Week 4 Economic Nationalismiks - II.pptx

Economic

1. Economic Nationalism – II

2. India’s approach towards IIL (1947 till 1990) We study India’s approach towards IIL by dividing it in three parts. India’s overall approach towards international law India’s dealings at the multilateral level on issues of protection of foreign investment India’s dealings at the bilateral level on issues of investment protection.

3. India’s approach towards international law India was keen to build a new international legal order based on equality and sovereignty of nations founded on the spirit of nationalism and economic self-reliance followed domestically. This was reflected in Nehru’s speech in the Asian Relations Conference held in March 1947, even before India was formally independent. “For too long have we of Asia been petitioners in Western courts and chancelleries. The story must now belong to the past. We propose to stand on our own legs and to co-operate with all others who are prepared to co-operate with us. We do not intend to be the playthings of the others…The countries of Asia can no longer be used as pawns by others; they are bound to have their own policies in world affairs”.

4. Contd. In his address to the United Nations General Assembly on 3 November 1948, Nehru said: “May I say, as a representative from Asia, that we honour Europe for its culture and for the great advance in human civilization which it represents? May I say that we are equally interested in the solution of European problems; but may I also say that the world is something bigger than Europe, and you will not solve your problems by thinking that the problems of world are mainly European problems. There are vast tracts of the world, which may not in the past, for a few generations, have taken much part in world affairs. But they are awake, their people are moving and they have no intention whatever of being ignored or being passed by”.

5. Contd. This is not to suggest that India did not accept international law rules, despite having played no role in developing many of these international law standards. Nehru was all in favour of accepting the tenets of international law. In fact, as R.P. Anand, one of foremost Indian international lawyers has written, not just India, all newly independent developing countries ‘mostly accepted the treaties concluded by the European countries on their behalf and before their independence’. However, India wanted to emphasize, as Radhabinod Pal, India’s member at the International Law Commission (ILC), said that after the creation of newly independent countries, creation of international law was not ‘the prerogative of countries bearing the cultural heritage of the west but the common task of all members of the international community’.

6. Panchsheel Nehru articulated India’s vision of international law based on five principles (also called Panchsheel ): 1. mutual respect for each other’s territorial integrity and sovereignty; 2. mutual non-aggression; 3. mutual non-interference in each other’s internal affairs; 4. equality and mutual benefit; and 5. peaceful co-existence

7. Contd. In other words, India and other developing countries stressed on building a new international legal order emphasizing their sovereign status. India and other developing countries did not reject international law’s basic character and nature but questioned its colonial content and wanted to shape it in a way that it fully reflected the changed realities of the new emerging global order. Respect for international law is recognized in the Indian Constitution. Article 51 (c) of the Indian Constitution states that the Indian State shall endeavour to foster respect for international law and treaty obligations in the dealings of organised peoples with one another.

8. Formalist-Dualism – TWAIL’s critique Professor B S Chimni has described this approach that most Indian scholars adopted post India’s independence towards international law as formalist dualism—rejection of colonial content of international law and, at the same time, acceptance of its emancipatory potential. Chimni writes that a theory of formalist dualism saw Indian scholarship advance a critique of colonial international law but embrace a narrative of progress in the present. Chimni problematizes this formalist dualism approach by arguing that given the positivist orientation of most Indian scholars, they failed to understand the nature and character of the international system and the role of international law.

9. Contd. This failure arose, according to Chimni , because the Indian scholars or TWAIL I did not understand the economic and political structures of global capitalism and the neo-colonial character of international law. Chimni blames this on the ‘methodological weaknesses of the formalist and statist orientation’. The statist orientation of TWAIL I is blamed on their failure to combine the critique of the international order along with the critique of the internal order from the standpoint of subaltern groups and classes. Chimni , therefore, calls for adopting a critical dualist approach ‘that problematizes the structure, ideology, and practices of global capitalism’.

