Update: I append to the end of this post an excerpt from chapter 5 of my 2005 book International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide.
An old (2005) Mises blog post, followed by an excerpt from a book, and a draft international law article I wrote years ago. The first post refers to my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk, and also refers to my then-forthcoming book, International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide. I did not end up putting much discussion of the “illusoriness” of the nondiscrimination and public purpose requirements. I ended up putting into a draft law review article, which is appended below, but which I have never (yet?) finished.
APRIL 4, 2005 by STEPHAN KINSELLA
As a mini-primer–the Fifth Amendment to the U.S. Constitution requires that private property can’t be taken unless it is taken “for a public use” and “just compensation” is provided. Now this originally applied only the federal government (see discussion of Barron v. Baltimore here), but has been incorporated into the 14th Amendment so that it now limits the states as well (see this case, and this one; also here; more info re the 14th Amendment here).
So takings have to be for a “public purpose,” and the question is whether this requirement prevents states from condemning private land to give it to private developers. The Kelo case, as I understand it, is about whether “public use” in the 5th Amendment has any real Constitutional meaning. If it does, then shopping malls and luxury apartments become much more difficult to build.
It’s interesting to me how a sound economic (Austrian) and political (anarcho-capitalist) framework can help one cut through the muzzy arguments advanced by both “sides”.The problem is both the proponents, and opponents, of such “non-public use” takings seem to accept the basic idea that there is an objective way to classify something as being a “public use”. In my view, this standard is inherently vague and non-objective. Who knows, maybe transfering land from a little old lady to Donald Trump is a “public purpose,” as much as roads or the military. I doubt it’s possible to articulart a coherent, clear, just standard that the state could respect even if it wanted to. Since it’s not objective, in the end, it’s got to be whatever the state decrees.
Anarchists and Austrians ought to be able to see the problem here. Most people who think the state is justified have to accept the idea of a genuine public realm. In fact the economic concept of “public goods” is one main reason people support the state–they think there has to be a state otherwise certain necessary public goods would not be supplied. So if you believe this, you have to believe there is some definable, objectively bounded “public” purposes of the state. However, the idea of public goods is unscientific and uneconomic, as explained, e.g., by Austrian anarchocapitalist Hans-Hermann Hoppe, in Fallacies of the Public Goods Theory and the Production of Security. As Hoppe points out, there is no objective way to distinguish “public” goods. Likewise, if the state says it can expropriate things for a public purpose only, that falsely implies the state is limited–it implies that the standard of “publicness” is objective. But it is in fact not; it is just whatever the state decrees. Therefore under the guise of limiting itself, it really gives itself more power.
A similar point is true of many things about the state, such as the “rule of law”–for example, I tend to agree with libertarian law professor John Hasnas‘s view, in The Myth of the Rule of Law, that (my summary):
Despite common belief to the contrary, there is no such thing as “a government of laws and not people” (the so-called “rule of law”). Such a myth serves to maintain the public’s support for society’s power structure. The maintenance of liberty requires not only the abandonment of the ideal of the rule of law but also the [abandonment of the] commitment to a monopolistic legal system. The preservation of a truly free society requires liberating the law from state control to allow for the development of a market for law.)
Likewise, the state deludes people into thinking its expropriating power is limited, when it really is not. This allows it to get away with more than if its actions were recognized as naked criminality. Once you accept it’s okay for the state to take your property so long as it’s for a “public purpose,” then all it takes is some crafty government lawyer to come up with an argument why taking your land to give to Donald Trump indeed serves some public purpose. And of course, it does, as much as any other kind of eminent domain does.
Nonetheless, even though these standards are ambiguous and subject to manipulation by the state, it is to be hoped that some rationale is invented to limit the state’s resort to condemnation. Of note is the recent Michigan Supreme Court case, County of Wayen v. Hathcock [also, Overcoming Poletown: County of Wayne v. Hathcock, Economic Development Takings, and the Future of Public Use, by Ilya Somin; and the Institute for Justice's discussion of this case], which makes it more difficult (in Michigan) to expopriate land for a private purupose. There, the Court stated:
We are presented again with a clash of two bedrock principles of our legal tradition: the sacrosanct right of individuals to dominion over their private property, on the one hand and, on the other, the state’s authority to condemn private property for the commonweal. In this case, Wayne County would use the power of eminent domain to condemn defendants’ real properties for the construction of a 1,300-acre business and technology park. … Defendants argue that this exercise of the power of eminent domain is [not] permitted under article 10 of the 1963 Michigan Constitution, which requires that any condemnation of private property advance a “public use.” … We conclude that … these condemnations do not pass constitutional muster under art. 10, Â§ 2 of our 1963 constitution. Section 2 permits the exercise of the power of eminent domain only for a “public use.” In this case, Wayne County intends to transfer the condemned properties to private parties in a manner wholly inconsistent with the common understanding of “public use” at the time our Constitution was ratified.
A final note–I have written on this topic in the international context, where international law is said to have similar standards for a host state to lawfully expropriate an investor’s property–the expropriation must be: (a) for a public purpose, (b) nondiscriminatory, and (c) accompanied by prompt and adequate compensation. There has been a great deal of debate about what adequate compensation means, but the obvious answer is that it has to be “full” compensation, however measured. If you take someone’s property, you should compensate them for its full value.
But if this is so, one can see that the “public purpose” requirement is basically superfluous and nonsensical: after all, whether the host state takes property for a public purpose or not, it still owes the investor full compensation. What’s the difference? The only way to distinguish between a lawful “public purpose” expropriation, and an unlawful one, would be for there to be different consequences–primarily, different damages. But this would require undercompensation in “legal” expropriations, which makes no sense. Alternatively, full compensation could be awarded in normal expropriations, with extra punitive damages added if the taking is discriminatory or not for a public purpose. But the problem with this approach is that punitive damages are especially troubling and unlikley in the international context where even full compensation has met with lots of resistance. (Background for this can be found in chapter 3 of my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk, pp. 58-59 and 77-85; the section “The Requirements of Nondiscrimination and Public Purpose: Concepts of Limited Significance,” at pages 85-87, presents this argument which, so far as I know, is unique to my co-author and me. We planned at one point to turn that section into the thesis of a full blown article, but never got around to it. This argument will be expanded in International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide, due out later this year.)
In the municipal (i.e., national law) context, however, the courts can actually enjoin the expropriation, if it is “unlawful”, so the public purpose requirement makes more sense–even if the standard is still inherently non-objective and arbitrary.
An excerpt from International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide, ch. 5.B.c:
c. Compensation for Illegal and Legal Expropriation
Some commentators suggest that the standard of compensation for expropriation depends upon whether the act is legal or illegal. Professor Bowett notes that:
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.179
Bowett maintains that there may in fact be three different standards of compensation, for (1) an unlawful taking, (2) a lawful ad hoc taking, and (3) a lawful, general act of nationalization.180 Even if, as some commentators argue,181 full compensation need not be paid in cases of large-scale nationalization carried out for the purpose of reform, Bowett’s view appears to have been rejected by most tribunals.182
Professor Brownlie notes:
The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title.183
Here, Brownlie implies that a lawful expropriation requires compensation only for direct losses. However, to the extent such payment constitutes less than “full” compensation, such an assertion would appear unjustified.184
It has also been argued that where an expropriation is illegal (e.g., a taking that is discriminatory or not carried out for a public purpose), the host State is in the first instance obligated to make restitution in kind, if possible. Section 901 of the Restatement provides, for example:
[u]nder international law, a state that has violated a legal obligation to another state is required to terminate the violation and, ordinarily, to make reparations, including in appropriate circumstances restitution or compensation for loss or injury.185
Even if a host State carries the obligation to make restitution, however, a court or arbitral ruling to this effect is practically unenforceable.186
184 More widely accepted is Professor Brownlie’s assertion that a per se unlawful expropriation does not shift valid title, as might be recognized in national courts and international tribunals. See Chapter 10, Section E (discussing invalidation of title and exceptions to foreign sovereign immunity).
186 See Chapter 10, Section F (nations do not have the right to use force against host States in response to unlawful expropriations).
Here is ch. 3.B.3 from my 1997 book Protecting Foreign Investment Under International Law: Legal Aspects of Political Risk (with footnotes starting from 1 since this is from the word file that went to the publisher):
3. The Requirements of Nondiscrimination and Public Purpose: Concepts of Limited Significance
As explained above, it is widely accepted that it is “against” international law for a host state to expropriate a foreign investor’s property if the expropriation is a discriminatory one, is for a non-public purpose, or is made without sufficient compensation. Worded differently, there is said to be a requirement under international law that such international expropriations be (1) nondiscriminatory, (2) for a public purpose, and (3) accompanied by full compensation. Action directed against persons of a particular nationality or race is an example of discriminatory action. Action which lacks a normal public purpose—such as the purely private purpose of a government official or dictator—is sometimes also referred to as “arbitrary.” Under this view of international law, some expropriations are legal, while some are illegal. However, there are some theoretical arguments for the proposition that this distinction is of doubtful validity and limited significance. One such argument is briefly outlined below.
Are nondiscrimination and public purposes properly referred to as “requirements” of a “legal” expropriation under international law? Does it make sense to refer to an expropriation that violates these requirements as “illegal”—even if full compensation is paid? What are the consequences for breaching these requirements that do not flow from an otherwise-legal expropriation, that differentiate such an “illegal” taking from a legal one?
It is perfectly reasonable to focus on the consequences that flow from state actions in deciding whether a given classification or distinction is sensible. As John Locke pointed out long ago,
For the law of Nature would, as all other laws that concern men in this world, be in vain if there were nobody that in the state of Nature had a power to execute that law, and thereby preserve the innocent and restrain offenders . . . .
Similarly, it is a common legal observation that a right without a remedy is hollow—i.e., not a real right at all. Thus, a purportedly unlawful act that has consequences no different in kind or in principle from those of a lawful act should not be termed an unlawful act, for the distinction is misleading and misdescriptive.
Professor Bowett, who accepts the traditional distinction between “unlawful” and “lawful” takings, acknowledges that
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.
Bowett maintains that the distinction does affect the remedies available following an expropriation, and thus the distinction is sensible, from his point of view. If, however, there are no such consequences, then there is no meaningful, significant distinction between takings lawful or unlawful. If this is the case, then nondiscrimination and public purpose are empty phrases, and should not be recognized as requirements by international lawyers.
There are indeed practical consequences flowing from classifying an expropriation as illegal, such as invalidation of title and exceptions to foreign sovereign immunity. One would think that the most significant consequence that could flow from classifying a taking as legal or illegal, however, would be a difference in the amount of damages. Another significant consequence would be if an unlawful expropriation was considered to justify an armed or other forceful response against the host state by the investor’s home state.
But as we have pointed out, full compensation must accompany any taking, whether legal or illegal, and nations no longer have the right to use force against host states in response to so-called “illegal” takings. Thus, the distinction between lawful and unlawful takings is today of limited significance. Further, even if legal and illegal takings called for kind standards of compensation, the difference would seem to be one of degree rather than one of kind since there would seem to be little justification for characterizing differently two expropriations, both of which merely obligate the host state to pay a certain sum of money.
For these reasons, then, the requirements of nondiscrimination and public purpose would seem to be of at least limited significance, and perhaps of doubtful legitimacy.
 Brownlie, supra note 22, at 548.
 JOHN LOCKE, THE SECOND TREATISE ON CIVIL GOVERNMENT ¶7 (Prometheus Books ed., 1986) (1690).
 See, e.g., Higgins, supra note 12, at 16 n42, 53, 99.
 Bowett, supra note 162, at 59.
 Id. at 63. Bowett maintains that there may be three standards of compensation, (1) for an unlawful taking, (2) for a lawful ad hoc taking, and (3) for a lawful, general act of nationalization. Id. at 73. See also Brownlie, supra note 22, at 538-39, stating that:
“The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss ( lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title.” [Footnotes omitted.]
 The reader is cautioned that the views set forth in this regard are speculative and theoretical, rather than a more black-letter description of existing law and legal practices.
Now here is the unfinished, draft article on the latter point:
Expropriation, Inalienability, and International Law: The Illusory Requirements of Nondiscrimination and Public Purpose
I. INTRODUCTION……………………………………………………………………………………………………… 1
II. EXPROPRIATION, COMPENSATION, AND FORCE………………………………………………. 2
A. Expropriation under Current International Law Theory……………………………………….. 2
B. Compensation…………………………………………………………………………………………………. 2
C. Restitution……………………………………………………………………………………………………… 2
1. Restitution and International Tribunals…………………………………………………….. 3
2. Force by States……………………………………………………………………………………… 4
3. Practice………………………………………………………………………………………………… 4
4. Permanent Sovereignty over Natural Resources…………………………………………. 5
5. Bilateral Investment Treaties…………………………………………………………………… 5
6. Economic Boycotts……………………………………………………………………………….. 5
7. Enforcement of Foreign and Arbitral Judgments in Other States’ Courts………. 5
III. THE NONREQUIREMENTS OF NONDISCRIMINATION AND PUBLIC PURPOSE.. 6
A. Requirements Without Consequences………………………………………………………………… 6
B. Force……………………………………………………………………………………………………………… 8
1. National Expropriations…………………………………………………………………………. 8
2. Restitution in Kind, Specific Performance, and Force…………………………………. 9
3. Consequences……………………………………………………………………………………….. 9
C. Full Compensation…………………………………………………………………………………………. 12
D. Further Problems with Nondiscrimination and Public Purpose……………………………. 17
1. Nondiscrimination……………………………………………………………………………….. 18
2. Public Purpose…………………………………………………………………………………….. 18
IV. INALIENABILITY AND REALITIES OF POLITICAL RISK…………………………………… 20
V. CONCLUSION……………………………………………………………………………………………………….. 25
For the law of Nature would, as all other laws that concern men in this world, be in vain if there were nobody that in the state of Nature had a power to execute that law, and thereby preserve the innocent and restrain offenders . . .
It is an unfortunate fact of reality that crimes can occur, despite laws and sermons against them. Murder is illegal and is clearly wrongCyet still it occurs, because laws are not always obeyed or perfectly enforced, and because morals are not always followed, and rights are not always respected. Despite many norms being perfectly self-evident, some individuals nevertheless flout them anyway.
Perfect respect for norms is not attainable in the international sphere, either, where states, not individuals, are the relevant actors. States can perpetrate murderous crimes like initiating wars with peaceful countries or committing genocide. States can also commit acts of theft. A host state, for example, will often expropriate a foreign investor’s property located within the state’s territorial jurisdiction. This happens even where the host state solemnly promises ahead of time not to do this.
There is little that the international community can do about expropriation, when it occurs, other than to preach and demand some sort of restitution or remedy. Despite this impotence, it is widely accepted that it is “against” international law for a host state to expropriate a foreign investor’s property if the expropriation is a discriminatory one, is for a non-public purpose, or is made without sufficient compensation. Worded differently, there is said to be a requirement under international law that such international expropriations be (1) nondiscriminatory, (2) for a public purpose, and (3) accompanied by compensation.4 Action directed against persons of a particular nationality or race is an example of discriminatory action. Action which lacks a normal public purpose is sometimes also referred to as “arbitrary.” Brownlie, at 548.
This characterization of international law is fundamentally flawed, because there are no consequences under international law for a state that breaches the first two of these alleged requirements. Public purpose and nondiscrimination, we maintain, are not requirements at all, and thus should not be fictitiously treated as such. As we will show, the sole international law requirement that applies to expropriations is that the host state compensate the investor for the value of the investment taken. Consequently, contrary to popular theories, it is not proper to classify a discriminatory or non-public purpose taking as illegal or unlawful under international law.
2) EXPROPRIATION, COMPENSATION, AND FORCE
terminology: from Brownlie regarding nationalization, confiscation, and expropriation. In this article we will use the general term taking or expropriation to refer to the taking of property by force by a state.5
a) Expropriation under Current International Law Theory
In this section summarize the currently-accepted view regarding the responsibility of states for expropriations. Just basically summarize the fairly uncontroversial standards that are accepted nowadays: nondiscriminatory; public purpose; prompt, adequate, and effective compensation. Cite Higgins’ book, Shaw and Brownlie treatises, and a few other articles.
Leave undecided for now the standard for compensation: mention that there is debate over the standard, ranging from partial (“appropriate”–word instead in G.A. res’ns?) to full (“adequate”?; prior word used?). But some compensation needed, this is fairly accepted. Debate also on whether or how much the amount varies based on whether taking is “illegal” or “legal.” Other remedies like restitution discussed in next section.
c) Restitution (All the rest of this Part II will go in beginning of Part III.B.2 after Paul finishes this).
In this section discuss when force is permissible under international law. Go into U.N. resolutions, Higgins’s book has a chapter on this; and also look at arbitral decisions all, except Texaco, holding that restitution is not a remedy; reinforce conclusion with modern movement for permanent sovereignty over natural resources. Comment on concept of “inalienability” (and cross-ref to Part IV) and tie in to theory of legislative sovereignty, the inalienability of the will etc.
i) Restitution and International Tribunals
Use of Force. Restitution, Texaco (?), Force would not be legitimate etc. This is clear.
Under the “great oil arbitrations,” as Professor Higgins has aptly described them,6 several important decisions were issued concerning expropriations of foreign investments. Although it is often repeated that the three requirements exist under international law, it is nevertheless true that none of the courts, except the anomalous Texaco decision, attempted to award anything more than monetary damages for the nationalizations. Even Texaco, although it called for restitution, or specific performance of the contract, realized its own futility and awarded monetary damages because a decision calling for specific performance is clearly unenforceable. (See p. 170 of International Petroleum Transactions, reprinting very good article by Norton: “[I]n a Partial Award in the AIFC case, Arbitrators Virally and Brower held that the international law of expropriation authorizes restitutio in integrum in cases of unlawful expropriation”.)
Further, Texaco’s reasoning is unsound. Based on Chorzow Factory, which Higgins explains is invalid reasoning … Some of the other arbitrations imply that if the stabilization clause is explicit enough, restitution could be awarded. But this is dicta; is unsound because the clauses were explicit; and is not supported by international law anyway, as the remainder of this article makes clear. For none of these tribunals pretend to be able to or competent to issue enforceable restitution awards, and even if they did it would be wholly ignored as violate of international law (since force may not be used against other nations for such purposes; see Part II.C.2, below).
