Dynamically Interpreting Property in International Regulatory Takings Regimes

By Zhu, Hao | Columbia Journal of Law and Social Problems, Fall 2017 | Go to article overview

Dynamically Interpreting Property in International Regulatory Takings Regimes


Zhu, Hao, Columbia Journal of Law and Social Problems


I. INTRODUCTION

On June 24, 2016, TransCanada Corp. filed a request for arbitration under the North American Free Trade Agreement (NAFTA)1 against the United States, seeking $15 billion in compensation.2 TransCanada claimed that the Obama Administration's seven-year delay in deciding on and ultimately rejecting a permit for its Keystone XL oil pipeline was politically motivated and not based on technical or environmental reasons, thus breaching U.S. obligations under the NAFTA.3 Though the Trump Administration's State Department promptly changed course and granted the Keystone XL permit to TransCanada in March 2017,4 the dispute remains instructive as similar factual scenarios will likely arise in the future.

In its request for arbitration, TransCanada claimed, inter alia, that the U.S. breached its obligations under Article 1110 of NAFTA, titled "Expropriation and Compensation,"5 which provides, in part:

No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("indirect expropriation"), except:

(a) for a public purpose;

(b) on a non-discriminatory basis;

(c) in accordance with due process of law and Article 1105(1) [which requires "treatment in accordance with international law, including fair and equitable treatment and full protection and security"]; and

(d) on payment of compensation in accordance with paragraphs 2 through 6 [which require compensation at fair market value to be paid without delay and with interest].6

This claim sharpens the conflict between foreign investors' property interests and host nations' sovereign interests to regulate for the public welfare. This conflict was first tested in the 2000 case of Metalclad Corp. v. United Mexican States, in which a NAFTA arbitral tribunal7 held that Mexico's land use and environmental laws "indirectly expropriated" Metalclad Corp.'s investment in a Mexican subsidiary operating a hazardous waste facility, and awarded Metalclad $16.7 million in compensation.8 The decision prompted discussions about the potential expansiveness and legitimacy of Article 1110's international "regulatory takings" regime.9 Yet, since the NAFTA's enactment in 1993, the United States has faced twelve Article 1110 claims and won them all,10 several on procedural grounds.11 The recent TransCanada claim over the Keystone XL oil pipeline sought the highest compensation amount in Article 1110's history.12

This Note focuses on TransCanada's Keystone XL "indirect expropriations"13 claim to explore the tension between investor property interests and sovereign interests in regulating for the public welfare. Part II argues that the path-dependency of international regulatory takings law has settled into a framework analogous to the U.S. regulatory takings law, which balances the economic impact of regulations against the character of the governmental action in the context of reasonable investmentbacked expectations. Part III elaborates on and rejects Professor Ivan Pupolizio's critique that international regulatory takings regimes give transnational enterprises an expansive "right to an unchanging world" and imbue arbitral tribunals with a protoconstitutional power of judicial review that threatens to upend state sovereignty on a global scale. This Part argues that though the fears of a "right to an unchanging world" are exaggerated, the structural problem of private law tribunals deciding public law values of property remains unaddressed. Thus, Part IV of this Note proposes that the NAFTA's Free Trade Commission issue authoritative Notes of Interpretation using the customary principles of treaty interpretation, as restated by the Vienna Convention of the Law of Treaties (VCLT), to find values from international public law to balance against the investor's private property rights. In doing so, it argues that the Commission acts in an analogous way to the U. …

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