Icescr Minimum Core Obligations and Investment: Recasting the Non-Expropriation Compensation Model During Financial Crises

Abstract

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.