ABSTRACT
The risks associated with engaging in foreign direct investment (FDI) are well documented. Foreign investors put themselves under the rule of a foreign government, which may treat them unfavourably. The creation of international standards for the protection of foreign investors has always been a prime political objective for capital-exporting countries. Capital-receiving countries, on the other hand, have always been wary of such protective frameworks as they wish to retain as much of their sovereign regulatory powers as possible. For example, capital-importing countries insist that they are allowed to expropriate (‘nationalize’) foreign investments if the economic activity involved seems best carried out by the State itself or by its nationals. At the same time, these countries recognize the necessity of upholding certain principles of treatment of aliens, so as not to scare out potential investors and important economic resources with the perspective of reckless conduct by the host government.
