1066
EXPROPRIATION OF AMERICAN-OWNED
PROPERTY BY FOREIGN GOVERNMENTS
IN THE TWENTIETH CENTURY*
TABLE OF CONTENTS
Pan
Summary
I. Introduction
(a) Theproblem
(6) Definition of terms
Expropriation
Nationalization
Confiscation
"Creeping" or indirect expropriation
II. Expropriation of American-owned property prior to World War II _.
(o) Minor instances
Nicaragua
Expropriations settled by arbitration
Diplomatic representations with varying results
Bolivia, 1937_(M Soviet Russia, 1917
(c) Mexico
Land
OU
III. Expropriation of American-owned property since World War II
(a) Communist countries
Yugoslavia
Poland
Czechoslovakia
Bulgaria
Hungary
Rumania
.
Communist China
Cuba
(b) Expropriation in non-Communist countries
Bolivia, 1952
Guatemala, 1953
Suez Canal, 1956
Argentina, 1958.
Brazil
Ceylon
IV. Ü.S. policy
(a) Development of U.S. policy
Expropriation discouraged
Actions taken in the event of expropriation
Suspension of foreign aid
(b) Preventive measures
Bilateral treaties
Investment guarantee program
(c) U.S. policy compared to policy of other countries
.
V. International efforts
(a) Prior to World War II
(6) Action in the United Nations
Covenants on human
rights
Encouragement of private investment and sovereignty
over natural resources
(c) ITO and Bogotá efforts
(a) Private international groups
VI. Concluding observations
v
VI1
1
1
2
2
3
4
4
5
5
5
6
7
8
8
10
10
10
12
12
13
13
14
14
15
15
16
16
18
18
19
19
19
20
21
22
22
23
24
26
28
29
31
33
34
34
35
35
36
37
38
40
*[Reproduced from a committee print dated July 19, 1963, of the
Committee on Foreign Affairs of the United States House of Representatives, 88th Congress, 1st Session. The report was prepared
by Mrs. Ellen C. Collier, .Foreign Affairs Division, Legislative
Reference Service, Library of Congress, at the request of Thomas E.
Morgan, Chairman, Committee on Foreign Affairs. The report does
not necessarily represent the views of the Committee on Foreign
Affairs, the Library of Congress, or any agency of the United
States Government.]
HeinOnline -- 2 I.L.M. 1066 1963
1067
SUMMARY
I. INTEODITCTION
Expropriation by foreign countries of property owned by ILS.
nationals is a problem for U.S. policy for three basic reasons. First,
the United States has a responsibility in protecting the property of
its citizens abroad. Second, such actions may impair good international relations and cause strained relations to deteriorate further.
Third, they inhibit the private investment in underdeveloped countries
which the United States has sought as one method of promoting
economic development.
Definitions of expropriation often include legal criteria for deciding
whether an action shall be classified as expropriation, particularly
that compensation must be made. The term is frequently used,
however: to denote any taking of private property by a government
for a public purpose in peacetime. In practice it nas been expropriations without satisfactory compensation which have caused
international problems.
II. EXPROPRIATION OP AMERICAN-OWNED PROPERTY PRIOR TO WORLD
WAR II
Prior to the First World War expropriations involving foreign
property^ holders were infrequent. In 1917 the Russian revolution
ushered in the problem of nationalization of all private property by
Communist states. The Mexican land and oil expropriations ushered
in the problem of underdeveloped nations seeking to change the
status quo in regard to foreign control of important segments of the
economy.
The patterns of diplomatic action in the event of expropriation were
also set during this period. Diplomatic protests and representations
were first made, but if local remedies proved insufficient, claims were
referred to arbitrators or special commissions or héla for further
negotiation.
i n . EXPROPRIATION OP AMERICAN-OWNED PROPERTY SINCE WORLD
n
Since the end of the Second World War, expropriations have increased. The most widespread expropriations nave occurred in the
countries which adopted communism. Agreements on lump sums to
settle claims arising from expropriations have been reached with
Yugoslavia, Poland, Bulgaria, and Rumania. Some of the claims
against Czechoslovakia and Hungary have been paid out of funds
established from assets of those countries in the United States. The
problem of obtaining compensation from Cuba and Communist China
is being held in abeyance since diplomatic relations are not maintained
with those nations.
WAR
HeinOnline
--
2 I.L.M.
1067
1963
1068
SU3I3IAKY
vm
Not all of the postwar expropriations have occurred in Communist
countries. Most of the other major expropriations affecting U.S.
nationals have been carried out by Latin American countries. Exceptions are the Egyptian nationalization of the Suez Canal and the
expropriation of certain oil facilities by Ceylon. An agreement on
compensation was reached between the United Arab Republic and the
Suez stockholders in 1958. Foreign aid to Ceylon was suspended in
February 1963 under the terms of an amendment to the foreign aid
legislation.
In Latin America, one of the expropriations, that of the United
Fruit Co. property by Guatemala, was rescinded after a change in
overnment. rublic utility expropriations by local governments in
irazil and Argentina have been settled, with the United States making
diplomatic representations and the foreign courts evaluating the
property.
f
IV. U.S. POLICY
The United States has consistently acknowledged the right of a
sovereign nation to expropriate foreign-owned property, so long as the
taking conformed to the standards of international law; that is, that
ib was for a public purpose, not discriminatory against the United
States, and accompanied by just compensation. Just compensation
has been spelled out to mean prompt, adequate, and effective compensation. However, while acknowledging • the right of expropriation,
the United States has not encouraged it on the grounds that it would
discourage private investment, ^Expropriation without just compensation has been deemed a violation of international law, no matter
what the objectives of the expropriation.
The United States has initiated two programs to prevent problems
from arising. One of these is to negotiate bilateral treaties containing
agreements on the subject. The other is the investment guarantee
program which provides insurance against expropriation on approved
projects. This program probably reduces the likelihood of expropriation because it provides for agreement between the United States and
the foreign government concerned on the projects to be insured as
well as the procedures for settlement. In addition, the suspension of
foreign aid offers a tool for hastening compensation.
V. INTERNATIONAL EFFORTS
The problem of expropriation has been discussed at international
meetings at various tunes throughout the century. The two themes
that still battle for dominance in international conferences today
were discernible as early as 1922—on the one hand, that every State
has the rieht to regulate its own property; on the other, that foreign
capital wUl be made available only if a country provides a sense of
security.
After discussion on several occasions, the United Nations in 1962
adopted a resolution on permanent sovereignty over natural resources
which declared that expropriations should be based on reasons which
are recognized as overriding purely individual or private interests,
and that in such cases the owner should be paid appropriate compensation in accordance with the laws of the expropriating nation and
international law.
HeinOnline
2 I . L . M . 1068 1963
SUMMARY
IX
On at least two occasions multilateral treaties dealing with the
protection of foreign investors in the event of expropriation have been
drafted, but they have not entered into force in part at least because
the provisions, representing an attempt to reconcile the diverging
interests of the capital-exporting and capital-importing nations,
were unsatisfactory to one or both sides.
Codes for the protection of private investment have also been
drafted by private international organizations. Other proposals
include the establishment of tribunals to handle expropriation claims
and treaty commitments that expropriation of foreign property would
not be undertaken for a specified period, such as 30 years.
VI. CONCLUDING OBSERVATIONS
It is largely because the United States has wanted to assist in the
economic development of underdeveloped countries that active
measures have been taken to discourage expropriation by the underdeveloped coxmtries. Otherwise, the United States could be content
with taking legal measures to secure just compensation after expropriations occurred. The expropriation problem would then take
care of itself, the level of private investment decreasing in countries
which had carried out excessive expropriations. Because the United
States did want to encourage private investment to play a role in
economic development, however, the United States has taken the
initiative in devising policies to prevent expropriations which would
inhibit such private investment.
H e i n O n l i n e - - 2 I . L . M . 1069 1963
EXPROPRIATION OF AMERICAN-OWNED PROPERTY BY
FOREIGN GOVERNMENTS IN THE 20TH CENTURY
I . INTRODUCTION
(A) THE PROBLEM
During this century expropriation by foreign governments of property owned by U S . nationals has grown into a thorny problem^ m
U.S. foreign policy. Such expropriations, once for the most part isolated and small incidents affecting only a few individuals, have increased both in frequency and size.
Although many diverse factors are undoubtedly involved, this
expansion appears to stem primarily from two ideological forces or
their interaction. One is nationalism and the desire of a country to
manage its own affairs without foreign influence. The other is
Marxism, be it Socialist or Communist, and its call for state ownership
or operating of the means of production, or other changing concepts
of property.
Aside from the ideological challenges involved in dealing with these
forces, from the practical point of view the upward trend of foreign
expropriations poses concrete problems for U.S. foreign policy.