10. India’s efforts at the Multilateral level to shape the formation of international investment law

11. Core issues in IIL at that point of time The core issues pertaining to foreign investment at that time were: expropriation of foreign investment compensation for expropriation – most countries agreed on the principle that compensation should be paid if the investment has been expropriated, but the disagreement was about the quantum of compensation. minimum standard of treatment for aliens – the West historically argued that there is an international minimum standard according to which foreign investors have to be treated. Whereas the developing countries challenged the existence of any such standard.

12. Contd. Calvo Doctrine - Argentine jurist Carlos Calvo, who argued as early as 1868 against the exercise of diplomatic protection and the existence of a minimum standard of treatment. In Calvo's view, state equality required that there be no intervention, diplomatic or otherwise, in the internal affairs of other states, and that foreigners were not entitled to better treatment than host state nationals. The Calvo Doctrine has three distinct elements: foreign nationals are entitled to no better treatment than host state nationals; the rights of foreign nationals are governed by host state law; and host state courts have exclusive jurisdiction over disputes involving foreign nationals.

13. AALC/AALCO A key development in 1950s was the setting up of Asian Legal Consultative Committee (ALCC) on 15 November 1956 with India, along with six other Asian countries, being the founding member. The formation of this organization was an outcome of the historic Bandung conference in Indonesia in 1955. On the recommendation of Nehru, in 1958, African countries also became members of this group and later this group came to be known as AALCO (Asian African Legal Consultative Organization) with its primary objective being to act as an advisory body to member states on international law matters.

14. Contd. At the fourth session of this committee, member countries adopted a document called ‘Principles Concerning Admission and Treatment of Aliens’. This document is critical as it gives us a glimpse of understanding of India on protection of foreign investors and their investment though the term ‘alien’ here is not restricted to just foreign investors. Article 11 of this document states ‘Subject to local laws, regulations, and orders and subject also to the condition, imposed for his admission into the State, an alien shall have the right to acquire, hold and dispose of property’.

15. Contd. Further Article 12 (1) states ‘The State shall, however, have the right to acquire, expropriate or nationalize the property of an alien. Compensation shall be paid for such acquisition, expropriation or nationalisation in accordance with local laws, regulations and orders’. This language showed that while these countries were willing to accord certain rights to aliens under international law, they also wanted to expressly retain their right to expropriate and pay compensation as per the national laws of the host country. This language clearly signaled that while the alien will be lawfully treated without arbitrariness, this treatment will be as per the national laws of the host country and thus, will be in accordance with the principle of national treatment.

16. Contd. In other words, this stand of India and other Asian and African countries rejected a minimum standard of treatment of aliens independent of national treatment as many developed countries have historically argued.

17. ILC In 1957, the Indian member of the ILC, Radhabinod Pal, challenged the draft report of the Special Rapporteur Garcia Amador who linked the issue of content of the international minimum standard with fundamental human rights concept. Pal challenged the European hegemony of international law arguing that the geography of international law has changed in the post-war period with the rise of a large number of newly independent nation states in Asia like India and hence these countries should be involved in developing international law.

18. Contd. Pal said, ‘now that international law must be regarded as embracing other peoples, it clearly required their consent no less; and that fact must be steadily borne in mind in attempting to determine to what extent alien property or alien interests in the newly freed countries merited the protection that international law could afford’. Thus, a challenge was mounted about the content of the proposed international minimum standard in economic relations and argued that it was nothing but an attempt to thrust on the rest of the world the European notion of the international minimum standard without understanding the social and economic difficulties of countries like India.

19. United Nations In 1962, the UN General Assembly adopted a resolution 1803 (XVII) on the “Permanent Sovereignty over Natural Resources” (PSNR). The General Assembly adopted the resolution by 87 votes in favour to 2 against, with 12 abstentions. Resolutions of international organisations are not generally recognised as a formal source of international law under article 38 of the Statute of the International Court of Justice (ICJ). However, according to the International Law Association, such resolutions indeed can ‘contribute to the crystallisation or formation of new customary law’. Paragraph 1 of the resolution provides: “The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the wellbeing of the people of the State concerned”.

