Non-Discrimination (Expropriation)

Expropriations are deemed lawful under international law if they meet a certain number of requirements.¹ One of these requirements is that expropriations should not violate the principle of non-discrimination.²

However, discrimination is a necessary but not the only condition required to characterize an unlawful expropriation. As such, a discriminatory measure affecting property rights would not necessarily constitute an expropriation.³

The non-discrimination principle provides that a State should not treat its foreign investors less favorably than its national investors (the principle of national treatment) or treat some of its foreign investors better than other foreign investors (the most favored nation principle).⁴ While there is a general consensus as to this definition of the non-discrimination principle, its exact scope and content are subject to debate.⁵

The principle of non-discrimination is directly mentioned in most of today’s bilateral investment treaties (BITs) and international investment agreements (IIAs).⁶ This has given rise to a debate acs to whether this principle is treaty-based or based on a customary principle of international law. While some argue that the non-discrimination principle is derived from custom,⁷ many tribunals have refused to embrace this view.⁸

A majority of tribunals consider that to establish a violation of the principle of non-discrimination, a person or corporation must show that:

1. it was treated “less favourably” (“differently”, “worse”)⁹ than;
2. others placed in “like circumstances”¹⁰ (or “similar circumstances”,¹¹ “comparable situations”, “like situations”);¹² and
3. that this difference in treatment had no “reasonable” (or “rational”, “legitimate”) “justification”.¹³

These standards vary based on the wording of the particular BIT.

The principle of non-discrimination does not prohibit a State from formulating any kind of differential treatment between domestic and foreign investors. The difference must give rise to an actionable claim.

There is a debate as to whether a claim could be actionable when the discrimination is premised on something other than the investor’s nationality.¹⁴

Importantly, there is no consensus as to which party bears the burden of proof to establish that a particular treatment is discriminatory. Some tribunals hold that the burden of proof falls on the respondent State.¹⁵ Other tribunals have held that this burden falls on the claimant.¹⁶

A difference in treatment can violate the principle of non-discrimination only if it distinguishes between individuals or companies which are in a similar situation. The difference in treatment must thus be established in reference to an external comparator.¹⁷ There is a debate as to whether the comparator can be simply any kind of competitor, or anyone from the same industry, “line of business” or “economic sector”. On this question, different tribunals have articulated a variety of standards.¹⁸ See further Similarity/in like circumstances.

If a difference in treatment is established, this does not automatically trigger a violation of the non-discrimination principle. States can show that this difference of treatment was justified¹⁹ because (i) it pursued “a legitimate objective”²⁰ or (ii) because there was a “rational” or “reasonable”²¹ relationship between the means the state employed and the aim sought. Tribunals have construed what amounts to a “legitimate objective” in various, contradictory ways.²²

For instance, one tribunal held that a difference in treatment does not amount to discrimination when this difference in treatment is a “necessary consequence of the nationalization of a productive sector in which privately owned and State-owned companies coexisted”.²³ See further Regulatory expropriation, Right to regulate, Police powers. Otherwise, general regulations by the State can amount to indirect expropriations if they are discriminatory.²⁴

States that are brought to arbitration for a violation of the non-discrimination principle often argue that this principle can be violated only if the expropriatory acts carried out by the State have been committed with the specific intent to discriminate. Most tribunals do not require the claimant to prove such a discriminatory intent,²⁵ but this point is still subject to debate.²⁶

To amount to an expropriation, the effect of the discriminatory measure must reach the test of substantial deprivation,²⁷ or sufficient interference with the investor’s rights.²⁸ See further Indirect Expropriation

See further: Discrimination in FET, Protection against arbitrary and discriminatory treatment, Section VI.A.

Because the non-discrimination principle offers investors a principle against differentiated treatments, it has been compared to the fair and equitable treatment protection standard included in most BITs. Practitioners should be wary of this association, and both standards remain conceptually distinct.²⁹ One difference is that the non-discrimination principle is relative, and needs to be proven through an external comparison. The fair and equitable treatment standard, on the other hand, is absolute:³⁰ its criteria are objective, and its violation can thus be established without a comparison.

The most important difference between both standards, however, is that while a violation of the non-discrimination principle will generally trigger a violation of the fair and equitable treatment standard,³¹ the violation of the fair and equitable treatment standard will not by itself lead to a violation of the non-discrimination principle (or for finding an expropriation).³²

Bjorklund, A.K., National Treatment, in Reinisch, A. (ed.), Standards of Investment Protection, Oxford University Press.

Bishop, R., Crawford, J. and Reisman, W., Foreign Investment Disputes – Cases, Materials and Commentary, Kluwer Law International, 2005.

Diebold, N.F, Standards of Non-Discrimination in International Economic Law, International and Comparative Law Quarterly, Vol. 60, 2011.

Newcombe A. and Paradell, L., Law and Practice of Investment Treaties: Standards and Treatment, Kluwer Law International, 2009.

Reinisch, A., Standards of Investment Protection, Oxford Handbook of International Investment Law, 2008. 

Schreuer, C., Protection against Arbitrary or Discriminatory Measures, in Rogers, C.A. and Alford, R.P. (eds.), The Future of Investment, 2009.

UNCTAD, International Investment Agreements: Key Issues, Vol. 1, 2004.