Under disputes heard by the Iran-U.S. Claims Tribunal,
[t]heoretically a broad range of remedies is available to claimants whose property interests have been expropriated. These include restitution or specific performance, substitution of the value of the property taken, award of punitive damages, or other measures that may arguable indemnify the claimant for the wrong done, or the property lost. . . . As a practical matter, however, virtually all of the Tribunal’s decisions focus solely on the return to the claimant of the value of the property interest lost. Restitution or specific performance has not been discussed or seriously contemplated in any of the Tribunal’s awards. The reasons for this are evident: The Tribunal does not have adequate enforcement mechanisms for such restitution, but does have available to it the Security Account established in the Algiers Accord out of which monetary awards can be satisfied.7
The tribunal in Amco Asia Corp. v. Indonesia,8 displayed a typical hesitancy to award the remedy of restitution. Regarding the claim that the Indonesian Government had unlawfully revoked an alien corporation’s investment license, the tribunal stated:
It is obvious that this Tribunal cannot substitute itself for the Indonesian Government, in order to cancel the revocation and restore the license: such actions are not even claimed, and it is more than doubtful that this kind of restitutio in integrum could be ordered against a sovereign state.9
ii) Force by States
Because of each state’s sovereignty over its own territory under international law, the alleged internationally “illegal” action of a discriminatory expropriation would never justify another nation physically invading the host state to remedy or prevent the expropriation.10
The use of force is allowed in international law only in certain cases. The UN Charter is specific, and binds all members of the UN, besides expressing customary law in this field. Force may legitimately be used for self-defense only, and narrow other areas, and under UN authorization in certain cases. The UN may authorize force only to stop aggression or a substantial threat to the peace etc. Thus it is clear and uncontroversial under international law that, even if a tribunal, a là Texaco, were to award specific performance, it could not be legitimately enforced by any other state. To actually enter into the territory of another nation to force compliance with the award, is a very clearly against international law.
Unlike Old Days?…
iii) Practice (probably part of last section)
Further, states would never be willing to actually declare war on another state merely to enforce a specific performance or even a damages award. They might do it if survival depended upon it, but then the arbitral award is a mere excuse, and thus is irrelevant. Further, such action would be seen as illegitimate and would not establish the right to so enforce international law any more than a murderer “proves” that murder is not wrong by murdering someone.
iv) Permanent Sovereignty over Natural Resources (maybe part of last section)
This has only been made stronger in recent decades by the growing movement for permanent sovereignty over international law. Although some more recent provisions are more controversial and cannot be said to represent international law, the law at least as stated in G.A. Resolution 1803 is widely accepted as stating customary international law.
Although these resolutions are focussed on the “unique” case of natural resources, the uniqueness of natural resources does not need to be relied upon merely to protect the territorial sovereignty of the host state. But whether property lying within a host state’s territorial boundaries is “unique” like natural resources, or any other sort of property, the state has sovereignty that may not be physically invaded to prevent the state from nationalizing this property.
v) Bilateral Investment Treaties
A BIT cannot affect the fundamental conclusions of this paper, because it would never, and probably could never, allow for one state to actually invade or even blockade the host state to enforce certain standards for expropriations. Theoretically, a BIT, or even a multilateral treaty, might provide a higher damages standard for “unlawful” takings. However, BITs to date do no more than restate international law principles such as full compensation (argued herein to be a part of international law anyway). They do provide a “requirement” for nondiscrimination and public purpose, but, since absolutely no consequences attach to these conditions other than that the BIT may be considered breached, the analysis herein holds.
vi) Economic Boycotts
An economic boycott is permitted under international law, since it involves no force against other nations. The concept of “economic coercion” is illegitimate anyway. Thus, the fact that an economic boycott could be organized against a host state for a discriminatory expropriation in no way demonstrates the “enforceability” of such an international law “requirement.” For a state could boycott a host state for any expropriation at all, even for one accompanied by prompt, effective compensation, nondiscriminatory, and for a public purpose. Indeed, a state could boycott another for no reasons whatsoever. Such economic sanctions require no justification at all. Thus the allegedly “unlawful” actions of another state do not serve to “justify” a boycott; thus the purported “unlawful” status of the action is not thereby bolstered.
vii) Enforcement of Foreign and Arbitral Judgments in Other States’ Courts
Note that even this award of damages can only be enforced when the host state has property situated within other states’ jurisdictions, and where other states are also willing to enforce such awards. E.g., the U.S. Act of State doctrine, Hickenlooper amendment, Sabbatino case, Cuban sugar, Hot Oil cases, etc.
FSIA: 28 U.S.C. ” 1602-1611. See Claggett at ‘ 12.05[b], pp. 12-19 to 12-21. “Under the FSIA, a suit based on a foreign expropriation will generally fail unless the expropriated property or its proceeds have been brought to the United States or unless ownership of the property has been transferred by the expropriating government to an agency or controlled entity that is doing business in the United States.” Claggett, 12-19. A determined expropriator can prevent this. Some BITs etc. contain waivers of sovereign immunity.
Act-of-state doctrine: a court in the U.S. will not pass on the validity or lawfulness of an expropriation by a foreign State of the property in that State’s territory. Claggett, 12-20. Citing e.g. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964). But if an expropriation violates a treaty or the compensation offered is inadequate under the treaty, a-o-s no applies and domestic court may grant relief.
But damage awards can be enforced in other states, under certain conditions. Is not seen as violation of international law, or sovereignty of the host state. Indeed one of the bedrock principles of international law is territorial jurisdiction, so this reinforces the right of one state to exercise jurisdiction over property within its power.
3) THE NONREQUIREMENTS OF NONDISCRIMINATION AND PUBLIC PURPOSE
a) Requirements Without Consequences
When we say that there is a “requirement” under international law to act in accord with certain standards, we mean that international law is breached or violated if this requirement is not met. Thus, when a state fails to compensate an investor for at least some of the value of an expropriated investment, or when a discriminatory expropriation takes place, it is stated that the “requirements” of international law are not complied with, and that the expropriations are illegal or unlawful under international law. By contrast, a nondiscriminatory taking for a public purpose that is accompanied by compensation is said to be legal under international law, because it is in accord with the related “requirements.”
It makes no sense to refer to a standard as a “requirement,” however, if there are no consequences, even in principle, for actions contrary to the requirement. An action should not be referred to as unlawful or illegal under international law, if such actions do not change the legal status of the offending state under international law.
In particular, we will argue that the alleged requirements of nondiscrimination and public purpose are not actually requirements at all, because whether a taking is nondiscriminatory or not, or for a public purpose or not, the liabilities and responsibilities of the offending state under international law are basically the same. That is, “illegal” and legal expropriations do not give rise to fundamentally different consequences that justify such a distinction. First, remedies for illegal and legal takings do not differ in kind (even if they do differ in amount), because both an illegal and legal taking result in an award of damages to the investor, and nothing more.11 Second, because full value is the only supportable standard for an award of damages, whether the taking is classified as unlawful or lawful, remedies for illegal and legal takings should not even differ in amount.12 Thus, there are simply no significant consequences that arise from classifying a taking as illegal as opposed to legal.
It is perfectly reasonable to focus on the consequences that flow from state actions in deciding whether a given classification or distinction is sensible. It is a common legal observation, for example, that a right without a remedy is hollow13Ci.e., not a real right at all. Similarly, a purportedly unlawful act that has consequences no different in kind or in principle from those of a lawful act should not be termed an unlawful act, for the distinction is misleading and misdescriptive.
Even Professor Bowett, who accepts the traditional distinction between “unlawful” and “lawful” takings, acknowledges that
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.14
Bowett maintains that the distinction does affect the remedies available following an expropriation, and thus the distinction is sensible, from his point of view.15 If, however, as we argue below, there are no such consequences, even in principle, then there is no meaningful distinction between takings lawful or unlawful. If this is the case, then nondiscrimination and public purpose are empty phrases, and should not be recognized as requirements by international lawyers.
In this section, we argue that remedies for illegal and legal takings do not differ in kind because both an illegal and legal taking result in an award of damages to the investor, and nothing more. Even if so-called “illegal” takings give rise to an obligation to pay a higher monetary damages award than would accompany a “legal” taking,16 no state may be forced by another state to undo, or forego, an “illegal” taking. No state suffers consequences different in kind than they could legitimately experience as a result of a legal taking.
Before discussing these issues, we first explore why some conceptual distinctions may be valid in a national context, and historically in international law, although invalid under modern international law.
i) National Expropriations
In a national context, it may make perfect sense to classify some takings as legal, and others as illegal. In the United States, for example, individuals are constitutionally entitled to be secure in their private property rights, at least to some extent. For this reason, limits are placed on the right of government to expropriate private property. The famous (but much-neglected) fifth amendment to the U.S. Constitution provides that, “nor shall private property be taken for public use, without just compensation.” Thus, if the government desires to build a public road over the land on which someone’s house sits, the homeowner must be compensated for the value of his property, so that the public as a whole bears the cost of the road, which is just because it is the public that the road is intended to benefit.17
However, besides requiring compensation, the fifth amendment requires that the taking must also be for a public purpose. This public purpose requirement implicitly recognizes that a property owner who is compensated is nevertheless not always made whole. First, valuation methods are always crude. If nothing else, the property owner may simply subjectively value the property far more than the market does.18 Second, the property is taken forcibly from the owner against his objections, even though he is compensated. Thus, “compensated” takings sometimes undercompensate property owners; and never redress the indignity of coercion suffered by the property owner. For this reason, even compensated takings are at best a necessary evil, and resort to such takings should be avoided where possible. Hence extra requirements such as “public purpose” accompany the exercise of eminent domain. Other constitutional requirements place further limits on the exercise of any state power, including the power of eminent domain, such as due process and certain nondiscrimination requirements.19
These requirements have a valid meaning in a national context, because, for example, a taking that is not for a public purpose can be prohibited.20 Thus, a property owner whose property is threatened with a taking that is not for a public purpose or that is discriminatory may institute a lawsuit in a the proper court to obtain an injunction to prohibit the taking, or even to recover improperly taken property.21
Therefore, in a national context it is desirable to add extra requirements to limit the government’s power to take individuals’ property, because resort to forcible expropriation of property, whether compensated or not, should be minimized, if not prohibited completely. Further, because mechanisms can exist to prevent takings that are not in accord with these requirements, it is proper to regard some takings as unlawful, and to regard these requirements as genuine legal requirements related to expropriations. By the same token, however, such distinctions are invalid under international law, as argued in Part III.B.3, infra.
ii) Restitution in Kind, Specific Performance, and Force
In contrast to national contexts, where specific performance is available to literally force the government to comply with requirements such as nondiscrimination and public purpose, noncompliance with these requirements in the international arena has no such consequences.
(PAUL PART II.C ETC. GOES HERE. ESTABLISHES THAT FORCE CAN’T BE USED AT ALL. DISCUSSES HISTORY OF FORCE TOO.)
As explained in the preceding section, states simply cannot, do not, and will not use force against other states to enforce their nationals’ property rights. What is more, states also may not use force in this manner. Under principles of international law that are widely accepted today, states have no right, even in principle, to use force against other states for this purpose. This is in contrast to national contexts, where government entities can be prevented from committing unlawful takings, and to prior stages of international law, where force could permissibly be used in response to an unlawful expropriation.
Whether states have such a right is significant in determining whether violations of the nondiscrimination and public purpose requirements have consequences. If it were true that states did not in practice use such force, but nevertheless had a right under international law to use such force in response to an “illegal” expropriation, it is possible that a legitimate distinction between unlawful and lawful takings would exist: the former gives rise to a right of other nations to use force against the expropriating nation, while the latter does not.
As an example in a national context, murder may properly be made illegal, and in practice always is made illegal. Thus, because murder is an illegal, rights-violative action, states may legitimately use force against potential murderers to prevent murders from occurring. However, even where some murders nevertheless occur (because police are not perfectly efficient), the state maintains, and has, a right, at least in principle, to prevent and punish murders, when the state is physically able to do so. Even if the state fails to prevent a given murderCe.g., because due process rights or other limitations preclude overaggressive crime-prevention techniques, or because it simply hires fewer police than it otherwise might haveCthis does not mean that the state had no right to stop the murder, and it does not mean that the murder was not still illegal. On the other hand, where the state does not prohibit a given action, like freedom of speech, and where it is also established that the state simply has no right, even in principle, to censor the free exercise of speech,22 it would be meaningless to classify any exercise of speech as unlawful.
Similarly, if under international law states had the right to invade host states that discriminatorily expropriated the property of foreign investors, whether or not this right was or could be exercised, it may still be proper to classify a discriminatory taking as illegal. The taking would be illegal because it would give rise to a right, at least in principle, of other nations to physically retaliate or otherwise use force against the expropriating state. The example of war is illustrative of this point. In the international sphere, aggression (e.g. the initiation of war) is clearly illegal, and the attacked state as well as other states are considered to have a right to use force against the aggressor nation in self defense.23 Sometimes the aggressor nation unfortunately wins the war, but the action is still considered illegal. This is a sensible classification, however, because other states may still validly assert that they had a right to retaliate, even if they were not able to, or even if they chose not to exercise the right. In this case, the illegal act of aggression always has consequences at least in principle, if not always in practice.
If, however, it is established or accepted that, under international law, a state has no right whatsoever to use force against other states merely because of a discriminatory or private purpose taking, there is no sense in which it is proper to term the taking “unlawful.” As discussed above,24 this is indeed the case under international law. Under accepted international law, a sovereign nation has a perfect right to expropriate any property within its border, for any reason, whether discriminatory or not, whether for a public or private purpose. A state has this right, because other nations have no right to use force to prevent or undo such expropriations. A discriminatory or arbitrary or private-purpose taking by a state simply entails no consequences different in kind from a normal expropriation, whether in practice or in principle. This is true even if a higher damages award accompanies an “illegal” taking than a legal taking.
Whether a taking is “illegal” or not, an obligation to compensate the investor for the full value of the investment arises.25 However, even if an “illegal” taking such as a discriminatory one requires the host state to compensate the investor at a higher damages standard than for a nondiscriminatory taking, there is no difference in kind that justifies classifying the discriminatory taking as “illegal.” Because states may not use force against one another merely in response to property crimes, an expropriating state can only be ordered to pay monetary damages to the investor. At most then, an “illegal” taking would result in a higher damages award than a legal one. But even if a higher damages award is awarded for an “unlawful” expropriation than for a “lawful” one, clearly there is no basis for calling one sort unlawful and the other lawful.
The usage of the terms unlawful and lawful has always been muddled in this area of international law. For instance, if an expropriation is nondiscriminatory and serves a public purpose, then it is, under prior paradigms, only unlawful if not accompanied by compensationCthe amount of compensation that should accompany a legal expropriation, whatever standard that may be. But the nature of the “unlawfulness” is unclear in this case, for since compensation is also a “requirement,” presumably the taking is “unlawful” if compensation is not timely paid. But if and when compensation is eventually paid (taking into account any permissible delays in paying), it will be the legal-expropriation compensation amount (perhaps adjusted by interest), even though the failure to pay timely would seem to have rendered the taking at least temporarily “unlawful.” There is no difference to the state whether it pays compensation ahead of time thereby rendering the expropriation “legal,” or does not seasonably compensate (thereby “unlawfully” taking) and pays in accordance with the same compensation standard at a much later time. Surely it is nonsensical to distinguish between “unlawful” and lawful here. For whether the state accompanies the taking with compensation (lawful) or unseasonably makes payment of compensation much later (unlawful), the result is the same, in terms of lawfulness, and we surely here have a distinction without a difference.
If a “lawful” expropriation results in an award of damages, what does an “unlawful” expropriation result in? Again, an award of damages, since restitution in kind is not awardable or enforceable. Assuming arguendo a higher damages award could be awarded for an “unlawful” taking than for a lawful one,26 still an award of damages is being awarded for a purportedly “unlawful” taking. But then what is the difference in kind between a lawful and unlawful taking? Both give rise only to an award of damages. Clearly, there is no difference in kind between unlawful and lawful takings under this paradigm, only a difference in degree. But, if so, why call one “lawful” and one “unlawful”? This makes no sense and is absurd.
If discrimination and public purpose merely justify a higher damages award, and are still called “unlawful,” consider the situation where a concession guarantees the investor a standard of compensation, in the event of a taking, that is higher than he would receive under default international law for a legal taking. In this case, if the state legally expropriates the investor’s property, then under the concession the state is obligated to pay the investor at a heightened compensation standard, just as it would be if the taking were discriminatory and discriminatory takings gave rise to enhanced damages. By this logic, a legal taking would be “illegal” because, just like a discriminatory taking, it gave rise to a higher-than-normal damages standard. Of course a legal taking is not an illegal one, though, which illustrates the absurdity of classifying a taking as illegal merely because damages are higher than they would be for a “legal” taking.
The only thing such a classification could hope to achieve would be an enhanced or penal damages award, but even this is illegitimate as discussed in Part III.C, below, because full compensation is the only justifiable standard for any sort of international expropriation. Further, there would be no need to characterize an expropriation as “unlawful” if the sole goal were to have higher damages awarded, just as one need not characterize a taking as illegal to justify awarding damages under a contractually-specified damages standard. One would simply say that an additional harm or damage was visited upon the investor by the discrimination, which is also an effective “taking” of his property right which also requires compensation. But characterizing some takings as “unlawful” only confuses the issue and does not help clarify or explain the situation. To characterize a taking as unlawful must in some sense mean that the state must not do it; but under international law, a state has a perfect right to expropriate property, even for a discriminatory reason, as long as an appropriate award of damages is made. Since a “legal” expropriation is an action which gives rise to an obligation to pay monetary damages, and so is an “illegal” one, there is no difference in kind between them that justifies classifying them differently. For these reasons, nondiscrimination and public purpose should not be seen as “requirements” of international law. Thus, there can be no “illegal” taking, only a breach of a state’s duty to discharge its financial obligations that arise from an expropriation. Whether such a breach would be illegal or not is a separate question, discussed below.27
c) Full Compensation
In the preceding section,28 we argued that remedies for illegal and legal takings do not differ in kind because both an illegal and legal taking result in an award of damages to the investor, and nothing moreCeven if “illegal” takings give rise to an obligation to pay a higher monetary damages award than would accompany a “legal” taking. In this section we argue further that, not only is there no difference in kind between “illegal” and legal takings, but that there is no difference in degree either, because the full compensation standard is applicable in both situations. That is, because full value is the only supportable standard for an award of damages, whether the taking is classified as “unlawful” or lawful, remedies for illegal and legal takings should not even differ in amount. Therefore, it becomes even clearer that distinguishing between unlawful and lawful takings is unwarranted, further illustrating the meaninglessness of the “requirements” of nondiscrimination and public purpose.
Under international law, an expropriation is legal only if the expropriation is: (1) for a public purpose; (2) nondiscriminatory; and (3) accompanied by prompt, adequate, and effective, or at least “appropriate,” compensation.29 International law has long been in a state of confusion over how much compensation an expropriated investor is entitled to;30 however, Professor Brownlie notes that “it is significant that the right to compensation on whatever basis, is recognized in principle.”31 In other words, what is “adequate” compensation? There is disagreement as to whether “full value,” which includes both damnum emergens (e.g. the value of physical assets such as factories and equipment) and lucrum cessans (lost profits), should be awarded, or merely damnum emergens, and there is disagreement as to whether the amount of damages should be enhanced if the expropriation is in some sense “illegal” under international law.32
There can be no doubt that, despite biased arguments to the contrary, full value is the only just and objective standard by which to award compensation to an investor whose property has been expropriated, whether the expropriation was discriminatory or for a public purpose or not. In a national context, the market value of condemned property is paid as a matter of course, even for legal expropriations.33 Where the taking is illegal, e.g. not in accord with due process or for a purely private purpose, the owner may be entitled to injunctive relief or to damages. These remedies are mutually exclusive, and the owner must elect one of them.34 Therefore, in the U.S., when the owner chooses not to enjoin an illegal taking, the remedy of compensation for the market value of the property remains.