One of these problems has long existed. It concerns the function of
a nation in protecting its citizens and their property abroad. Expropriations which are not accompanied by satisfactory compensations
involve the government in the ensuing controversy between the
expropriated property holder and the expropriating country. They
result in claims which at best require a great deal of time and effort
to resolve and at worst impair good international relations or cause
strained relations to deteriorate further.
Another problem, of more recent origin, concerns sustaining and
encouraging private investment in the underdeveloped areas of the
world. Assistance to underdeveloped countries in improving their
living standards and achieving economic development is a part of
U.S. foreign policy, and private investment one means of assistance.
President ^Kennedy stated in his message on the mutual defense and
assistance programs:
Economic and social growth cannot be accomplished by governments alone.
The effective participation of an enlightened U.S. businessman, especially in
partnership with private interests in the developing country, brings not only
bis investment but bis technological and management skills into the process of
development. His successful participation in turn helps create that climate of
confidence
which is so critical in attracting and holding vital external and internal
capital.1
In the same message President Kennedy announced that the primary initiative in this year's program related to "increased efforts to
encourage the investment of private capital in the underdeveloped
> Congressional Record. Apr. 2,1963, p. 512«.
HeinOnline - - 2 I.L.M. 1070 1963
1071
2
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
areas." Accordingly, increasing constructive private investment
abroad, particularly in the underdeveloped areas, has become an
objective of U S . foreign policy.
It is apparent that the expropriation of property owned by Americans abroad without satisfactory compensation, or even the fear of
such expropriation, has a direct bearing on private investment abroad.
Businessmen will be reluctant to invest in countries in which they face
the risk of loss through expropriation in addition to normal risks. A
Department of Commerce survey in 1953 of factors in foreign countries
limiting U.S. investments abroad included the threat of inadequately
compensated expropriation or nationalization among the principal
impediments to private investment in Latin America and an important
one> in the Far Bast.2 In addition, the survey found the threat of
nationalization affected the investment climate in a number of countries in the Near East and Africa and in some countries of Western
Europe.3
Finally, the foreign aid program has become more directly involved
in the problem because it presents a possible tool of policy in expropriation cases which was not available in the past.
The purpose of this report is to bring together some of the widely
scattered information on the expropriation problem, review the expropriations which have occurred, and trace the development of U.S.
policy. In addition, a survey will be made of actions taken or proposals made on the problem by various groups.
(B) DEFINITION OP TERMS
A discussion of the meaning of "expropriation" and related concepts
may help clarify the scope of the problem.
Expropriation
Webster defines expropriation as "the action of the state in taking
or modifying the property rights of individuals in the exercise of its
sovereignty, as where property is sold under eminent domain." * This
right of a state is recognized in the fifth amendment to the Constitution which provides " * * * nor shall private property be taken for
public use, without just compensation." It is frequently exercised in
the United States for such purposes as acquiring land for new roads or
other public projects.
Controversy arises, however, on the question of whether compensation must be rendered if an act of taking by the state is to be classified
as expropriation. Some hold that compensation is a separate element.
For example, one authority on the subject defines expropriation as
"the procedure by which a state in time of peace and for reasons of
public utility appropriates a private property right, with or without
compensation, so as to place it at the disposal of its public services, or
of the public generally." *
Others define expropriation more narrowly to include only the acts
of taking for which compensation is rendered, uncompensated takings
being termed confiscations. Along this line, one authority includes
> U.8. Department of Commerce, "Factors Limiting U.S. Investment Abroad," pt. 1, "Survey of Factors
in Foreign Countries," Washington, U.S. Government Printing Office, pp. 6 and 101.
* Ibid., pp. 46 and 75.
< "Webster's New International Dictionary of the English Language," second edition, unabridged, 1053.
• Friedman, S., "Expropriation in International Law/' London, Stevens & Sons, Ltd., 1953, p. 3.
H e i n O n l i n e - - 2 I . L . M . 1071 1963
1072
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
3
"adequate and prior compensation" as an element in his definition of
"expropriation in its classical form." e
Similarly, the United States has at times taken the position that to
be considered expropriation, an act of taking requires compensation.
In a note to Mexico m 1938, the Secretary of State wrote: "The taking
of property
without compensation is not expropriation. It is confiscation." 7 Frequently, however, the Department of State also uses the
term "expropriation" in its broad form to encompass any taking of
property by a government for public purposes. For example, a list
of expropriations compiled by the Department of State in 1962 was
made up largely of those
for which adequate compensation had not
been readily obtained.8
The definition found in the Foreign Assistance Act of 1962 emphasizes that expropriation includes intangible property rights. It states
(Public Law 87-565, sec. 223 (b)):
* * * the term "expropriation" includes but is not limited to any abrogation,
repudiation, or impairment by a foreign government of its own contract with an
investor, where such abrogation, repudiation, or imçairment is not caused by
the investor's own fault or misconduct, and materially adversely affects the
continued operation of the project.
In order to avoid judgment as to whether adequate compensation
has been rendered and therefore an action can be described as "expropriation," or whether instead it should be referred to as "confiscation," experts in international law sometimes use the neutral word
"taking." In this report the term "expropriation" will be used interchangeably with "taking" to denote any taking of private property by
a government during peace for a public purpose. However, the report
will be concerned mainly with those expropriations for which satisfactory compensation was not immediately made, for they are the ones
which have threatened the owners with loss, become issues in international relations, and inhibited foreign investment.
"Expropriation" is a term usually applied only to direct investments
abroad; that is, investments which involve the element of proprietorship and permit the investor
to control or exercise some influence on
their business operations.B The problem of losses suffered by American holders of foreign bonds through defaults has not been included
in this study.
NaMonclization
Most of the major expropriations during this century have arisen
from nationalizations. This term also has been defined in a variety
of ways. One writer describes nationalization as—
the process whereby property, and rights and interests in property, are transferred
from private to public ownership by agents of the state acting on the authority of
a legislative or executive measure. After transfer, the property remains in10 the
ownefship of, and is exploited by, the state or a body created by the state.
•7 Wortley, B. A., "Expropriation in Public International Law," Cambridge, University Press, 1959. p. 24.
Note from the Secretary of State of the United States to the Ambassador of Mexico dated July 21,1938.
. r Instances of Expropriation of Property Belonging to U.S. Nationals Since
, . ,,„„„ ¿j..-=,3ConunitteeonForeignRelatlons,U.8.Senate,onS.2998,ForelcnAssIstance
Açtofl982,87tbCong.,2dsess.,8.Kept.l535,p.93.
. . J r 8 Sr don <.î 0 ¥* £•• Marcus Nadler, and Harry C. Sauvain, "America's Experience as a Creditor Natton,"New York, Prentice-Hall, 1937, pp. 8-9.
» Whito, Gillian, "Nationalisation of Foreign Property," London, Stevens & Sons, 1061, p. 42.
HeinOnline
--
2 I.L.M.
1072
1963
4
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
Another definition emphasizes that the intention of a state in a
nationalization is to take over an operation previously conducted by
private owners:
* * * nationalization may be defined as the compulsory transfer t o the state
of private property dictated b y economic motives and having as its purpose the
continued and essentially unaltered exploitation of the particular property."
A number of differentiations between nationalization and expropriation have been made by various authorities. One writer claims,
however, that "nationalization differs in its scope and extent I2rather
than in its juridical nature from other types of expropriations." At
any rate, because nationalization is the type of expropriation which
in practice has involved the largest amounts of property, it is the kind
which has most frequently been involved in international controversies.
Confiscation
It seems widely agreed that confiscation means a taking of property
by a government without compensation. It has been defined as
"any government action by which private property is seized without
compensation, no matter in what form or under what name." l3
Either nationalizations or expropriations are apt to be called confiscations if they are not accompanied by adequate and prompt compensation. Since differences may exist on what constitutes adequate and
prompt compensation, however, the term is used cautiously except in
those instances in which a nation taking property makes it clear that
it has no intention of making any kind of compensation.
" Creeping" or indirect expropriation
Sometimes expropriation occurs in effect not as a direct act but as
the byproduct or indirect result of some other governmental action.
In recent years the term "creeping expropriation'' has been employed
to describe those indirect measures which may sooner or later produce
the same effect as direct expropriation; that is, the divesting of a
private owner of his property and putting it in the hands of the state.
Among the measures which have been encompassed in the phrase
are fines, discriminatory taxes, labor requirements, regulation of
prices or utility rates, limitations on the percentage of foreign ownership or foreign employees, limitations on profits or on the right to
transfer them, and limitations on imports and the use of foreign
exchange earnings.14
"Creeping expropriation" may be more difficult to recognize than
direct expropriation since many of these measures are utilized to some
extent by most countries. One writer has pointed out that the
question of degree of interference with property by the state becomes
important, and that it may be extremely difficult to determine when
normal regulation ends ana expropriation begins.
