The Conflict And Coordination Of Indirect Expropriation And Environmental Regulation In International Investment

Expropriation has been one of the most controversial topics in the field ofinternational investment law, the focus of which has changed throughout the century,ranging from the legitimacy of expropriation to the standard of compensation. Now,the focus has been drawn to the determination standard of indirect expropriation.In recent years, with the increase of cross-border investment, the growingenvironmental awareness and the importance the various countries attach to theenvironment, a lot of host countries have started taking actions to solve the seriousenvironmental problems, which inevitably damages the investment and interests ofthe foreign investors within the host countries and creates conflicts between them.In this context, it is extremely important to strike a balance between theenvironmental benefit of the host country and the investment benefit of the foreigninvestors.Current international treaties all recognize indirect expropriation, but the varioustreaties do not define “indirect expropriation” uniformly and clearly. With regard tothe determination of indirect expropriation, there are three standards, namely soleeffect test, purpose test and effect and purpose test. Also, the principle ofproportionality has been adopted to determine indirect expropriation in arbitrationpractices. However, due to the particularity of the environmental problems, thearbitral tribunals should place emphasis on the legitimate purpose of theenvironmental regulations the host countries put forward. So, starting from anintroduction of indirect expropriation and environmental regulation and based on the arbitration practices, this article gives some suggestions on how to balance indirectexpropriation and environmental regulation.The first chapter introduces indirect expropriation and environmental regulation.With respect to indirect expropriation, this article mainly discusses the definition ofindirect expropriation in different international investment treaties and thedetermination standards. As to environmental regulation, the article focuses on theprovisions of environmental regulation and the environmental exception clauses in theinternational treaties.The second chapter mainly analyses the conflict between indirect expropriationand environmental regulation in international investment, including the reasons of theconflict and the essence of the conflict.The third chapter is about the arbitration practices relating to the conflict ofindirect expropriation and environmental regulation. After analyzing the significantarbitral cases of ICSID and NAFTA, this article summarizes several essentialelements in determining whether environmental regulation constitutes indirectexpropriation and focuses on the analysis of the application of the principle ofproportionality. Also, this section discusses the relationship between indirectexpropriation and environmental regulation and proposes some solutions tocoordinate them.The fourth chapter discusses the current situation of China regarding the issue intopic, focusing on the Bilateral Investment Treaties and Free Trade Agreement Chinahas concluded, and comes up some suggestions.