The Global Fifth Amendment? NAFTA’s Investment Protections and the Misguided Quest for an International “Regulatory Takings” Doctrine
Vicki Been, Joel C. Beauvais
Just over two years ago, in Metalclad Corp. v. United Mexican States, an arbitral tribunal announced a seventeen-million-dollar award under NAFTA Article 1110, which requires host governments to compensate foreign investors for acts of “direct or indirect expropriation” or “measures tantamount to expropriation.” Several of these “regulatory takings” claims have recently been filed against NA FTA governments, and while it is still too early to judge how broadly tribunals will interpret the expropriation provision, the Metalclad case has opened the door for investors to challenge and potentially stifle environmental and land use regulation.
In this Article, Professor Vicki Been and Joel Beauvais shed light on two issues central to the debate over global investor-protection provisions. First, the Article compares the expropriation decisions under NAFTA’s Article 1110 with regulatory takings law under the Fifth Amendment of the U.S. Constitution. Despite claims that NAFTA simply “exports” the U.S. takings standard, the tribunals’ interpretations of the expropriation provision have exceeded the substantive scope of U.S. compensation requirements while removing procedural limitations typically imposed on domestic takings claims. Second, the Article explores the rationales traditionally asserted for domestic compensation requirements—cost-internalization, fairness, and insurance—finding that they do not justify an expansive regulatory takings doctrine in the international context. After rejecting claims that expropriation provisions benefit developing countries by attracting foreign investment, Been and Beauvais go on to highlight the significant costs of imposing a broad international regulatory takings doctrine: It gives foreign investors a competitive advantage over domestic firms, redistributes wealth between domestic taxpayers and foreign firms, and may deter efficient regulation.
The Article concludes that a global regulatory takings doctrine is neither necessary nor beneficial. Because of its substantial risks, the United States and other sponsors of international investment agreements should eschew the expansion of compensation requirements, instead limiting expropriation provisions to the traditional concerns of investor protections: physical invasions and seizures, direct nationalization, and governmental assumption or transfer of control of foreign property.