If it remains within certain usual limits, such interference is deemed not to be
expropriation of part of the whole property; but if it exceeds certain limits it is
said to constitute partial expropriation. It cannot, however, be denied that it
11 Fofghel, Is!, "Nationalization, a Study in the Protection of Alien Property in International Law,"
Copenhagen, 1957, p. 19.
" Wortley, op. cit., p. 36.
ii Adrlaanse, P., "Confiscation in Private International Law," The Hague, Martin« Nilhoff, 1956, p. S.
" House Subcommittee on Ways and Means, Subcommittee on Foreign Trade Policy, hearings on
"Private Foreign Investment," Dee. 1-5.1958, p. 28: and Kuebler, Jeanne, "Protection of Investments in
Backward Countries," Editorial Sesearen Reports, July 11,1962, p. 611.
HeinOnline
- - 2 I.L.M.
1073 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
Ö
may often be very difficult to decide whether or not in a special case the limits
of usual interference
have been reached or transgressed and, therefore, expropriation occurred.15
II. EXPROPRIATION OF AMERICAN-OWNED PROPERTY PRIOR
TO WORLD WAR II
According to the Department of State, no complete list of expropriations by foreign governments of property owned by U.S. nationals
appears to have been maintained by any U.S. Government agency."
Many expropriations, particularly those which are preceded or
promptly accompanied by satisfactory compensation, never are
brought to the attention of the State Department. Some may be
brought to the attention of the embassy in the country involved and
be tiie subject of diplomatic attention without being recorded in a
central place. Apparently even the formal claims arising from expropriations which have been .submitted against other governments have
not been separated out from claims pressed for other reasons. Nevertheless, from research in published materials it is possible to piece
together a general picture of the extent and nature of expropriation of
American-owned property during this century.
(A) MINOR INSTANCES
Prior to the First World War expropriations involving foreignproperty holders were infrequent and involved relatively small holdings. After the Russian revolution in 1917, nationalizations began
and expropriation became a more aggravating problem. In the interwar period several of the Eastern European countries expropriated
land dunng agrarian reform programs, and Mexico carried out a land
reform program and expropriated foreign oil properties. In addition, Nazi Germany confiscated the property of Jews and took various
private property in the occupied countries.
Following are instances of expropriation from which the development of U.S. policy may be traced.
Nicaragua
One unusual series of expropriatory actions affecting Americanowned property appears to have taken place early in this century
when several concessions granted to Americans or American companies in Nicaragua were canceled. This resulted primarily from
the fact that a large number of concessions had been issued during the
regime of President Zelaya (1893-1909). In one instance a concession
granted under President Zelaya in 1894 was annulled by him in 190G
on allegations that the terms of the concession had not been fulfilled.
The concession had granted an American corporation the exclusive
right to out timber within a specified zone. The corporation, the
George D. Emery Co., submitted a claim for $1,048,154.28 which
was settled
for $600,000 through diplomatic channels on September 18.
1909.»7
" Hera, John H., "Expropriation of Foreign Property," American Journal of International Law, Apri 1
1941. vol. 35,0.243.
» "Major Instances of Expropriation of Property Belonging to U.S. Nationals 8lnce World War II,"
op. cit., p. 93.
» Whfteman, Mariorie M., assistant to, the Legal Adviser of the Department of State, "Damages in
International Law," U.S. Government Printing Office, 1943, vol. Ill, pp. 1043-1645.
HeinOnline
--
2 I.L.M.
1074
1963
1075
6
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
Most of the cancellations of concessions, however, occurred after
the revolution of 1909 deposed the Zelaya government and, with the
assistance of intervention by the United States, a new government
came into power. In a law of October 14,1911, the National Assembly
ordered the cancellation of contracts and concessions deemed illegal
or unconstitutional because they involved monopolies or for other
reasons. Upon the advice of the United States, which was assisting
Nicaragua in finding "the 'most efficient method of securing a stable
government for Nicaraguau and reconstructing the country's finances
and economic situation" a Mixed Claims Commission was established. The Commission, composed of two members selected upon
the initiative of the United States and one upon the initiative of
Nicaragua, was to adjudicate claims arising from these cancellations
and from other causes. Subsequently several claims were filed by
Americans with the Commission because of cancellations of concessions
on the ground that the Government had otherwise broken or failed to
fulfill a contract. The Mixed Claims Commission, which either
assisted in the settlement of or rejected the claims, later reported
that—
during the Zelaya regime, the country had been plastered with concessions which
were regarded as unconstitutional, illegal, and burdensome monopolies, and of
which many were held by foreigners. * * * The liquidation of the claims and the
cancellation of illegal concessions were among the necessary incidents in the task
of rehabilitating the financial and economic condition of the country.1'
Expropriations settled by arbitration
The Nicaraguan incidents illustrate two chief methods which have
traditionally been employed in controversies over expropriations:
diplomacy and the establishment of claims commissions. Three cases
were found in the early part of the century in which claims arising
from expropriation were settled by arbitration.
Two of these instances were in Cuba. In 1919 the mayor of
Marianao began expropriationproceedings to condemn property
owned by on American citizen, Walter Fletcher Smith, for the benefit
of a private company. Before the expropriation procedures were
complete, the buildings on the property were destroyed, apparently
under the direction of the private company. A private arbitration
was arranged between the American citizett and the private company,
and the arbitrator awarded Mr. Smith $190,000 of his claim of
$515,000.
In the other early instances involving Cuba, the President of Cuba
by a 'decree of September 22, 1925, designated certain lands to be
expropriated for the purpose of building a national penitentiary.
Among these lands was some belonging to two American citizens,
T. J. Keenan and Dr. Albert Pettit. One of the Americans protested
the evaluation placed on the land by the Government and the matter
was arbitrated by President Machado
of Cuba and the American
Ambassador, Enoch H. Crowder.20
The incident in Guatemala occurred on May 22, 1928, when the
Guatemalan Legislative Assembly passed a decree canceling a conti Nicaraguan Mixed Claims Commission, report submitted to the Secretary of State, Jan. 20,1915, p. 16.
» Nicaraguan Mixed Claims Commission, loe. cit.
» Wbtteman, op. dt., p. 1392.
HeinOnline -- 2 I.L.M. 1075 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
7
cession for the extraction of chicle from the national forests within a
certain area. The concession, originally granted in 1922 to two
Guatemalan citizens, had been purchased by an American citizen,
P. W. Shufeldt. The amount offered Mr. Shufeldt by the Guatemalan
Government in settlement, $80,000, was refused as inadequate.
Mr. Shufeldt placed his claim before the Department of State and
the American Minister to Guatemala was instructed to take up the
matter informally with the Government of Guatemala with the aim of
arriving at an amicable settlement. Later, the American Minister
informed Guatemala that the United States believed Mr. Shufeldt's
claims were meritorious and formally requested a settlement, claiming
losses and damages of $561,800.
In reply, the Government of Guatemala suggested arbitration.
The arbitrator selected was the Chief Justice of British Honduras, who
awarded the United States $225,468.38 on July 24, 1930."
Diplomatic representations with varying results
Three early cases of proposed expropriations of American-owned
property illustrate the varying results of diplomatic representations or
protests.
In one instance a planned nationalization was not carried through
after diplomatic representations were made. On March 26,1937, the
American Embassy in Spain reported that the Royal Typewriter Co.
had requested representations in its behalf to prevent the collectivization of its Spanish distributing agency by the employees of the agency
pursuant to a decree of October 24,1936. The company claimed that
the stock of the distributing agency was totally owned by American
citizens, for whom collectivization would result in complete loss.
The Department of State instructed the Embassy to bring the matter
to the attention of the Spanish Government and. without passing upon
the validity of the decree, to state that the American Government
expected "prompt and full compensation of all American nationals or
concerns for any losses suffered by them as the result of the collectivization of businesses or concerns in which they are interested." In a
note verbale of December 14, 1937, the Spanish Ministry of State
advised the American Embassy that the collectivization of the distributing agency had been annulled.M
In another case, an act of indirect expropriation was postponed
to diminish the amount of loss suffered by foreign nationals. An
Italian law of April 4, 1912, established a state insurance monopoly
of life insurance. There were several foreign insurance companies
operating at the time, and the countries whose nationals would be
affected, the United btates, the United Kingdom, France, Austria,
Hungary, and Germany, lodged diplomatic protests. The enforcement of the law was postponed and the foreign companies were allowed time to liquidate their business, though no compensation was
made for loss
of business. The real property of the companies was
not touched.23
_ _ O.S. Department of State, arbitration series No. 3, Shufeldt claim, Washington, Government Printing
Office, 1932,911 pages.
" Haokworth, Oreen Haywood, "Digest of International Lawj" Washington, U.S. Government Printing Office, 1943, p. 588.
» Hackworth, op. cit., p. 588; Borchord, Edwin, "Diplomatic Protection of attains Abroad," New
York, Banks Law Publishing Co., 1925, p. 126.
