Controls by the Host State

Abstract

The right of a state to control the entry of foreign investment is unlimited, as it is a right that flows from sovereignty. The entry of any foreign investment can be excluded by a state. Entry can also be subjected to conditions as to how a foreign investor should conduct his investment after entry. The process of foreign investment is entirely internal and hence subject to the sovereign control of the host state. But, a sovereign entity can surrender its rights even over a purely internal matter by treaty. Some regional and bilateral treaties now provide for the right of entry and establishment of investments to the nationals of contracting states. Where such pre-establishment rights are created by treaty, the denial of a right of entry to any investor from one of the contracting states would amount to a violation of the treaty, unless it can be shown that his investment is not covered by the treaty. Where the treaty permits both the right of entry and national treatment after entry to nationals of the contracting states, the right of control over the investment on the basis that the investment was made by an alien is lost to each of the contracting states. Where such a treaty applies to the foreign investment, the treaty extinguishes the right of control the state has over the foreign investment, except where the treaty itself provides exceptions to this situation. It may still be the case that, in circumstances of necessity, the treaty rights of the foreign investor could be suspended. So too, in modern law, there are strong arguments made that investment treaties and investment protection may not trump precedent obligations created through ius cogens principles or through strong multilateral treaties. It is increasingly coming to be recognized that measures a state takes in the public interest may defeat obligations relating to investment protection on the ground that there is an inherent power in the state to take such measures despite the existence of an investment treaty. Investment protection as an absolute interest has diminishing favour in the light of these recent views. Once an alien enters a state, both he and his property are subject to the laws of the host state. This result flows from the fact that the foreign investor has voluntarily subjected himself to the regime of the host state by making entry into it.