Prof.

Dr. Yannick Radi

Professor of Public International Law (UCLouvain)
International Investment Law – online course
https://www.edx.org/course/international-investment-law-louvainx-louv20x

The genesis of international investment law (1/2)

Introduction

Hello, and welcome to this discussion of the genesis of international investment law! In
this chapter, we will focus on the law relating to the protection of aliens abroad. This
field of law has its historical roots in the expansionist ambitions of European States.
Beginning in the 18th century, this period of European imperialism led to the movement
of European nationals all across the world. This begged the question of how these
nationals should be treated and protected abroad. This question became relevant, not
only for those involved in trade and investment operations, but, more broadly, for all
persons present in the territory of another State. As a result, the law that emerged at
that time did not aim solely at the protection of foreign investors, but more generally, at
the protection of any foreigner abroad.

What were the features and the content of the law of the protection of aliens abroad?
What arguments were put forward in favor or against it? We will analyse these issues
together in this chapter. To do so, we will first discuss in section one the substantive
protection provided for by this law. Then, in the second section, we will focus on its
procedural dimension. Finally, we will conclude with a brief summary of this chapter.

Section 1: The law of the protection of aliens abroad: substantive aspects

To start off, you should note that European States and, more generally, ‘developed’
States had no issue with regard to the protection and treatment granted to their
nationals in other ‘developed’ States. In fact, they found their respective domestic law
perfectly adequate in this respect.

On the other hand, these ‘developed’ States were concerned with the level of protection
and treatment granted to their nationals in other States, for instance in South America.
They believed that the law in these Countries did not give sufficient protection to the

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Prof. Dr. Yannick Radi
Professor of Public International Law (UCLouvain)
International Investment Law – online course
https://www.edx.org/course/international-investment-law-louvainx-louv20x


interests of their nationals. Of course, this assessment was based on the standards of
those ‘developed’ States and it was vigourously contested by those other Countries.

In this context, ‘developed’ States argued that all States must treat foreigners in
accordance with a so-called minimum standard of treatment. They argued that this was
a legal requirement under international law. Accordingly, if the domestic law of a host
State provided for treatment below this minimum, aliens could still avail of the
minimum standard of treatment under international law. This claim was fiercely denied,
most notably by the well-known Argentinian jurist, Carlos Calvo. Calvo rejected the
minimum standard of treatment and instead favoured national treatment. In his view,
‘developed’ States could not insist that the host States treat foreign nationals more
favourably than their own nationals.

In addition, there were similar disagreements concerning the conditions by which

nationalisations and expropriations could be carried out. In those situations, ‘developed’
States required that ‘prompt, adequate and effective’ compensation must be paid to the
foreign nationals. This view was especially expressed by Cordell Hull, who was the
Secretary of State of the United States at that time.

You should note that initially the status under international law of both the minimum
standard of treatment and of the duty to provide compensation for expropriation and
nationalization was open to debate. However, over time, state practice has led to their
recognition as customary international law rules.

To give you a better idea of the minimum standard of treatment, we can look to a classic
statement found in the 1926 Neer decision, which is widely regarded as embodying this
standard. In this decision, the United States and Mexico Claims Commission provided
that ‘the treatment of an alien, in order to constitute an international delinquency,
should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency
of governmental action so far short of international standards that every reasonable and
impartial man would readily recognize its insufficiency’.

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Prof. Dr. Yannick Radi
Professor of Public International Law (UCLouvain)
International Investment Law – online course
https://www.edx.org/course/international-investment-law-louvainx-louv20x

In addition to these developments, an interesting solution was also developed by foreign

private companies seeking to ensure that their interests were protected abroad. These
companies began to incorporate applicable law clauses into their contracts with host
States. These clauses removed the contract from the exclusive umbrella of the domestic
law of those States with regard to specific operations. For instance, these clauses could
provide for the application of another law, notably the lex mercatoria, instead of
domestic law, or alternatively, they had the effect of ‘freezing’ the domestic law of host
States at the time of the conclusion of the contract.

As you can imagine, this latter option was appealing to foreign companies, as it
prevented host States from changing their domestic law in a way that would be
detrimental to their interests – regardless of whether the proposed change was
arbitrary or not. That type of contracts is called a ‘State contract’ and it still exists today;
for example, you may see it being used for oil concessions.