Company’s investments and other assets in foreign countries may face the risk of expropriation. Governments are therefore concerned about the protection of the interests of their national companies in the foreign countries. The potential risk was more before the worldwide liberalization set in the 1980s.
Important protective measures in this respect include the following:
Coercion and Pressure
Until the Second World War, home countries used military force and coercion to ensure that host governments would give foreign investors prompt, adequate, and effective compensation in cases of expropriation, under a concept known as the international standard of fair dealing. It may be noted that the home countries of the companies involved were developed ones and the host countries were developing nations and these host countries had little to say about this standard. In a two conference held at The Hague in 1930 and at Montevideo in 1933, participating developing countries got established a treaty stating that “foreigners may not claim rights other or more extensive than nationals.”
Although military action or coercion of the old style are not much appreciated today, developed countries still use pressure of one or other sort to make developing countries to fall in line , such as trade pressures, aid, and influence with international lending agencies. Further, as the dependencia theory holds, developing economies have practically no power as host countries when dealing with MNEs. Their assets are of little importance in bargaining. Again, MNEs can enlist the loyalties of their home government’s local elites to maintain their power.
Bilateral and Multilateral Agreements
There are a number of Bilateral and Multilateral Agreements, Conventions, Treaties ete. between nations which seek to protect international assets and rights and to settle disputes.
There has in fact been a spurt in the Bilateral Investment Treaties (BITs). The number of BITs quintupled during the 1990s reaching a total of 1,941 by end-2000 and shooting up to 2,099 by the end of 2001. In recent years, the developing countries constituted the largest number involved in the new BITs. They have also intensified the practice of concluding BIT among themselves (66 in 2001, compared with 36 in 2000). The least developed countries (LDCs) have also shown a keen interest in entering in to BITs. A total of 23 LDCs were involved in the conclusion of 51 BITs in 2001. Of these, 13 were signed among the LDCs themselves, 24 with the rest of the developing world, 12 with developed countries and two with economies in transition.
At the regional and inter-regional levels, the number of investment-related instruments continues to grow, especially in the form of free trade and investment agreements.
The number of bilateral treaties for the avoidance of double taxation (DTTs) also increased, reaching a total of 2,118 at the end of 2000 and 2,185 by the end of 2001. The WTO now is an important international organisation seeking to protect intellectual property rights and settle international trade disputes.