of 1980 on the mutual promotion and protection of investments316 states that the determination of the procedure, conditions and restrictions, and the designation of sectors in which such investments can be made, is an attribute of state sovereignty. This limitation of the right of states-parties to mutually restrict free enterprise is also contained in the Treaty on the Functioning of the European Union: the Member States of the European Union mutually recognize their citizens’ freedom of entrepreneurship and waive the right to independently regulate the enterprise of companies from another EU Member State.317 The North American Free Trade Agreement (NAFTA) of 1992, however, still provides all three parties with the exclusive right to conduct certain business activity and to refuse the inclusion of foreign investment in this activity.318 The Energy Charter Treaty (1994) declares the right of every country to freely determine which geographical areas of its territory are to be made available for the exploration and management of energy resources, as well as the right of the state to participate in such exploration and exploitation, e.g. through state-owned companies.319
The Draft OECD Convention on the Protection of Foreign Property (1967)320 stipulated that, unless otherwise agreed, no would be required to permit foreigners to acquire real estate on its territory. The OECD Declaration on International Investments and Multinational Enterprises explicitly states that it does not address the right of states to regulate foreign investment or the conditions for setting up foreign enterprises.321
3.5.1.3 The right to exercise power over foreign investments
UN resolutions confirm the host state’s right to regulate and exercise control over the activities of foreign investors in its territory, including legal and administrative measures and the exercise of judiciary.322 The Charter of Economic Rights and Duties of States establishes the right of every state to regulate and exercise power over foreign investments within its national jurisdiction in accordance with its laws and regulations and in accordance with its national objectives and priorities; as well as to supervise the activities of transnational corporations within national jurisdictions and take measures to ensure that such activities are consistent with their laws, rules and regulations, and consistent with their social and economic policies.323
The treaty law significantly develops these issues. The Havana Charter (1948) recognizes that unless other agreements oppose this, the state has the right to take all appropriate safeguards necessary to: ensure that foreign investment is not used as the basis for interference in its internal affairs or national policies; determine if and to what extent, and under what 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.324 The Washington Convention of 1965 on the settlement of investment disputes between States and nationals of other States, which established the International Centre for Settlement of Investment Disputes (ICSID), stresses that the basic competence to legislate in relation to foreign investors and to resolve investment disputes between the host state and the foreign investor is the responsibility of the authorities of the host country.325 The 1985 Convention on the Establishment of a Multilateral Investment Guarantee Agency (MIGA)326 expresses a respect for the state’s right to control foreign investments and states that the Agency respects the compliance of the investment with the law of the host state and the consistency of the investments with the development of the declared state goals and priorities.327 In addition, Article 15 of the Convention introduces a condition that the Agency does not enter into warranty agreements until the government of the host state approves the guarantee issued by the Agency regarding the risks to be covered. Consequently, the choice of the scope and nature of foreign investors’ involvement in the exploitation of natural resources was left to the given state. The Energy Charter Treaty (1994) includes the right of every state to impose taxes and fees related to the exploration and exploitation of energy resources.328
The OECD guidelines indicate that entities belonging to transnational enterprises located in different states are subject to the laws of these states.329 The Draft United Nations Code of Conduct on Transnational Corporations provided that states have the right to determine the role that transnational corporations can play in their economic and social development and declared that the subject of a transnational corporation falls under the jurisdiction of the state in which it operates.330 The Seoul Declaration guarantees that states have the right to regulate, exercise power, legislate, and impose taxes in relation to the natural resources and economic activities carried out in their territories by foreign entities. Unless otherwise agreed by contract, preferential treatment must not be required for every foreign investment.331
3.5.2 The right to expropriate or nationalize foreign investments
The terms “expropriation” and “nationalization” are often used interchangeably. “Expropriation” is commonly understood as a unilateral state interference directed at the property or comparable ownership rights, and “nationalization” usually means the transfer of economic activity to the public sector as part of a general programme of social and economic reforms.332 The term “taking over property” is the most general term.333 The right to expropriate or nationalize foreign investments includes: the right to take ownership as such; the right to freely determine the conditions of nationalization; the right to refuse to pay compensation or to determine it freely; the right to settle disputes based on national law; the right to freely choose resolution measures for dispute on nationalization.334
3.5.2.1 The right to take ownership as such
The right of nationalization has been explicitly included in UN General Assembly Resolutions 1803,335 3171,336 3201,337 and 3281.338 The relevant references also contain § 2 of UNCTAD Resolution No. 88 (XII)339 and the UNIDO Declaration of Lima.340
The Havana Charter provides that states have the right to set and enforce requirements for the ownership of existing and future investments.341 Regional treaties on human rights, which include the right of individuals to property, also confirm the right of the state to take over the property, subject to certain conditions.342 Similarly, regional, interregional and bilateral investment protection and investment agreements, chapters of multilateral treaties, such as NAFTA and the Energy Charter Treaty, recognize the right of all host states to expropriate a foreign entity, subject to the requirements of international law.343
The case from 1928 concerning the expropriated nitrogen factory in Chorzów is referred to as one of the first judgments in which the law of a given country to take over foreign ownership