20-821—63
3
HeinOnline
--
2 I.L.M.
1076
1963
8
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
In a third case, another instance of indirect expropriation, diplomatic proteste were unsuccessful. First the Japanese Government
in 1934 required foreign oil companies to store a 6-month supply
of oil there and sell it to the Government at a fixed price. The following year the Japanese-controlled Manchukuoan Government
created an oil monopoly in which only the Japanese oil companies
could participate. Foreign companies, which had been doing an
extensive business in Manchuria and some of which had built up
extensive sales organizations, were permitted only to import and
engage in refining under license.24
The countries involved, the United States, Great Britain, and .the
Netherlands, directed protests to Japan against the monopoly,
contending it violated the treaty pledge to respect the principle of
equality of trade opportunity. However, Japan took the position that
Manchukuo was an independent state and that protests should be
directed to the Manchukuoan authorities, whom the protesting
governments did not recognize. In addition, Japan refused to modify
its own laws concerning foreign oil companies.2*
Bolivia, 19S7
One additional action should be mentioned before going into the
major examples of Russia and Mexico. This was the taking by
Bolivia of the oil properties of the Standard Oil Co. on March 13,1937.
The oil company had been prospecting for petroleum by virtue of
grants made m 1920. In taking the property valued by the company
at $17 million, President Toro alleged that the corporation bad
evaded the payment of rentals of petroleum lands. A Bolivian
company was 'directed to take charge of the oil properties. The
American company maintained that it was not guilty of the alleged
fraud and protested the seizure, but local courts refused compensation.
In 1942, however, the Peñaranda government agreed, to pay the
Standard Oil Co.
$1,750,000 for the petroleum properties which
had been taken.30
(B) SOVIET RUSSIA, I9I7
A study of expropriation as an important problem in the 20th
century may really begin with the Communist revolution in Russia
in 1917. Confiscation of private property formed a fundamental part
of the revolution, and nationalizations were made on a vast scale to
carry out the Marxist doctrine (»ailing for the socialization of the
means of production.
In February 1918, soon -after the czarist government had been
overthrown, decrees were issued by the new government abolishing
private ownership of land, minerals, forests, natural resources^ and
agricultural holdings and equipment. The assets of former private
banks were confiscated and banking was made a state monopoly.
Similarly the merchant fleet, foreign trade enterprises, and insurance
businesses were nationalized. By June 1920 most industry had been
socialized.
» Vlnacke, Harold M., "A History of the Par East in Modem Times," New York, Apple ton-CenturyCrofts, Inc., 1969, p. 624.
u Madden, John T., op. cit., p. 266.
it Robertson, William Spence, "History of the Latin-American Nations," New York, D . AppletonCentury Co., 1943, pp. 309-311.
HeinOnline
--
2 I.L.M.
1077
1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
9
Regional and local Soviets as well as the Central Government
undertook confiscations. Although on February 16, 1918, the Supreme Council of National Economy passed a resolution stating that
only that body and the Soviet of People's Commissars had the right
to confiscate enterprises, 2 months later the Supreme Council noted
that local groups were continuing to confiscate and nationalize enterprises. The Council stated that if this continued,27 it would not
appropriate money to run the confiscated enterprises.
During these actions, most of the foreign investments in Soviet
Russia were expropriated, with American
investments representing
an estimated 5 percent of the total'.28 Most of the American investments were in trade, financial, or insurance enterprises, although
there were some manufacturing establishments involved. Among
the American enterprises losing property were the International Harvester Co., the Otis Elevator Co., the Singer Manufacturing Co., the
National City Bank of New York, the New York Life Insurance
Society, and the Equitable Life Assurance Society of the United States.
The Soviet Government refused to either make restitution or pay
compensation for the foreign property which was seized, and diplomatic protests were lodged by the Allied Powers and some of the
neutrals. On February 13, 1918, the U.S. Ambassador protested in
the name of the 14 Allied Powers and 16 neutrals. The note of
protest stated:
In order to avoid any misunderstandings in future, the representatives at
Petrograd of all the foreign powers declare that they view the decrees relating to
the repudiation of the Russian state loans, the confiscation of property and other
similar measures as null and void insofar as their nationals are concerned."
After the war the Soviet Union continued to refuse to make any
compensation, and offered to recognize foreign claims only as part of
a general settiement which would include the satisfaction of Soviet
claims arising from the military intervention of the Allies after the
October revolution. This was an important factor in the U.S. refusal
to recognize the Soviet Union prior to 1933.
In the exchange of communications by which the United States
recognized the Soviet Government on November 16,1933, the Government of the Soviet Union released and assigned to the U.S. Government
all amounts due the Soviet Government from American nationals.
This agreement, known as the Litvinov assignment, formed the basis
of a fund outiof which some of the claims by American nationals against
Russia for confiscation of their property could be paid. Although the
Litvinov assignment was intended to be only preparatory to a final
settlement of the claims and counterclaims, subsequent negotiations
between the two Governments
on an overall final settlement have so
far proved unsuccessful.30 Meanwhile, some of the claims of American
nationals have been paid from the Litvinov assignment funds by the
Foreign Claims Settlement Commission under title H I of the Liternational Claims Settlement Act of 1949, as amended.
» Bunyon, Tames, and H. H. Fisher, "The Bolshevik Revolution, 1917-18," Stanford University Press,
1934J). 612.
a U.S. Department of Commerce, Bureau of Foreign end Domestic Commerce, "Foreign Capital Investments in Russian Industries and Commerce." translation, miscellaneous series No. 124, by Leonard J.
Lewery, Washington, U.S. Government Printing Office, 1923, p. 27.
» Friedman, S., op. cit., p. 18.
*> D.S. Congress, Senate Committee on Foreign Halations, staff memorandum on claims programs administered by the Foreign Claims Settlement Commission under the International Claims Settlement
Act of 1949,88 amended, committee print, March 1963, p. 7.
HeinOnline
--
2 I.L.M.
1078
1963
1079
10
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
(C) MEXICO
At about the same time that the Communist revolution in Russia
was resulting in the confiscation and nationalization of almost all
private property, a social revolution in Mexico was resulting in the
expropriation of some for a land reform program and leading to a
large-scale expropriation of oil.
Land
One of the major objectives of the social revolution launched in
Mexico by the adoption of a new constitution in 1917 was land reform,
especially to restore to the peasantry the common lands which had
once been appurtenances of Mexican villages but had to a large extent
been absorbed in private estates of either Mexican or foreign owners.
In contrast to the Soviet Union, the declared intention of Mexico
was not to confiscate but to expropriate property with compensation.
The 1917 Constitution of Mexico stated that private property should
not be expropriated except for reasons of public utility and by means
of indemnification, and the land was taken by eminent domain at
appraised valuation, with payment in national bonds. Nevertheless,
difficulties with foreign nationals arose over the appraisals and the
method of payment.
In the Bucareli agreement of 1923 the representative of the United
States agreed that the land for commons could be paid for in bonds up
to 1,755 hectares, but that taking of acreage above that figure was
to be paid for in cash, and that the owner might appeal to a general
mixed claims commission regarding the appraised valuations. It was
stated that the payment in bonds of this limited group of agrarian
claims was not to constitute a precedent for future expropriations.
In regard to properties of American citizens taken after 1927,
following a series of diplomatic representations, Mexico in 1938 agreed
to pay for them after their value was fixed by a mixed commission
•composed of one representative of each government. In cases where
the commission disagreed, an umpire was to decide. Meanwhile, the
Mexican Government agreed to pay $1 million in May 1939 and after
that at least $1 million on each June 30 until the awards were paid.31
In a claims convention signed November 19, 1941, Mexico agreed
that in addition to the $3 million already paid on agrarian claims
.arisina: between August 30, 1927, and October 7, 1940, an additional
$3 muhun was to be paid upon exchange of ratifications of the agreement, and the remaining $34 million was to be liquidated over a
period of years through the annual payment by Mexico of $2,500,000
beginning in 1942.
Mexico still expropriates property, sometimes owned by U.S.
nationals, under its agrarian reform program. According to the
Department of State, while there has been no overall settlement of
•claims, there have been isolated instances of individual settlements.32
OÜ
The well-known Mexican oil expropriation began in the manner of
"creeping expropriation" but terminated in direct and complete
•expropriation.
«U.ff. Department of State, "Compensation for American-Owned Lands Expropriated in Mexico,"
foil text of official notes, July 21, 1937, to Nov. 12,.1937. Department of State publication 1288, interAmerican series 12, p. 45.
» "Major Instances of Expropriation • * V ' op. cit., p. 93.
