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The Legal Examination for “Indirect Expropriation” provision in the Investor-State Dispute Settlement System

  • DONG-A LAW REVIEW
  • 2013, (60), pp.307-344
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law

KWON HAN-YONG 1,  KIM YUN-IL 2

1동아대학교
2동아대학교 국제법무대학원

Accredited

ABSTRACT

Many countries strive for a fair competition in the field of Foreign Direct Investment protection. Some controversial issues such as the Investor-State Dispute Settlement (ISD) provision in the Korea-U.S. FTA may have crucial consequences in the settlement of investment disputes. Current issues in the ISD focus on indirect expropriation which is having an effect that is equivalent to direct expropriation. During 1990s ,the relevant issues remained to be highly uncertain which led to legal debates. Thus, foreign investors need to have an effective compensating instrument when the domestic rules and policies cause them suffer damages. However, it would not be easy for a foreigner to trust a national judicial system when he confronts disputes related to a domestic rule or any action taken by the government. The complex body of law governing indirect expropriations reveals a tension between the interest; on one hand, protecting the rights of foreign property owners and investors, and on the other hand, the interest of protecting the sovereign authority of states to regulate public goods, environmental protection, public health and so on. Between foreign investors and host states, there have been many disputed cases about indirect expropriation under the NAFTA’s and number of BITs dispute settlement mechanism. The definition of indirect expropriation in the provision is vague and thus, host states must be free to exercise their regulatory powers. Studying these NAFTA cases and some cases under international arbitration may provide implications on areas that are vulnerable against foreign investors’ indirect expropriation claims, criterias that are applicable in government’s breach of obligations, and improvements that could be done to prevent investment disputes. The judicial decision of Mahon and Penn Central should be considered among these three factors: the character of the governmental action or regulation, the economic impact of the regulation on the foreign property owners and investors, the extent to which the regulation has interfered with reasonable investment-backed expectations. In addition, period of duration and proportionality should be considered. Aim to balance the conflicting interests of host states and investors are applied to find government’s regulation as indirect expropriation, and thus, so far only one tribunal upheld investor’s indirect expropriation claim. In particular, it examines the development and the meaning of indirect expropriation in the context of ISD in the Korea-U.S. FTA. Indeed, an active use of indirect expropriation provision is necessary to protect the country’s own investment in other country.

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