The ICC guidelines explicitly urge the host state’s government to adhere to the recognized principles of international law, including equitable and equal treatment of foreign property.422 The OECD Declaration of 1976, in the text of the annex containing guidelines for multinational enterprises, refers to the obligations of states to treat entrepreneurs fairly and in accordance with international law.423 The Seul Declaration contains a number of appeals to the duty to comply with international law, indicating that permanent sovereignty means the jurisdiction of the state over natural resources, economic activity and wealth without exemption from the application of relevant rules and international law. Although permanent sovereignty is called “inalienable”, the state can accept obligations with regard to the exercise of sovereignty by means of a freely contracted relationship, meaning that a state that freely concludes contracts affecting its permanent sovereignty must must perform all obligations arising from it in good faith.424 The guidelines of the World Bank (1992) are intended to complement the existing bilateral and multilateral agreements and other international instruments425 and provide that each state shall fairly and equally treat investments carried out on its territory by nationals of other countries, in accordance with the standards set out in these guidelines.
3.5.4 Obligations related to the right to take over foreign ownership
The obligations related to the right of nationalization or expropriation, as indicated in Resolution 1803 (XVII) and subsequent resolutions of the General Assembly of the United Nations, are related to the following conditions of the lawfulness of action: in the public interest; without discrimination; with the payment of compensation; while maintaining the standard of compensation; in due proceedings; with retaining the right of appeal.
3.5.4.1 The requirement of acting in the public interest
UN resolutions stipulate that a nationalizing state has a wide margin of discretion in determining what is necessary for “public utility, security or the national interest”426 or for the purpose of “safeguarding the natural resources”.427 Protocol I to the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) explicitly states that no one may be deprived of property, except in the public interest.428 The US Convention on Human Rights refers to “public utility or social interest”,429 while the African Charter on Human and Peoples’ Rights indicates “public need” or “the general interest of the community”.430 Similarly, the OECD Convention on the Protection of Foreign Property,431 the Inter-Arab Agreement on mutual support and protection of investments,432 and the Investment Agreement of the Organization of the Islamic Conference433 state that it is permissible to expropriate investments in the public interest. The ASEAN Investment Agreement434 refers in this context to “public use… purpose, or… interest”, while the Energy Charter Treaty (1994) refers to “a purpose which is in the public interest”.435 Returning to the most traditional formula, NAFTA (1992) indicates in this aspect directly the “public purpose”.436
The public purpose requirement has been recognized by the Permanent Court of International Justice (PCIJ) in the case concerning certain German interests in Polish Upper Silesia, 1926;437 in the case concerning the Factory at Chorzow, 1928;438 in arbitration cases BP v. Libia (1974)439 and Aminoil (1982);440 as well as by the Iran-United States Claims Tribunal in the American International Group case,441 in the INA Corporation442 case, and in Amoco case.443
3.5.4.2 The requirement of acting without discrimination
The requirement of non-discrimination is ambiguous because in this legal situation two types of discrimination are possible: discrimination on the axis of foreigners-citizens and discrimination in relation to foreigners.
According to Resolution No. 1803 (XVII), discrimination between citizens and foreigners may be considered unlawful in light of the expression that nationalization must be based on grounds that have been recognized as superior to purely individual and private interests, both domestic and foreign.444 However, it is not entirely clear to what extent the condition of non-discrimination can be derived from the provisions of international law related non-specifically to the treatment of foreign property.445
The International Covenant on Economic, Social and Cultural Rights foresees that developing countries can determine, with respect for human rights and their national economy, to what extent foreigners will be guaranteed the economic rights recognized in this Covenant.446 This deviation from the principle of non-discrimination, however, was not continued in legal instruments concerning regulation of foreign investments. The Inter-Arab agreement on the mutual promotion and protection of investments explicitly guarantees “non-discriminatory treatment”, whereas the Investment Agreement of the Organization of Islamic Conference stipulates that expropriation will take place “without discrimination”.447 Similarly, the ASEAN Investment Agreement, NAFTA, and the Energy Charter Treaty refer to the non-discriminatory basis of expropriation. Most of bilateral investment agreements also explicitly refer to full non-discriminatory treatment: foreign investors benefit from treatment no less favourable than that granted to the citizens or enterprises in the host country or the investments of citizens or companies of any third country, if the latter is more favourable to the investor (the most-favoured-nation clause).448
Case law provides examples of the prohibition of discrimination. In the case of BP v. Libya, the arbiter G. Lagergren stated that Libya had broken “public international law” because the expropriation was “arbitrary and discriminatory”.449 In the Amoco ruling, the Iran-United States Claims Tribunal found that in customary international law, discrimination in the field of expropriation is generally considered to be forbidden.450
The principle of non-discrimination has also been included in various guidelines for foreign investments: e.g. ICC guidelines call for “the avoidance of unreasonable and discriminatory measures”.451
3.5.4.3 The requirement to pay compensation
Resolution No. 1803 (XVII) regarding permanent sovereignty over natural resources confirms the duty to pay compensation in the event of expropriation and nationalization, stating that “the owner shall be paid appropriate compensation”.452 UNCTAD resolutions No. 88 (XII) and 3171 (XXVIII) have made efforts to deny this obligation and recognize the payment of compensation for a discretionary, not absolute condition; however, there has been no significant continuation of these initiatives.453
The regulations of the United Nations Code of Conduct on multinational corporations regarding the fact that the state has the right to expropriate the property of multinational corporations for the payment of adequate compensation, in accordance with the applicable rules and principles, can be interpreted accordingly.454
Treaty law extensively recognizes the duty to pay compensation. Article 1 of Protocol I455