HeinOnline
--
2 I.L.M.
1079
1963
1080
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
11
Before the Mexican revolution, the petroleum industry was controlled by private owners, for the most part foreign, who had bought
large tracts of land including the subsoil petroleum deposits. Under
the constitution of 1917, however, subsoil petroleum deposits were
brought under the ownership of the state. A series of provisional
decrees laid down the new conditions under which the previous owners
might continue to exploit their holding for terms of up to 50 years
under licensed concessions. Among these conditions were the so-called
Calvo clause—fjhat the concessionaires agree not to call upon their
governments for support of their titles against the Mexican Government.
In the diplomacy that followed, the United States took the position
that, although it did not deny the right of a nation to reform its constitution and legislation in its own ways, such reforms could not be
applied ex post facto to property rights already legitimately secured
by foreign nations under earlier constitutions and laws. In addition,
the United States contended that a foreign national could not sign
away the right to protection by his government without the consent
of his government. Under President Harding, Secretary of State
Charles Evans Hughes-insisted that recognition of the Mexican Government was contingent
upon a treaty which would bind Mexico to
adequate guarantees.83
Nevertheless, on August 31, 1923, formal recognition was extended
to the Obregon government on the basis of an executive agreement
following the Bucareli conferences. In addition to agreements regarding compensation for expropriated land and the establishment of
claims commissions, understandings were reached regarding the conditions under which the petroleum companies would operate.
The problem had not been ended, however. "When a new organic
petroleum act was passed in 1925, it contained requirements for foreign
owners of petroleum lands which the American Secretary of State, now
Frank B. Kellogg under President Coolidge, protested were in violation of the Bucareli understandings. Mexico too, however, had a new
government and it contended that the Bucareli agreements were not
binding on it.
Once again a temporary solution to the problem was found. In
1927 the Supreme Court of Mexico declared some of the controversial
provisions of the Petroleum Act unconstitutional. Moreover, that
same year the U.S. Senate unanimously passed a resolution calling
for the arbitration, if necessary, of outstanding issues with Mexico,
and Ambassador Dwight D. Morrow was sent to Mexico. Subsequently new, satisfactory amendments to the oil legislation were
enacted and the Department of State issued a statement that on this
basis future problems could be adjusted through local machinery.Zi
In 1934, the new government of President Lázaro Cárdenas brought
the question to the fore once again. A law was enacted providing
for the expropriation of private property of public utility "to satisfy
collective necessities in case of war or interior upheaval." In addition, labor laws were passed which posed heavy burdens on foreign
and numerous strikes were conducted for various benecorporations
fits.36
» Bemls, Samuel Flagg, "A Diplomatic History of the United States," New York, Henry Holt, 195«, p. 658.
u Bemls, op. clt, p. 661.
» Bemls, op. cit., p. £65,
HeinOnline - - 2 I.L.M. 1080 1963
12
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
The issue come to a head in 1938 following a strike of the petroleum
workers, when an award of a Mexican labor board called for retroactive increases in pay and other measures. The companies announced
their willingness to accept all the demands except one, but following
their refusal to accept the full award, on March 18, 1938, President
Cárdenas ordered the expropriation of their property.
The potential value of the expropriated properties was estimated
by the owners at approximately $450 million of which $200 million
was American-owned. The Mexican Government contended they
were worth a total of $262 million, with American properties less
than $50 million. In 1938 the Department of Commerce had listed
American direct investments in Mexico's petroleum industry at $69
million, and on their own books at the close of 1937 the companies
had stated their assets at about $60,247,000.39
Although one oil company reached a private settlement, the others
turned over their claims to the United States.
On November 19, 1941, the State Department announced an
exchange of notes which encompassed the settlement of expropriated
petroleum properties. A mixed commission of experts, one from
each Government, was to determine the just compensation to be paid
the American owners for their properties and rights and interests.
Meanwhile, Mexico was to make a cash deposit of $9 million to be
paid to the affected American companies.
On April 17, 1942, the mixed commission submitted their report.
It stated:
Expropriation, and the exercise of the right of eminent domain, under the
respective constitutions and lavra of Mexico and the United States, are a recognized
feature of the sovereignty of all states.
A sum of $23,995,991 was awarded to the United States, one-third
of the balance due to be paid on July 1, 1942, and the balance in
five equal annual installments at 3 percent interest.
IH. EXPROPRIATION OP AMERICAN-OWNED PROPERTY SINCE WORLD
WAR II
Since the end of the Second World War, the problem of expropriation has increased according to almost any measure. Expropriations
have become more frequent; more countries have undertaken them;
more American property holders have been affected.
(A) COMMUNIST COUNTRIES
The most widespread expropriations have occurred in the countries
which adopted communism. Within a few years after the end of the
'war sweeping nationalizations àad been carried out in the Eastern
European countries and American-owned property or investments of
various kinds had been expropriated with little regard for the payment
of compensation. The pattern of action followed by the United States
was to attempt to secure a lump sum from the expropriating nations
from which claims could be paid, or to establish a claims fund from
» Bemls, S. F., "Latin American Policy of toe United States," New York, H—'court, Brace & Co., 1943,
p. 347.
HeinOnline -- 2 I.L.M. 1081 1963
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
13
the vested assets of the expropriating nation in this country.37 In
the case of Communist China and Cuba, with whom the United
States does not have diplomatic relations, the matter is being held
in abeyance pending a propitious time for negotiations.
Yugoslavia
In Yugoslavia public ownership was already widespread in 1940.
By tthe Nationalization Act of December 5, 1946, however, the
process of socialization of industry was completed, bringing into
Government ownership virtually all enterprises m important branches
of industry, wholesale trade, banking,- and transportation. This law
covered foreign-owned firms, too, and stipulated that former owners
were to be indemnified in Government bonds or, in some instances,
cash.38
Yugoslavia became the first country after the war to conclude a
lump-sum agreement providing compensation to American nationals
for losses resulting from nationalization of property. Under an
agreement of July 19, 1948, Yugoslavia paid the United States the
sum of S17 million in.full settlement of the claims of the United States
against Yugoslavia, including all claims of U.S. nationals springing
from nationalization of their property since September 1, 1939. In
return the United States agreed to release Yugoslavian blocked assets
in the United States. To carry out the agreement, Congress enacted
the International Claims Settlement Act of 1949 (Public Law 81-455,
Mar. 10, 1950) establishing a three-member International Claims
Commission to adjudicate claims within the terms of the agreement
and similar claims which might be the subject of future agreement
with another country. Dunng the filing period from June 30 to
December 30,1951,1,556 claims were asserted totaling $149,344,249.70.
The program was completed on December 31, 1954, with 876 awards
made totaling $18,817,904.89. Of this approximately 91 percent was
covered by the fund.
On December 26, 1958, Yugoslavia passed another nationalization
law under which urban dwellings, business premises, and underdeveloped building lots were taken, including U.S.-owned property.
In 1962 the United States and Yugoslavia agreed to negotiate on the
settlement of claims arising under, this law or other measures of the
Yugoslav Government since the 1948 settlement.
Poland
Nationalization of a substantial part of the Polish economy was
provided for in an act of January 3, 1946. This act also provided
for compensation to the owners of nationalized enterprises in the form
of bonds, or, in a few cases, cash or goods.
Subsequently the United States and Poland entered negotiations
concerning the compensation of US. nationals who had been affected,
and^on December 27, 1946, the two countries reached an agreement
setting forth the basic principles governing the settlement of claims.
" Much of tbe background Information In this section bas been taken from: U.S. Congress, H. Doc. 67,
83d Cong., 1st sess., transmitting tbe supplementary report of tbe War Claims Commission on "War
Claims Arising Out of World War II," Jan. 16,1963, and "Settlement of Claims," by tbe U.S. Foreign
Claims Settlement Commission of tbe United States and its predecessors from Sept. 14,1949, to Mar. 31,
1966, U.S. Government Printing Office, June 15,1966; also U.S. Congress, Senate Committee on Foreign
Relations, staff memorandum on claims programs administered by t i e Foreign Claims Settlement Commission under tbe International Claims Settlement Act of 1949, as amended, committee print, March 1963.
" Xeroer, Robert J., editor, "Yugoslavia," Berkeley, University of California Press, 1949, p. 421.
HeinOnline
--
2 I.L.M.
1082
1963
1083
14
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
The agreement provided for a Polish American Mixed Commission
to decide matters in dispute and an umpire to settle questions on
which the national representatives could not agree. However,
following these negotiations, a new regime assumed control in Poland
and no settlements were effected nor was a final agreement signed.
The negotiations, broken up in 1947, were not resumed until 1957.
On July 16, 1960, after almost 3 years of negotiations, Poland
and the United States signed an agreement whereby Poland agreed to
pay $40 million over a 20-year period in full settlement of all claims
of U.S. nationals on account of nationalization or other taking of
property in Poland. The payment of the $40 million was to be made
in 20 annual installments of $2 million each, beginning on January
10, 1961. This amoimt was to cover claims of U.S. citizens whose
property or lights and interest in property were nationalized or otherwise taken by the Government of Poland or .appropriated or limited
and restricted in their use or enjoyment under Polish Government
measures, plus debts owed to American citizens by nationalized or
confiscated enterprises. A total of 9,878 claims were asserted during
the filing period, amounting to $680,421,639. The making of awards
on these claims is still in process.
