Page 136 - Law of Peace, Volume ,

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7-16. Presidential Statement on Expropriation. rights to patents or technology under a licensing arrange-
ment. A private company may enter into a concession
STATEMENT OF POLICY BY THE PRESIDENT OF THE
I UNITED STATES CONCERNING THE INTERNA- agreement with a foreign government calling for the ex-
TIONAL MINIMUM STANDARD
ploitation, development and marketing of mineral
5 Weekly Compilation of Presidential Documents, 64 (1972)
resources. A private investor may enter into a contractual
We live in an age that rightly attaches very high importance to eco- arrangement with a foreign government pursuant to an in-
nomic development. The people of the developing societies in particular vestment incentive program under which an investment
see in their own economic development the path to fulfillment of a in productive facilities is made in exchange for various
whole range of national and human aspiration. The United States con-
tinues to support wholeheartedly, as we have done for decades, the guarantees and incentives afforded by the foreign govern-
efforts of those societies to grow economically--out of our deep convic- ment. The undertakings made by the state under such
tion that, as I said in my Inaugural Address, "To go forward at all is to varied arrangements differ widely, and these differences
go forward together"; that the well-being of mankind is in the fmal may be relevant to the question of whether state respon-
analysis indivisible; and that a better-fed, better-clothed, healthier, and sibility under international law attaches as a result of a
more literate world will be a more peaceful world as well.
0.0 breach of a particular undertaking.
I also wish to make clear the approach of this administration to the b. Breach. When does a breach of an undertaking by a
role of private investment in developing countries, and in particular to state to an alien constitute a violation of international law?
one of the major problems affecting such private investment: upholding At one extreme, there exists the position that, as only
accepted principles of international law in the face of expropriations states have rights and obligations under international law,
without adequate compensation.
The wisdom of any expropriation is questionable, even when ade- a state canlimit its exercise of sovereignty only by interna-
quate compensation is paid. The resources diverted to compensate invest- tional agreement with another state or international
ments that are already producing employment and taxes often could be organization and not by an agreement with an alien. At
used more productively to finance new investment in the domestic the other extreme, it has been argued that the doctrine of
economy, particularly in areas of high social priority to which foreign pacta sunt servanda as a rule of international law applies in
capital does not always flow. Consequently, countries that expropriate
often postpone the attainment of their own development goals. Still the case of any agreement between a state and an alien. 78
more unfairly, expropriations in one developing country can and do im- Consider both of these views as the following material is
pair the investment climate in other developing countries. examined.
In light of all this, it seems to be imperative to state-to our citizens 7-18. Choice and Effect of Governing Law. a. Unless
and to other nations-the policy of this Government in future situations the repudiation of a contractual obligation is manifest, a
involving expropriatory acts.
1. Under international law, the United States has a right to expect: necessary step in determining whether a breach has oc-
-That any taking of American private property will be non- curred will be to ascertain, in accordance with the princi-
discriminatory; ples of the conflict of laws (private international law),
-that it wiU be for a public purpose; and what body of law (or bodies of law) govern questions in
-that its citizen will receive prompt, adequate, and effective con- interpretation, validity, and performance of the contract.
pensation from the expropriating country.
Thus, when a country expropriates a significant U. S. interest without As pointed out in the Saudi Arabia v. Arabian American
making reasonable provision for such compensation to U. S. citizens, we OilCompany (Aramco) Arbitration Award: 79
will presume that the U. S. will not extend new bilateral economic It is obvious that no contract can exist in vacuo, i.e., without bei
benefits to the expropriating country unless and until it is determined based on a legal system. The conclusion of a contract is not left to the
that the country is taking reasonable steps to provide adequate compen- unfettered discretion of the Parties. It is necessarily related to some posi-
sation or that there are dor factors affecting U. S. interests which re- tive law which gives legal effect to the reciprocal and concordant
quire continuance of all or part of these benefits. manifestations of intent made by the parties. The contract cannot even
2. In the face of the expropriatory circumstancesjust described we be conceived without a system of law under which it is created. Human
will presume that the United States Government will withhold its sup- will can only create a contractual relationship if the applicable system of
port from loans under consideration in multilateral development banks. law has just recognized its power to do so.
3. Humanitarian assistance will, of course, continue to receive special
consideration under such circumstances. 6. It should be noted that the choice of governing law
4. In order to carry out this policy effectively, I have directed that problem can be quite complex in relation to an agreement
each potential expropriation case be followed closely. A special inter- between a state and an alien. If the parties make an explicit
agency group will be established under the Council on International choice as to governing law, this will usually be controlling.
Economic Policy to review such cases and to recommend courses of ac-
tion for the U. S. Government. However, if the agreement is silent, the choice of law prob-
lems are complicated by questions such as whether there
Thisexplicit Presidential statement concerning an interna- should be a presumption in favor of the municipal law of
tional minimum standard of compensation clearly details the contracting state or whether referral of disputes to an
the U.S.view toward expropriation.
7-17. State Breach of Its Undertaking to an Alien. a. I
General. Contractual arrangements between states and 78. See Domke, Foreign Nationalirations, 55 Am. J. Int'l L. 585,
'aliens are a common phenomenon in today's world and 597 (1961); Kissam and Leach, Sovereign Expropriation of Property and
Abrogation of Concession Contracts,28 Fordham L.Rev. 177, 194-214
cover a variety of matters. A private supplier may sell (1 959).
goods or services to a foreign government or grant it 79. 27 Int'l L. Rep. 117, 165 (1958).