The Overwhelming Merits of Bilateral Investment Treaties

Abstract

The merits of bilateral investment treaties are substantial, indeed, overwhelming. There are essentially two reasons that support that conclusion. The first turns on the substantive standards for the treatment of foreign investment embodied in bilateral investment treaties and, in a few, very important multilateral treaties, the Energy Charter Treaty and NAFTA. The second reason turns on procedures for the settlement of disputes arising under those treaties. I. SUBSTANTIVE STANDARDS For some two hundred years, standards of treatment of foreign investment were in acute dispute. Companies and citizens of countries that generated surpluses, such as Great Britain and France, invested some of that abroad. Those investments were, in the large, to the benefit of importing countries, which needed to develop. They were, in the large, to the benefit of the foreign investors who received dividends on their investments. Yet disputes sometimes arose over the treatment of foreign investments in host countries. The foreign investor could seek recourse in the courts of host countries but sometimes found, or believed, that that recourse was ineffective or unjust. The foreign investor alternatively could seek the intervention of the government of the country of which he was a national. Sometimes such diplomatic espousal was forthcoming and effective, sometimes not. Often the investor's government would decline to extend its protection because it apprehended that doing so would be prejudicial to its relations with the host country of the investment. Yet occasionally the protection extended on behalf of the investor was so vigorous as to be disproportionate to the interests at stake, as in the Venezuelan blockade imposed by European states at the turn of the 20th Century. Capital exporting countries maintained that there was a minimum standard of treatment enjoyed by all aliens and their property. Capital importing countries maintained that aliens and their property were entitled not to a minimum standard but, at most, to a national standard, that is, to no more than nationals of the host state enjoyed or suffered. Calvo famously expounded the latter position. The Soviet Union, which during the Russian Revolution expropriated the property of its citizens without compensation, maintained that foreign nationals were equally entitled to nothing for the taking of their property, a contention unpopular with the thousands of Frenchmen who had bought Tsarist bonds. When Mexico nationalized its oil industry in the 1930's to the pain of major oil companies and their stockholders, asserting that they were entitled to no more compensation than Mexican law afforded Mexican nationals, a notable exchange ensued between Secretary of State Hull and the Foreign Minister of Mexico. Hull contended that foreign investors were entitled to the minimum standard of prompt, adequate and effective compensation. His Mexican counterpart replied with arguments congenial to Calvo. After the Second World War, this confrontation was renewed, as illustrated by expropriations by Iran, Libya and other states, and the reaction of exporting countries thereto. Capital importing states raised the issue in the United Nations under the banner of sovereignty over natural A commission of that title prepared a draft resolution that came up for consideration in 1962 at the Seventeenth Session of the U.N. General Assembly. I was then the legal adviser of the U.S. Delegation. It fell to me, together with the legal adviser of the British Delegation, to negotiate the draft resolution with the spokesmen of developing countries. The upshot was a resolution adopted with the support of a very large majority, despite vigorous opposition by the then Communist Bloc. The resolution contains repeated assertions of permanent sovereignty over natural resources. But these recitals were balanced by the recognition that capital imported . …