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national jurisdictions and take measures to ensure that such activities are consistent with their laws, rules and regulations, and consistent with their social and economic policies.³²³

The treaty law significantly develops these issues. The Havana Charter (1948) recognizes that unless other agreements oppose this, the state has the right to take all appropriate safeguards necessary to: ensure that foreign investment is not used as the basis for interference in its internal affairs or national policies; determine if and to what extent, and under what conditions, the state would allow future foreign investment; establish effective requirements for the ownership of existing and future investments and other reasonable requirements for such investments.³²⁴ The Washington Convention of 1965 on the settlement of investment disputes between States and nationals of other States, which established the International Centre for Settlement of Investment Disputes (ICSID), stresses that the basic competence to legislate in relation to foreign investors and to resolve investment disputes between the host state and the foreign investor is the responsibility of the authorities of the host country.³²⁵ The 1985 Convention on the Establishment of a Multilateral Investment Guarantee Agency (MIGA)³²⁶ expresses a respect for the state’s right to control foreign investments and states that the Agency respects the compliance of the investment with the law of the host state and the consistency of the investments with the development of the declared state goals and priorities.³²⁷ In addition, Article 15 of the Convention introduces a condition that the Agency does not enter into warranty agreements until the government of the host state approves the guarantee issued by the Agency regarding the risks to be covered. Consequently, the choice of the scope and nature of foreign investors’ involvement in the exploitation of natural resources was left to the given state. The Energy Charter Treaty (1994) includes the right of every state to impose taxes and fees related to the exploration and exploitation of energy resources.³²⁸

The OECD guidelines indicate that entities belonging to transnational enterprises located in different states are subject to the laws of these states.³²⁹ The Draft United Nations Code of Conduct on Transnational Corporations provided that states have the right to determine the role that transnational corporations can play in their economic and social development and declared that the subject of a transnational corporation falls under the jurisdiction of the state in which it operates.³³⁰ The Seoul Declaration guarantees that states have the right to regulate, exercise power, legislate, and impose taxes in relation to the natural resources and economic activities carried out in their territories by foreign entities. Unless otherwise agreed by contract, preferential treatment must not be required for every foreign investment.³³¹

3.5.2 The right to expropriate or nationalize foreign investments

      The terms “expropriation” and “nationalization” are often used interchangeably. “Expropriation” is commonly understood as a unilateral state interference directed at the property or comparable ownership rights, and “nationalization” usually means the transfer of economic activity to the public sector as part of a general programme of social and economic reforms.³³² The term “taking over property” is the most general term.³³³ The right to expropriate or nationalize foreign investments includes: the right to take ownership as such; the right to freely determine the conditions of nationalization; the right to refuse to pay compensation or to determine it freely; the right to settle disputes based on national law; the right to freely choose resolution measures for dispute on nationalization.³³⁴

3.5.2.1 The right to take ownership as such

      The right of nationalization has been explicitly included in UN General Assembly Resolutions 1803,³³⁵ 3171,³³⁶ 3201,³³⁷ and 3281.³³⁸ The relevant references also contain § 2 of UNCTAD Resolution No. 88 (XII)³³⁹ and the UNIDO Declaration of Lima.³⁴⁰

      The Havana Charter provides that states have the right to set and enforce requirements for the ownership of existing and future investments.³⁴¹ Regional treaties on human rights, which include the right of individuals to property, also confirm the right of the state to take over the property, subject to certain conditions.³⁴² Similarly, regional, interregional and bilateral investment protection and investment agreements, chapters of multilateral treaties, such as NAFTA and the Energy Charter Treaty, recognize the right of all host states to expropriate a foreign entity, subject to the requirements of international law.³⁴³

      The case from 1928 concerning the expropriated nitrogen factory in Chorzów is referred to as one of the first judgments in which the law of a given country to take over foreign ownership was recognized, albeit only in exceptional circumstances.³⁴⁴ In the case of the Anglo-Iranian Oil Company (1951–1952), the ICJ stated that, in principle, the court was not competent to adjudicate on the subject.³⁴⁵ Since the moment of this ruling, the right of states to nationalize foreign ownership has gradually gained widespread recognition. In arbitration awards regarding the nationalization of oil companies by Libya, the right to nationalize was confirmed, with references made to relevant UN resolutions. In the Texaco case (1978), it was pointed out that the right to nationalize should be treated as an expression of the territorial sovereignty of a given state.³⁴⁶ Similarly, in the case of Liamco (1981), it was stated that the right of a state to nationalize wealth and natural resources is its sovereign right.³⁴⁷ In the Aminoil case (1982), the court also recognized the state’s right to nationalize and stated that the nationalization of Aminoil as such was lawful and did not violate Kuwait’s obligations to Aminoil as it was part of a consistently implemented Kuwaiti programme aimed at taking control of the entire oil industry.³⁴⁸ In the Amoco ruling (1987) the Iran-United States Court of Claims recognized nationalization as both a fundamental attribute of a sovereign state that cannot be easily derogated, and an important tool of economic policy of both developed and developing countries.³⁴⁹

      The recognition of the right to nationalize was reflected in the Draft United Nations Code of Conduct for Transnational Corporations, which stipulated that states have the right to nationalize or expropriate the property of transnational corporations operating in their territory;³⁵⁰ the Seoul Declaration, which states that the state can nationalize, expropriate, and otherwise transfer ownership or rights to real estate, its territory, and its jurisdiction;³⁵¹ and the World Bank guidelines on the treatment of foreign investment, specifying in negative terms that the State may not expropriate or take over entirely or partially foreign private investments in its territory, or take measures that have similar effects, except when it is in accordance with the applicable legal procedures.³⁵²

3.5.2.2 The right to freely determine the conditions of nationalization

      Resolution No. 1803 (XVII) specifies that nationalization, expropriation or requisitioning are based on the foundations or considerations of public utility, security and national interests recognized as superior to purely private individual interests, both domestic and foreign.³⁵³ The grounds referred to in Resolutions No. 1803 (XVII) and 3171 (XXVIII) may be different. National security, however, is an unquestionable premise. In this case, the state may decide to subject all entities operating in specific sectors of the economy to its control, e.g. in the fields of telecommunications, defense industry, utilities, and even in the oil industry.³⁵⁴ Neither

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