With regard to the international law standard, Professor Higgins adopts the common-sense view that the economic “value” of property of course includes expectations of future profits,35 although this view, remarkably, is not universally accepted. In general, recent case law, including the Iran-U.S. Claims Tribunal and transnational arbitral tribunals,
retains the standard of full compensation as a rule in the case of expropriation, but also goes further. Although the standard of full compensation has been uniformly implemented in all instances of lawful expropriation or nationalization, with the exception of the Libyan American Oil Co. Arbitration which, however, may be regarded as having some special features, it is possible to reconcile the recent case law, particularly the decisions, with the legal position which had developed through the other sources by interpreting it as indicating that, while nationalization, so-called, may precipitate an exception permitting a deviation from full compensation, not all cases of nationalization would warrant the incidence of an exception.36
Charles Brower, in discussing international law developments in light of the Iran-United States Claims Tribunal, also notes “the strong support manifested today for the principle of full compensation.”37
As Brice Claggett perceptively observes,
there remains a significant body of opinion, even including some Western scholars, arguing that when a particular expropriation is part of a broad-scale nationalization of an entire industry or segment of the economy, something less than full compensationCpartial compensationCis all that is required. . . . I call [this theory] the “partial confiscation” theory. If a man steals $10 from me and gives me back $4, he has still stolen $6. I am not able to understand why similar conduct by governments should be viewed any differently. And I have never seen any suggestion of a principledCor even an unprincipledCbasis on which “partial” compensation might be measured or calculated.38
Lauterpacht perceptively notes that the distinction between damnum emergens and lucrum cessans is invalid, and that “lost profits” of course must be taken into account when determining the value of an economic asset.39 Thus, as the validity of separating lucrum cessans from the value of property is called into question, the view that “legal” expropriations give rise to only damnum emergens but not lucrum cessans is similar called into question. Lieblich has also noted that, “if future profits (or, more correctly, future cash flows) may not be taken into consideration in determining the value of expropriated property, it is not possible to determine its value at all.”40 Lauterpacht is worth quoting at length:
The core question . . . is how does one reach a cash figure to reflect the concept of the “full equivalent”? In truth, however, the problem is a wider one: regardless of the standard of valuation, whether full or less than full, how does one go about the process of any valuation? Even if one were to adopt a standard of half-value or any other fraction of full value, logically one still has to have a value from which to start. And, in this connection, the central connection is, to what extent may one take into account the revenue-earning capacity of the asset? . . . International legal thinking on this subject has for long been dominated by the traditional Roman law distinction between damnum emergens and lucrum cessans. In property terms, the former has been associated with a concept of the intrinsic value of property, unrelated to its earning capacity; the latter has been identified with loss of profits. And there have been quite a number of international arbitral decisions which, though prepared to attribute a value to an asset, have treated this as something quite distinct from its earning capacity. The latter was seen as something to be equated with loss of profits and for this reason to be excluded to the extent that such losses are uncertain or speculative. . . . In recent years, however, there have been signs of a growing willingness on the part of international tribunals to appreciate that the value of an asset is not something that can be divorced from its revenue-generating capacity. And, in this, international legal thinking is coming into line with established economic thinking and methods of valuation in general use all over the world. To a body of experienced practical lawyers, it hardly needs saying that few things have an intrinsic value, certainly not in the commercial world. An asset is worth only so much as it can earn; and it is in terms of its earning capacity that its economic value must be measured.41
It is clear that if property is taken and compensation is awarded therefor, it can only be compensation for the full value of the property taken, whichever valuation method is used. Of course, a consistent application of this view implies that the amount of compensation should not change depending upon the legality of the expropriation.42 Professor Higgins follows the logic of her premises to its inevitable conclusion. Despite pronouncements of other commentators and arbitrators to the contrary, Higgins tentatively concludes “that the value of the property does not change by virtue of the lawful or unlawful nature of its taking . . . .”43 This view also makes sense, because it makes little difference to an investor why his property was taken, for the damage done to him regardless of the motivation for the theft can only be measured by the (full) economic value of the property. Of course, if this is the case, it makes no sense to distinguish between “illegal” and “legal” takings. For whether the expropriation is discriminatory or not, or for a public purpose or not, full compensation should be awarded to the investor as damages.
Such a result is sensible, because the value of the property taken does not change because the state expropriated the property in a discriminatory fashion, rather than in a more gentle, kindly, nondiscriminatory fashion. It does not matter to the investor why the state took the property. The investor is concerned with its economic utility, or value, to him. The harm done to an investor by an expropriating state is that the property has been taken. The reason is irrelevant. Accordingly, once an investor’s property has been taken, no additional harm is done to him because of the motivation behind the taking.
This interpretation of international law actually meshes well with the view expressed in the Restatement (Third) of the Foreign Relations Law of the United States. The Restatement provides, in pertinent part:
Section 712. Economic Injury to Nationals of Other States
A state is responsible under international law for injury resulting from:
(1) A taking by the state of the property of a national of another state that is (a) not for a public purpose, or (b) discriminatory, or (c) not accompanied by provision for just compensation; . . . .
However, because it is the taking that causes injury to nationals, there is simply no injury that results from a non-public purpose or discriminatory taking. Therefore, even under the above restatement of the law, a state is responsible for nothing solely on account of provisions (1)(a) and (b). The section would make just as much sense were subsections (1)(a) and (b) to be eliminated from the text of the section. A similar analysis applies to statements such as Brownlie’s, to the effect that a state action “will entail state responsibility if . . . it constitutes . . . an expropriation contrary to international law.”44 As Brownlie also notes, “the law of responsibility is concerned with the incidence and consequences of illegal acts, and particularly the payment of compensation for loss caused.”45 Further, as Judge Huber said in a report on the Spanish Zone of Morocco Claims, “Responsibility is the necessary corollary of a right. All rights of an international character involve international responsibility. If the obligation in question is not met, responsibility entails the duty to make reparation.”46 But if there is no separate harm that befalls an investor due to the character of the expropriation apart and aside from the taking itself, there is nothing to make reparation for. This implies that there can be no correlative state responsibility, because there is no separate loss for the state to be responsible for, which further implies that no illegal act was committed by the state.
Further, consider the fact that a nationalization that is truly legal, nonarbitrary, nondiscriminatory, and for a public purpose still requires at least some amount of compensation. The “good” motivation of the government does not excuse it from paying compensation. The quite proper thinking behind this is that the investor was harmed just because its property was taken, and the good motive of the government is irrelevant. But similarly, if motive, intent, and purpose is irrelevant in determining whether harm was done to the investor, is should be irrelevant in determining how much harm was done to the investor. No worse harm is done to the investor if the taking is motivated by benevolence, spite, or even malice.47 The harm done is still the same and can be adequately compensated for by awarding damages equal to the full value of the property taken. It therefore simply makes no sense to characterize nondiscrimination and public purpose as requirements of international law, or to award higher damage awards if these elements are present.
d) Further Problems with Nondiscrimination and Public Purpose
As explained in Parts III.A-III.C, above, since there is no remedy at all, even in principle, for breach of the alleged requirements of nondiscrimination and public purpose, they cannot be said to be requirements of international law. As discussed below, however, such a classification would be problematic for other reasons as well.
First, both nondiscrimination and public purpose are vague concepts. All takings are discriminatory; it is unclear what a “nondiscriminatory” taking would be. To discriminate is to make a distinction, to mark or perceive the distinguishing or peculiar features of;48 and a state always must decide whom to expropriate, which is to say, to discriminate against the investor as opposed to all others. The harm done to an investor first and foremost by an expropriation is the fact that his property has been confiscated; yet, if he has been compensated for the full value of his property, then he has been fully compensated.
ii) Public Purpose
The public purpose concept is similarly amorphous, and lacks clear definition. As one legal encyclopedia puts it,
No general definition of what degree of public good will meet the requirement of a `public use’ . . . can be framed, since in every case it is a question of public policy, the determination of which is dependent upon facts and circumstances. The meaning of the term is flexible and . . . must be applied in the light of what the legislature seeks to accomplish and what it may properly consider to be a public use at the present time.49
Such an explanation, riddled with further obscure terms such as “public policy” and circular references like “properly,” makes it clear that the concept of public use can have no principled, objective definition that is not subject to continual redefinition by the government. Because the point of the public use requirement is to limit the government’s discretion, limiting the government with a concept that the government itself may define becomes largely inefficacious.50
Further, the state is merely a fiction, and has no “purposes” separate and apart from those of individuals within the government who motivate, encourage, and institute the expropriation. Only individuals have purposes.51 All state actions are partially socialistic in that they are welfare transfersCsome individuals are benefitted and some are harmed, by their bodily or property rights being violated. Even in a representative government, not all the citizens or subjects are represented, because there is never unanimity.52 Thus, any action taken by a state will be for the benefit of only some of the citizens of the country, and in some cases only for the benefit of government employees.53 The difference between a purely public and purely private purpose is only one of degree, not of kind, depending upon the ratio of the number of exploiters to the number of those exploited. There is no nonarbitrary, objective, justifiable criteria to distinguish between public purpose and non-public purpose.54
If state action that is not for a public purpose is undesirable, and if every governmental action is, at least in part, motivated by a non-public purpose, some might suggest eliminating the coercive institution of the state altogether, adopting instead a totally free society, in which only private purposes may be pursued.55 But so long as states exist, so long as states are seen as sovereign and legitimate under international law, it is necessary to accept the fiction that governments represent the people, a fiction under which state actions that are in actuality not “for a public purpose” must nevertheless be assumed to be.
There is yet another reason why the standard of compensation should not depend on the public or non-public purpose behind the taking. For even if some takings can be identified as egregiously lacking in a public purpose, this merely implies that the state action is not representative, and that the action cannot fairly be said to benefit the people as a whole, as opposed to the government or a rent-seeking special interest group. In this case, however, it is clear that it is the people themselves that are harmed when their interests are insufficiently represented. Why should this give an additional cause of action or grievance to the expropriated investor? As already argued, he is harmed because his property is taken. Whether it “really” benefits the people of the host state, or only government officials, it is hard to see how this is relevant to a calculation of the harm done to the investor.
Further, if no state action is for a purely public purpose, then no state action is completely “legal” or “illegal”Call expropriations are partially “illegal” and partially “legal,” but this just gets us farther afield from the initial problem of making the investor whole for the loss he has suffered, and further demonstrates the uselessness of the legal/illegal distinction based on the public/private purpose classification.
4) INALIENABILITY AND REALITIES OF POLITICAL RISK
The recognition of property rights is without doubt necessary for civilized human life.56 Individuals will tend to flourish when governments respect them. A state that respects property rights is clearly preferable, therefore, to one that does not, at least for those in favor of civilization and individual human flourishing. This is certainly true from the point of view of foreign investors that own property in host states. Both investors and host states (and the citizens of the host state) are vastly better off when the host state recognizes and respects property rights. Nevertheless, some states inevitably will trample property rights, out of lack of respect for individual rights, and out of more concern with short-run interests than with long-term, civilized flourishing. In today’s reality and under international law, such states simply cannot be compelled to respect property rights.
As Professor Higgins notes, a right without a remedy is a hollow one.57 Because of this fundamental truth, investors should recognize the realities of political risk, and should realize that there is no right under international law to not have one’s foreign investments expropriated in discriminatory fashion or for a non-public purpose. As explained earlier in this article, there is absolutely no remedy for such an asserted right; states suffer no meaningful consequences under international law due to the fact that a taking is “unlawful,” because no enforcement or coercive sanction at all can be applied for even the most egregious expropriation. Thus, perhaps unfortunately, even if a state wishes to bind itself to not commit certain sorts of expropriations, it simply may not do so. The simple fact is, even if a state solemnly promises not to take property, in later years it just might do so, nevertheless, and get away with it. Part of the reason for this is that it is seen as an infringement of the state’s sovereignty to apply force to it to make it comply with prior promises regarding the disposition of property rights within its own territory. Its sovereignty makes its will in this regard inalienable.58
However, awards of damages may be enforced, in at least some instances, for example where property of the expropriating state is situated outside its borders and may be seized in satisfaction of a judgment in the courts of another state. Further, although a state’s right to expropriate is inalienable, it may bind itself to pay monetary damages conditional upon an expropriation. It appears that it is less of an infringement of the sovereignty of a state to expect it to make a one-time (or during a limited period) payment of money than to demand that it change, or refrain from changing, the existing allocation of property rights within its own territory. Thus, a state may alienate its right to refuse to pay compensation, at least where other states can seize property of the host state external to it, and within the jurisdiction of the seizing state.
Host states and investors, for example, may enter into internationalized contracts containing “stabilization clauses,” which states that the law in force in the state at a given date is the law that governs the contract, regardless of future legislation, decrees, or regulations issued by the government.59 In other words, by agreeing to a stabilization clause, a state alienates its right to unilaterally change the regime and rights relied upon by, and promised to, an investor. The stabilization clause is crucial in maintaining the investor’s rights to compensation, even if the host state changes the law to deny this right. As stated by the tribunal in Texaco v. Libyan Arab Republic,60 “[n]othing can prevent a State, in the exercise of its sovereign, from binding itself irrevocably by the provisions of a concession and from granting to the concessionaire irretractable rights . . . . [I]n entering into concession contracts with the plaintiffs, the Libyan State did not alienate but exercised its sovereignty.”61 The court’s semantics here are questionable, since the state, in “binding itself irrevocably to the provisions of a concession” is clearly attempting to exercise its sovereignty to alienate its right to violate the contract. As we maintain, a state may commit itself to pay compensation if it expropriates, but it simply cannot alienate its right to expropriate.
Therefore, the obligation to compensate may be considered a valid requirement of international law, because, although a state may not be invaded to recoup enough property to satisfy a damages award, it is at least possible in principle to order a state to make such payment, and to satisfy a damages award by enforcement in foreign courts.62
As Higgins points out, the fundamental political-risk problem facing a foreign investor, such as a petroleum investor, is: “how can he be sure that, given the vast resources he will be required to make, he will be allowed to reap the benefits of his investment and work effort, and that the rewards will not be taken from him just as the fulfillment of the contract terms beings to bear fruit (that is to say, petroleum)?”63 Of course, the answer to this question is, he cannot. As long as nation-states have “sovereignty” over their territories, there is always a possibility that the government will infringe the investor’s property rights, although there are ways to minimize such “political risks.”64
It is true that most advocates of “permanent sovereignty over natural resources” were making biased arguments, skewed completely in the (short-term) interest of the socialist governments that wished to take the property of foreign industries. That is not, however, our motivation for explaining that states do, in actuality, have an inalienable right to expropriate foreign investments. We believe in the sanctity, under natural law, of property rights.65 Unfortunately, it is not always possible to protect the rights to life, liberty, and property.
Where sovereign states exist, and are recognized as such under international law, the simple fact is that their sovereignty makes their will inalienable in certain respects. Even though it might be to a nation’s benefit to be able to enter into a binding guarantee that it will not ever expropriate someone’s property, this is in fact not binding, since there is no one to bind a sovereign nation.66 This inalienability is implicit in the well-known concept of parliamentary or legislative sovereignty. A legislature simply does not have the ability to tie its future hands, just as a man may not sell himself into slavery. If a legislature votes to enact a given law, it may repeal the law later. Even a constitution may be amended according to the procedure it prescribes, or even abolished and replaced in a bloody or bloodless revolution. In the modern world of liberal democracy, “Sovereignty shifts from King to State, and this State `can no more alienate its sovereignty than a man can alienate his will and remain a man.'”67
In the United States, for example, this principle has been recognized by the U.S. Supreme Court:
The taking of private property for public use upon just compensation is so often necessary for the proper performance of governmental functions that the power is deemed essential to the life of the State. It cannot be surrendered, and, if attempted to be contracted away, it may be resumed at will.68
As Professor Bowett has noted,
The position in the law of England is very similar. Where the Crown acts in an executive capacity to vary or terminate a contract, its action is deemed to be lawful, and no breach of contract. . . . “[A] government cannot fetter its duty to act for the public good. It cannot bind itselfCby an implication in the contractCnot to perform its public duties.”69
But this has always been the case. No matter what the arbitral tribunals say about the unlawfulness of an expropriation, and even if they order restitution, as Texaco did, the simple reality is that investors who are robbed of their property by a host state can only recover monetary damages, and then only in cases where assets of the expropriating state may be found in other jurisdictions, in states that are willing to seize the assets, unless the host state voluntarily compensates the investor.
Our urged restatement or recharacterization of the international law of expropriation would not make things worse for investors. Indeed, it recognizes that investors will always have to face risks as long as they are at the mercy of the whim of a sovereign state. These risks are real, and are not increased by frankly recognizing them. Investors can only be made better off by realizing the risks of potential investments, risks which are hopefully clarified in this article.
A state cannot even guarantee it will have enough assets overseas at the moment of expropriation to satisfy a damages award. Indeed, it would be likely to surreptitiously begin to remove such assets prior to an expropriation. A state could deliver a large amount of funds in escrow to a neutral, third party not subject to the host state’s jurisdiction, but this is probably unworkable in practice, especially with the alternatives of investment insurance open to the investor such as OPIC, MIGA, and private insurance.70 Of course, a state could attempt to establish a policy of reluctance to expropriate, in an attempt to have a low “political risk” rating by insurers, so that the premiums would be more affordable to investors, thus promoting, in the long run, more investment in the country. It could also set up a stable government that enshrines property rights to a certain extent, such as in the U.S., where investors are, as a practical matter, not concerned with uncompensated expropriation. But this is about all it can do.
Under our interpretation, a court should not take into account the purpose of an expropriation, unless it is relevant for the interpretation of a given BIT or concession agreement. For example, if the concession allows expropriation, without damages or with a lesser damages standard, if “justified” (e.g. by force majeure), the tribunal or court can properly look at motivation. Similarly, if a concession provides that the full value of property will be awarded for a “lawful” expropriation (where “lawful” is a contractual, defined term perhaps including nondiscrimination and public purpose), but provides for a higher standard (e.g., treble damages) for “unlawful” takings, the court should do this too. In other situations, a concession may provide for liquidated damages, which the tribunal should also give effect to.
But, without provisions more specific or to the contrary, a court should award to an investor what was taken from himCi.e., the full value of the property. In doing so, the court would implicitly recognize that the nondiscrimination and public purpose requirements are illusory, and only serve to muddy the international law waters.
*LL.M. (international business law) 1992, University of LondonCKing’s College London; J.D. 1991, Paul M. Hebert Law Center, Louisiana State University; M.S. Electrical Engineering 1990, B.S.E.E. 1987, Louisiana State University. The author is an associate in the intellectual property department of Schnader, Harrison, Segal & Lewis in Philadelphia, and may be reached at firstname.lastname@example.org (internet).
