Document Type

Article

Publication Date

2002

Abstract

If a tribunal determines that a state actor has expropriated foreign investment property, or, under Chapter 11 of the North American Free Trade Agreement (NAFTA), that a state actor has adopted a regulation that is "tantamount to" an expropriation of foreign investment property,' then that tribunal must determine the amount of compensation owed. International law has developed methods to determine the size of a compensation award when a state formally expropriates property. But the notion, reflected in Chapter 11 of NAFTA, that states may be required to pay compensation to foreign investors for what are, in effect, regulatory takings, is barely in its infancy.2 Consequently, the standards for determining the measure of compensation for international regulatory takings are also extremely underdeveloped. Valuation techniques that have been developed in the context of formal expropriation may not translate readily to regulations that leave possession undisturbed, but reduce the value or profitability of property.

The most obvious source to look to for guidance in determining the measure of compensation under international law is domestic takings law. The largest and best-developed body of such law is undoubtedly American constitutional law. The Fifth Amendment of the United States Constitution, which has been in effect for over 200 years, requires the payment of "just compensation" for takings of property.3 For the last eighty of those years, it has been established that regulations may, in certain circumstances, impair property values so severely as to constitute a taking.4 When one examines American compensation law, however, one finds that here too there is little guidance about how to measure just compensation in regulatory takings cases. At most, American law suggests some plausible models that can be adapted to the regulatory takings context.

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