US Investors and Expropriation Under the AUSFTA - Is the Protection Afforded to Investors Illusory? - SIAR 2006-3
Annie L. Phillips, LL.B. (Hons.) / B.A. Australian National University. Annie is a candidate for a LL.M (Mineral Law and Policy) at CEPMLP, University of Dundee, and is an intern at the British Institute of International and Comparative Law.
Originally from: Stockholm International Arbitration Review
US INVESTORS AND EXPROPRIATION UNDER THE AUSFTA - IS THE PROTECTION AFFORDED TO INVESTORS ILLUSORY?
Annie L. Phillips
On 1 January 2005 the Australia-United States Free Trade Agreement came into force, heralding a new chapter in Australian-US trade relations. Unsurprisingly, the investment chapter of this treaty contains some protections with respect to direct and indirect expropriations by a contracting State. However, the treaty lacks an investor-State dispute settlement mechanism, providing instead for a form of State-State dispute resolution. This paper considers the protections contained in the AUSFTA with respect to expropriation and the AUSFTA dispute resolution mechanism - focusing specifically upon the risk to US investors operating in the Australian resources industry. It also considers the domestic Australian protections / remedies available to US investors. Ultimately, it argues that the practical extent of the protections in the AUSFTA with respect to expropriation are dramatically undermined by the difficulty that investors will likely face in enforcing those protections and notes some strategies that can be adopted by investors to help remedy the apparent lack of protection.
Expropriatory conduct by a State can destroy the value of an investment overnight. Notwithstanding the fact that the right to seize private property is a sovereign right of a State, customary international law requires that a State’s seizure of property occur in a particular manner. Such customary principles are now widely replicated in numerous BITs and MITs - providing a considerably greater level of investment protection and, consequently, decreasing investors’ exposure to risk. The dispute settlement procedures that investors have access to also play an important role in ameliorating that risk. Without an efficient and effective means of enforcing the protections found within an investment treaty, those protections are of questionable value.