Definition Of Indirect Expropriation In International Law

Indirect expropriation is different from the direct expropriation which directlydeprives the ownership of property. Indirect expropriation deprives the investor of theuse and enjoyment of the rights of their property, and then the effect of that isequivalent to direct expropriation. The core problem of indirect expropriation is thedefinition, such as the scope of indirect expropriation, the definitional standards ofindirect expropriation and the difference between the regulatory measuresunnecessary to compensate and indirect expropriation which need compensation. Thispaper aims to show by a description of the process of generation and development ofindirect expropriation how indirect expropriation is defined in treaty practice andarbitration practice.In the treaty practice, firstly at the multilateral level some multilateral treatieshave regulatory rights articles, but do not contain definition standards. At the regionallevel, the provisions of NAFTA have gone on a lot of criticism and accusations;however the provisions of the European human rights treaties and related practicescan provide useful lessons for us. Past provisions about indirect expropriation in BITswere general and did not provide clear guidelines for the definition of indirectexpropriation, but left to the arbitral tribunal to resolve. Recognizing the adverseeffects of such a vague general provisions, some countries had begun to replace thoseprovisions with more explicit and clearer provisions, such as the FTAs that UnitedStates concluded, the2004and2012U.S BIT templates, the2004Canada BITtemplates, BITs that China concluded with India and Uzbekistan. These provisionsmake clearer guidelines for the definition of indirect expropriation.In treaty arbitration level, the main arbitral tribunal’s practice of indirectexpropriation shows certain degree of fragmentation. Permanent International Courtof Justice and the International Court of Justice treated indirect expropriation in fewcases, it is difficult to discover some fixed standards or methods. The practice of Iran-the United States claims tribunal made important contributions, some influential cases (such as Tippetts, Starrett case) have been widely cited by other tribunals. Butthe practice also showed some inconsistencies. In addition, due to the special contextof establishment of the tribunal there are still few fixed uniform identificationstandards. Unique practice of the European Court of Human Rights, which introducesthe principle of proportionality and gives full attention to the regulatory rights,reflected the balance of interests, and caused extensive attention of scholars andtribunals in recent years. Although there are some contradictory places in ICSIDpractice, the use of the effect standard has formed a fixed pattern, and the otherstandards (such as the nature and purpose standard, investors’ legitimate expectationsstandard)’ application is still uncertain. All in all, the practice of tribunals for thedefinition of indirect expropriation has not yet formed a unified approach. Now whatcan be determined is that the effect standard occupies a very important position, insome cases even is the only determining factor and the use of the reasonableexpectations and the purpose or nature of the government measures, and theproportionality do not form a fixed pattern. For regulatory rights there are also twodifferent attitudes.For investment agreements, I suggest that we should adopt of increasedpredictability model and qualified model. For arbitration practice, there should be acomprehensive consideration of the effect standard, the nature and purpose standardas well as investors’ legitimate expectations standard to maintain relative balance ofinterests.