20. Further, the principle of PSNR has been codified in several treaties such as human rights treaties - the common article 1(2) of the 1966 International Covenant on Civil and Political Rights (ICCPR) and the 1966 International Covenant on Economic, Social and Cultural Rights (ICESCR) - “All peoples 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 a people be deprived of its own means of subsistence”.

21. PSNR as part of CIL The ICJ in the case of Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda) recognized PSNR as part of customary international law. in Texaco v Libyan Arab Republic (Libya nationalized Texaco – an oil company’s assets). In a contractual dispute it was held that ‘Resolution 1803 is an expression of customary international law.

22. Foreign investment in PSNR Paragraph 4 of the PSNR resolution: “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 in force in the State taking such measures 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”

23. Contd. Three points can be made about this paragraph. First, it recognized the right of States to nationalize/expropriate provided it was in accordance with public interest and payment of adequate compensation. Second, the compensation to be paid was to be determined in accordance with the domestic laws and its sovereignty exercised in accordance with international law. Third, any dispute on the question of compensation, domestic remedies should be exhausted subject to any agreement providing for dispute resolution through arbitration. India attested to these principles, as the Indian representative said in the UNGA in 1962, that countries had the right to nationalize or expropriate foreign investment in national interest, but this should be accompanied by adequate compensation.

24. New International Economic Order (NIEO) – 1974 The new international economic order should be founded on full respect for the following principles: (a) Sovereign equality of States, self-determination of all peoples, inadmissibility of the acquisition of territories by force, territorial integrity and noninterference in the internal affairs of other States; (b) The broadest co-operation of all the States members of the international community, based on equity, whereby the prevailing disparities in the world may be banished and prosperity secured for all;

25. (c) Full and effective participation on the basis of equality of all countries in the solving of world economic problems in the common interest of all countries, bearing in mind the necessity to ensure the accelerated development of all the developing countries, while devoting particular attention to the adoption of special measures in favour of the least developed, land-locked and island developing countries as well as those developing countries most seriously affected by economic crises and natural calamities, without losing sight of the interests of other developing countries;

26. (d) The right of every country to adopt the economic and social system that it deems the most appropriate for its own development and not to be subjected to discrimination of any kind as a result; (e) 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;

27. (g) Regulation and supervision of the activities of transnational corporations by taking measures in the interest of the national economies of the countries where such transnational corporations operate on the basis of the full sovereignty of those countries;

28. CERDS This effort to build a NIEO was further bolstered by the adoption of the Charter of Economic Rights and Duties of States (CERDS) by the United Nations General Assembly, on 12 December 1974, with 120 countries voting in favour with six against and 10 abstentions. India supported CERDS and took active part at every stage in its drafting. Article 2(1) - “Every State has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities”.

29. Contd. Article 2(2) (a) of the Charter: “Each State has the right to regulate and exercise authority over foreign investment within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No State shall be compelled to grant preferential treatment to foreign investment” Ten developed countries (mainly capital exporting countries) opposed this provision because they wanted host countries to treat foreign investments as per what they thought to be their international obligations. However, India and other developing countries maintained foreign investors should be subject to national laws of the country.

30. Contd. Similarly, Article 2(2) (b) of CERDS on transnational corporations (TNCs) gives every state the right to regulate and supervise the activities of the TNCs within its national jurisdiction in accordance with her laws and national priorities. An Indian scholar (SK Agarwala ) commenting on this in 1977 wrote that ‘developed countries recognized that a state may control their entry and activities within its territory, they wanted the corporations to retain the protection of the international standards applicable to foreigners’, which was not acceptable to India and other developing countries.

31. Contd. Article 2(2)(c) of CERDS gives every state the right to nationalize and expropriate foreign investment and decide the question of compensation as per its national laws and priorities. It further states that any dispute on the question of compensation shall be determined by the domestic courts applying the national law. On the demand of developed countries that the question of compensation should be decided as per the principles of international law, India and other developing countries denied the existence of any such principle in international law.

