Research On Indirect Expropriation In International Investment

The topic about expropriation has been one of the most controversial issues in the area ofinternational investment. After the1970s and1980s, large-scale direct expropriation was no longer amajor threat to international investment, which was replaced by indirect expropriation. With thedevelopment of the economic integration of the world, indirect expropriation that results from theeconomic management measures has no longer merely occurred in developing countries, andwell-developed countries with perfect social legislation are also alleged to have carried out theindirect expropriation. For the developed countries, indirect expropriation has turned from the weaponin economic struggle against developing countries into a “double-edged sword”. However,international agreements as well as the arbitral tribunals have not identified the notion of indirectexpropriation clearly for a long time, which results in the great difficulties in the identification of theact of indirect expropriation in arbitration practice. As China’s economic take-off, China’s foreigndirect investment activities grow with each passing day, and in the process of Chinese enterprises’so-called “going out”, they will confront the risk of indirect expropriation, meanwhile, and as the hostof foreign investment in China, Chinese government may also face allegations in the name of indirectexpropriation. Therefore, the study of the topic about indirect expropriation is of realistic significance.Part Ⅰ: The author introduced the meanings and the origin of indirect expropriation. The issueabout expropriation had turned from the subject of direct expropriation to indirect expropriation, andthe focus of dispute had evolved into how to identify indirect expropriation. Due to the special natureof indirect expropriation, definition of indirect expropriation did not usually exist in the domestic lawand international treaties, the legislative bodies or the parties of the treaties often avoided a rashidentification, but gave a descriptive definition. The author holds that”Indirect expropriation ininternational investment law refers to measures taken by the host country government, which interferewith property rights to such an extent that these rights are rendered so useless,but no transfer of rightsexists”.Part Ⅱ: The author introduced the identification of indirect expropriation. How to define aindirect expropriation has been the focus in the international arbitration practice. According to theanalysis of the arbitration practice, two main methods exists in arbitration practice and they are “soleeffect test” and “purpose test”. Nowadays the former dominates the arbitration practice. This methodtakes the impact of the measures taken by the government to investors property (rights) as the main orthe primary factors, but also takes into account the purpose of the government when taking thesemeasures as well as other factors. To be specific, when the tribunal defines the indirect expropriation,the following factors will be considered: the degree of interference with the property right, characterof governmental measures and interference of the measure with reasonable investment-backedexpectations.Part Ⅲ: Introduced the form of indirect expropriation. It lists several common types of the act ofindirect expropriation, and combines analysis of the identification of indirect expropriation in theabove part with these forms, and then analyses whether the specific government acts constitute indirect expropriation.Part Ⅳ: Introduced the implementation conditions of indirect expropriation. On the basis of theanalysis of international investment agreements, it summarizes the legal conditions of the indirectexpropriation: the purpose of public interest; accordance with the due process of law and relevantregulations; compensation; the principle of non-discrimination. Based on the analysis of the precedingconditions, the author holds that the legal effect of the breach of the said four conditions differs.Part Ⅴ: Introduced the establishment and improvement of the domestic and internationalregulations about indirect expropriation concerning China. The domestic law provisions covers theprovisions about expropriation, but no special provisions on indirect expropriation exists. Althoughmost of the international agreements signed by China covers indirect expropriation provisions, butthey are generally simple, and no clear identification standards of indirect expropriation exists. As acapital importing and exporting countries, China confronted the dual risk of indirect expropriation.Therefore, we should formulate indirect expropriation provisions in domestic law, and clear theidentification standard about indirect expropriation. Meanwhile, we should improve the relevantprovisions in international investment agreements, and clear the identification standard about indirectexpropriation therein.