Indirect Expropriations: The Need for a Taxonomy of "Legitimate" Regulatory Purposes

The international law rules governing "indirect" expropriations of property reveals a tension between the interest, on one hand, of protecting rights of foreign property owners and investors and, on the other hand, the interest of protecting the sovereign authority of states to regulate in further of public welfare goals. The tension is embodied in the formal doctrine. Thus, a state is responsible under international law for regulation that unreasonably interferes with the foreign owner's enjoyment of his or her property. At the same time, however, the doctrine recognizes that regulation "commonly accepted as within the police power of states" does not give rise to liability for a regulatory taking.

International courts and tribunals are reluctant explicitly to substitute their judgment for that of sovereign state parties before them with regard to the legitimacy of or justification for the particular police power goals those states have decided to pursue through a given regulatory measure. This results in artificially truncated approaches to indirect expropriation cases. In some cases, tribunals focus only on the effect of a regulatory measure on the owner, without regard to the state's purpose. More recent developments in state practice suggest that whenever a state claims a public welfare purpose for regulation, it will not constitute an indirect expropriation of property.

Nevertheless, implicit in the decisions of international tribunals and the practice of states in negotiating property claims settlements is a normative assessment of the legitimacy of the particular police power or public welfare purposes to be served by a particular regulatory measure. These implicit assessments have been keyed not to the socio-political standards of the state adopting the regulation, but to international standards. As such, the question of whether a regulatory measure constitutes an indirect expropriation under international law will depend in part on the extent of international acceptance of the particular substantive public welfare purposes a regulatory measure seeks to advance. Future scholarship should evaluate decisions of international tribunals and state practice to develop clearer and more explicit guidelines on the question of which classes or categories of regulatory purposes are accepted by both developed and developing states as requiring property owners to bear the costs or regulation, and which require the state to provide compensation.

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