will not be deemed as indirect expropriation. It is generally held that the excluded measures shall include the measures for protecting public order, moral, environment, health and taxation. These legitimate measures ought to be away from the indirect expropriation claims, but the radical practice of protecting NAFTA has become the nightmare of the host countries, which has also led to the chilling effects to the willing and ability for the host countries to enforce the regulations. To differentiate between the environment protection and expropriation, it cannot be decided in light of the regulation results only but need to examine and weigh combing with the characteristic of environment right as well as the unique principles in the environment law. Only the discriminatory, arbitrary or retaliatory taxation would be deemed as the confiscatory taxation. With the modern investment treaties’aiming to defend the taxation power, which is regarded as the lifeline of the government, there’s almost no successful claim challenging that power of the government.The Sixth Chapter will summarize and analyze the current application status of expropriation clause in international treaties, and will provide some prospects on its development in the future. Going through the silence featured in the Eighties and Nineties in last Century, the nationalization to the energy industry in Latin America has been carried out since the 20th Century. The new-style nationalizations have been carried out in the background of financial crisis since 2008. All these facts prove that the indirect expropriation clause has been activated and recovered. Whereas the increasing arguments concerning indirect expropriation illustrate that no matter the developed countries or the developing ones are undergoing the introspect toward their behavior of pursuing solely on the economic growth in the past. The way of realizing the sustainable development, integral and harmonious social development has become the new values for the governments to utilize or guide the foreign investment. Therefore, the provision on indirect expropriation tends to be much clear all these years, the radical practice of the tribunals, however, has also been back to the normal as a result. The current understanding and application of the expropriation clause have relied too much on the explanations of the tribunal in the practice. There are no definite and unified opinions or conclusions on some issues. At the same time, these cases do not function as the precedents, which will provide little help in resolving the vagueness of this clause. It can be predicted that how to balance the private property rights and social public interests will still be the core in the application of expropriation clause. And notion of maintaining the maximization of social benefits will affect the altitudes of governments or tribunal gradually. In the light of its vagueness and sensitivity, the tribunals tend to use Fair and Equitable Clause to replace the expropriation clause. The application of regulatory expropriation will aggravate the conflicts between the duties for the host countries to protect foreign investment and other treaty duties, including protecting the environment, human resources, natural heritage and human rights. To integrate theses investment-related issues into the investment treaties might be a nice attempt.The Seventh Chapter will emphasize on the sdudy of expropriation clauses in the international treaties that China has signed. Firsly, the dissertation summarizes all the expropriation clauses provided in more than 130 BITs and point out their weakness and potential problems. Secondly, China has become both the investment input and output country. In light of this status, the dissertation analyzes all the risks both the government and our investors will face in terms of indirect expropriation. Specific analysis on the real case in the practice will be provided. In the last, the dissertation will provide some advices on perfecting the provision and application of expropriation clauses in the treaties that China has signed.