ZHANG Jiao International Investment Law (5)

Review ICSIDNAFTABITFDIIIAs

Review NTTRIMsMIGAOECDMFN

Review FET UNCTAD FTA TTIP VCLT

Case: Pope & Talbot Inc. v Government of Canada Factual Background  May 29, 1996: Canada-US Softwood Lumber Agreement (SLA) Established Base, Lower Fee Base, Upper Fee Bas  March 25, 1996: Notice to Exporters No. 90 April 1, 1996, Export Control List, covered provinces (B.C., Alberta, Ontario and Quebec)  June 19, 1996: Notice to Exporters No. 92 until a system of allocation was designed and implemented (Sep. 30, 1996) – “first- come, first-served” basis  June 21, 1996: Softwood Lumber Products Export Permit Fees Regulations  June 21, 1996: Export Permit Regulations (Softwood Lumber Products)  October 31, 1996: Notice to Exporters No. 94 method of allocation, valid for one year at a time, flexible and responsive, different methods in different provinces for the calculation of the base.

National Treatment – Art. 1102, NAFTA  More than one investor be disadvantaged before the NT provisions would apply? (use of the plural form)  “no less favorable” treatment v. “no less favorable than the most favorable” treatment?  Disproportionate disadvantage test  “in like circumstances”: overall legal context Minimum standard of protection – Art. 1105, NAFTA  Content of the minimum standard of protection? - fair and equitable treatment, full protection and security, no less than that required by international law, customary international law standard - additive interpretation - New entrants, transnational adjustment, Wholesaler issue, B.C. Adjustment, Super fee, verification review episode, administrative fairness

Expropriation

The most serious infringement Right to expropriate 1920s Communist and Mexican Nationalization measures After WWII Eastern European countries Socialization of private property Decolonization Developing countries Takings of foreign investments 1960s & 1970s Oil concession disputes 1979 Iran Nationalization of banks and insurance companies

Legal expropriation Public Purpose Utilitarian view of governance Extremely far reaching Due Process Rule of law Administrative actions Non- discriminatory comparison Exception: post-colonial land redistribution Compensation Hull Formula Calvo Doctrine

Scope of Protected Property Rights Tangible PropertyIntangible Property

“Investment” & “Property” NAFTAArt “real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes”. ECTArt. 1 (6) “Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes: (a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges; …” 2012 US Model BIT Art. 1 “‘Investment’ means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, … (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.” EU-Canada CETA“Every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, … any other moveable property, tangible or intangible, or immovable property and related rights.” Chinese Model BIT The term "investment" means every kind of asset invested by investors of one Contracting Party in accordance with the laws and regulations of the other Contracting Party in the territory of the Latter, and in particular, though not exclusively, includes: (a) movable, immovable property and other property rights such as mortgages and pledges;

Cases Norwegian Shipowners’ Claims case The tribunal found that “… the Fleet Corporation took over the legal rights and duties of the shipowners toward the shipbuilders” and that the cancellation of existing contracts for the building of ships by Norwegian contractors had amounted to a de facto expropriation. Oscar Chinn case The court refused to regard the commercial situation of Oscar Chinn as a vested right. The court said that it was ‘… unable to see in his original position – which was characterized by the possession of customers and the possibility of making a profit – anything in the nature of a genuine vested right’. Question: Breach of contract vs. expropriation of contractual rights ?? - national law or international law - guiding principle: whether a State has acted in its sovereign capacity, exercising its governmental or public power or authority.

Indirect Expropriation Article 3, 1967 OECD Draft Convention on the Protection of Foreign Property ‘no Party shall take any measures depriving, directly or indirectly, of his property a national of another Party unless the following conditions are complied with …’ Chapter 11, NAFTA ‘No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in his territory or take a measure tantamount to nationalization or expropriation of such an investment (‘expropriation’), except …’ Energy Charter Treaty ‘Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as ‘Expropriation’) except where such Expropriation is: …’

The Notion of Indirect Expropriation Direct Expropriation: Taking of property Indirect Expropriation: Result in the effective loss of management, use or control, or a significant depreciation of the value, of the assets of a foreign investor.

1967 OECD Draft Convention As to deprive ultimately the alien of the enjoyment or value of his property, without any specific act being identifiable as outright deprivation. As instances may be quoted excessive or arbitrary taxation; prohibition of dividend distribution coupled with compulsory loans; imposition of administrators; prohibition of dismissal of staff; refusal of access to raw materials or of essential export or import licenses. MIGA Convention Any legislative action or administrative action or omission attributable to the host government which has the effect of depriving the holder of a guarantee of his ownership or control of, or a substantial benefit from, his investment … 2004 Canadian Model BIT a)Indirect expropriation results from a measure or series of measures of a Party that have an effect equivalent to direct expropriation without formal transfer of title or outfight seizure; b)The determination … case-by-case, fact-based inquiry that considers, among other factors: i) the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of a Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred; ii) the extent to which the measure or series of measures interfere with distinct, reasonable investment-backed expectations; c) Except in rare circumstances, … non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, …, do not constitute indirect expropriation.

Indirect expropriation vs. a regulatory measure Saluka case: “ It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.” Oscar Chinn case: property rights and investment protection may not serve as insurance against ordinary commercial risks. Azurix case: - the public purpose criterion alone would be ‘insufficient’. - complemented by other criteria, such as proportionality and non-discrimination.

Crucial Elements of Indirect Expropriation Abstract legal rules Intensify of interference with property rights Need not benefit the State The ‘Sole Effect’ Doctrine Legality, transparency, and consistency Legitimate investor expectations Proportionality Discrimination

Jurisprudence a. Disproportionate tax increases (Revere Copper v OPIC); b. The taking of a third party’s property which renders worthless the patents and contracts of a managing company (Case concerning certain German interests in Policy Upper Silesia) c. Interference with contract rights leading to a breach or termination of the contract by the investor’s business partner (CME) d. The breach of contractually acquired rights where this is accompanied by discriminatory intent (Eureko) e. Interference with the management of investment (Biloune)

Case Analysis Expropriation

Fundamental questions: Was there an expropriation ? Was the expropriation legal ? What is the measure of compensation for a legal expropriation ? What is the value of the expropriated investment ?

S.D. Myers Pope & Talbot For the next week: Metaclad Feldman

Guiding questions: What is the distinction between direct and indirect expropriation ? What criteria are we to apply in assessing whether regulatory impact on a foreign investor constitutes “indirect expropriation” ? Thinking: protection of foreign investment vs. regulatory rights of the State