International Investment Law Notes - II (History)

FCN Agreement

History of International Investment Law

During 18^th Century, USA entered into FCN (Friendship, Commerce and Navigation) agreements with other countries.  The first Friendship, Commerce and Navigation Treaty signed between the United States and France in 1788 contained provisions regulating treatment of foreign investment. Navigation was one of the prime sources of commerce. An FCN agreement also meant that special treatment will be given by each country to the other. During this time, most of the countries were colonized by nations like Britain and France. There was no option of arbitration and no International Court for adjudication of disputes.

Important Events

1929 – Great Depression

1944 – Bretton Woods Conference (ITO)

1947 – Conclusion of GATT 1947

1948 – Havana Conference on ITO

USA followed the Theory of Appeasement during this period. However, Jurisdictional Clause and Dispute Settlement Clause remained a bone of contention between the countries who entered into FCN Agreements. Also, a lack of dispute settlement forum meant that most of the times the FCN agreements or the BITs remained unenforced.

Subsequently, the Cold War also came. The two most powerful nations of the world were fighting each other. They were fighting in every aspect of life not just limited to military power alone. The countries who became independent at that point of time had to take sides. Thus the independence came with economic slavery.

One of the first bilateral treaties on the promotion and protection of investments dates back to 1959, when the first BIT was signed between the Federal Republic of Germany and Pakistan. However, with the introduction of GATT 47, the BITs began to diminish in importance as GATT became the principal forum within which trade negotiations were being conducted. USA also stopped concluding FCN agreements after 1966.

Post-World War Period

Important factors that influenced the International Investment Law post-world war were:

1. Cold War

2. 1929 Great Depression – This was an eye opener. The countries realized that they need to change their economic policy for good.

3. Newly Independent States – The new states had to take sides. They either sided with communist ideology or the liberal thought ideology. Countries like India formed their own group called as Non-Aligned Movement. Thus, a New International Economic Order came into picture. Earlier, countries were forced to side with either US or USA. Now, the situation had changed. The bargaining power of the developing countries increased manifolds. However, there was still no way to enforce the FCNs or BITs.

Post-USSR Era

After the disintegration of USSR, again a different International Economic Order came into foray. USA became the sole superpower of the world. GATT 1994 also got established. The 1948 Havana dream of ITO also came true in the form of WTO. The WTO recognized and protected the rights of the member countries. Thus apart from BITs, MITs and RTAs also came into picture.

Aliens – An alien is a foreign national or a person who is not governed by the citizenship laws of the country where he is situated.

State Responsibility and Aliens – The state responsibility was at variance during the post-colonial era (1945-1990). Today, in most of the cases, the state responsibility is governed by the bilateral agreements.

International Trade Law Notes