Czechoslovakia
In Czechoslovakia nationalization was accomplished by four decrees
of the President dated October 24,1945. Later, pursuant to the new
constitution of May 9, 1948, a new series of laws were passed by the
National Assembly which practically abolished private industry in
that country.
The decrees provided for payment of compensation with certain
exceptions for the most part in Government bonds but in a few cases
in cash or other values.
In January 1946 Czechoslovakia announced that it would negotiate
directly with the governments of the foreign nationals who had invested in nationalized enterprises and in 1948 a mission came to the
United States for the purpose of resolving the dispute over property
of Americans nationalized in Czechoslovakia. However, the negotiations were discontinued after a member of the mission resigned and
requested and received the right of asylum in the United States.
In November 1955 the Czechoslovak Government agreed to reopen
negotiations. Since that time there has been some progress in narrowing the position of the two Governments, but so far there has been no
agreement. Meanwhile, in 1958 a claims fund of $8,540,768.41 was
established under title IV of the International Claims Settlement Act
of 1949, from the proceeds of a steel-rolling mill sold under the Trading
With the Enemy Act after the Communist coup 'in Czechoslovakia.
When the program was completed on September 15, 1962, 2,630
awards had been made, totaling $113,645,205.41, of which 5.3 percent
was paid.
Bulgaria
In the Balkan countries of Hungary, Kumania, and Bulgaria, most
of the nationalization programs affecting .American property were
enacted slightly more than a year after peace treaties with the United
H e i n O n l i n e - - 2 I . L . M . 1083 1963
1084
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
15
States had been signed on February 10, 1947. However, provisions
in the treaties relating to the vesting of assets in the United States
formed the basis on which claims funds were later established under
title III oí the International Claims Settlement Act of 1949 (Public
Law 84-285, approved Aug. 9, 1955).
In Bulgaria, general nationalization of most of the economic resources was accomplished by a decree of the National Assembly on
December 23, 1947. Compensation in the form of interest-bearing
bonds to owners of nationalized enterprises, except in certain cases,
was provided for in the law.
The agreement between the United States and Bulgaria concerning
compensation for American property holders affected by the takings
was not signed until July 2, 1963. However, a claims fund for nationalization and war damage claims, amounting to $2,613,325.59,
was established out of vested assets under the International Claims
Settlement Act. When the Bulgarian claims program was completed on August 9, 1955, 217 awards had been made to claimants,
totaling $4,685,187, but this included both war damage and nationalization claims. Of this approximately 50 percent was paid
from the fund. The agreement of July 2,1963, provides for the settlement on a lump-sum basis of claims of U.S. nationals arising out of
war damage, nationalization of property, and financial debts as described in article I.
The lump-sum settlement of $3,543,398 includes $3,143,398 in assets of the Bulgarian Government and Bulgarian corporations which
were blocked in the United States during the Second World War and
$400,000 which is to be paid by the Bulgarian Government to the
U.S. Government in two mstauments, on July 1, 1964, and July 1,
1965.
Hungary
Hungary undertook nationalization more gradually, beginning as
early as 1945 and accelerating it in 1946 through a law which exempted U.S. citizens. In May 1948, however, aU industrial, mining,
electrical, metallurgical, and transportation facilities located m
Hungary and employing more than 100 persons were nationalized.
Although the various nationalization laws provided that compensation was to be prescribed by separate acts of Parliament, no compensation has been paid to US. nationals. A Hungarian claims fund
of $1,653,647.09 was established from vested assets in the United
States to cover claims resulting from both war damage and nationalization. When the claims program was completed on August 9, 1959,
1,153 awards had been made for $58,181,408, but these figures include
claims for war damage as well as nationalization.
Rumania
The basis for Rumania's nationalization of private property was its
constitution of April 13, 1948. Although the subsequent law implementing nationalization provided that owners and stockholders of
nationalized enterprises were to be compensated by securities redeemed from the net profits of the new national enterprises, the
American owners were not compensated at the time.
20-821—03
4
H e i n O n l i n e - - 2 I . L . M . 1084 1963
1085
16
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
In 1955 a claims fund of $20,057,346 was established out of vested
assets and when the claims program was completed on August 9, 1959,
498 awards totaling $60,011,348 had been made for both war damage
and nationalization claims, of which amount approximately 30 percent
was paid.
In addition, on March 30, 1960, Rumania and the United States
signed a lump-sum agreement under which Rumania agreed to pay the
United States an additional $2.5 million in five installments between
July 1,1960, and July 1,1964, as afinalsettlement of total U.S. claims
against Rumania.
Communist China
As of 1949, the value of U.S. investments in China were estimated
at $56 million, not including various schools and universities, such as
Peiping Union Medical College, St. John's University,
and Yale in
China, or U.S. embassy and consular property.38 After the Communist takeover, all of this was taken. First the schools were nationalized. Then a number of U.S. firms were forced out of business by an
increasing number of restrictions and punitive taxes. After the outbreak of the Korean war, by a decree of December 29, 1950, the
Chinese Communist government assumed control of all U.S. property,
whether owned by the Government or private citizens.
The United States has never established diplomatic relations with
Communist China, and no settlement has been made. However, during the Korean war the assets located in the United States of all residents of mainland China were blocked and in 1954 the United States
delivered a diplomatic notetoTaipeh listing the properties in China belonging to the U.S. Government. In addition,listshavebeen compiled
of the losses of American firms, and statements of claims have been
registered by private citizens with the Department of State.
Cuba
Following the taking over of the Cuban Government by Fidel Castro
at the beginning of 1959, American property in Cuba was rapidly subjected to "intervention" (a term used to denote the taking over by
the Cuban Government of the management of an enterprise), harassment, expropriation, and confiscation. Eventually all but a relatively small amount of U.S.-owned property was taken. Official estimates of the total value of U.S. property lost now stand at $1% billion.40
As far as is known by the Department of State, no compensation was
made in any instance and the government bonds by which compensation was to be made under some of the Cuban laws have not even
been printed.
Intervention of U.S.-owned firms began with the Cuban Telephone
Co. on March 4,1959, and interference of various kinds with Americanowned property steadily increased. On May 17, 1959, on agrarian
reform law was enacted which provided for the taking of agricultural
properties with payment to be made in 20-year bonds at 4}£ percent
interest. Soon after the passage of the agrarian reform law, the
United States expressed its concern over the adequacy of the provisions for compensation, although it also stated that it recognized
the right of a state to expropriate property for public purposes,
» information from the Department of State.
io Information from the Department of State.
HeinOnline - - 2 I.L.M. 1085 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
17
coupled with the obligation to make prompt, adequate, and effective
compensation.41
On October 26,1959, the Cuban Government passed a law imposing
confiscatory taxes upon the nickel plant owned by the United States,
and other restrictive or harassing measures were applied to U.S.
enterprises, such as requiring the reregistration of all mining concessions.
The pace of interventions quickened and sugar owners began to
lose their properties. On January 11, 1960, the United States protested, against actions of Cuba which it contended were violating the
basic rights of ownership of U.S. citizens. It said land and buildings
of U.S. citizens were being seized and occupied without court orders or
written authorizations, that equipment and cattle were being seized or
moved, timber was bemg cut, and pastures plowed under, often without taking inventories or giving receipts or any indication that payment of compensation would be offered.42 Cuba replied on February
14,1960, that where property had been occupied steps were being taken
for its appraisal, and that if the United States considered that Cuban
laws had been violated, U.S. nationals had the right to appeal through
appropriate channels.
Next the oil companies were hit. On May 17, 1960, the National
Bank of Cuba informed the U.S. oil companies in Cuba that each of
them would be required to purchase 300,000 tons of Russian petroleum
during the balance of 1960. Later the oil refineries were seized on the
grounds that they had violated the law in refusing to refine Soviet
petroleum. This action was protested by the United States on July 5.
1960, in a note which stated that the actions were "arbitrary and
inequitable, without authority under Cuban
law, and contrary to
commitments made to these companies."43
On July 6, 1960t the Cuban Government passed a law which
authorized the nationalization of U.S.-owned property generally.
The law authorized payment to be made from a fund to be derived
from the receipts from annual purchases of Cuban sugar by the
United States over 3 million tons, at the price of at least 5.75 cents a
pound, payment to be in 30-year bonds at 2 percent interest. On
the same day, the United States reduced the Cuban sugar quota by
700,000 tons, President Eisenhower stating that the United States
would fail in its obligations to its own people if it did not take steps
to reduce its "reliance for a major food product upon a nation which
has embarked upon a deliberate policy of hostility toward the United
States." «
The nationalization law was protested by the United States on
July 16, 1960, as discriminatory (because it was specifically limited
to property owned by U.S. nationals), arbitrary (because it was
admittedly enacted in retaliation to actions taken by the United
States to assure its sugar supply), and confiscatory (because it failed
to meet minimum criteria necessary to assure prompt, adequate, and
effective compensation, and prohibited any form of judicial or administrative appeal from the decisions of the expropriating authorities).45
«
o
«
«
«
Note of June 11,1969, Department of State Bulletin, June 29,1969, pp. 968-959.
