The notions of expropriation and of its compensation are at the heart of every discussion pertaining to Foreign Direct Investment (FDI). In fact, one might argue that these notions, among others, reflect the complex nature inherent to the FDI mechanism. The complexity lies in the fact that the FDI process is construed on a divergence of interests of the different actors involved. In a broader context, investors are looking for contexts that will allow them to maximize their profits and host states wish to attract investments without renouncing their sovereign powers. As a result, the whole system lies on a delicate balance. This paper highlights the issue of expropriations and compensations illustrate the difficulty of defining a balanced system that can satisfy each actor involved in the FDI process.
[...] A minimal consensus was reached by the different actors in the Resolution on Permanent Sovereignty (1962) on four basic principles: compensation must be paid in the event of taking of alien property; such compensation must be paid in accordance with international law; (iii) investment agreements between states and private parties have a binding effect and arbitration agreements between states and private parties have a binding effect. The express adoption of these principles allowed the evolution towards the contemporary state of things. Despite some remaining uncertainties about its modalities (damnum emergens/ lucrum cessans compensation), the principle of full compensation seems to be nowadays established in CIL. Nevertheless, the notion of appropriate compensation, which allows to determine the compensation not on actual losses but on the specific circumstances surrounding an expropriation (cf. Ebrahimi case), did not totally disappear. [...]
[...] In other words, they had to accept the evolution towards a system that comforts investing states that tend to require always greater standards of protection of their investments. Bibliography On expropriations Lowenfeld, International Economic Law, pp. 388-438 (2002) Norton, A Law of the Future or a Law of the Past? AJIL 474 (1991) Ebrahimi v. Iran, Iran-US Claims Tribunal (1994) On the international minimum standard Chattin v. United Mexican States, General Claims Commission (1927) Oliver, et al, The International Legal System pp. 726-730 (4th ed. 1995) Lutz and Trice, NAFTA at Five and the Loewen Case, Translex (Oct. [...]
[...] However, questions remain as to the determination of the amount (notion of fair market value). The evolution towards the consecration of this principle is not surprising. It simply derives from sheer necessity. It also illustrates the strong interdependence between law and economics. Indeed, it seems in this precise case that law is dictated by economic necessities. Developing countries have understood that they would not be able to evolve towards an economical stabilization and then liberalization if they were not able to attract private investors. [...]
[...] Consequently, they are more exposed under the rule of national treatment than national investors. In this context the attachment of the investors to “fair and equitable” rules in terms of expropriation is perfectly justified. This position also reflects the attachment to the idea of private property that is at the very basis of economic liberalism. It is also interesting to underline the fact that in Western ideologies, private property is linked to the very notion of human rights and is one of the elements that conditions their effectiveness. [...]
[...] Customary International Law and FDI What exactly does customary international law now require of a state that expropriates the property of a foreign national in your view? . The notions of expropriation and of its compensation are at the heart of every discussion pertaining to FDI. In fact, one might argue that these notions, among others, reflect the complex nature inherent to the FDI mechanism. This complexity lies in the fact that the FDI process is construed on a divergence of interests of the different actors involved. [...]
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