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Berkeley ENVECON 131 - Expropriation clauses

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Expropriation clauses: a natural extension of domestic takings law or much more? Denise Grab December 10, 2004 EEP 131 Professor Larry KarpPage 1 of 14 The United States has always supported the notion that citizens should be protected from unjust seizures of their property by government. The Takings Clause in the Fifth Amendment of the United States Constitution provides that “private property [cannot] be taken for public use, without just compensation.” Initially, this clause applied only to direct seizure of property, but as time progressed, the courts decided in a number of cases that a “taking” need not be an outright seizure of property (Appleton 2002). When a government action vitiates the value of a property, this may be considered a compensable taking. Throughout the latter part of the 20th century, neoliberal economists and lawyers began to advocate for a broader definition of takings. Members of this “property rights movement” maintained that any government action that diminished the value of property in any way—so-called “regulatory takings”—should be compensated. The theory of regulatory takings was first articulated by University of Chicago Law Professor Richard Epstein in a 1985 book entitled Takings: Private Property under the Power of Eminent Domain. Members of the property rights movement have advocated that the takings notion should apply to all regulations, including environmental regulations like the Endangered Species Act, which place restrictions on what property owners can do on their land. US courts, however, have not favored sweeping application of the takings clause. A number of requirements must be met before a takings claim will be awarded. In spite, or perhaps because of these restrictions, neoliberals have tried to extend the applicability of the takings notion in an international setting through expanding the scope of expropriation clauses in investment treaties. Expropriation clauses have long been part of investment treaties between nations. These clauses guarantee foreign investors protection against seizure of their property byPage 2 of 14 countries in which they invest. The goals of these clauses is to encourage investment in foreign countries by limiting the downside risk from potential expropriation of the investment—a very real concern in some countries. Initially these clauses covered only direct seizure of property, but over time their scope expanded to cover indirect expropriation, as well. Under indirect expropriation, a country uses some means, such as regulation or taxation, other than direct seizure to take away the value of an investor’s assets. The North American Free Trade Agreement (NAFTA) includes an especially broad provision on expropriation. Article 1110 provides that No party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except: (a) for a public purpose; (b) on a nondiscriminatory basis; (c) in accordance with due process of law and [National Treatment]; and (d) on payment of compensation… . This wording does not require that actual expropriation occur, merely actions “tantamount to … expropriation.” Thus, environmental or social regulations could be considered tantamount to expropriation under this definition. Indeed, in several NAFTA cases, governments have been found liable for environmental regulations. Though NAFTA does not have the authority to prohibit governments from creating such regulations, it can force them to compensate the aggrieved party. This can give multinational corporations a great deal of leverage over foreign nations (Been and Beauvais 2003). In fact, investment treaties like NAFTA are one of the few, if not the only, mechanisms by which individuals and private corporations may sue and gain compensation from foreign, sovereign nations. The negotiations for the now-defunct Multilateral Agreement on Investment (MAI), and the current negotiations for the FreePage 3 of 14 Trade Area of the Americas (FTAA) have both included expropriation clauses similar to the one in NAFTA (Geiger 2002, Wiltse 2003). Many environmentalists and advocates of national sovereignty fear that enacting such expropriation clauses will further harm countries’ abilities to enact legislation to protect the health of their citizens and ecosystems as they see fit. Moreover, these broad expropriations clauses may provide foreigners more protection than domestic investors. Most countries’ takings doctrines are not nearly as developed as the United States’, and many countries do not provide compensation for indirect takings at all (Williams 2003). Critics have argued that, instead of providing foreign investors security comparable to that faced by residents, expropriations clauses like NAFTA’s provide compensation that far exceeds that which a domestic investor would receive. In many cases, the compensation even exceeds what would be awarded under traditional US Takings law and resembles more closely what would be awarded under a more radical notion of regulatory takings. Some critics have even argued that NAFTA’s expropriation clause resulted from a conscious attempt on the part of members of the property rights movement to codify the notion of regulatory takings (Grieder 2001). This leads to the question of how closely expropriation clauses resemble US takings law, in general, and the theory of regulatory takings, in particular. Further, one must consider the appropriateness of integrating US notions of takings into international agreements. This paper examines the similarities and differences between expropriation clauses and US takings jurisprudence on a number of key elements in takings claims, concluding that NAFTA’s expropriations statute defines takings far more broadly than the US takings doctrine does, resembling in some cases the tenets of regulatory takings doctrine. ThePage 4 of 14 paper then continues on to discuss the pros and cons of a broad application of takings theory in international law and potential modifications to the NAFTA agreement to address the shortcomings. At the heart of any takings or expropriation claim is the question of property rights. In order to receive retribution, a party


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Berkeley ENVECON 131 - Expropriation clauses

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