Statement of Jon. 11,1969, Department of State Bulletin, Feb. 1,1960, p. 168.
Note of July 6.1960, Department of State Bulletin, July 26,1960, p. Ulf
Statement of July 6,1960, Department of State Bulletin, July 25,- I960, p. 140.
Note of July 16, I960, Depsrtment-of State Bulletin, Aug. 1, I960 , p. 171.
HeinOnline
--
2 I.L.M.
1086
1963
1087
18
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
When the Castro government sought to justify its actions on the
grounds that the United States had committed economic aggression in
reducing Cuba's sugar quota, the United States said that about onehalf of the investments had been seized before any change in the
quota was made.
On September 17,1960, three American-owned banks were nationalized, 48against which the United States protested on September 29,
I960. Next the nickel plant owned by the U.S. Government was
intervened, and on October 24, 1960, it was among 166 properties
which were nationalized. This was protested by the United States on
November 19, 1960. Meanwhile, Cuba was taking additional
hostile actions toward the United States while establishing closer
relations with the Communist bloc and on January 3, 1961, after a
demand that the U.S. Embassy be reduced to 11 officials, the United
States terminated diplomatic and consular relations with Cuba.
Thus far some 90 documented statements of claims have been filed
•jrith the State Department, which are being retained until an opportune tune to submit them.
On July 8, 1963, the United States froze all Cuban assets in the
United States, estimated to total some $30 million. This includes
assets owned by the Cuban Government and individual Cubans
residing on the island but not the property of Cuban exiles residing
abroad. Part of these assets are already under litigation, being
claimed as compensation by some of the Americans who had property
taken by the Castro government.
(B) EXPROPRIATION IN NON-COMMUNIST COUNTRIES
Not all of the expropriations since the end of the Second World
War have occurred m Communist countries, however. In addition
to the continuing occasional expropriations of land by Mexico, the
following ore the major other expropriations of American-owned
property which have occurred.
Bolivia, 1952
On October 31, 1952, the Government of Bolivia issued a decree
nationalizing the mines and other properties belonging to the three
largest companies—Patino, Aramayo, and Hochschild. Three percent interest was to be paid on the capital value of the nationalized
property pending a final settlement. Although none of the companies
was incorporated in the United States, the Patino company was
partially owned by the U.S. stockholders and the United States has
made representations in behalf of these stockholders. In addition,
it encouraged direct 47
negotiations between the companies and the
Bolivian Government.
Under an interim agreement of June 1953, Bolivia agreed to make
annual payments to the companies based on the price of tin. Payments to the three companies totaling about $20 million were made
in the next 8 years. In August 1961 Bolivia declared a moratorium
on the payments until agreement could be reached with the companies
on the total amount to be paid and pending an attempt to rehabilitate
the mines. In January 1962, representatives of the Patino company
M Nate of Sept. 29, I960; Department of State Bulletin, Oct. 17,1960, p. 601.
4) Information from the Department of State.
HeinOnline
--
2 I.L.M.
1087
1963
1088
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
19
and the Bolivian corporation running the mines agreed to further
compensation of $4.2 million beginning January 1, 1965, at the end
of the moratorium. This agreement has not yet gone into effect.
Guatemala, 195S
On June 19, 1952, an agrarian reform law was enacted by the
Arbenz government which had come to power in Guatemala the
previous year and was widely recognized as Communist influenced.
Subsequently on March 5, 1953, Guatemala expropriated 234,000
acres of land belonging to the United Fruit Co. Compensation was
proffered the company in tbe form of Guatemalan Government 3percent "agrarian bonds" maturing in 25 years and in a face value
equivalent to the tax value of the land as recorded on May 9, 1952.
The United States protested that the method of fixing of the amount
of the bonds did not bear the slightest resemblance to just evaluation,
especially
in the light of tax evaluation procedures followed in this
case.48
The threat of Communist penetration in the Western Hemisphere
elevated the events occurring in Guatemala during this period to a
crisis status. However, this threat diminished when a new government took power. Similarly, the expropriation problem ended because
it was rescmded by the new government.
Suez Canal, 1956
On July 26, 1956, shortly after the United States and United
Kingdom withdrew offers to assist in building the Aswan Dam,
President Nasser of Egypt issued a decree nationalizing the Universal
Co. of the Suez Maritime Canal, largely owned by the British Government and private stockholders in France, but with some U.S. stock
ownership. The decree stated' that stockholders would be compensated in accordance with the value of the shares in the Paris Stock
Exchange on the day before the nationalization with 4payment made
after all assets and properties had been delivered. ' Britain and
France immediately protested, and a serious international crisis
ensued which involved hostilities between Egypt and Britain, France,
and Israel as well as United Nations police action.
The United States took the position that the Egyptian action went
far beyond a question of nationalization since80it involved a vital
waterway which was international in character. Subsequently the
United States took an active part in trying to devise a peaceful solution
to the problem and, when hostilities did occur, to restore peace.
With the International Bank affording its good offices between the
Egyptian Government and the Suez stockholders, on July 13, 1958,
an agreement was signed which provided for a payment by the United
Arab Republic to the stockholders of 4128,300,000 Egyptian pounds,
plus all external assets of the company.
Argentina, 1968
On July 7j 1958, a subsidiary of the American & Foreign Power Co.
was expropriated by the municipal government of Toberia in Buenos
Aires Province. With the United States affording its good offices,
>> Note of Aug. 28,1953: Department of State Bulletin, Sept. 14,1963, p.357.
" U.S. Department of State, "The Suez Canal Problem, July 26 to Sept, 22,1956," p. 31.
" Ibid., p. 38.
» Text of "Heads of Agreement," Department of State Bulletin, June 30,1958, p. 1097.
HeinOnline
--
2 I.L.M.
1088
1963
20
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
a settlement was effected through local remedies. The settlement,
made November 28, 1958, between Argentina and the company, also
covered properties previously expropriated, seized, or intervened by
local governments in Argentina. It provided that all American &
Foreign Power electric facilities in Argentina would be transferred to
the Argentine Government, and that the properties would be evaluated
by the courts. The court62evaluation was issued April 26, 1961, and
accepted by the company.
Brazil
There have been two major instances of expropriations in Brazil,
each case involving an American-owned pubhc utility expropriated
by the Governor of the State of Rio Grande do Sul. In 1959 the holdings of the American & Foreign Power Co. were expropriated. In
1960, after refusing an offer by International Telephone & Telegraph
to invest additional funds in new facilities if it could obtain rate increases, the State government formed its own telephone company and
requested LT. & T. to participate. Company and State officials
reached agreement on a valuation of the equivalent of $7.3 million,
but this was rejected by the Governor as'too high and the I.T. & T.
as too low. The controversy culminated when the Governor on
February 16, 1962, issued a decree expropriating all the property of
I.T. & T. in the State. At the same time, he had a sum equal to about
$400,000 deposited to the account of the company.
The United States issued a statement acknowledging the right of
expropriation for public purposes if prompt, adequate, and effective
compensation were made. Through the good offices of the Brazilian
Federal Government, negotiations began almost immediately between
State and company officials. Nevertheless, the matter was still an
issue when President Goulart visited the United States in April 1962,
and was considered by the Presidents of the two countries at that
time. They agreed that in the transfer of public utility enterprises
to Brazilian ownership, the principles of fair 'compensation, with reinvestment in other sectors of the economy, should be maintained.
However, settlement had not been reached when the foreign aid
legislation was under consideration by the U.S. Congress and this was
one of the chief causes for the amendment stating that if expropriations were not followed by speedy compensation, foreign aid would be
withdrawn. In both cases in Brazil agreement on settlement was
reached before the 6-month deadline after which it would have been
mandatory for the United States to suspend foreign aid.
In January 1963,1.T. & T. reported a satisfactory interim arrangement on compensation had been reached pending final valuation by a
State court in Brazil, with LT. & T. to reinvest the proceeds in its
Brazilian manufacturing facilities.'3 In addition, on April 22, 1963,'
Brazil agreed to the direct purchase of the American & Foreign Power
subsidiaries in Brazil at the price of $135 million, with payment of
$10 million in cash plus notes for the balance payable
over a 25-year
period with interest ranging from 6 to 6}£ percent.54
» "Major instances of Expropriation," op. cit., p. 94.
o Wall Street Journal, Feb. 1,1963, p. 8.
« New York Times, Apr. 23,1963. p. 64.
