href="#ulink_2412373a-9532-5ef0-bf0f-21fa002ccba5">3.5 Investment protection
3.5.1 The right to regulate foreign investments
The right to regulate foreign investments resulting from the principle of sovereignty over natural resources includes several component elements relating to foreign investments. These are: the right to regulate foreign investment as such; the right to regulate the admission of foreign investments; and the right to exercise power over foreign investments.
3.5.1.1 The right to regulate foreign investments as such
The principle of permanent sovereignty includes the sovereign right of the host state to regulate and control the activities of foreign investors, by way of exercising legislative, executive and judicial powers. It also includes the foreign investor’s duty to comply with these rules and regulations and to act in accordance with the host country’s economic and social policy, as well as the duty of the foreign investor’s state of origin to refrain from actions and policies that would violate the sovereignty of the host state or otherwise would cause significant damage to the host state.295 These rights and obligations are also subject to other rules and norms of international law, including the principle of good faith, the pacta sunt servanda principle, and the principle of non-interference in internal affairs of other states.
Resolutions of the UN General Assembly No. 1803 (XVII),296 2158 (XXI)297 and 3281 (XXIX)298 are important from the perspective of regulating foreign investments. All of them confirm the right of states to regulate foreign investments in accordance with their own objectives and development plans. Resolution No. 1803 declares that the use of natural resources and the import of foreign capital required for these purposes should be in accordance with the principles and conditions that peoples and nations consider freely or necessary for the granting of permits, restrictions or prohibitions regarding such activities. It further specifies that when a state permits the admission of foreign capital, the investment will be subject to the conditions of the permit, as well as national legislation and international law, and that freely concluded contracts should be respected in good faith. However, Resolution No. 2158 declares in absolute terms that the exploitation of natural resources in any country should always be carried out in accordance with national law.299 Article 2 of the Charter of Economic Rights and Duties of States emphasizes that no state can be forced to offer preferential treatment to foreign investment.300 However, the Declaration on the Establishment of a New International Economic Order provides that states, as fully sovereign entities, should take measures in the interest of their national economies to regulate and supervise the activities of transnational corporations operating in their territories.301
A number of multilateral treaties directly address the issue of regulating investments. The Havana Charter (1948) stipulates that the state, unless otherwise agreed, has the right to take all appropriate safeguards necessary to: ensure that foreign investment is not used as a basis for interference in its internal affairs or national policies; determine if and to what extent and under which conditions the state would allow future foreign investment; establish effective requirements for the ownership of existing and future investments, and other reasonable requirements for such investments.302 The International Covenant on Economic, Social and Cultural Rights can be interpreted in such a way that it suggests that, under certain conditions, developing countries have the right to treat foreign investors differently from their own citizens. The ICESCR ensures that developing countries can determine, having due regard for human rights and their own national economy, to what extent they will guarantee the economic rights recognized in this Covenant to persons who do not have their nationality.303 The ASEAN Investment Agreement of 1987 provides for the host state’s right to manage foreign investments.304 Similarly, the Energy Charter Treaty (1994) indicates the right of states to regulate foreign investments, subject to the obligations under this Treaty and other norms of international law.305 The large number of bilateral agreements on investment protection and promotion of investments is also important.306
With regard to non-binding multilateral instruments other than UN resolutions, it is worth pointing out the guidelines annexed to the OECD Declaration (2011)307 on international investment and multinational companies, which ensure that every state has the right to determine the operating conditions of transnational companies under its national jurisdiction, subject to the provisions of international law and international agreements regarding the relevant investment. These issues are also reflected in the Seoul Declaration (1986)308 and the World Bank Guidelines of 1992,309 although the latter document focuses more on the promotion of foreign investment than on the perspective of the host state.
All the documents referred to above assume that the host states have the general right to regulate foreign investments and to subject the investments located in their territory to local law. However, this right is qualified by the overriding provisions of international law included in bilateral and multilateral investment agreements and by the general obligations regarding the treatment of foreigners resulting from international human rights law.310
3.5.1.2 The right to regulate acceptance of foreign investments
Resolution No. 1803 (XVII)311 declares that the import of capital needed for the development of natural resources should be in line with the principles that the states deem necessary for the granting of permits, restrictions, or bans on such activities.
The Havana Charter recognized the right of every state to determine the extent to which, if, and under what conditions it would allow future foreign investment.312 However, such a provision was not included in the General Agreement on Tariffs and Trade (GATT),313 either in the 1947 or the 1994 version, as this arrangement does not include investment. Only the 1994 General Agreement on Trade in Services (GATS)314 recognizes in its preamble the right of states to regulate the provision of services in their territories to achieve national policy objectives and the special needs of developing countries regarding the exercise of this right. All national regulations affecting trade in services should, however, be “administered in a reasonable, objective and impartial manner”.315
The right to regulate acceptance of foreign investments may be limited voluntarily, e.g. in the context of economic integration between
