GoJIL Vol. 1, No. 2 (2009)
Protection against Indirect Expropriation under National and International Legal Systems
Max Gutbrod, Steffen Hindelang, Yun-I Kim
This article will look at six typically posed challenges to foreign investment posed by administrative acts, focusing on the issues of discrimination, mala fide and lack of transparency, and will discuss the response of national and international rules applicable to the situation of indirect expropriation. These scenarios are based on Russian legal regulations and are inspired by the events in the Commonwealth of Independent States reality but no by means intend to be a reflection of facts.
We will show that the internal legal order cannot respond to any of these challenges through striking a just balance between legitimate business interests of the foreign investor and the State’s sovereign right to regulate. Rather, it is the international (contractual) law on foreign investment which offers the clearly more sophisticated framework for a balanced settlement of a foreign investment dispute. Our prediction is that if economies in transition, like Russia, do not start living up to the standards required by international investment agreements quickly, they might face the risk of the marginalization of their national legal orders in the settlement of foreign investment disputes. Such conflicts, which earlier clearly had an “internal component”, would increasingly become international only and would, in this sense, be externalized.
This article will start off by providing a brief survey of the present discussion in the literature based on the awards rendered on the subject, on what constitutes a compensable taking in international law (Section A.). It will then turn to certain hypothetical situations (Section B.). These are split into two parts: the first four scenarios deal with State measures which are lawful by national standards (Section B.I.) and the last two scenarios focus on State measures which are unlawful even by national standards (Section B.II.). Finally, it summarizes and evaluates our findings.
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