**LL.M. (international business law) 1992, University of LondonCKing’s College London; J.D. 1991, Paul M. Hebert Law Center, Louisiana State University; B.A. English Literature 1988, Louisiana State University. The author is an associate in the finance and real estate sections in the Houston, Texas office of Jackson & Walker, L.L.P.
4See, e.g., M.N. Shaw, International Law 516-24, 528 (3d ed. 1991); Ian Brownlie, Principles of Public International Law 538, 542-43, 544 n23, 548 (4th ed. 1990); Rosalyn Higgins, Problems and Process: International Law and How We Use It 142 (1994); Derek William Bowett, State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach, 59 Brit. Yearbook Int’l L. 49, 59 (1988); Declaration on Permanent Sovereignty over Natural Resources, UN General Assembly Resolution 1803 (XVII) (1962), 17 UN GAOR Supp. (No. 17) at 15, UN Doc. A/5217 (1962), & 4 (“public utility”), reprinted in 57 Am. J. Int’l L. 710 (1963), 2 I.L.M. 223 (1963); Restatement (Third) of the Foreign Relations Law of the United States Section 712 (American Law Institute 1987). Professor Brownlie cites other conditions that may make an expropriation “unlawful.” Brownlie, at 441, 537-39. Bilateral Investment Treaties (BITs) can also provide similar standards. For example, Article III of the United States-Russia BIT provides, inter alia, that investments shall not be expropriated, directly or indirectly, unless the expropriation is for a public purpose, is performed in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation. Treaty Concerning the Encouragement and Reciprocal Protection of Investment, June 17, 1992, U.S.-the Russian Federation, S. Treaty Doc. No. 102-33, 102d Cong., 2d Sess. For further discussion of BITs, see Paul E. Comeaux & N. Stephan Kinsella, Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance, 15 N.Y. L.Sch. J. Int’l & Comp. L. 1, Part II (1994).
5Professor Brownlie notes the following terminological distinctions. If a taking or expropriation is not accompanied by compensation, or the taking is otherwise “regarded as unlawful, then the taking is sometimes described as confiscation. Expropriation of one or more major national resources as part of a general programme of social and economic reform is now generally referred to as nationalization or socialization.” Brownlie, supra note 4, at 532. Expropriation can also include so-called creeping or indirect expropriation.
6Rosalyn Higgins, Problems and Process: International Law and How We Use It 141 n. 29 (1994), citing the following cases as the “great oil arbitrations”: Petroleum Development Limited v. Sheikh of Abu Dhabi, 18 ILR 37; Saudi Arabia v. Aramco, 47 ILR 117; Sapphire International Petroleum Ltd. v. NIOC, 35 ILR 136; BP v. Libyan Arab Republic, 53 ILR 297; Texaco v. Libyan Arab Republic, 53 ILR 389; Liamco v. Libyan Arab Republic, 62 ILR 140; and Kuwait v. Aminoil, 66 ILR 518.
15Id. at 63. Bowett maintains that there may be three standards of compensation, (1) for an unlawful taking, (ii) for a lawful ad hoc taking, and (3) for a lawful, general act of nationalization. Id. at 73. See also Brownlie, supra note 4, at 538-39, stating that:
The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title. [Footnotes omitted.]
18On the subjective theory of value, see Ludwig von Mises, Human Action: A Treatise on Economics 94-97, 200-206, 331-33 et passim (3d rev’d ed. 1966); Murray N. Rothbard, 1 Man, Economy, and State: A Treatise on Economic Principles 14-17 (ch.I, ‘ 5.A) (1962); and Alexander H. Shand, The Capitalist Alternative: An Introduction to Neo-Austrian Economics ch. 4, esp. ‘2 (1984).
19Under the 14th amendment to the U.S. Constitution, no governmental action, including takings, should be improperly “discriminatory.” That Amendment provides, in part: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction equal protection of the laws.”
20However, this does not mean that the concept “public purpose” is not without problems. See Part III.D, infra, for a discussion of the problematic nature of the “discrimination” and “public purpose” requirements.
22The Declaration of Independence provides: “We hold these truths to be self evident: that all men are created equal, that they are endowed by their creator with certain unalienable rights, that among these, are the rights to life, liberty, and the pursuit of happiness . . . .” Consistent with the individual right to free speech, as one of our “unalienable rights,” the First Amendment to the United States Constitution provides: “Congress shall make no law . . . abridging the freedom of speech, or of the press . . . .”
32See, e.g., Shaw, supra note 4, at 523-24. See also C.F. Amerasinghe, Issues of Compensation for the Takings of alien Property in the Light of Recent Cases and Practice, Int’l & Comp. L.Q. 41 (1992), p. 22; Patrick M. Norton, A Law of the Future of a Law of the Past? Modern Tribunals and the International Law of Expropriation, Am. J. Int’l L. 84 (1991); Comeaux & Kinsella, supra note 4, at 25-31; and other sources referenced in Comeaux & Kinsella at nn76, 102.
42Brower notes that several of the Iran-US Claims Tribunal holdings award full, fair market value for nationalized property, thus “implicitly reject[ing] the notion of a two-tiered system of compensation, providing partial compensation in lawful expropriations and full compensation in unlawful ones.” Brower, supra note 37, at 664, discussing American International Group v. Iran, Award No. 93-2-3 at 21-22 (Dec. 19,1983), 4 Iran-U.S. C.T.R. 96, 109 (1983). A subsequent case concluded that full compensation must be awarded “whether or not the expropriation was otherwise lawful.” Id., quoting SEDCO, Inc. v. National Iranian Oil Co., Award No. ITL 59-129-3 at 11-13 (Mar. 27, 1986), 25 I.L.M. 629, 634-35 (1986). See also Amerasinghe, supra note 36, and accompanying text. But see Bowett, supra note 4, at 64, 67-70.
50The concept does, however, have at least some utility in national context, where it serves to restrict the total number of governmental takings, even though the concept has no precise definition. See Part III.B.1, supra; and Epstein, supra note 17, at chapter 12.
51For discussion of this subject, see Mises, supra note 18, at 17, 41-44 et passim; Tibor R. Machan, Individuals and Their Rights 7-22 et passim (1989); idem, Some Philosophical Aspects of National Labor Policy, 4 Harv. J. Law & Publ. Pol’y 67, 140-48 (1981); idem, Individualism and Political Dialogue, Poznan Studies in Phil. (1995, forthcoming); Ayn Rand, The Soul of the Individualist in For the New Intellectual 78 (Signet 1961); idem, What is Capitalism, in Capitalism: The Unknown Ideal 15 (Signet 1967); Leonard Peikoff, Objectivism: The Philosophy of Ayn Rand 198-202, 297-303 (1991). See also Loren E. Lomasky’s discussion of the role of projects in individuals’ lives in chapter 2 et seq. of his Persons, Rights, and the Moral Community (1987).
52For further discussion of problems of representation in modern times, see Bruno Leoni, Freedom and the Law 19 et passim (Liberty Fund expanded 3d. ed. 1991) (1961); Peter H. Aranson, Bruno Leoni in Retrospect, 11 Harv. J. Law & Publ. Pol’y 661, 676-77 (1988); Giovanni Sartori, Liberty and Law 31-32 (1976); and N. Stephan Kinsella, The Irrationalism of the Civil Law, at Part IV.C.3, “Special Interests and the Unrepresentative Character of Legislation” (1995, forthcoming).
53The late Professor Murray N. Rothbard developed a useful classification or typology of aggressive government intervention that is illuminating in this context. If an aggressor’s command or order involves only the commanded individual himselfCi.e., the aggressor restricts the individual’s use of his own property, when exchange with someone else is not involvedCthis Rothbard calls autistic intervention. If the aggressor compels an exchange between the individual and himself, or coerces a “gift” from the individual, this may be called a binary intervention, since a hegemonic relation is established between two people: the aggressor and the individual. If the aggressor compels or prohibits an exchange between a pair of subjects, this is called triangular intervention. Examples of autistic intervention are murder or compulsory prohibition or enforcement of a salute or speech. Taxation, conscription, slavery, and compulsory jury service are examples of binary intervention. Examples of triangular intervention are price controls, minimum wage laws, and licensing. Rothbard, 2 Man, Economy, and State, supra note 18, at 766-68. See alsoidem, Power and Market: Government and the Economy 11-12 (1970). As Professor Hans-Hermann Hoppe notes, triangular intervention, unlike binary intervention, produces no income for the state, but, instead, “satisf[ies] pure power lust, as when A, for no material gain of his own, prohibits B and C from engaging in mutually beneficial trade”. Hans-Hermann Hoppe, Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Economic Order, in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy 81 (1993) (first published in 4 Rev. of Austrian Economics 55 (1990)).
54As Epstein notes, “[t]he language of public use invites the theory of public goods.” Epstein, supra note 17, at chapter 12. The concept “public use,” therefore, is as fallacious as is the concept “public good.” For an illuminating discussion of the invalidity of the distinction between public and private goods, see Hans-Hermann Hoppe, Fallacies of Public Goods Theory and the Production of Security, in Hoppe, supra note 53, esp. p. 7 (first published in 9 J. Libertarian Stud., No. 1 (1989)). See also Jeffrey Rogers Hummel, National Goods Versus Public Goods: Defense, Disarmament, and Free Riders, 4 The Review of Austrian Economics 88 (1990) and the works cited at n4, et passim; and Shand, suprar note 18, at ch.7, ‘ 2.
55For works in favor of anarcho-capitalism and arguing that a free society could function without chaos (contrary to popular conceptions of anarchy), see Bruce L. Benson, The Enterprise of Law: Justice Without the State (1990); idem, The Impetus for Recognizing Private Property and Adopting Ethical Behavior in a Market Economy: Natural Law, Government Law, or Evolving Self-Interest, 6 The Review of Austrian Economics 43 (1993); David Friedman, The Machinery of Freedom: Guide to A Radical Capitalism (2d ed’n 1989); Morris and Linda Tannehill, The Market for Liberty (Laissez Faire Books Reprint ed’n 1984); Murray N. Rothbard, For A New Liberty: The Libertarian Manifesto esp. ch. 12 (reprint ed. 1985); idem, The
Ethics of Liberty (1982); Hans-Hermann Hoppe, A Theory of Socialism and Capitalism: Economics, Politics, and Ethics (1989); George H. Smith, Justice Entrepreneurship in a Free Market, in Atheism, Ayn Rand, and Other Heresies (1991); Hummel, supra note 54; Lysander Spooner, No Treason No. VI: The Constitution of No Authority, in No Treason: The Constitution of No Authority and A Letter to Thomas F. Bayard (Ralph Myles Publisher ed’n 1973) (1870) (also reprinted in The Lysander Spooner Reader (1992)); James J. Martin, Men Against the State: The Expositors of Individualist Anarchism in America, 1827-1908 (1970); Terry Anderson & P.J. Hill, An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West, 3 J. Libertarian Stud. 9 (1979); George Woodcock, Anarchism: A History of Libertarian Ideas and Movements (1962).
56See generally the works cited in note 55, supra; Ayn Rand, Capitalism: The Unknown Ideal, supra note 51; idem, The Virtue of Selfishness: A New Concept of Egoism (Signet 1964); Ludwig von Mises, Liberalism: In the Classical Tradition (trans. Ralph Raico, 3d ed’n 1985); idem, Human Action,supra note 18; Tibor R. Machan, Individuals and Their Rights, supra note 51; Richard A. Epstein, Simple Rules for a Complex World (forthcoming, Harvard University Press, 1995); Roger A. Pilon, Ordering Rights Consistently: Or What We Do and Do Not Have Rights To, 13 Ga. L. Rev. 1171 (1979); Friedrich A. Hayek, The Road to Serfdom (1944); idem, The Constitution of Liberty (1960); idem, Law, Legislation, and Liberty (3 vols. 1973, 1976, 1979); Robert Nozick, Anarchy, State, and Utopia (1974); Lomasky, supra note 51; Jan Narveson, The Libertarian Idea (1988); Charles Murray, In Pursuit: Of Happiness and Good Government (1988); Douglas B. Rasmussen & Douglas J. Den Uyl, Liberty and Nature: An Aristotelian Defense of Liberal Order (1991); Milton Friedman, Capitalism and Freedom (1962); Milton & Rose Friedman, Free to Choose: A Personal Statement (1980).
Full permanent sovereignty of every state over its natural resources and all economic activities. In order to safeguard these resources, each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation including the right to nationalization or transfer of ownership to its nationals, this right being an expression of the full permanent sovereignty of the State. No State may be subjected to economic, political or any other type of coercion to prevent the free and full exercise of this inalienable right; . . . .
G.A. Res. 3201 (S-VI) (1974), S-6 U.N. G.A.O.R. Supp. (No. 1) at 3, UN Doc. A/9559 (1974), reprinted in 13 I.L.M. 715 (1974), at paragraph 4(e) (emphasis added). Similarly, the United Nations Charter of Economic Rights and Duties of States provides that
Every State has the sovereign and inalienable right to choose its economic system as well as its political, social, and cultural systems in accordance with the will of its people, without the outside interference, coercion or threat in any form whatsoever.
G.A. Res. 3281 (XXIX) (1975), 29 UN GAOR Supp. (No. 31) at 50, UN Doc. A/9631 (1974), reprinted in 69 Am. J. Int’l L. (1975), 14 I.L.M. 251 (1975) (emphasis added). However, the last consensus regarding the international law of expropriation was embodied in the 1962 General Assembly Resolution 1803 (XVII), Permanent Sovereignty Over Natural Resources, supra note 4. Norton, supra 32, at 478; Brownlie, supra note 4, at 543; Amerasinghe, supra note 36, at 36. Thus, Resolutions 3201 and 3281 are not cited here as authority for principles of international law, but rather for the usage of the concept of inalienability. (Resolution 1803 does not specifically refer to inalienability.)
For further discussion of the concept of inalienability with regard to the doctrine of permanent over natural resources, see A.Z. El Chiati, Protection of Investment in the Context of Petroleum Agreements, 4 Recueil des Cours 9, 153 et seq. (1987).
60Texaco Overseas Petroleum Company and California Asiatic Oil Company v. The Government of the Libyan Arab Republic, 53 I.L.R. at 474, 482 (quoting Saudi Arabia v. Arabian American Oil Company, Award of August 23, 1958 (Aramco), 27 I.L.R. 117, 168).
62See, e.g., Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 330 U.N.T.S. 38 (1959); Comeaux & Kinsella, supra note 4, at 11, 29; Leo J. Bouchez, The Prospects for International Arbitration: Disputes Between States and Private Enterprises, 8 J. Int’l Arb. 81, 111 passim (1991); Ian F. G. Baxter, International Business Disputes, 39 Int’l & Comp. L.Q.. 288 (1990); Peter M. McGowan, Arbitration
Clauses as Waivers of Immunity from Jurisdiction and Execution Under the Foreign Soverign Immunities Act of 1976, 5 N.Y.L. Sch. J. Int’l & Comp. L. 409, 417-19 (1984); Note, Enforcing International Commercial Arbitration Agreements and Awards Not Subject to the New York Convention, 23 Va. J. Int’l L. 75 (1982); J. Stewart McClendon, Enforcement of Foreign Arbitral Awards in the United States, 4 Nw. J. Int’l L. & Bus. 58 (1982); and Georges R. Delaume, State Contracts and Transational Arbitration, 75 Am. J. Int’l L. 784 (1981).
66This is not, however, an argument for the elimination of multiple sovereign states by the establishment of a one-world government, as is favored by many naive and/or socialist-minded individuals today. Moving in this direction creates far more problems than it solves. Indeed, movement toward many, small, independent and sovereign states (also called devolution, decentralization, or federalism), would be a move in the right direction. This is because smaller governments, which are more responsive to their subjects’ rights, would tend to be less intrusive and socialistic, and hence more respectful of property rights, than would a more centralized and powerful government. Relatively small governments in a decentralized set of governments are therefore less likely to expropriate individual property than would be a one-world government.
67Jean Bethke Elshtain, Sovereign God, Sovereign State, Sovereign Self, 66 Notre Dame L. Rev. 1355, 1367 (1991), quoting Charles Merriam, History of Sovereignty Since Rousseau: Studies in History, Economics and Public Law 33 (1990). On the inalienability an individual’s will and the impossibility of voluntary slave contracts, see Williamson M. Evers, Toward a Reformulation of the Law of Contracts, 1 J. Libertarian Stud. 3, 7 (1977); Rothbard, The Ethics of Liberty, supra note 55, at 134-35; Machan, Individuals and Their Rights, supra note 51, at ch.13, pp. 129-130, 196; idem, Human Rights and Human Liberties: A Radical Reconsideration of the American Political Tradition 116-17 (1975); Locke, supra note 3, at ch. 4; Randy E. Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 293 n99 (1986). Rothbard and Evers further cite Jean-Jacques Rousseau, The Social Contract, bk. 1, ch. 4 in Social Contract (E. Barker, ed., 1948) at 174-75; John Stuart Mill, On Liberty ch. 5 (ssss); and John Trenchard and Thomas Gordin, writing in Cato’s Letters, no. 59, in The English Libertarian Heritage (D.L. Jacobsen, ed., 1965). Barnett further cites the following useful sources on the issue of inalienability: J. Feinberg, Rights, Justice, and the Bounds of Liberty 238-46 (1980); D. Meyer, Inalienable Rights: A Defense (1985); H. Veatch, Human Rights: Fact or Fancy? ch. 3 (1986); Epstein, Why Restrain Alienation?, 85 Colum. L. Rev. 970 (1985); Kuflik, The Inalienability of Autonomy, 13 Phil. & Pub. Affs. 271 (9184); McConnell, The Nature and Basis of Inalienable Rights, 3 Law & Phil. 25 (1984); and Rose-Ackerman, Inalienability and the Theory of Property Rights, 85 Colum. L. Rev. 931 (1985).
69Bowett, supra note 4, at 57-58, quoting Czarnikow v. Rolimpex,  3 WLR 686 per Lord Denning MR, following The Amphitrite,  3 KB 500. See also H.L.A. Hart, The Concept of Law (1961) (discussing Parliamentary sovereignty).
Here is a longer excerpt from chapter 5 of International Investment, Political Risk, and Dispute Resolution: A Practitioner’s Guide. Some formatting is lost, but the PDF version is here: IIPR ch 5 excerpt temp.
History and Development of the Customary International Law of Expropriation and Investment Protection
The international law of expropriation was for many decades the subject of fierce divisions between the developed and developing world. As the United States Supreme Court has noted: “There are few issues in international law today on which opinion seems to be so divided as the limitations on a state’s power to expropriate the property of aliens.”
Historically, viewpoints on expropriation have at times appeared to be politically motivated. Capital-exporting States tended to insist that host States respect the property and contractual rights of their nationals investing abroad. Capital-importing States, on the other hand, have often demanded the right to self-determination and control over its natural resources, arguing that the collective interests of society outweigh the interests of individuals such as private investors. Today, the picture is not nearly so clear. the development of investment treaties—and in particular of the North American Free Trade Agreement (NAFTA)—have placed traditional capital exporters like the United States and Canada on the receiving end of investment-related international law. Meanwhile, investors from the “developing world” are venturing further afield, leading their home States to rethink the benefits that stable investment rules can bring.
