Originally from American Review of International Arbitration - ARIA

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During the 1990s, several emerging countries signed BITs (Bilateral Investment Treaties) to encourage foreign investment in public services. After more than a decade, we observe international arbitration disputes between investors and local governments, resulting from governmental actions leading to reductions of investors’ expected returns, or indirect expropriation. Damage valuation of these cases is complex, and requires the use of appropriate methods. In this article we analyze and compare several methods applicable to international arbitration. We find it fundamental to identify the expropriatory acts, and to understand the economics of the contract entirely. The choice among methods requires a case-by-case analysis.

I. INTRODUCTION

During the late 1980s and most of the 1990s, an important number of countries attracted, through massive privatization programs, foreign investment into public service sectors.1 To facilitate the inflow of foreign capital, some countries signed Bilateral Investment Treaties (“BITs”) to grant additional protection to foreign investors.2 BITs permit dispute settlements between private stakeholders and the local government in international arbitration courts, instead of an ordinary judiciary process under local law.