Constraints on State Regulation of Economic Activity

AuthorJohn H. Currie; Craig Forcese; Joanna Harrington; Valerie Oosterveld
Constraints on State Regulation of Economic Activity
An essential aspect of a state’s sovereignty is the power to determine its own economic
system and to regulate economic activity within its territory. Recall that the General Assem-
bly’s inuential Declaration on Principles of International Law concerning Friendly Relations and
Co-operation among States in Accordance with the Charter of the United Nations indicates that
“[e]very State has an inalienable right to choose its . . . economic . . . system, without interfer-
ence in any form by another State.” This is, however, only a starting point. While in theory a
state might attempt to insulate its economy from all outside inuences by barring all foreign
economic activity within its borders and, conversely, forbidding all extraterritorial economic
activity by its nationals, in practice, transnational economic activity is commonplace. The
international legal issue that therefore arises is the extent to which, and how, states may
lawfully exercise jurisdiction over such economic activity. We have already addressed some
aspects of this issue in our examination of the general rules of state jurisdiction over per-
sons, conduct, and events (Chapter ) and of state immunities (Chapter ). In this chapter,
we focus on specic additional jurisdictional constraints that states have imposed upon
themselves in two main areas of international economic activity: foreign investment and the
transborder movement of goods and services.
A controversial set of international legal constraints on state jurisdiction over economic
activity concerns state expropriation of property owned by foreigners. These limitations form
part of a broader body of international law relating to what international lawyers historically
called the “treatment of aliens” and now refer to as the “treatment of foreign nationals,” other
aspects of which we examine elsewhere.
There is a political dimension to the controversy surrounding the international law gov-
erning state expropriation of foreign-owned property: the property in question is usually
located in developing states but owned by investors from developed states. Such “property
investments” were a common feature of the colonial period and often persisted following
decolonization. Newly independent and other developing states frequently perceived this
continuing foreign ownership, along with additional foreign investments following decoloniz-
ation, as a form of “neo-colonialism.” The response of such states has therefore frequently
taken the form of “nationalization”; that is, the national expropriation of these investments
GA Res  (XXV), UN Doc A/RES//XXV, reprinted in UN GAOR, th Sess, Supp No  at
–, UN Doc A/ Corr  (); ()  ILM .
See Chapter , “International Human Rights Law,” and Chapter , “State Responsibility.
Chapter : Constraints on State Regulation of Economic Activity 6 65
in a bid by the expropriating state to regain control over its natural resources and economic
Given the developed/developing state dimension to the issue, it is no surprise that the
international legal rules governing state expropriation of foreign-owned property have been
a key point of contention between developed and developing states. Motivated by a desire
to create a “New International Economic Order” (NIEO), the UN General Assembly by
then dominated by newly independent states and confronted with the consequences of the
OPEC crisis adopted a resolution embracing a new Charter of Economic Rights and Duties
of States in December . Although a non-legally binding declaratory text, and therefore
not a source of international law in itself, the new Charter did reect clearly the developing
world’s view of economic sovereignty. Consider the key provisions of Chapter II of the Charter:
Charter of Economic Rights and Duties of States, GA Res  (XXIX), UN Doc A/RES/(XXIX)
Article 
Every State has the sovereign and inalienable right to choose its economic system as
well as its political, social and cultural systems in accordance with the will of its people,
without outside interference, coercion or threat in any form whatsoever.
Article 
. Every State has and shall freely exercise full permanent sovereignty, including pos-
session, use and disposal, over all its wealth, natural resources and economic activities.
. Each State has the right:
(a) To regulate and exercise authority over foreign investment within its national jurisdic-
tion 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;
(b) To regulate and supervise the activities of transnational corporations within its
national jurisdiction and take measures to ensure that such activities comply with its
laws, rules and regulations and conform with its economic and social policies. Trans-
national corporations shall not intervene in the internal aairs of a host State. Every
State should, with full regard for its sovereign rights, cooperate with other States in
the exercise of the right set forth in this subparagraph;
(c) To nationalize, expropriate or transfer ownership of foreign property, in which case
appropriate compensation should be paid by the State adopting such measures, tak-
ing into account its relevant laws and regulations and all circumstances that the State
considers pertinent. In any case where the question of compensation gives rise to a
controversy, it shall be settled under the domestic law of the nationalizing State and
by its tribunals, unless it is freely and mutually agreed by all States concerned that
other peaceful means be sought on the basis of the sovereign equality of States and
in accordance with the principle of free choice of means.
Declaration on the Establishment of a New International Economic Order, GA Res  (S-VI), UN Doc
A/RES//S-VI, reprinted in UN GAOR, th Special Sess, Supp No  at –, UN Doc A/ ().
See further Margot E Salomon, “From NIEO to Now and the Unnishable Story of Economic Justice”
() : ICLQ .
GA Res  (XXIX), UN Doc A/RES//XXIX, reprinted in UN GAOR, th Sess, Supp No  at
–, UN Doc A/ (). See further, SK Chatterjee, “The Charter of Economic Rights and Duties
of States: An Evaluation After  Years” ()  ICLQ .

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