This chapter discusses the customary international law of expropriation and investor protection. The first part covers the history of the international law of expropriation, including the traditional standard, the challenges to that standard by capital-importing countries in the 1960s, and the interpretation of the law by judicial and arbitral bodies. The role that treaties and State practice have had in shaping the law of expropriation is also addressed.
The current state of relevant principles of international law is also discussed, including a discussion of the “full compensation” standard. (The modern conventional international law of investment protection as embodied in investment treaties is covered in Chapter 6, along with a detailed discussion of methods of valuation of expropriated property.)
This chapter also briefly touches upon the related topic of the breach of contract by States. As will become clear, the breach of an investment contract by a host State may give rise to a cause of action under international law, separate from but related to the cause of action arising from the taking of property.
The conclusions reached in this chapter may be summarized as follows: a State may expropriate the property of aliens within its borders, but must compensate the foreigner for the full value of the property taken. If the international law of expropriation has changed since the nineteenth century, the change is primarily that one State may no longer use force against another State to rectify or prevent a taking of property by the host State.
A. History and Sources of the Law of Expropriation
1. Expropriation and Standards of Compensation Prior to World War II
Because expropriation was relatively rare prior to the twentieth century, legal standards of compensation evoked relatively little discussion or debate. International arbitral decisions that did address expropriation routinely held, however, that states have the right to “appropriate private property for public use,” but upon such expropriation, the State had an obligation to pay full compensation. In fact, this principle was so well settled that in treaties among European countries, compensation for expropriated property was rarely mentioned—it was taken for granted.
The seminal pre-World War II case regarding the international law of expropriation, the Chorzów Factory case, arose from Poland’s expropriation of a nitrate factory in Upper Silesia that had been owned by German nationals. After Germany brought a claim before the Permanent Court of International Justice, the court ruled that the expropriation was in violation of the German-Polish Convention Concerning Upper Silesia. Regarding the compensation owing for an illegal expropriation, the Court stated:
The essential principle contained in the actual notion of an illegal act—a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals—is that reparation must, as far as possible, wipe out all consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if that is not possible, payment of a sum corresponding to the value which a restitution in kind would bear [must be made].
The Court went on to state in dicta that a lawful expropriation does not require actual restitution (i.e., return of the property taken), but only payment of “the just price of what was appropriated” measured as “the value of the undertaking at the moment of dispossession, plus interest to the day of payment.” This was, essentially, an affirmation of the principle that even in the case of a “lawful” expropriation, the proper level of compensation is the value of the property taken—that is, full compensation is owing for both legal and illegal expropriations. For illegal takings, the host State was also obligated to make restitution in kind, if possible.
International arbitrations both prior to and following the Chorzów Factory case support the proposition that the proper level of compensation following an expropriation is the full value of the property taken. Early twentieth-century cases in which full compensation was ordered include the Delagoa Bay arbitration, Spanish Zone of Morocco arbitration, the Goldenberg Case, the De Salba Claim, the Selwyn Case, the Norwegian Shipowners’ Claim, and the Lena Goldfields arbitration.
In Delagoa Bay, for example, Portugal cancelled a 35-year railway concession that had been granted to a British company. In a subsequent arbitral proceeding, the tribunal stated:
Even if the present case should be regarded as one of legal expropriation, the fact remains that the effect was to dispossess private persons from their rights and privileges of a private nature conferred upon them by the concession, and that . . . the State, which is the author of such dispossession, is bound to make full reparation for the injuries done by it.
In the Norwegian Shipowners’ Claim case, a number of Norwegian nationals entered into contracts with U.S. shipyards to build vessels for use by Norway during World War I. Following its declaration of war on Germany, the United States seized these ships for its own use. Norway brought suit before the Permanent Court of International Justice, which, in its ruling, noted that it was not bound by U.S. law “in so far as these provisions restricted the right of the claimants to receive immediate and full compensation, with interest from the day on which the compensation should have been fully paid” in accordance with principles of equity. The tribunal then awarded to the claimants the fair market value of the ships that had been seized.
The principle of full compensation for expropriation has long been established as a fundamental rule of customary international law. In one study of sixty international claims tribunals set up between 1840 and 1940 to deal with disputes arising from injury to aliens, none of the arbitral panels “held that the appropriate measure of compensation was less than the full value of the property taken, and many specifically affirmed the need for full compensation.”
The United States first precisely articulated the principle of full compensation in 1938, when Secretary of State Cordell Hull, in a letter to the Mexican government regarding the nationalization of certain agricultural and oil-related properties, insisted that expropriation of foreign owned property must be accompanied by “prompt, adequate, and effective” compensation. This phrasing has now come to be known as the “Hull formula,” and it has been interpreted to require compensation in the amount of the full fair market value of an investment as a going concern.
During this early period in the development of international law on expropriation, capital exporting States occasionally applied military force when full compensation was not forthcoming to their investors. Professor Wortley points out that in the mid-19th century,
British and many European and American investors[, following expropriation of their property,] could expect their Governments to make use, if need be, of such measures as embargo, or pacific blockade, or naval demonstrations, and generally to use the same means as from time to time were used to obtain specific restitution.
An example of the use of force to protect the property of nationals abroad can be seen in Britain’s threat of naval intervention with respect to claims of its citizens against the government of Sicily in 1836. Thus, not only did traditional international law require that an alien be fully compensated for the taking of its property, but it also permitted the use of force by the alien’s home State to protect such rights.
2. Challenges to the Traditional Standard
a. Latin American States
As early as the 19th century, a number of Latin American States challenged the international law standards discussed above, arguing that (1) aliens whose property was expropriated were entitled only to treatment equivalent to that granted by the expropriating State to its own nationals, and no more (and that the national treatment might well be that no compensation is required at all); and (2) that States were not obligated to recognize any international claims in relation to expropriation. This view of expropriation was consistent with these States’ general economic policy, which was in many ways hostile to foreign investment.
As an expression of their view of international law, many of these countries insisted upon the inclusion a so-called “Calvo clause” in investment contracts, by which the investor agreed to renounce the right to diplomatic protection, and to submit all disputes to the jurisdiction of the host State’s courts. The Calvo Doctrine and accompanying Calvo clauses have declined in prominence in recent decades, as Latin American states increasingly accept the standard of full compensation following expropriation and the settlement of investment disputes through international arbitration.
b. Nationalization in the Twentieth Century
Many states nationalized the property of both their own citizens and foreign investors without compensation in the early twentieth century, often following revolutions that wrought radical changes in political and economic structures. The new governments that arose out of these transformations often had little respect for private property, particularly in foreign hands. Some argued that international standards requiring full compensation following expropriation were a “tool used by ‘imperialist’ powers,” and that such standards are created by, and for the interests of, industrialized States to exploit less developed countries.
Such sudden transitions occurred in the Soviet Union in 1917, Mexico in 1938, Bulgaria, Czechoslovakia, Hungary, and Poland between 1945 and 1948, China in the 1950s, Bolivia in 1952, and Egypt in 1956, among others. Both the Soviet Union and Cuba, for example, after their respective revolutions of 1917 and 1959, attempted to abolish the institution of private property, and refused to pay any compensation to foreign businesses that had suffered the confiscation of their assets. Ultimately, Cuba alone seized the property of approximately 450 U.S. companies, with assets estimated at over US$2 billion.
Expropriations triggered by political change continued into the 1970s. Uganda, for instance, nationalized the property of foreign investors beginning in 1970, when the Obote government moved to acquire 60% ownership in all companies in the banking, manufacturing, mining, agriculture, and transport sectors. Although this percentage was reduced to 49% following General Amin’s military coup in 1971, 500 U.K. firms were subject to expropriation in 1973. In 1974, Ethiopia began to expropriate on a massive scale, when the provisional military government took power. Although compensation was promised, none was voluntarily paid. In Algeria, asset seizures focused on the petroleum and mining industries. In Venezuela, a range of takings took place in the petroleum industry, but adequate compensation was generally paid for the expropriated property.
During the 1950s, 60s, and 70s, nationalization programs were also implemented by the newly independent and newly prosperous states of the Middle East, Asia and Africa, usually involving the expropriation of petroleum rights from multinational corporations operating under the auspices of concession agreements. These takings often resulted not so much from socialist ideological inspiration as from the desire of these States to enjoy a greater share in the profits derived from their petroleum reserves.
While some expropriations were driven by ideological revolution, as discussed above, some were motivated, at least in part, by specific political events. For example, the expropriations by Libya that gave rise to the British Petroleum, TOPCO, and LIAMCO arbitrations were triggered in part by the U.K.’s refusal to react to Iran’s occupation of three islands in the Persian Gulf, which were then nominally under British protection. Another politically-motivated expropriation occurred in 1973, when the Libyan government nationalized the interests of the Nelson Bunker Hunt Oil Company in Benghayi in response to U.S. support of Israel during the Yom Kippur War.
c. Justifications for Expropriation and the U.N. Resolutions on Permanent Sovereignty
Following many of these expropriations, the States concerned publicly defended the right to expropriate without being subject to the customary international law requirement to pay full compensation. Some, especially in the Middle East and Africa, argued that they were tied to long-term contracts that had been concluded between foreign investors and former colonial authorities, and that the continuation of these arrangements despite de-colonialization deprived them of essential control over their ostensibly independent economies. These States argued that such contracts, which they had not negotiated, were even more repugnant as they gave foreign interests the power to dispose of their natural resources. This position eventually developed into the claim that the right of sovereign States to “economic self-determination” was inalienable, and that therefore the requirement of full compensation following expropriation should be inapplicable, as it would render any major economic restructuring impossible.
These views are reflected in a series of United Nations General Assembly Resolutions endorsed, for the most part, by developing states. The first of these resolutions, and the only one that received broad support from States in both the developed and developing world, was General Assembly Resolution 1803 (XVII) of 1962, the Declaration on Permanent Sovereignty Over Natural Resources. This resolution stated:
Nationalization, expropriation or requisitioning shall be based on grounds or reasons of public utility, security or the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign. In such cases the owner shall be paid appropriate compensation, in accordance with the rules enforced in the State taking such measure in the exercise of its sovereignty and in accordance with international law. In any case where the question of compensation gives rise to a controversy, the national jurisdiction of the state taking such measures shall be exhausted. However, upon agreement by sovereign States and other parties concerned, settlement of the dispute should be made through arbitration or international adjudication.
Eighty-seven States supported General Assembly Resolution 1803, two opposed it, and twelve abstained. Ten of the abstaining States were from the Socialist bloc. While this resolution affirmed the requirements that states act “in accordance with international law” and that compensation be paid following expropriation, it sparked widespread debate over the meaning of the phrase “appropriate compensation.” The United States voted in favor of Resolution 1803 because, in its view, the term “appropriate” compensation was equivalent to “prompt, adequate, and effective” compensation. Many developing States disagreed, arguing that the “appropriate compensation” standard allowed them to pay less than full compensation following an expropriation. Subsequent arbitral decisions, discussed below, almost unanimously affirm the interpretation of the United States.
In 1973, the General Assembly, without the support of capital-exporting States, adopted Resolution 3171, which purported to further erode international law standards of full compensation following expropriation. This resolution provided that, in the event of an expropriation,
each State is entitled to determine the amount of possible compensation and the mode of payment, and that any disputes which may arise should be settled in accordance with the national legislation of each State carrying out such measures.
According to this resolution, the foreign investor is not guaranteed compensation, but only “possible compensation”; no reference is made to the appropriate level of compensation (except that the matter should be settled in accordance with the legislation of the host State); and no reference is made to international law. Thus, according to Resolution 3171, the host State has wide discretion in determining the amount of compensation due, if any, and is not bound by any external, objective principles such as those provided by customary international law.
The following year, the U.N. General Assembly passed Resolution 3201, “The Declaration on the Establishment of a New International Economic Order,” again without the support of most industrialized countries. This resolution declared the right of each State to exercise control over and exploit its natural resources, “including the right to nationalization or transfer of ownership to its nationals.”
In 1974, the General Assembly passed the Charter of Economic Rights and Duties of States (Resolution 3281), which asserted that States have “permanent sovereignty over their natural wealth and resources,” and that the definition of compensation was the prerogative of each State alone. The resolution provided that a State has the right to
nationalize, expropriate or transfer ownership of private property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of this operand equality of States and in accordance with the principle of free choice of meanings.
Again, there was no reference in the document to international law, although it did require States to pay “appropriate compensation.” 120 States voted in favor of Resolution 3281, six States opposed it, and ten abstained. Negative votes came from Belgium, Denmark, West Germany, Luxembourg, the United Kingdom, and the United States.
Based in part on these resolutions, some developing countries have since argued that the expropriating State has the authority to determine its own rules governing compensation, rather than applying some objective international standard. However, even at the time, it is doubtful that the founding documents of the “New International Economic Order” reflected the condition of customary international law with regard to compensation following expropriation. The Charter of Economic Rights and Duties of States has, according to Brownlie, “a strong political and programmatic flavour and does not purport to be a declaration of pre-existing principles.”
By contrast, General Assembly Resolution 1803 does reflect to some degree the state of current international law regarding expropriation. As sole Arbitrator Dupuy concluded in the TOPCO arbitration,
Resolution 1803 (XVII) seems to this Tribunal to reflect the state of customary law existing in this field. Indeed, on the occasion of the vote on a resolution
finding the existence of a customary rule, the States concerned clearly expressed their views.
The traditional rule of international law that following an expropriation an alien must be paid the full value of the property taken has also been attacked by some international law scholars. Some of these commentators have suggested that in the modern era, private property rights must be balanced against the rights of the public, especially in the case of large-scale nationalizations with the stated purpose of “reform.” According to this view, “balancing” should allow the State to take private property or repudiate contracts with aliens without the obligation to pay full compensation.
Early drafts of the Restatement of Foreign Relations Law of the United States, in sections regarding expropriation, also appeared to support a more relaxed standard of compensation for expropriation. These preliminary versions provided that “just compensation” would ordinarily be equal to the value of the investment, implying some circumstances would support compensation less than the asset value. In addition, comments to these drafts suggested that one of criterion characterizing “creeping expropriation” was the State’s intent to expropriate the property in question, rather than simply to regulate its economy for the “common good.” The final version, as discussed below in Section B, firmly adopts the traditional statement of the law.
3. Arbitral Awards After World War II
Despite the contrary assertions of some developing States and commentators, judicial and arbitral decisions following World War II tend to support the proposition that international law requires an expropriating State to compensate fully the alien for the value of property taken. Examples of early arbitrations in which full compensation was awarded are the ARAMCO, Sapphire, Abu Dhabi, Qatar, and Lighthouses cases. In each of these proceedings, “the tribunal held the concessionaire state to the terms of its concession, or to damages for its breach, largely on the basis of this body of international precedent.” All of these awards support the proposition that international law requires that an expropriating State pay to an alien the full value of the property taken.
A series of arbitrations arising out of the Libyan oil nationalizations of the 1970s also support an uncompromising standard of full compensation for expropriation. In BP, Arbitrator Lagergren referred to reparation as a vehicle for establishing the amount of compensation, implying that full compensation is the appropriate standard following an expropriation. In TOPCO, Arbitrator Dupuy ordered restitution from Libya. It can be inferred that had he ordered damages, Dupuy would have quantified the compensation according to the full market value of the concession. The LIAMCO case, by contrast, relied upon a lesser “equitable compensation” standard. Even in the LIAMCO case, however, Sole Arbitrator Mahmassani awarded the claimants the “reasonable value” of the property taken.
A subsequent case, AMINOIL, concerned Kuwait’s 1977 expropriation of a petroleum concession held by the American Independent Oil Company. Kuwait admitted that it owed compensation to the claimant company, but sought to value the property using a “book value” method. The claimant, meanwhile, insisted upon a method of valuation based upon the present value of the company’s future cash flow. The parties agreed to submit the issue to arbitration. The tribunal applied international law, according to the parties’ submission, to resolve the dispute. The tribunal found that the appropriate level of compensation was “appropriate compensation” for a “lawful expropriation,” which was to be determined by an inquiry into all the circumstances surrounding the case. This value was determined by the tribunal to be the depreciated replacement value of the fixed assets and the going concern value of the enterprise, adjusted to take account of interest and inflation.
Some of the decisions of the Iran-U.S. Claims Tribunal are also evidence of the state of the international law of expropriation. Many of the opinions concerning expropriation were based on the application of the following passage from Article 4 of the U.S.-Iran Treaty of Amity:
[Property of investors] shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively revisable form and shall represent the full equivalent of the property taken. 
While many of the Claims Tribunal’s decisions turn on the wording of this paragraph of the Treaty, many opinions also consider the dictates of customary international law. In practically all of the decisions that considered international law, the Tribunal required the payment of full compensation.
In two early expropriation cases argued before the Iran-U.S. Claims Tribunal, the panels applied customary international law. In these decisions, Tippets and American International Group (AIG), the Tribunal found that international law requires that full value be paid for expropriated property. In Tippets, the Tribunal determined the market value of the expropriated company, and awarded the U.S. claimant the full value of its 50% interest. In American International Group, the tribunal stated that
it is a general principle of public international law that even in a case of lawful nationalization the former owner of the nationalized property is normally entitled to compensation for the value of the property taken.
The court concluded that the proper method of valuation is the “fair market value . . . at the date of nationalization,” or, if that is not available,
The appropriate method is to value the company as a going concern, taking into account not only the net book value of its assets but also such elements as good will and likely future profitability, and the company been allowed to continue its business under its former management.
AIG concerned an insurance company that was 35% owned by U.S. nationals. The tribunal did not discuss any particular standard of compensation, but did use the going concern method of valuation to assess the investor’s interests, which corresponds to the full value of the enterprise.
In another case, INA Corporation, the court applied the Treaty of Amity, which, as noted above, required full compensation equal to the fair market value of the expropriated property. In dicta, however, the opinion suggested that
at least as far as “large scale nationalizations of a lawful character [are concerned], international law has undergone a gradual reappraisal, the effect of which may be to undermine the doctrinal value of any ‘full’ or ‘adequate’ . . . compensation standard.”
Judge Lagergren echoed this sentiment in a separate opinion, which Judge Holtzman separately downplayed as Lagergren’s personal view. Holtzman emphasized that while a few arbitral tribunals had stated that they were using an “appropriate compensation” standard, they had actually awarded full compensation.
Thus, in nearly every case where the Claims Tribunal ruled on the issue of compensation for expropriation under customary international law, it affirmed that full compensation is the appropriate standard. Judge Allison, in a separate opinion in the Shahin case, summarized the Claims Tribunal’s jurisprudence regarding the customary international law of expropriation:
In sum, there is virtual total uniformity in the Tribunal’s rulings on the standard of compensation under international law. Every decision rendered by this Tribunal, whether based upon the Treaty of Amity or customary international law, or both of them, has concluded that compensation must equal the full value of the expropriated property as it stood on the date of taking. Moreover, every award rendered by this Tribunal, including the Award in the instant Cases, has provided claimants what the Tribunal determined to be the full value of their interest in the property taken, regardless of whether the taking was lawful or unlawful or whether the parties relied on the Treaty of Amity or customary international law.