32. ICSID The Convention on the Settlement of Investment Disputes Between States and Individuals of Other States of 1965 (ICSID Convention) was formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). This convention gives direct individual rights to investors to bring disputes against states. India did not accept the convention. However, most Indian commentators have not offered cogent reasons. Rajput offers two explanations for India not joining the ICSID Convention. First, India, during this phase, built a socialist pattern of economy and thus was wary of foreign investment. Second, India’s endeavour to build a NIEO where primacy should be given to national law in deciding questions related to regulation of foreign investment especially issues related to compensation. In other words, it has been argued that India did not join the ICSID Convention because it resisted the ‘the idea of invocation of international law for protection of foreign investment.’

33. Contd. While this is broadly true these are oversimplified explanations. The reality is more nuanced. The fact of the matter is that India actively and intricately participated in the ICSID Convention negotiations and made many useful interventions as the negotiating history of the convention clearly shows. Indian representative (B N Adarkar ) – “in India there were no foreign exchange restrictions as regards remittance of profits or dividends, and in cases of approved investments, investors were free to repatriate their capital, including capital appreciation. If foreign property was acquired by the government, just compensation was provided. Agreements were entered into with foreign investors, and many of them included clauses for arbitration. India ordinarily would therefore not object in principle to a Convention of the type proposed”.

34. Contd. However, India had some reservations about the ICSID Convention. First, India believed that the [ICSID] Convention, by setting up a forum where individuals and States were placed on par, marked an important departure from international law. Second, India also argued that the Convention gave foreign investors additional rights of unspecified scope without imposing any countervailing obligations on them. Third, India also had certain public policy related reservations to the Convention especially pertaining to the jurisdiction. For instance, India argued that refusing jurisdiction of ICSID might be bona fide where ‘the matter concerned national policy’, or ‘did not involve discrimination between foreign and national investors or conflict with any contractual obligation of the State’.

35. Contd. India argued that ‘in such cases no purpose would be served by submitting it to an international tribunal because an award involving a change in the national law would be unenforceable’. On the issue of jurisdiction, India proposed two caveats. First, a dispute should be submitted to the centre only if express consent was given by the State. Second, each country should have the right to notify to ICSID, the class or classes of investment disputes that it would like to consider submitting to ICSID’s jurisdiction. The final version of Article 25(1) of the ICSID Convention although provides for consent of the parties does not provide for the right of countries to notify the classes or investment disputes that it would like to consider to ICSID.

36. Bilateral Efforts

37. India’s approach to international investment law at the bilateral level was different from the multilateral level. Most international lawyers who have written on India’s approach towards international law have not emphasized much on this part. Although, India did not sign a BIT in this phase, it did express its willingness to enter into investment agreements to reassure foreign investors about the safety of their investment in India. India entered into investment guarantee agreements (IGA) with United States of America and West Germany through exchange of letters in 1957 and 1964 respectively.

38. Contd. Under the IGA with the US, the US government issued a guaranty to a US project in India if it was approved by the Indian government. No such guaranty was issued for US projects in India that were not approved by the Indian government. Furthermore, the IGA also provided for repatriation of profits or other interests. India’s IGA with West Germany singed in 1964 covered risks against nationalization, expropriation, and impossibility of conversion of rupees in West German currency. The agreement with West Germany also provided national treatment to German investors and no less favourable treatment than other foreign investors in similar circumstances.

39. Contd. The agreement also envisaged payments of ‘fair and equitable compensation’ to a German investor if the investor was ‘directly or indirectly deprived of his investment by nationalization or expropriation’. This provision was prefaced by the following statement: The Government of India do not intend, as a rule, to nationalize or expropriate approved foreign investments. Any decision to nationalize or expropriate a German investment or part of it taken by the Government of India shall be based on practical considerations and be taken in the national interest.

40. Contd. Interestingly, this agreement even talked of protection from unlawful indirect expropriation. Although, indirect expropriation is a feature of most BITs, the fact that India had accepted this in an agreement in 1964 reveals that there was some divergence between what India was espousing multilaterally and bilaterally. All the multilateral declarations discussed earlier to which India was a party, made references to only expropriation. It can be argued that these references were to direct and not to indirect expropriation.