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The Empty Circularity of the Indirect Expropriations Doctrine: What International Investment Law Can Learn from American Legal Realism

The doctrine of indirect expropriation forms one of the cornerstones of contemporary international investment law (IIL). This paper argues that it is theoretically and conceptually unsustainable. It is a common ground among the scholars of international law that aspects of many contemporary international regimes concerning the treatment of private actors by sovereign states find their historical origin in the US constitutional legal tradition. In no other area of international law, however, has this pattern of mass-scale borrowing been more obvious than in that segment of IIL which deals with the subject of indirect expropriation, or, to use the standard US legal terminology, regulatory takings. The sheer scale of en bloc importation that has been carried out in this area over the last few decades has reached such colossal proportions that it would be simply impossible to try to understand the evolution of this part of international law without taking into account its relationship with its US domestic counterpart. And yet, it is equally crucial to note, not everything that could have been imported into the international legal field in this area has in fact been imported. Most of the traditional criticisms and challenges that have historically accompanied the rise of the doctrine of regulatory takings in US law very distinctly appear not to have been replicated in the international legal context. Many of these criticisms and challenges address what by any standard of appreciation should be considered some of the most fundamental questions of economic and legal policy. Their failure to be replicated in the international legal context has unquestionably left a profound impact on the way these subjects have been dealt with at the international level. Needless to say, none of this has been politically neutral or economically inconsequential. In this essay, I propose to trace out the general contours of some of these criticisms and challenges. More specifically, my focus will lie with those criticisms and challenges that were originally developed in the context of that twenty-year-long theoretical upheaval which took place in the US legal academia sometime between the late 1910s and the late 1930s and which is now most commonly referenced in the legal literature under the rubric ‘American legal realism’. My aim in doing so will be to demonstrate that the general conceptual apparatus which underpins the traditional discourse on indirect expropriation in contemporary IIL is completely theoretically insolvent.