Justification for Indirect Expropriation Within a Government Measure

Abstract

Customary International Law has granted a protection of foreign direct investment from being expropriated. Various investment treaties have also included the provisions of protection from expropriation. International law recognizes two basic concepts of expropriation, namely direct and indirect expropriation. Indirect expropriation is a measure, taken by a State, which deprives the foreign investor of its property or its benefits, although it does not affect the transfer of property. However, international law also recognizes lawful state measures or state police power, which does not raise the duty of compensation even if it, to some extent, has the similar effect to expropriation. The difficult conundrum is to distinguish between indirect expropriation and lawful state measures for which no compensation is due. Although there is no universal threshold to differentiate indirect expropriation and lawful state measures, international conventions, investment treaties practice, scholars and practices in arbitral tribunal have provided the consistent patterns in characterizing it. This article will observe and elaborate the characters of lawful state measures which do not amount to a bona fide expropriation.