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The international legality of nationalization: An analysis of the bilateral investment treaty between Venezuela and Canada

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  1. Introduction.
  2. International legal theory on nationalization.
  3. BIT between Venezuela and Canada.
    1. The purpose of the BIT.
    2. BIT and imperative international trade issues.
    3. Public purpose.
    4. Discrimination.
    5. Prompt, adequate and effective compensation.
    6. Conflict of laws and where international law fits.
  4. Defining prompt, adequate and effective compensation.
    1. The compensation requirement in the BIT.
    2. The Mexican Minister's position.
    3. The third restatement of the Foreign Relations Law of the United States.
    4. Determining the compensation payment under the BIT.
  5. Conclusion.

During the Cold War, the legality of a sovereign state nationalizing foreign property was often debated among the world community. The two principal contrasting theories were: (1) socialist theory and (2) western capitalist theory. States from the third world often followed a nationalization theory that mirrored that of socialist thought. In addition, some third world regions, such as Latin America, had their own unique legal theory. The theory is the Calvo Doctrine. Its uniqueness is that it focused on the concept that aliens were not entitled to greater rights than those available to nationals. The 1990s brought the end of the Cold War, and abandonment by Latin American regimes of their former nationalization legal theory. During this decade, nations in this region entered into commercial agreements. These agreements privatized many industries, most notably utilities. This decade, however, has witnessed the election of populist leaders in Latin America that have suggested nationalizing foreign owned entities. One of these leaders, Hugo Chavez of Venezuela, has crafted a domestic economic policy of nationalizing foreign companies. This, in turn, raises the issue of the international legality of this policy. This paper will discuss the international legality of nationalization. Since bilateral investment treaties (BITS) have become the prominent international document that establishes legal guidelines for foreign investors and the domestic hosting state, we will conduct a legal analysis of a BIT. Specifically, the analysis will center on the BIT between Canada and Venezuela.

[...] diplomatic hostages in Iran, the decision to apply to international law was not decided by analyzing public international law's position on nationalization.[lix] The tribunal replied upon an economic treaty between the United States and Iran instead.[lx] Article IV paragraph 2 of the agreement stated that international law would be applied in the case of nationalization.[lxi] Here, if international arbitrators under (ICSID) or (UNCITRAL) turned to the BIT between Canada and Venezuela to determine if international law or domestic law would apply, the text offers no definitive answer. [...]

[...] Specifically, that the ruling executive or his administration is only nationalizing for a personally benefit.[xxv] Ultimately, the determination of public purpose depends upon the scope given by the adjudication body. Because the BIT between Venezuela and Canada establishes the International Centre for the Settlement of Investment Disputes (ICSID) or an ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL),[xxvi] international law will likely be applied, meaning that a broad public purpose scope should be given. [...]

[...] [lxii] Agreement Between the Government and of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments, Art. VII [lxiii] Id. [lxiv] Id. [lxv] Id. at. XII [lxvi] Id. at. XII [lxvii] Id. at. XII [lxviii] Id. [lxix] Id. at, [lxx] G.A. Res XXI (1966), available at [lxxi] Id. at [lxxii] Id. at [lxxiii] Id. at [lxxiv] Id. at [lxxv] Id. at [lxxvi] Convention on the Settlement of Investment Disputes Between States and Nationals of other States, Art March [lxxvii] Id. [...]

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