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Expropriation - A Sequel

UNCTAD Series on Issues in International Investment Agreements II

image of Expropriation - A Sequel
In this publication, Section I defines the concepts of direct and indirect expropriation and reviews the variety of measures that can constitute an expropriation. Section II focuses on the core issue of establishing an indirect expropriation: the recent treaty practice on defining indirect expropriation as well as arbitral practice. Section III discusses the differences between compensation for a lawful expropriation and reparation for unlawful expropriations, as well as the question of valuation of investments. Section IV offers options which policy makers and negotiators may wish to consider.

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Executive summary

The protection of foreign investors from uncompensated expropriations traditionally has been one of the main guarantees found in international investment agreements (IIAs). Direct takings involve the transfer of title and/or outright physical seizure of the property. Some measures short of physical takings may also amount to takings in that they permanently destroy the economic value of the investment or deprive the owner of its ability to manage, use or control its property in a meaningful way. These measures are categorized as indirect expropriations. Finally, there are also nondiscriminatory regulatory measures, i.e. acts taken by States in the exercise of their right to regulate in the public interest that may lead to effects similar to indirect expropriation but at the same time are not classified as expropriation and do not give rise to the obligation to compensate those affected.

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