The Protection of Foreign Property Under Customary International Law
Francis J. Nicholson S.J., Th e Protection of Foreign Property Under Customary International Law
The P rotection of Foreign Property Under Customar y International Law
Francis J. Nicholson S.J.
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Article 1
INDUSTRIAL AND COMMERCIAL
LAW REVIEW
VOLUME VI
SPRING, 1965
No. 3
THE PROTECTION OF FOREIGN PROPERTY
UNDER CUSTOMARY INTERNATIONAL
LAW
FRANCIS J. NICHOLSON, S. J. *
I. INTRODUCTION
A necessary condition for the development of the international
trade and investment so essential for the progress of underdeveloped
nations and for the continuing prosperity of more advanced nations
like those of the Common Market and the United States is the security
of property invested in foreign lands against such noncommercial risks
as discrimination and confiscation.
Over the years, as modern trade and investment began to develop,
international law evolved certain principles which bound nations to
safeguard the acquired property rights of foreigners, under the rubric
of "The Responsibility of States for Injuries to Aliens." These legal
rules provided by the law of nations clearly granted protection to the
acquired rights of foreign businessmen and, for their violation, the
receiving State was deemed delinquent and liable to reparation.
A recent change in the political climate of the world, however,
has had a substantial impact upon the security afforded foreign
investment by traditional international law. Although this change has had
no effect in the Common Market area, it is well to take note of it in
order to clarify the present status of the law of State Responsibility.
With the emergence of new nations with strongly nationalistic
sentiments, the old alignment of colonial power and colony has largely
ceased to exist. These new States wish to take their places among the
nations of the world and, to that end, they desire to assume control
of the exploitation of their natural resources which had formerly been
at the disposition of the colonial powers. In many cases, however,
the rights to these properties,are in the hands of foreign nationals who,
understandably enough, are not anxious to relinquish them and the
handsome profits which, in many cases, they entail,
Another potential source of trouble lies in the situation where
the newly independent nations are unable to ,carry out development
programs because of a lack of capital. Hence they must turn to the
older and more prosperous States for financial assistance. As a result,
the old alignment of colonial power and colony has been replaced by
that of capital-exporting State and capital-importing State. Naturally,
the investors from the capital-exporting nations want some return from
their outlay of capital, but their wish in this - regard has not always
been respected by the capital-importing nations.
This conflict of interests has. often marred the new relationship
between capital-exporting State and capital-importing State. Under
the influence of nationalistic sentiment, it is becoming increasingly
common for the governments of capital-importing nations to
expropriate or nationalize—the various terms used to describe this
procedure do not seem to have any fixed meaning—the property of the
nationals of the capital-exporting nations. These actions are usually
complicated by the fact that the expropriating State is unable to
compensate the expropriated owners. Immediately, therefore, there arises
a clash between the property rights of the expropriated owners and
the rights to sovereignty of the expropriating nation.'
In some of the new nations, this political change has inevitably
resulted in the rejection of the rules developed to protect foreign
investment. It is argued that these rules were evolved to further the aims
of colonialism and, today, do not qualify as international law. The
effect, of course, has been a reduction in the flow of investment capital
into these countries.
The American businessman who is contemplating expansion in
the Common Market, however, need not be wary of the effect of this
new attitude upon his investment. The attack on the traditional rules
of international law emanates from the under-deveIoped nations. None
of the European Common Market countries can properly be regarded
as under-developed. It seems clear, therefore, that traditional doctrine
which, as it evolved, applied to investment in developed and
underdeveloped nations, will continue to give protection to the acquired
rights of foreign businessmen in the Common Market countries.'
1 This conflict has continued without solution, as can be seen in the text of the
Dec. 14, 1962, Resolution of the United Nations General Assembly on "Permanent
Sovereignty over Natural Resources." U.N. Gen. Ass. Off. Rec. 17th Sess., Plenary 1194
(A/Res/1803(XVII)) (1962), reprinted in 2 International Legal Materials 223 (1963 (...truncated)