The Right of a State on Expropriation of Foreign Investments

Abstract

At present the right of a state on expropriation of foreign investments is widely admitted. In normative terms it is fixed in many multilateral and bilateral investment treaties as well as in national law.Expropriation is divided into two groups. In one case the property of an investor is transferred to the state (direct expropriation). In the other case the property of the investor continues to belong to him, but he loses the control over the property (indirect or creeping expropriation).It is argued that not any activity of the state directed to the deprivation or restriction of the investor’s property right is amount to expropriation.It is necessary to admit the following actions as non-expropriation: a) tax regulation (which should not have discrimination character); b) compulsory deprivation and refusal of a license, cancellation of a contract for the infringement of stipulated duties by the foreign investor; c) regulation of legal relations connected to the protection of competition; d) regulation of currency relations; e) regulation of foreign trade activity; f) regulation of the protection of environment; g) sanctions for the infringements of the right of the state.It is concluded that lawful expropriation can be performed under only two conditions: a) on non-discrimination basis; b) with the payment of compensation. The size and order of payment of compensation in case of expropriation must be defined in treaties and national law.