What Is Indirect Expropriation
3.2.1 Police Power Doctrine
A number of tribunals have attempted to restrict the nature of the protection so that States will not be subject to claims for compensation where the regulation, which might otherwise be tantamount to expropriation, is for a proper public purpose and is otherwise appropriate for achieving that purpose. This is known as the "police powers" doctrine.
The term “police power” described in Tenth Amendment is as the following:
Police power describes the basic …show more content…
Thus, foreign assets and their use may be subjected to taxation, trade restrictions involving licenses and quotas, or measures of devaluation. While special facts may alter cases, in principle such measures are not unlawful and do not constitute expropriation” . Similarly, according to Sornarajah , non- discriminatory measures related to anti-trust, consumer protection, securities, environmental protection, land planning are non-compensable takings since they are regarded as essential to the efficient functioning of the state.
In Marvin Feldman v Mexico , the tribunal said:
governments must be free to act in the broader public interest through protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions and the like. Reasonable governmental regulation of this type cannot be achieved if any business that is adversely affected may seek compensation...
As discussed above, that case concerned the application of certain tax laws by Mexico to …show more content…
However, it is debatable whether the parties to BITs which are silent about the applicability of customary international law intended that such law would apply. If they had so intended it would have been easy to say so as was done.
Some believe that the logical motive for a State in making such an agreement is to increase the relative attraction for investors to invest in the State. Such an argument is consistent with the "sole effects doctrine".
The alternative argument is that there must be a natural limit to the protection offered by BITs, as it is unlikely that any State would have intended to absolutely fetter their capacity to regulate business, without paying compensation. Changes in the legal regime which affect business is one of the risks of being in business and must be generally accepted by investors, provided that the change falls within the police powers of the State.
In Tippetts v TAMS-AFFA Consulting Engineers of Iran , the Iran-United States Tribunal said:
the intent of the government is less important than the effects of the measures on