Finally, in several contract-based arbitrations conducted under the auspices of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID), tribunals also considered the international law of expropriation. Two of these cases involve the expropriation of investments in Congo. In AGIP, the Congolese government nationalized the interests of a corporation 90% owned by Italian nationals. The contract specified the law of Congo as applicable, supplemented by international law. Benvenuti involved the expropriation of a Congolese company in which Italian nationals held a 40% equity interest. Various actions of the Congolese State, culminating in the occupation of the company’s plant by the army, precipitated the arbitral proceedings. Because the agreement between the investors and the State did not contain an express choice of law clause, the arbitrators, relying on Article 42(1) of the Washington Convention, applied Congolese law supplemented by principles of international law. In both of these cases, the arbitrators awarded full compensation for the assets taken.
In the LETCO v. Liberia arbitration, the Tribunal applied Liberian law, but stated that Liberian law was consonant with international law, and that “according to international law . . . LETCO is entitled to compensation for damages for both its lost investments and its foregone future profits.”
Thus, with the exception of LIAMCO,
every recent arbitral tribunal that has considered the issue has affirmed that the customary international law requires a state expropriating the property of a foreign national to pay the full value of that property, measured, where possible, by the market price. Although no tribunal has expressly invoked the Hull formula, the result has been the same.
4. Treaties as Evidence of Customary International Law
One of the sources of customary international law is State practice as evidenced in the treaties they conclude. As one commentator explains:
A series of recurrence of treaties laying down a similar rule may produce a principle of customary international law to the same effect. Such treaties are thus a step in the process whereby a rule of international custom emerges.
Most bilateral investment treaties (BITs) in effect today provide that full compensation should be paid following an expropriation. For example, the United States-Kazakhstan BIT provides that investments shall not be expropriated, directly or indirectly, unless the expropriation is for a public purpose, is performed in a nondiscriminatory manner, and upon payment of prompt, adequate, and effective compensation. The same is true with respect to the majority of BITs around the world. The expropriation provisions in these treaties are described in detail in Chapter 6.
Some have argued that these treaties, and the protections that they offer to foreign investment, are evidence of customary international law. Professor Brownlie opines that:
It is a fact that a very considerable number of hosts to foreign capital are willing to conclude treaties for the protection of investments which contain a provision for the payment of “prompt, adequate, and effective” compensation in cases of expropriation or, more frequently, “just compensation”. While these are negotiated deals, the pattern of agreements surely constitutes evidence of an international standard based upon the principle of compensation.
F.A. Mann also believed that “these treaties establish and accept and thus enlarge the force of traditional conceptions of the law of state responsibility for foreign investment.” Mann argued that States cannot credibly insist on the one hand that customary international law allows them to set the level of compensation following expropriation, and on the other hand accept the principle of full compensation in the BITs that they sign.
5. Negotiated Settlements
Many twentieth-century expropriation claims were settled by lump sum payments from the expropriating State to the home State of the foreign individuals and corporations whose property was taken. In these cases, the two governments negotiated to arrive at a total compensation amount for all outstanding claims, and then the receiving State distributed payments to individual investors (normally on a pro-rata basis). In many of these settlements, the States involved agreed to an amount less than full compensation for the property expropriated.
One example of a lump sum settlement for less than full value compensation was concluded between the United States and China in 1979. Within the framework of efforts to normalize relations with China, the U.S. agreed to settle outstanding claims for a lump sum of US$80.5 million, which was substantially less than the estimated value of the total claims of American investors. The claimants ultimately received approximately 14 per cent of the estimated value of their investments, on a principal-plus-interest basis. A more recent lump sum settlement was negotiated in 1992 between the United States and Germany regarding the expropriation of assets of U.S. nationals by East Germany. Although such settlements usually do not include accrued interest, in this case the settlement included the payment of simple interest from the time that the U.S. properties were taken.
Some commentators have argued that the results of these lump sum settlement negotiations between States (i.e., the payment of less than full compensation) create international custom, which constitutes one source of international law, and should therefore be viewed as evidence of a corresponding customary international law norm.
The Khemco tribunal took issue with this position, concluding that the existence of lump sum settlements for less than full value of property taken cannot be seen in and of themselves as evidence of any underlying legal principle.
as a rule, a State practice as reflected in settlement agreements cannot be considered as giving birth to customary rules of international law, unless it presents specific features which demonstrate the conviction of the State’s parties that they were acting in application of what they consider to be settled law. The provisions of such an agreement, indeed, are the outcome of negotiations in which many motivations other than legal ones may have prevailed. This is especially true here, where certain commercial advantages given to companies (even if they were not expressly detailed in the agreements) produced the concessions that they accepted on the standard of compensation.
U.S. courts have taken the same approach. The Second Circuit Court of Appeals has stated that
the notion that, merely because a negotiated settlement will not result in full payment, a victim of expropriation has no right to more than partial compensation simply confuses adjudication with compromise . . . we should no more look to the outcome of such a process to determine the rights and duties of the parties in
expropriation matters than we would look to the results of settlements in ordinary tort or contract cases to determine the rules of damages to be applied.
Thus, for the purposes of international law formation, there may be an important distinction between negotiations that were clearly based upon perceptions of customary law and those based primarily upon economic and political considerations. Since almost all lump settlement agreements have been concluded on the basis of a variety of interests, it is difficult to draw any general conclusions about the extent to which such negotiations reflect customary international law.
B. Current State of the Law of Expropriation
Many commentators, relying on the history and sources of law discussed above, draw the following conclusion concerning the international law of expropriation: A state may always expropriate property of investors within its borders; however, for such an expropriation to be “legal,” it must not be discriminatory against the investor, it must be for a public purpose, and it must be accompanied by full compensation, which must be prompt, adequate, and effective. Thus, an expropriation that is non-discriminatory and for a public purpose is legal, but the requirement of compensation rule makes this legality conditional. An expropriation that does not meet all of these requirements is “illegal.” Expropriation that is discriminatory or not for a public purpose is considered illegal per se, whether or not compensation is paid. This view of the law of expropriation has received considerable support in State practice and the jurisprudence of international tribunals.
As noted above, under customary international law, a State is sovereign within its territory, and is at liberty to take control of alien property. This sovereignty, however, exists within the framework of international law, which requires that the taking be nondiscriminatory and carried out for a public purpose and obliges the State to pay compensation in the full amount of the value of the property taken. Professor Wortley explains:
Because a sovereign State may control and expropriate property in its territory, this does not mean that it can, at will, disregard the claims made, by virtue of public international law, to restitution or to just compensation, or that it may always insist on its own conception of private property.
The state of customary international law discussed above is reflected in the Restatement (Third) of the Foreign Relations Law of the United States, Section 712, which provides in part:
A state is responsible under international law for injury resulting from:
(1) A taking by the state of the property of a national of another state that
(a) is not for a public purpose, or
(b) is discriminatory, or
(c) not accompanied by provision for just compensation.
The Restatement provides that for compensation to be “just,” it
must, in the absence of exceptional circumstances, be in an amount equivalent to the value of the property taken, or within a reasonable time thereafter with interest from the date of taking, and in a form economically usable by the foreign national.
Customary international law is also reflected in the Guidelines on the Treatment of Foreign Direct Investment (Guidelines) promulgated by the World Bank in 1992, which are based on a broad survey of existing legal instruments. As pointed out in the Introductory Note, the Guidelines were the result of an attempt to “establish legal—or quasi-legal—guidelines or standards for the treatment of foreign direct investment.” The Guidelines were “based upon consideration of other pronouncements in the field, such as bilateral investment treaties,” but do not have any force of law. At the same time, many observers agree that the rules codified in the Guidelines “have considerable credibility,” as a result of the broad-based methodology and sources used to compile them. According to its drafters, at least, the Guidelines “would seem to approach more closely the status of an international agreement.”
Regarding expropriation, the Guidelines provide that:
[A] State may not expropriate or otherwise take in whole or in part a foreign private investment in its territory, or take measures which have similar effects, except . . . against the payment of appropriate compensation . . . Compensation for a specific investment taken by the State will, according to the details provided below, be deemed “appropriate” if it is adequate, effective, and prompt.
The specific requirements of customary international law for an expropriation to be “legal” are discussed in further detail below.
1. Public Purpose and Non-Discrimination
As mentioned earlier, expropriation must be carried out for a “public purpose” to be considered “legal” under international law. “Public purpose” has been defined as “reasons of public utility, judicial liquidation and similar measures.” General Assembly Resolution 1803 (on permanent sovereignty over natural resources) mentions the public purpose requirement, while the 1974 Charter of Economic Rights and Duties of States does not. Exceedingly few decisions turned on whether an expropriation was carried out for a “public purpose.” This may be because it is very easy for an expropriating state to couch any taking in terms of some “public purpose.”
An expropriation must also be “nondiscriminatory” to be considered “legal” under international law. A discriminatory taking is one that singles out a particular person or group of people without a reasonable basis. The arbitrator in LIAMCO reaffirmed the principle that a discriminatory expropriation would be per se unlawful. Like the “public purpose” requirement, the “nondiscrimination” requirement is not extensively discussed in the literature or by international tribunals. As in the case of the “public purpose” requirement, this may be because proving a violation of this requirement can be extremely difficult. The Restatement emphasizes that discrimination renders expropriation illegal only if unreasonable, and provides that:
classifications, even if based on nationality, that are rationally related to the state’s security or economic policies might not be unreasonable.
This position is echoed by Professor Brownlie:
The test of discrimination is the intention of the government: the fact that only aliens are affected may be incidental, and, if the taking is based on economic and social policies, it is not directed against particular groups simply because they own the property involved.
a. Full Compensation as Standard under International Law
As Professor Brownlie notes, “it is significant that the right to compensation, on whatever basis, is recognized in principle.” It is practically undisputed that payment of compensation in some amount is required following an expropriation, whether the taking is legal or illegal. As discussed above in the discussion of the history and sources of the international expropriation law, international law is generally considered to require that a State that expropriates the property of an investor pay to the investor the full value of the property taken. In a case involving a concession or other State contract, compensation should cover not only the loss of tangible property, but also the loss of contractual rights. Evidence of this maxim can be found in the decisions of international tribunals, the provisions of many investment treaties, and in the writings of commentators. As Professor Norton has observed,
Recent international tribunals have consistently affirmed a requirement under international law that full compensation be paid for expropriations of foreign property. A theoretical debate persists over the scope of possible exceptions to that standard, but the recent decisions suggest that only truly extraordinary circumstances would be likely to support such exceptions.
The “full compensation” requirement may also be stated as a requirement that compensation for expropriation must be “prompt, adequate, and effective.” In this context, “prompt” means that at or before the time of the taking, either compensation has been paid or provision has been made for a determination of the amount of compensation to be paid, with interest from the time of the taking. The term “effective” indicates that compensation must be made in a freely-convertible currency. This precludes forms of payment such as soft currency, unmarketable bonds, and I.O.U.s.
“Adequate” compensation, as discussed above, means that the investor is paid the full value of the property taken, which in the case of an on-going business will normally correspond to the going-concern value. Valuation should be made as of the time of the taking, but the investor should be indemnified by the State for any depression in value caused by the threat of expropriation prior to the time of the actual expropriation. Pre-expropriation reduction in value resulting from background conditions or generally-applicable government measures, however, cannot generally be taken into account.
As mentioned earlier, the Restatement suggests that “exceptional circumstances” may justify less than full compensation in the event of expropriation. The Restatement offers two examples of such exceptional circumstances: national agricultural land reform and war. In the case of land reforms, however, the Restatement exception to full compensation is limited: a less stringent standard would not be justified if the property taken is used in a business enterprise authorized or encouraged by the State, if the property was a going concern taken over and operated by the State, if the taking discriminated against aliens, or if the taking otherwise violated international law.
Commentators have suggested other exceptions to the “full compensation” rule. Professor Brownlie lists the most widely advanced exceptions:
under treaty provisions; as a legitimate exercise of police power, including measures of defense against external threats; confiscation as a penalty for crimes; seizure by way of taxation or other fiscal measures; loss caused indirectly by healthy and planning legislation and the concomitant restrictions on the use of property; the destruction of property of neutrals as a consequence of military operations, and a taking of enemy property as part payment of reparation for the consequences of an illegal war.
Brownlie also suggests that expropriation is not illegal if carried out in connection with the nationalization of a major industry, as long as compensation is paid “on a basis compatible with the economic objectives of the nationalization, and the viability of the economy as a whole.”
Finally, arbitrators in several cases have suggested in dicta that less than full compensation would be payable following expropriation in certain circumstances. In INA, for example, Judge Lagergren opined that full compensation may not be payable in the context of large-scale nationalizations.
Thus, the circumstances in which, according to some observers, a State may be excused from paying full compensation for expropriated property can be divided into three categories: where there are treaty provisions to the contrary; where the taking is within the exercises of legitimate “police power,” both internal and external (including taxation, certain types of regulation, confiscation for crimes, or where the taking is the result of war); and in cases of large-scale nationalization for the purpose of reform.
b. Justifications for the Full Compensation Standard
It is obvious that an investor is harmed to the extent that his property is taken, and that he can only be made whole if he receives in compensation the actual value—or the “full” value—of the property. The State presumably benefits by taking the investor’s property, and should therefore pay its value to the investor. It makes little difference to an investor why his property has been taken. Brice Clagett argues cogently that the measure of compensation should not depend upon the motivation for the taking:
[T]here remains a significant body of opinion, even including some Western scholars, arguing that when a particular expropriation is part of a broad-scale nationalization of an entire industry or segment of the economy, something less than full compensation—partial compensation—is all that is required. . . . I call [this theory] the “partial confiscation” theory. If a man steals $10 from me and gives me back $4, he has still stolen $6. I am not able to understand why similar conduct by governments should be viewed any differently. And I have never seen any suggestion of a principled—or even an unprincipled—basis on which “partial” compensation might be measured or calculated.
The argument for a customary law standard of compensation independent of State intent is supported by the consideration that even fully “legal” expropriation must be accompanied by compensation of some kind. It stands to reason that, if the government’s admirable intentions do not exempt the State from paying compensation, such considerations should also be irrelevant in determining the quantum of compensation due. According to this view, the investor suffers no worse harm where the taking is motivated by malice, as compared to a “benevolent” expropriation.
c. Compensation for Illegal and Legal Expropriation
Some commentators suggest that the standard of compensation for expropriation depends upon whether the act is legal or illegal. Professor Bowett notes that:
There would seem to be little value in making the distinction between a lawful and an unlawful taking unless consequences flowed from it: and it would be extraordinary if the distinction was of no consequence.
Bowett maintains that there may in fact be three different standards of compensation, for (1) an unlawful taking, (2) a lawful ad hoc taking, and (3) a lawful, general act of nationalization. Even if, as some commentators argue, full compensation need not be paid in cases of large-scale nationalization carried out for the purpose of reform, Bowett’s view appears to have been rejected by most tribunals.
Professor Brownlie notes:
The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se, would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title.
Here, Brownlie implies that a lawful expropriation requires compensation only for direct losses. However, to the extent such payment constitutes less than “full” compensation, such an assertion would appear unjustified.
It has also been argued that where an expropriation is illegal (e.g., a taking that is discriminatory or not carried out for a public purpose), the host State is in the first instance obligated to make restitution in kind, if possible. Section 901 of the Restatement provides, for example:
[u]nder international law, a state that has violated a legal obligation to another state is required to terminate the violation and, ordinarily, to make reparations, including in appropriate circumstances restitution or compensation for loss or injury.
Even if a host State carries the obligation to make restitution, however, a court or arbitral ruling to this effect is practically unenforceable.
While it is well settled under international law that the proper level of compensation following expropriation is “full” compensation, the method to be used in determining the precise magnitude of that compensation is far more controversial. For example, should full compensation be based upon the book value of the investor’s expropriated assets? Should modern assessment systems, such as the “discounted cash flow” method, be used? Are “future profits” part of the value of the investor’s property? How are intangibles, such as goodwill, to be measured? Various valuation methods and their application by international arbitral tribunals are discussed in Chapter 6.
3. Indirect and Creeping Expropriation
As noted in Chapter 1, direct expropriation, such as confiscation and nationalization, involves the physical seizure of assets or the formal transfer of title to them under local law. Under customary international law, a range of other, subtler State measures may also constitute expropriation. As the OECD explains,
Expropriation or deprivation of property could also occur through interference by a state in the use of that property or with the enjoyment of the benefits even where the property is not seized and the legal title to the property is not affected. The measures taken by the State have a similar effect to expropriation or nationalisation and are generally termed “indirect”, “creeping”, or “de facto” expropriation, or measures “tantamount” to expropriation.
Indirect expropriation—regulatory interference that has an effect equivalent to expropriation—can be difficult to define or identify. In part, this is because customary international law also recognizes States’ need to engage in regulation in the normal exercise of police powers, to advance the welfare and safety of their populations. Some commentators have therefore suggested that generally-applicable regulations designed to achieve a “legitimate” purpose do not give rise to State liability and the concomitant obligation to compensate for the harm caused to foreign investors. Others insist that State measures should be considered expropriatory to the extent that their effect is to eliminate all (or nearly all) of an investment’s value. It is well-accepted, however, that expropriation need not be carried out through a single measure. Rather, “creeping” expropriation may occur where a series of State acts have the cumulative effect of depriving an asset of its value.
A number of international legal instruments include indirect takings within the definition of expropriation. As explained in Chapter 6, the North American Free Trade Agreement is typical of hundreds of investment protection treaties around the world, in that it provides that
No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment (“expropriation”), [except on payment of compensation].
OPIC’s Standard Contract defines “expropriation” to include “an act or series of acts of the foreign governing authority” where:
the act(s) (i) constitute an outright taking of the Investor’s property or (ii) have the effect of taking the Investor’s insured investment in that the acts (A) prevent, unreasonably interfere with, deprive, or unduly delay effective enjoyment of the Investor’s fundamental rights in the insured investment (rights are “fundamental” if without them the Investor is substantially deprived of the benefits of the investment). . . .
Similarly, expropriation insurance policies issued by the World Bank’s Multilateral International Guaranty Agency (MIGA) covers both “creeping” and indirect expropriation, providing compensation for losses:
due to any direct or indirect action or inaction, in one or a series of events, attributable to the Host Government which directly:
(a) deprives or prevents the Guarantee Holder from exercising its ownership rights or effective control of, or in all or a portion of the Guaranteed Investment; or
(b) deprives the Guarantee Holder or the Project Enterprise, as applicable, of the use and control of any funds constituting dividends, profits or other monetary benefits derived from the Guaranteed Investment [. . . .].
