Customary International Law and FDI

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Customary International Law and FDI

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Abstract

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.

On the expropriation matter, investors largely adhered to the principle of full compensation
Developing countries (host-countries) demonstrated their attachment to the social function of property and the notion of redistribution of wealth
Toward the consensus. The principle of full compensation seems to be nowadays established in CIL

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[...] 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. The price they had to pay for this was the acceptance of an evolution towards a system based on more certainty. In other words, they had to accept the evolution towards a system that comforts investing states that tend to require always [...]

[...] 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. [...]

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