Acceso usuarios
Ying Zhu
The last twenty years have witnessed a number of investor-state disputes in which investors claimed host states’ environmental regulations were indirect expropriations of foreign investments, resulting in host states paying large amounts of compensation to foreign investors. To preserve the regulatory space of host states, in the past decade, around 42% of newly concluded international investment treaties have incorporated a clarification on when a state measure that affects foreign investments constitutes indirect expropriation.
Such clauses can be called “clarified” indirect expropriation clauses, as distinguished from traditional expropriation clauses. Are these new clauses effective in protecting states’ environmental regulatory power? This question is important to states, environmentalists, and foreign investors. However, there is a lack of empirical examination of this question in the literature.
This Article fills this gap through an empirical analysis of whether clarified indirect expropriation clauses are effective in preserving environmental regulatory space of host states. Based on a study of international investment arbitration jurisprudence, it defines three types of environmental regulatory space that should be preserved in investor-state arbitration: (1) general environmental legislation affecting foreign investments; (2) specific environmental regulatory conduct targeting foreign investments; and (3) environmental rezoning regulation affecting land occupied by foreign investments. The Article then examines 118 international investment agreements that clarify indirect expropriation provisions in three different models. A comparison among the three models shows that most of the treaties fail to identify, first, what “character” of an environmental measure should be considered in the determination of indirect expropriation, and second, what kinds of “rare circumstances” can exempt legitimate environmental regulation from constituting indirect expropriation. Such defects make these provisions ineffective in reconciling the tension between environmental regulation and investment protection. To remedy this deficiency, the Article proposes a five-element test to be included in future international investment treaties