At the same time, however, the MIGA contract provides support for a limitation on indirect expropriation in relation to “legitimate” regulations:
No measure shall constitute an Expropriation under [the] above [Section], if it constitutes a bona fide, non-discriminatory measure of general application that governments normally take for the purpose of regulating economic activity, ensuring public safety, raising revenues or protecting the environment, unless the measure is designed by the Host Government to have a confiscatory effect.
4. Other Investment-Related Norms: National Treatment and the International Minimum Standard
a. National Treatment
 Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 424 (1964).
 As one of the authors has elsewhere observed,
Constantly envisioning itself as the condemned party in each new arbitral award issued far away, Washington appears to have lost sight of the unquestionable benefits that modern investment treaties have bestowed upon American business and the American economy in general. International law cannot be a one-way street, and as capital-exporting States more frequently become respondents in investment arbitration, they will be forced to adopt a long-term view of development and their own self-interest to preserve the hard-won gains they have achieved.
Noah Rubins, Loewen v. United States: The Burial of an Investor-State Claim, 21 Arb. Int’l 1, 36 (2005).
 Regarding expropriation by a State of property outside of its borders, F.A. Mann stated that “there is no doubt that a State lacks international jurisdiction to take property situated outside its territory and such takings are, therefore, necessarily ineffective.” F.A. Mann, The Consequences of an International Wrong in International and National Law, 48 Brit. YB. Int’l L. 1, 46 (1977). In the aftermath of the attacks of September 11, 2001, however, this debate may be re-opened. The Proliferation Security Initiative, announced in 2003 by the United States, is an international effort or alliance between the U.S. and many European and other States. See the entry “Proliferation Security Initiative” in Wikipedia, at http://en.wikipedia.org/wiki/Proliferation_Security_Initiative. The Initiative’s professed goal is to combat the proliferation of weapons of mass destruction. One professed goal is to police the high seas and to assert enforcement jurisdiction as well as prescriptive jurisdiction with regard to ships carrying or being believed to carry weapons of mass destruction. Thus, an expropriation by a member State of the Initiative beyond its borders may well occur. To what extent such an act would be legal under international norms remains to be seen.
 J.E.S. Fawcett, Some Foreign Effects of Nationalisation of Property, 27 Brit. YB. Int’l L. 355, 356 (1950). Fawcett cites a series of nineteenth century instances of expropriation, and states that they were “for the most part settled by the application of standards based on freedom of contract, the sanctity of private property, and the duty of the state to compensate the owners of property taken for the public use.” Id. at 357. For a discussion of the development of the law of expropriation, see also Andreas Lowenfeld, International Economic Law 397-403 (2002). (suggesting that the formula of full, prompt and adequate compensation, known today as the Hull formula, and the rival perspective that a foreigner is no safer from expropriation than the local citizen—known today as the Calvo doctrine—emerged from the discourse and practice of the nineteenth century. Lowenfeld points out that while during the nineteenth century the legal doctrine of compensation seems to have been well settled in theory, constant challenges threatened its practical relevance as a legal doctrine).
 Halliburton Fales, A Comparison of Compensation for Nationalization of Alien Property with Standards of Compensation under United States Domestic Law, 5 Northwestern J. Int’l L. & Bus. 871, 876 (1983).
 Uptan Case (U.S. v. Venez.), 9 R.I.A.A. 234, 236 (1905).
 See Chapter 4 (discussing state responsibility for expropriation or other actions that have international consequences). For a discussion of the early law of expropriation, see Isi Foighel, Nationalization: A Study in the Protection of Alien Property in International Law 115-16 (1957) (“compensation must be adequate or just, i.e., corresponding to the loss that results from the dispossession”); Alexander P. Fachiri, Expropriation in International Law, 6 Brit. YB. Int’l L. 159, 169-70 (1925) (“expropriation is only permissible for public purposes and then only on payment of full compensation by the state”); Frederick S. Dunn, The Protection of Nationals (1932). For a contrary view, see John Fischer Williams, International Law and the Property of Aliens, 9 Brit. YB. Int’l L. 1 (1928).
 See Fales, supra note 5, at 872.
 Factory at Chorzów (Ger. v. Pol.) (Indemnity), 1928 P.C.I.J. (ser. A) No. 17.
 Certain German Interests in Polish Upper Silesia and the Factory at Chorzów (Ger. v. Pol.) (Judgment No. 7) (Merits), 1926 P.C.I.J. (ser. A) No. 7.
 Chorzów Factory, supra note 10, P.C.I.J. No. 17 at 47.
 Id. Judge Higgins has criticized this statement of the P.C.I.J:
I do not believe that a central element in the law of compensation should be resolved by making deductions from an obiter dictum over the Permanent Court 40-5 years previously, when it was addressing only (and was only thinking about) a different situation—an unlawful taking.
Rosalyn Higgins, Problems And Process: International Law And How We Use It 144 (1994).
 Delagoa Bay and East African Railway Co. (U.S. and Great Britain v. Portugal), reprinted in Marjorie M. Whiteman, 3 Damages in International Law, 1694-1703 (1943).
 British Properties in Spanish Zone of Morocco (Spain v. U.K.), 2 R.I.A.A. 615 (1925).
 Goldenberg Case (Ger. v. Rom.), 2 R.I.A.A. 901 (1928).
 De Salba v. Panama (U.S. v. Pan.), 6 R.I.A.A. 358 (1933).
 Selwyn Case (G.B. v. Venezuela), 9 R.I.A.A. 380 (1903).
 Norwegian Shipowners’ Claims (Norway v. U.S.), 1 R.I.A.A. 307 (1922).
 Lena Goldfields Arbitration (1930), reprinted in 56 Cornell L.Q. 42, 51-52 (1950). For a fascinating historical analysis of one of the lesser-known investment disputes arising out of the Soviet Union’s cancellation of concessions, see V. V. Veeder, Lloyd George, Lenin and Cannibals: The Harriman Arbitration, 16 Arb. Int’l 115 (2000).
 Delagoa Bay, supra note 13, at 1698.
 Norwegian Shipowners’ Claims, supra note 18, at 340.
 On injury to aliens by expropriation of their property and compensation therefore, see Ian Brownlie, Principles of Public International Law 508-09 et pass. (6th ed. 2003).
 Patrick M. Norton, A Law of the Future or a Law of the Past? Modern Tribunals and the International Law of Expropriation, 85 A.J.I.L. 474, 477 (1991). But see C.F. Amerasinghe, Issues of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice, 41 I.C.L.Q. 22, 23 (1992) (“it may be noted that at the time the rule of full compensation is alleged to have come into existence and later in the nineteenth century the expropriations that took place were almost entirely of an individual nature. There were no complications emanating from, e.g., the nature of state economies, which were at that time all based on laissez-faire principles”).
 Norton, supra note 23, at 476; 3 Green H. Hackworth, Digest of International Law 658 (1942).
 Pat K. Chew, Political Risk and U.S. Investments in China: Chimera of Protection and Predictability?, 34 Va. J. Int’l L. 615, 641 (1994).
 Ian Brownlie, International Law and the Use of Force by States 289 (1963).
 B.A. Wortley, Expropriation in Public International Law 58 (1959).
 Fawcett, supra note 4, at n2 (“British naval guns were brought to bear in the Sicilian Sulphur Monopoly case”).
 For further discussion of the use of force under international law, see Chapter 10, Section F.
 See Chapter 4, Section F (international law does not generally regulate a State’s seizure of its own nationals’ property); and Section B.4, infra (regarding national treatment and the international minimum standard under current international law).
 See Francisco Orrego Vicuna, The International Regulation of Valuation Standards and Processes: A Reexamination of Third World Perspectives, in 3 The Valuation of Nationalized Property in International Law 131-48 (Richard B. Lillich ed., 1975).
 Some of the constitutions of Latin American states, for instance, have prohibited ownership of real property by foreign entities. Robert B. Shanks, Insuring Investment and Loans Against Currency Inconvertibility, Expropriation, and Political Violence, 9 Hastings Int’l & Comp. L. Rev. 417, 432 (1986).
 Brice M. Clagett, Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts, in Private Investors Abroad §12.02 (Southwestern Legal Foundation ed., 1989). The validity of such clauses is questionable, since according to the dominant view a private person cannot deprive a State of its right to exercise diplomatic protection. Brownlie, supra note 22, at 521. While the United States has refused to recognize Calvo clauses, Clagett opines that such clauses may be effective in stopping a proceeding to which the alien, rather than its home State, is a party. For a discussion of the Calvo doctrine, see 5 Hackworth, supra note 24, at 530, 635 (1943), and Stanley D. Metzger, Property in International Law, 50 Va. L. Rev. 594, 598-600 (1964).
 At the same time, a new kind of “Calvo doctrine” has been revived by the United States and Canada, which now insist that foreigners should receive no better treatment than their own citizens. This idea is now codified in many new U.S. and Canadian investment treaties. See, e.g., D. Manning-Cabrol, The Imminent Death of the Calvo Clause and the Rebirth of the Calvo Principle: Equality of Foreign and National Investors, 26 L. Pol’y Int’l Bus. 1169 (1995).
 See, e.g., Chapter 6, Section B.2, discussing the standards of compensation for expropriation provided in the North American Free Trade Agreement (NAFTA) and other investment treaties. For more on NAFTA, see www.nafta-sec-alena.org and www.naftaclaims.com. The development of bilateral investment treaties (BITs) and the explicit protections they provide to investors have contributed to the decline of the Calvo doctrine, and strengthened general acceptance of strict international standards for the treatment of aliens. See Andreas F. Lowenfeld, Investment Agreements and International Law, 42 Colum. J. Transnat’l L. 123 (2003) (arguing that the law of expropriation found in BITs and the Washington Convention entered customary international law binding non signatories). See also CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, 2003, 42 I.L.M. 788 (2003) (holding that in the area of investment law, BIT provisions giving rise to claims for minority shareholders have become a general international custom, a rule to be followed unless disproved). But compare Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 J. Int’l L. & Bus. 327 (1994) (outlining the resistance of many developing countries to the pressure to internationalize investment contracts).
 F.N. Burton & Hisashi Inoue, Expropriations of Foreign-Owned Firms in Developing Countries: A Cross-National Analysis, 18 J. World Trade L. 396, 396-397 (1984) (between 1960 and 1977, seven countries accounted for 72.5% of the total number of expropriations. These countries were Algeria, Chile, Cuba, Ethiopia, Sri Lanka, Uganda, and Venezuela.) Id. at 413. For further discussion, see Edith Penrose, George Joffe & Paul Stevens, Nationalization of Foreign-owned Property for a Public Purpose: An Economic Perspective on Appropriate Compensation, 55 Mod. L. Rev. 351 (1992).
 This fact in part explains the high percentage of expropriation directed against the perceived leaders of both democracy and capitalism, the United States and United Kingdom. In their 1984 study, Burton and Inoue examined 1,857 cases of expropriation, intervention, forced sales, and forced contract renegotiation between the years 1960 and 1977. The study showed that United States and British firms accounted for 90% of all expropriated properties. Burton & Inoue, supra note 36, at 402.
 James C. Hsiung, Law And Policy In China’s Foreign Relations 141 (1972).
 Chew, supra note 25, at 642.
 See Fawcett, supra note 4, at 357-63.
 For further discussions of expropriations by the government of Mexico following the revolution of 1910-20, see Tali Levy, NAFTA’s Provision for Compensation in the Event of Expropriation: A Reassessment of the “Prompt, Adequate and Affective” Standard, 31 Stan. J. Int’l L. 423 (1995); Amy L. Chua, The Privatization-Nationalization Cycle: The Link Between Markets and Ethnicity in Developing Countries, 95 Col. L. Rev. 223 (1995); Eric N. Baklanoff, Expropriation of U.S. Investment In Cuba, Mexico, And Chile (1975).
 For further discussion, see Chew, supra, note 25, at 625. Nationalization in China was a slow process, but by 1957, there was virtually no foreign direct investment left there.
 Most prominently, the Suez Maritime Canal Company was nationalized on July 26, 1956. See Foighel, supra note 7, at 25.
 Cuba began expropriating foreign-owned property in 1959, but most of the expropriations occurred in the second half of 1960. Matias F. Travieso-Diaz, Some Legal and Practical Issues in the Resolution of Cuban Nationals’ Expropriation Claims Against Cuba, 16 U. Pa. J. Int’l Bus. L. 217, 219-224 (1995); for further discussion, see Michael W. Gordon, The Cuban Nationalizations: The Demise Of Foreign Private Property 69-108 (1976) and Baklanoff, supra note 41. See also Chapter 10, Section D.3 and Chapter 4, Section G, discussing the Cuban Liberty and Democratic Solidarity Act.
 Clagett, supra note 33, §12.02. Following a series of expropriations by the Soviet Union of foreign-owned private property, a number of countries, including the United States, withheld diplomatic recognition of the Soviet government. After the expropriation of American property in Cuba, the United States terminated diplomatic and consular relations with Cuba. Adeoye Akinsanya, International Protection of Direct Foreign Investments in the Third World, 36 I.C.L.Q. 58, 61 (1987).
 Burton & Inoue, supra note 36, at 413.
 See id. at 413-14.
 Many of these States were transformed practically overnight from beggars to barons, due to the sudden discovery and speedy exploitation of oil resources. For example, when Libya gained independence in 1951, it was an exceedingly poor country with a sparse and under-educated population. After its entry into the “club” of oil producers, Libya’s annual income from oil exports was estimated to exceed US$16 billion by 1979. Libya’s per capita income rose from US$40 in 1951 to US$6,500 in 1977. Robert B. von Mehren & P. Nicholas Kourides, International Arbitrations Between States and Foreign Private Parties: The Libyan Nationalization Cases, 75 A.J.I.L. 476, 477 (1981). See also Clagett, supra note 33, §12.02.
 British Petroleum Exploration Company (Libya) Limited (BP) v. Government of the Libyan Arab Republic (1973/1974), 53 I.L.R. 297 (1973).
 Texaco Overseas Petroleum Company and California Asiatic Oil Company (TOPCO) v. Government of the Libyan Arab Republic (1977), 53 I.L.R. 389 (1977), 17 I.L.M. 1 (1978).
 Libyan American Oil Company (LIAMCO) v. Government of the Libyan Arab Republic (1977), 62 I.L.R. 141, 20 I.L.M. 1 (1981).
 Von Mehren & Kourides, supra note 48, at 483.
 New York Times, July 8, 1973, Section 4 at 2, column 4.
 For further discussions of de-colonialization and self determination, see Higgins, supra note 12, at ch. 7.
 Norton, supra note 23, at 496.
 Penrose et al., supra note 36, at 353.
 Brownlie, supra note 22, at 515 et pass.; see also Frank Dawson & Burns Weston, “Prompt Adequate and Effective”: A Universal Standard of Compensation?, 30 Fordham L. Rev. 727, 738 (1962), who state:
To assert, as do some, that states lacking sufficient gold reserves, foreign exchange or other financial resources should not undertake social and economic reforms, which may necessitate enacting extensive deprivation laws is both unrealistic and patronizing . . . extensive deprivations may be of such absolute and relative magnitude as to render “full” compensation truly impossible.
 Although U.N. General Assembly resolutions do not have the force of law, they are often cited as evidence of international custom. Chew, supra note 25, at 642; Arangio-Ruiz, The Normative Role of the General Assembly of the United Nations and the Declaration of Principles of Friendly Relations, 137 Recueil Des Cours [R.C.A.D.I.] 419, 434-518 (1972 III). See also Erik Suy, Innovations in International Law-Making Processes, The International Law and Policy of Human Welfare 187, 190 (1978); F. Blaine Sloan, The Binding Force of a “Recommendation” of the General Assembly of the United Nations, 25 Brit. YB. Int’l L. 1 (1948); D.H.N. Johnson, The Effect of Resolutions of the General Assembly of the U.N., 32 Brit. YB. Int’l L. 97 (1955); Rosalyn Higgins, The Development of International Law Through the Political Organs Of the United Nations (1963).
 Foreshadowing these Resolutions was a draft article adopted by the Third Committee of the General Assembly of the United Nations, which states:
The people may, for their own ends, freely dispose of their natural wealth and resources without prejudice to any obligations arising out of international economic co-operation, based upon the principle of mutual benefit, and international law. In no case may the people be deprived of its own means of subsistence.
G.A. Res. 626 (VII), U.N. GAOR, 7th Sess. (1952).
 G.A. Res. 1803 (XVII), U.N. GAOR, 17th Sess., Agenda Item 39 para. 4, U.N. Doc. A/RES/1803 (XVII) (1962), reprinted in 2 I.L.M. 223 (1963).
 Chew, supra note 25, at 643; See also Stephen M. Schwebel, The Story of the U.N.’s Declaration on Permanent Sovereignty Over Natural Resources, 49 A.B.A.J. 463 (1963).
 Schwebel, supra note 61.
 But see CME Czech Republic B.V. v. Czech Republic, Dissenting Opinion of Ian Brownlie of 14 March 2003, at http://ita.law.uvic.ca/documents/CME-2001Dissent.pdf. (asserting that “just compensation” provides less compensation for expropriation than the “Hull” formula of “prompt, adequate and effective” compensation).
 G.A.Res. 3171 (XXVIII), U.N. GAOR, 28th Sess. para. 3, UN doc. A/9030 (XVIII) (1973) G.A. Res. 1803 (XVII), U.N. GAOR, 17th Sess., Agenda Item 39 para. 4, U.N. Doc. A/RES/1803 (XVII) (1962), reprinted in 2 I.L.M. 223 (1963).
 G.A.Res. 3201 (S-VI), U.N. GAOR, Sixth Special Sess., agenda item 7 para. 6, UN doc. A/RES/3201 (S-VI) (1974), reprinted in 13 I.L.M. 715 (1974).
 Charter of Economic Rights and Duties of States, G.A. Res. 3281 (XXIX), U.N. GAOR, 29th Sess., Agenda Item 48, U.N. Doc. A/RES/3281 (XXIX) (1974), reprinted in 14 I.L.M. 251 (1975). See also Andres Rozental, The Charter of Economic Rights and Duties of States and the New International Economic Order, 16 Va. J. Int’l L. 309 (1976); F.V. García Amador, The Proposed New International Economic Order: A New Approach to the Law Governing Nationalization and Compensation, 12 Law. Americas-U. Miami J. Int’l L. 1 (1980).
 Chew, supra note 25, at 644.
 Id. at 645.
 Gillian White, A New International Economic Order?, 16 Va. J. Int’l L. 323, 330 (1976); Edward McWhinney, The International Law-Making Process and the New International Economic Order, 14 Can. Y.B. Int’l L. 57, 67 (1976).
 Brownlie, supra note 22, at 518.
 TOPCO, supra note 50, 17 I.L.M. at para. 87.
 Brownlie, supra note 22, at 515 et pass.
 Norton, supra note 23, at 493. But cf. Clagett, supra note 33, §12.04 (“If a man steals $10 from me and gives me back $4, he has still stolen $6. I am not able to understand why similar conduct by governments should be viewed any differently”).
 Clagett, supra note 33, §12.02.
