Compensation for Expropriation
NAFTA Article 1110 requires host governments to provide compensation for expropriation and measures that are tantamount to expropriation. It also requires that expropriations be made for a public purpose, be nondiscriminatory, and be in accordance with due process and Article 1105(1).
In S.D. Myers v. Canada, the Tribunal considered that the term “expropriation” in Article 1110 must be interpreted in light of the whole body of State practice, treaties, and judicial interpretations of that term in international law cases. The general body of precedent usually does not treat regulatory action as amounting to expropriation, because expropriations tend to involve the deprivation of ownership rights and regulations a lesser interference. Moreover, an expropriation usually amounts to a lasting removal of the owner’s ability to make use of its economic rights. In this case, the trade ban was temporary and there was no expropriation.
International law establishes that the following types of government actions may constitute expropriation: (1) the taking of title to property, in whole or in part;
(2) the use ofpolice, administrative, or legal powers to take control ofthe operation of an investment, or shut the investor out of its rights of control and ownership, without the transfer of title; and (3) creeping expropriation: the use of a series of measures that cumulatively, rather than individually, accomplish the removal of ownership or control of an investment. A more controversial argument is that the diminution of economic value due to a regulation that protects the public interest can be the basis for a finding of expropriation.96
Under customary international law, where economic injury results from bona fide regulation within the police powers of a State, compensation is not required. Thus, as a general matter, States are not liable to compensate aliens for economic loss incurred as a result of a nondiscriminatory action to protect the public interest. However, once an expropriation has taken place, compensation is due even if it is for an environmental purpose. In the context of NAFTA Article 1110, if there is a finding of expropriation, compensation is required, even if the taking is for a public purpose, nondiscriminatory, and in accordance with due process oflaw and Article 1105(1). Thus, not all government regulatory activity that makes it difficult or impossible for an investor to carry out a particular business is an expropriation under Article 1110. For example, in Methanex, the Tribunal concluded that the California methanol ban was made for a public purpose, was nondiscriminatory, and was accomplished with due process. Hence, from the standpoint of international law, the California ban was a lawful regulation and not an expropriation.
Twelve of the treaties surveyed by Gordon and Pohl contain provisions that clarify the understanding of the parties that nondiscriminatory environmental regulation does not constitute expropriation. These clauses state:
The Parties confirm their shared understanding that: . . . Except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.
Arguably, this is just a confirmation of existing customary international law and, contrary to the conclusion that Gordon and Pohl draw, does not mean that States that do not include such provisions may thus be exposed to compensation claims for expropriation that could discourage modifications of environmental regulation or make them onerous.
The cases also have considered what types of property interests are subject to Article 1110. In Pope & Talbot Inc. v. Canada, the Tribunal held that “the Investor’s access to the U.S. market is a property interest subject to protection under Article 1110.” This is consistent with the approach taken in Cargill v. Mexico. However, in Methanex, the Tribunal observed that items such as goodwill and market share may constitute an element of the value of an enterprise and, in a comprehensive taking, these items may figure in valuation. However, they cannot stand alone as the basis for a claim of expropriation.
-  96 Methanex Corporation v. United States, Amicus Curiae Submission para. 82.
-  Methanex Corporation v. United States, Amicus Curiae Submission para. 84; Restatement of theLaw Third: The Foreign Relations of the United States: A state is not responsible for loss of property or for other economic disadvantage resultingfrom bona fide general taxation, regulation, forfeiture for crime, or other action of the kindthat is commonly accepted as within the police powers of states, if it is non-discriminatory(Azinian v Mexico cited in Marvin Feldman v. Mexico, Award, para. 105).
-  Compania del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1,Award (February 17, 2000); Metalclad v. Mexico, Award.
-  Marvin Feldman v. Mexico, Award, para. 98.
-  Marvin Feldman v. Mexico, Award, para. 112.
-  Methanex v. United States, Final Award, IV.D.15.
-  Gordon and Pohl, “Environmental Concerns in International Investment Agreements” 22;United States Model BIT 2004 Annex B; Canada Model BIT (2004) Annex B.13(1); Belgium/Luxembourg—Colombia BIT (2009); Canada—Czech Republic BIT (1990); Canada—Jordan BIT(2009); Canada—Latvia BIT (2009); Canada—Peru BIT (2006); Canada—RomaniaBIT (1996); UnitedStates—Rwanda BIT (2008); United States—Uruguay BIT (2005).
-  Pope & Talbot, Award in relation to Preliminary Motion, para. 96.
-  Methanex v United States, Final Award, IV.D.17.