This Article proposes a reassessment of current methods for valuing compensation owed by host States for breaches of non-expropriation standards of investment treaties, when the host State breaches such standards in order to fulfill obligations to its citizens under the International Covenant on Economic Social and Cultural Rights (ICESCR). The ICESCR minimum core obligations continue to have binding force during financial crises, despite the latter's impairment of host States' fiscal resources and social protection capabilities. Current investment arbitral jurisprudence involving financial crises show that tribunals have not adjudged host States implementing interventionist social protection measures to be responsible for direct or indirect expropriation, but rather for violating other treaty standards such as the "fair and equitable treatment" clause.
Arbitral tribunals have generally determined compensation for such breaches by referring to a "fair market value" standard, more synchronous with assumptions of perfectly competitive markets. However, the process of determining compensation for breaches of non-expropriation standards is governed by the general law of international responsibility, of which compensation is only one of the forms of reparations. Under the law of international responsibility, compensation is not intended to be punitive or expressive, but is evaluated according to the objective conduct of both the injuring State and the injured State, in order to reach the most equitable outcome that redresses damage to the injured State. Investment arbitral tribunals determining compensation for a host State's non-expropriation breaches should, thus, be similarly obliged to reach for equitable outcomes, rather than automatically resorting to the flawed definition of the "fair market value" standard.
This Article shows that States, in conjunction with the Committee on Economic, Social and Economic Rights ("the Committee"), jointly define the minimum core obligations particular to their respective jurisdictions in light of resource constraints, governmental capacities, and growth prospects. While minimum core obligations are not static concepts, they can nonetheless be empirically determined and institutionally verified, as shown in the settled practices of the Committee in working with State Parties to the ICESCR. The Article then synthesizes current tribunals' approaches in valuing compensation for breaches of non-expropriation treaty standards in times of economic crises (primarily through the 2001- 2002 Argentine financial crises), and reveals latent methodological defects from using a broad "fair market value" standard, without considering equitable adjustment factors and other comparable arbitral practices that focus more narrowly on past performance, rather than future earnings projections for compensation in times of emergencies. Finally, the Article suggests a valuation proposal that recasts country risk premium to factor in the host State's obligation to fulfill the ICESCR minimum core obligations as a fixed constraint on government resources, even in times of financial or economic crisis.
"Concerns have sometimes been expressed that the principle of full reparation may lead to disproportionate and even crippling requirements so far as the responsible State is concerned. The issue is whether the principle of proportionality should be articulated as an aspect of the obligation to make full reparation. In these Articles, proportionality is addressed in the context of each form of reparation, taking into account its specific character. Thus restitution is excluded if it would involve a burden out of all proportion to the benefit gained by the injured State or the other party. Compensation is limited to damage actually suffered as a result of the internationally wrongful act, and excludes damage which is indirect or remote."1
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