 Such a “subjective” criterion would raise serious evidentiary concerns. Shanks, supra note 32, at 424.
 Clagett, supra note 33, §12.03.
 Saudi Arabia v. Arabian American Oil Co. (ARAMCO) 1958), 27 I.L.R. 117 (1963).
 Sapphire International Petroleum Limited v. National Iranian Oil Co., 35 I.L.R. 136 (1953).
 Petroleum Development Limited v. Sheik of Abu Dabi, 18 I.L.R. 144 (1951).
 Ruhr of Quatar v. International Marine Oil Co., 20 I.L.R. 534 (1953).
 Lighthouses Arbitration (France v. Greece), 23 I.L.R. 299 (1956).
 Norton, supra note 23, at 477.
 Id. at 478.
 BP, supra note 49, 53 I.L.R. at 347.
 TOPCO, supra note 50, 17 I.L.M. at 32.
 LIAMCO, supra note 51, 62 I.L.R. at 210.
 Id. at 211-15.
 Government of Kuwait v. American Independent Oil Company (AMINOIL), 21 I.L.M. 976 (1982).
 Id. at 1031-36.
 Id. at 1032.
 Id. at 1040-42.
 Certain commentators question the utility of Iran-U.S. Claims Tribunal decisions as authority establishing rules of international law on expropriation, largely because of the unique circumstances surrounding the establishment of the Tribunal and the wording of the Algiers Accords that circumscribed the Tribunal’s work. Katherarina A. Byrne, Regulatory Expropriation and State Intent, Can. Ybk. Int’l L. 89, 93 (2000); Peter T. Muchlinski, Multilateral Enterprises and the Law 508 (1995). Nevertheless, most observers agree that “the decisions of the Tribunal do constitute a very significant source of jurisprudential development of public international law.” Charles N. Brower & Jason Brueschke, The Iran-U.S. Claims Tribunal 644 (1998); see also Jack Coe, Jr. & Noah Rubins, Regulatory Expropriation and the Tecmed Case: Context and Contributions, International Investment Law and Arbitration 597, 609-610 (2005).
 Treaty of Amity, Economic Relations, and Consular Rights between the United States of America and Iran, signed 15 Aug. 1955, entered into force June 16, 1957, 284 U.N.T.S. 93, T.I.A.S. No. 3853, 8 U.S.T. 899 [hereinafter, Treaty of Amity], available at www.parstimes.com/ law/iran_us_treaty.html.
 Shahin Shane Ebrahimi (Shahin) v. Government of the Islamic Republic of Iran, Award No. 560-44/46/47-3 (1994), 30 Iran-U.S. C.T.R. 170, 177.
 Tippets, Abbett, McCarthy, Stratton (Tippets) v. TAMS-AFFA Consulting Engineers of Iran, Award No. 141-7-2, 6 Iran-U.S. C.T.R. 219 (1984).
 American International Group, Inc. (AIG) v. Government of the Islamic Republic of Iran, Award No. 92-2-3 (1983), 4 Iran-U.S. C.T.R. 96 (1983).
 Tippets, supra note 96, at 225-8.
 AIG, supra note 97, at 105, 6.
 See Chapter 6, Section E (discussing methods of valuation).
 INA Corporation v. The Government of the Islamic Republic of Iran, Awd. No. 184-161-1, 8 Iran-U.S. C.T.R. 373 (1985).
 Id. at 378. See also AGIP SpA v. Government of the People’s Republic of the Congo, ICSID Case No. ARB/77/1, Award of Nov. 30, 1979, 8 Y.B. Comm. Arb. 133 (1983) (stating in dicta that the “principle of full compensation for losses is limited in certain circumstances”).
 INA, supra note 102, at 390.
 Id. at 393, 401.
 See e.g., BP, supra note 49; TOPCO, supra note 50; Amoco International Finance Corp. (Khemco) v. Government of Iran, 15 Iran-U.S. C.T.R. 189, 266 (1987); Sola Tiles, Inc. v. Government of the Islamic Republic of Iran, Awd. No. 298-317-1 14 Iran-U.S. C.T.R. 223 (1987); and SEDCO, Inc. v. National Iranian Oil Company, Awd. No. ITL 59-129-3, 10 Iran-U.S. C.T.R. 180 (1986).
 Shahin, supra note 95, Separate Opinion of Richard C. Allison, at para. 36 (emphasis added).
 See Chapter 8.
 ICSID cases considering expropriation according to the terms of bilateral investment treaties are discussed in Chapter 6, Section C.1.
 S.A.R.L. Benvenuti et Bonfant v. Peoples Republic of Congo, ICSID Case No. ARB/77/2, Award of Aug. 8, 1980, 21 I.L.M. 740 (1982); AGIP, supra note 103.
 AGIP, supra note 103, at 727.
 See Chapter 8, Section B.2.b.
 Benvenuti, supra note 110, at 752.
 Liberian Eastern Timber Corporation (LETCO) v. Government of the Republic of Liberia, ICSID Case No. ARB/83/2, Award of March 31, 1986, 26 I.L.M. 647 (1987)
 Id. at 658, 670.
 Norton, supra note 23, at 488. For further discussion of full compensation, see Chapter 6, Section E.
 J.G. Starke, Treaties as a “Source” of International Law, 23 Brit. YB. Int’l L. 341, 344 (1946). “[T]reaties . . . can provide evidence of a general conception of international customary law.” Foighel, supra note 7, at 41. See also Lazare Kopelmanas, Custom as a Means of the Creation of International Law, 18 Bitr. YB. Int’l L.127 (1937).
 United States-Kazakhstan BIT (1992), art. III(1). For further discussion of BITs, see Chapter 6. See also Andreas F. Lowenfeld, Investment Agreements and International Law, 42 Colum. J. Transnat’l L. 123 (2003) (arguing that the law of expropriation found in BIT and the ICSID Convention has become part of customary international law).
 See, e.g., Australia-Vietnam BIT (1991), 30 I.L.M. 1064 (1991); Germany-Poland BIT (1989), 29 I.L.M. 333 (1990); United Kingdom-Panama BIT (1983), 23 I.L.M. 708 (1984); China-Japan BIT (1988), 28 I.L.M. 575 (1989).
 Brownlie, supra note 22, at 520 (citations omitted).
 F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 Brit. YB. Int’l L. 241, 249 (1981).
 Id. For a contrary opinion, see Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 N.W.J. Int’l L. & Bus. 327 (1994).
 See discussion of the United States Foreign Claims Settlement Commission in Chapter 10, Section G.
 See, e.g., Chew, supra note 25, at 648.
 Agreement Concerning the Settlement of Claims, May 11, 1979, U.S.-P.R.C., 30 U.S.T. 1958, reprinted in 18 I.L.M. 551 (1979).
 Chew, supra note 25, at 629.
 Clagett, supra note 33, §12.05[a].
 Agreement Between the Government of the United States of America and the Government of the Federal Republic of Germany Concerning the Settlement of Certain Property Claims, May 13, 1992, T.I.A.S. 11959; Matias F. Travieso-Diaz, Alternative Recommendations for Dealing with Expropriated U.S. Property in Post-Castro Cuba, 12 Cuba in Transition 101, 107 (ASCE 2002), available at http://lanic.utexas.edu/project/asce/pdfs/volume12/travieso2.pdf; Travieso-Diaz, supra note 44, at 226.
 Statute of the International Court of Justice, art. 38(1) (1945), available at www.icj-cij.org.
 Khemco, supra note 106, at 266.
 See, e.g., Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875 (2d Cir. 1981).
 Id. at 892.
 Khemco, supra note 106, at 266.
 It should be noted, however, that some commentators suggest that lump sum settlements do form part of the foundation of the international law of expropriation. See, e.g., Burns H. Weston, Richard B. Lillich & David Bederman, International Claims: Their Settlement by Lump Sum Agreement 1975-1995 (1999), which complements the earlier version of the same book examining settlement concluded before 1975, namely Richard B. Lillich & Burns H. Weston, International Claims: Their Settlement by Lump Sum Agreement (1975) (arguing that while international lump sum settlements are certainly lex specialis, with every settlement reflecting the special underlying circumstances and motivation of each negotiation, there are principles which unite all the different agreements, especially with regards to the principle of the sanctity of private property).
 Expropriation in violation of a treaty is also illegal. Foighel, supra note 7, at 49. In such a case, however, the illegality will arise from the treaty breach (in addition to possible illegality arising from failure to comply with customary international law norms).
 Brownlie, supra note 22, at 514. Brownlie also discusses “[t]he practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se. . . .” Id. at 538-39.
 Brownlie, supra note 22, at 514-15, 519-20 (citing other conditions that may make an expropriation “unlawful”).
 Brownlie, supra note 22, at 514-15 (contending that expropriation is also illegal if “it includes seizures which are a part of crimes against humanity or genocide, involve breaches of international agreements, are measures of unlawful retaliation or reprisal against another state . . . or concern property owned by a foreign state and dedicated to official state purposes”).
 See the sources discussed in Section A, supra. See also Brownlie, supra note 22, at 514.
 Wortley, supra note 27, at 12. See also von Mehren & Kourides, supra note 48, at 516, 517; TOPCO, supra note 50, at paras. 59-62; Kissam & Leach, Sovereign Expropriation of Property and Abrogation of concession Contracts, 28 Fordham L. Rev. 177, 224 (1959); Abdel-Waheb, Economic Development Agreements and Nationalization, 30 U. Cincinnati L. Rev. 418, 440 (1961).
 Wortley, supra note 27, at 12 (“What, indeed, does the state acquire by its act of expropriation? Simply a title by its own national law that other States may not recognize if they think that the title has been acquired in a manner not recognized by international law”). Id. at 16. See the discussion of invalidation of title in Chapter 10, Section E.
 Restatement (Third) of the Foreign Relations Law of the United States §712 [hereinafter, the Restatement]. See also Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award of December 16, 2002, 42 I.L.M. 625 (2003) at para. 99 (stating that the “public purpose” test has little importance in most situations, since the test is so easily satisfied). See also UNCTAD, Taking of Property, paper no. UNCTAD/ITE/IIT/15 (2000), available at www.unctad.org/en/docs/psiteiitd15.en.pdf.
 World Bank, Guidelines on the Treatment of Foreign Direct Investment (1992), 31 I.L.M. 1379 (1992), available at www-wds.worldbank.org (hereinafter the Guidelines). The Guidelines are reprinted in Appendix I.
 The events leading to the drafting of the Guidelines are briefly discussed in Ibrahim Shihata & Antonio R. Parra, Applicable Substantive Law in Disputes Between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention, 9 ICSID Rev.—For. Inv. L.J. 191 (1994). Some ICSID tribunals have looked to the Guidelines for support in matters of investment protection law, including expropriation. See, e.g., Compania del Desarrollo de Santa Helena S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Award of Feb. 17, 2000 at para. 78, reprinted in 39 I.L.M. 1317, 1330 (2000).
 Seymour J. Rubin, Introductory Note [to the World Bank: Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment], 31 I.L.M. 1363 (1992).
 Guidelines, supra note 143, at Guideline IV, §§ 1-2.
 In the investment treaty context, see Marvin Feldman Karpa v. Mexico, supra note 142, at para. 137-141, 42 I.L.M. at 654-655 (examining the public purpose and non-discrimination tests, and noting the difficulty in establishing by sufficient evidence that an expropriation is illegal per se). The public purpose requirement is also arguably problematic on the grounds that the concept is not objective. See, e.g., Hans-Hermann Hoppe, Fallacies of the Public Goods Theory and the Production of Security, 9 J. Libertarian Stud. 27 (1989), available at www.mises.org, arguing that there is no objective way to distinguish “public” goods from private ones. Similarly, it could be argued that public purpose is difficult, if not impossible, to objectively and rigorously define and identify in practice.
 But see LIAMCO, supra note 51, 62 I.L.R. at 194 (“it is the general opinion in international theory that the public utility principle is not a necessary requisite for the legality of a nationalization”).
 Chorzów Factory, supra note 10, at 22.
 See discussion, supra, Section A.2.c.
 See also Clagett, supra note 33, §12.01.
 A challenge to an expropriation based on a claim that the expropriation was not for a “public purpose” would possibly be effective in the case of a dictator seizing property clearly for his or her personal use. Restatement, supra note 142, § 712, com. (f), at 200.
 LIAMCO, supra note 51, 62 I.L.R. at 194.
 M.N. Shaw, International Law 751 (5th ed. 2003).
 Restatement, supra note 142, §712, com. (f), at 200.
 Brownlie, supra note 22, at 515 n.95 (citations omitted).
 Id. at 519.
 Amerasinghe, supra note 23, at 37.
 See Section A.3, supra. See also Tecnicas Medioambientales Tecmed, supra note 149, at para. 188, 43 I.L.M. 133, 183; Wena Hotels v. Egypt (Merits), ICSID Case No. ARB/98/4, Award of Dec. 8, 2000, at para. 96, reprinted in 41 I.L.M. 896 (2002); S.D. Myers, Inc. v. Canada, Partial Award of Nov. 13, 2000, at paras. 301-317 et pass., reprinted in 40 I.L.M. 1408, 1490 (2001), and Second Partial Award (Damages) of Oct. 21, 2002, at paras. 122, 300, both available at www.dfait-maeci.gc.ca/tna-nac/disp/SDM_archive-en.asp (holding that full compensation for all economic losses proved by the claimant must be paid by the respondent); Metalclad Corp. v. The United Mexican States, Case No. ARB(AF)/97/a, Award of 30 August 2000, 40 I.L.M. 36 (2001), at para. 103 (discussing the problem of assessing the fair market value of an ongoing enterprise lacking a profit history); Santa Elena, supra note 145, at para. 78, 39 I.L.M. 1317, 1330.
 See Section A.4, supra, and Chapter 6.
 See, e.g., Charles Hyde, 3 International Law 710-27 (1949); Alexander P. Fachiri, International Law and the Property of Aliens, 10 Brit. YB. Int’l L.32 (1929); Chandler P. Anderson, Title to Foreign Confiscated Property, 20 A.J.I.L. 528 (1926); Fawcett, supra note 4. But see Penrose et al., supra note 36, at 352:
That the state should pay compensation for the takeover of private assets is not questioned, and, in general, both international and domestic law hold that in most circumstances the government is obliged to pay to the owner of property it nationalized a compensation that is fair/just/full/adequate/appropriate/effective. These terms are imprecise, can easily have different ethical, economic and legal implications, and are clearly not interchangeable.
See also Williams, supra note 7, at 162. For further discussion, see, e.g., Shaw, supra note 155, at 743 et seq.; Brownlie, supra note 22, at 514, 519, 522 et pass.; Higgins, supra note 12, at 142; Derek William Bowett, State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach, 59 Brit. YB. Int’l L. 49, 59 (1988). For arguments that international law requires the payment of “appropriate” compensation rather than full compensation in some circumstances, see Amerasinghe, supra note 23.
 Norton, supra note 23, at 503.
 See id. at 476.
 Clagett, supra note 33, §12.01.
 Id. §12.01.
 Restatement, supra note 142, §712, com. (d), at 199.
 Id. See also Brownlie, supra note 22, at 511-14.
 Id. at 511-12. See also id. at 447 (“There is some debate as to the possibility of penal damages in international law”).
 Id. at 514.
 See text accompanying note 104, supra.
 See Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain (1985) (discussing the legitimate purposes of certain State takings).
 Clagett, supra note 33, §12.04, pp. 12-15 to 12-16, citing Judge Lagergren’s concurrence propounding this theory in INA Corporation v. Government of the Islamic Republic of Iran, Awd. No. 184-161-1, 8 Iran-U.S. C.T.R. 373 (1985).
 See also Brownlie’s discussion of the relevance of intent and motive in connection with State responsibility, at Brownlie, supra note 22, at 426 et pass.; LIAMCO, supra note 51, 62 I.L.R. at 194 (discussing the relevance of State intent).
 Bowett, supra note 162, at 59.
 Id. at 73.
 Section B.2.a, supra.
 See, e.g., notes 11-12 and 99 and accompanying text.
 Brownlie, supra note 22, at 515 (footnotes omitted).
 More widely accepted is Professor Brownlie’s assertion that a per se [Underline][/Underline]unlawful [Underline][/Underline]expropriation does not shift valid title, as might be recognized in national courts and international tribunals. See Chapter 10, Section E (discussing invalidation of title and exceptions to foreign sovereign immunity).
 Restatement, supra note 142, § 901. See also, e.g., notes 11-12 and 99 and accompanying text.
 See Chapter 10, Section F (nations do not have the right to use force against host States in response to unlawful expropriations).
 See Chapter 1, Section C.
 OECD Directorate for Financial and Enterprise Affairs, “Indirect Expropriation” and the “Right To Regulate” in International Investment Law, Working Papers On International Investment, Number 2004/4 (September 2004), available at www.oecd.org/dataoecd/22/54/ 33776546.pdf.
 North American Free Trade Agreement, art. 1110(1) (emphasis added). Cf. Methanex Corp. v. United States, Final Award on Jurisdiction and Merits of Aug. 3, 2005 (NAFTA Chapter 11), available at www.state.gov/documents/organization/51052.pdf, at part IV-ch. D, paras. 6-7 (non-discriminatory regulations for a public purpose, such as environmental laws, not considered expropriation).
 OPIC Contract of Insurance, § 4.01 (emphasis added), reprinted in Appendix IV. See Chapter 3 for further discussion of OPIC.
 MIGA Contract of Guarantee for Equity Investments, §§ 4.1-4.2 (2004) (hereinafter MIGA Contract), reprinted in Appendix VI. See Chapter 3 for further discussion of MIGA.
 For further discussion of regulation as expropriation, see the discussion in Chapter 1, Section C and Chapter 6, Section C.1; also Shaw, supra note 155, at 740-42, et pass.; OECD Directorate, supra note 188 (surveying standards defining indirect and creeping expropriation by a variety of commentators and legal instruments); Burns H. Weston, Constructive Taking Under International Law: A Modest Foray into the Problem of ”Creeping Expropriation,” 16 Va. J. Int’l. L. 103 (1975); Rudolph Dolzer, Indirect Expropriation of Alien Property, 1 ICSID Rev.—For. Inv. L.J. 41 (1986); Thomas Waelde & Abba Kolo, Multilateral Investment Treaties and Environmental Expropriation of Foreign Investment, Alexander’s Gas and Oil Connection—Speeches, available at www.gasandoil.com/goc/speeches/waelde2.htm (version also at www.dundee.ac.uk/ cepmlp/journal/html/vol5/vol5-2.html); Patrick J. Donovan, Creeping Expropriation and MIGA: The Need for Tighter Regulation in the Political Risk Insurance Market, Across Borders Int’l L.J. 10 (2004), available at www.across-borders.com; Robert Volterra, Mitigating Expropriation Risk for Oil & Gas Investment in the Caspian Region (IEA Roundtable on Caspian Oil & Gas Scenarios, April 15, 2003), available at www.iea.org/textbase/work/2003/caspian/volterra.pdf.
 MIGA Contract, supra note 191, § 4.2.