HeinOnline - - 2 I.L.M. 1089 1963
1090
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
21
Ceylon, 1962
On May 5,1961, Ceylon enacted the Ceylon Petroleum Corporation
Act. This act provided for a state corporation to carry on business as
an importer, exporter, seller, supplier, or distributor of oil and oil
products, and to acquire or requisition any equipment of private oil
companies which it needed, against compensation determined by a
special tribunal.
Under this act, on April 27, 1962, Ceylon nationalized 83 gasoline
stations and other oil facilities owned by two American companies,
Esso and Caltex. In taking these properties, Ceylon had announced
that compensation would be made. However, fundamental disagreement existed between the Government of Ceylon and the companies
on the basis for compensation, and no agreement had been reached by
February 1, the deaclline under the amendment by which foreign aid
would be suspended if appropriate steps to discharge obligations under
international law had not been taken. The United States considered
that appropriate steps had not been taken because the basis of valuation proposed by Ceylon, the book -value as opposed to the cost of
reproducing the facilities, were—
inconsistent with the established principle of international law that in evaluating
vested property, all elements or interests of value which make up the total worth
of the property must be evaluated and compensated. "
The deadline, which had been called to the attention of the Ceylonese Government several times, was postponed for 1_ week by
Secretary of State Rusk in the belief that serious and promising negotiations were underway. On February 8, 1963, however, the United
States did suspend aid and Ceylon became the first and thus far the
only country to experience the cutoff of American aid under the
amendment.
At the time of the aid suspension, David E. Bell, Administrator for
the Agency for Liternational Development, announced that the
United States did pot contest Ceylon's right to nationalize private
property but "in the absence of progress toward a settlement * * *
the Government of the United States is required by law to suspend
aid to Ceylon."
Suspension involved holding up $800,000 in technical assistance
projects for agricultural research, industrial productivity, and malaria
control, the bulk of a $3.2 million loan for modernizing Ceylon's
Katunayake Airport, and the small undisbursed part of a $750,000
loan to rehabilitate Ceylon's railroads. Grants were not cut off
immediately for the 57 Ceylonese students then studying abroad, nor
were the milk and wheat flour used in Ceylon's school lunch program
and in the health centers cut off.
After the suspension, % on February 8, the Ceylon Government
issued a communique stating that it "was at all times ready and willing
to pay compensation to the oil companies, and that, in fact, provision
for that purpose already existed in the Ceylon Petroleum Corporation
Act." The communique continued:
Ceylon's experience in this shows that reliance on foreign aid could entail some
measure of a surrender of a country's freedom of action in regard to the adoption
of policies which received the full endorsement of its own nationals.
» Agency for International Development, background Information-, press release of Feb. 8,1963.
HeinOnline
--
2 I.L.M.
1090
1963
1091
22
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
The communique stated that the next meeting to negotiate a settiement had been scheduled for February 11 and it was the intention of
the Government's negotiator to discuss a tentative assessment of
lump-sum compensation, but that "the U.S. Government's decision
cannot fail to impair the prospects of successful negotiation of a lumpsum settlement. The Government of Ceylon has, therefore, decided
to call off the negotiations and to proceed in strict accordance with
the provisions of the Ceylon Petroleum Corporation Act." Finance
Minister Kalugale said, "We hope that our genuine friends will come
to our assistance. In any case our own people must be prepared to
make some sacrifices
in order to preserve their national self-resp ct
and dignity." M
In a letter to the editor of the Washington Post, printed February
25,1963, the First Secretary of the Embassy of Ceylon in Washington
stated that Ceylon's Petroleum Corporation bul was originated before
the amendment to the Foreign Assistance Act and that it had "contained categorical provision that the expropriated property shall be
Said for." He contended that the view existed in Ceylon that the
fovernment had "strained the Petroleum Act to an almost impermissible extent" to expedite a settiement, but that even with special
procedures there had been no "reasonable chance of success, considering the points of view that had to be reconciled before the not-quitenatural dateline
that has been exercising its baleful influence from the
outset." w
A settlement has not yet been reached. In receiving the new
Ambassador from Ceylon on April 8, 1963, President Kennedy expressed the hope that "the present difficulties which cloud" relations
between Ceylon and the Umted States might be rapidly resolved.68
rV. U.S. POLICY
(A) DEVELOPMENT OP U.S. POLICY
The United States has consistently acknowledged the right of a
sovereign nation to expropriate foreign-owned property, so long as
the taking conformed to the standards of international law. In the
view of the United States these standards required that the taking
be for a public purpose, not discriminatory against U.S. citizens, and
accompanied by just compensation. This policy was asserted as
early as 1922 in a note from Secretary of State Hughes to the American
Minister in China:
Concerning the question whether the Chinese authorities may exercise the right
of eminent domain over property owned by American citizens in China, the Department may state that since the right is so essential to the existence of any
sovereign state, the Department would not be inclined to question the exercise
of the right by China in an appropriate case, that is, for a public purpose, but
would of course be under the necessity of insisting that just compensation be
made for any property taken or damaged, and
that there shall be no discrimination in this respect against Amerioan citizens.59
On numerous more recent occasions the United States has reaffirmed
its recognition of the right of a state to expropriate property provided
just compensation was made.
u Washington POSE, Peb. 19,1963, p. C-10.
" Washington Post, Feb. 25,1962, p. A-16.
« Department of State press release 183, Apr. 8,1963.
<> Hackworth, op. cit, vol. m , p. 654.
HeinOnline
--
2 I.L.M.
1091
1963
1092
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
23
In addition, more recently the United States has spelled out "just
compensation"
to mean compensation which is prompt, adequate,
and effective.80 A statement of intention to pay compensation in the
future was not enough, nor could failure to pay adequate compensation be justified on the grounds that American citizens were being
given treatment equivalent to that being given the country's own
nationals. In a note to Mexico of July 21, 1937, Secretary of State
Hull wrote:
If it were permissible for a government to take the private property of the
citizens of other countries and pay for it as and when, in the judgment of that
government, its economic circumstances and its local legislation may perhaps
permit, the safeguards which the constitution of most countries and established
international law have sought to provide would be illusory. Governments would
be free to take property far beyond their ability or willingness to pay, and the
owners thereof would be without recourse. We cannot question the right of a
foreign government to treat its own nationals in this fashion if it so desires.
This is a matter of domestic concern. But-we cannot admit that a foreign
government may 'take the property of American nationals in disregard of the
rule of compensation under international law."
In the Guatemalan expropriation .the United States took the position that payment in 3-percent bonds maturing in 25 years could
scarcely be regarded as either prompt or effective payment since the
holders would
bonds were of uncertain market value and many of the
realize very little on the bonds during their lifetime.62
Similarly the United States expressed "serious concern" as to the
adequacy of Cuba's agrarian
reform law which provided for compensation in a similar manner.63
Expropriation discouraged
In recent years, the desire of previously dependent people for both
economic independence and economic development nas sometimes
made expropriation of foreign enterprises appear as a tempting method
of achieving these goals. The United States has generally discouraged
this method, whether just compensation was to be paid or not.
First, the United States has made it clear that it regarded inadequately compensated expropriations as illegal, even though it sympathized with the aspirations for economic development ana was willing
to assist in the attainment of this goal. It has taken the position that
these goals, although understandable, did not justify illegal seizures..
In the view of the United States when an expropriation involving its'
citizens was concerned, the objective of the country taking the property was not the question, the question was whether the obligations
of international law requiring just compensation had been fulfilled.
Moreover, expropriation of foreign property without adequate compensation, the United States has held, drives away the foreign capital
which is needed for economic development. "Violation of the basic
norms of justice," the United States wrote to Guatemala in 1953,
"cannot fail to undermine
mutual confidence without which economic
progress is retarded." M
Second, even when adequate compensation is made, expropriation
is deemed by the United States not to be a useful policy in most cases,
»» Aide memoire to Guatemala, Aug. 28,1963, Department of State Bulletin, Sept. 14,1963, p. 369.
a Department of State Publication 1288, op. cit., p. 6.
» Aide memoire to Guatemala, Aug. 28,1963, loc cit.
i Note of June 11,1959, Department of State Bulintin, June 29,1963, p. 959.
" Aide memoire to Guatemala, Aug. 28,1953, loo. cit.
HeinOnline
--
2 I.L.M.
1092
1963
1093
24
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
especially for underdeveloped countries, even though it is recognized
as a legal right. The reasons given for this are that the payment of
the required compensation diverts resources needed for economic
development and depletes supplies of foreign currency; property is
often transferred from competent private hands to governments which
lack the managerial skills necessary; and such actions tend to spoil
the climate for private investment and deter capital investment.
Accordingly, "as a matter of Government policy we feel obligated
our views on the disto make known to the less developed nations
advantages inherent in expropriation." œ This applies also to other
measures of Government interference with foreign business which
have been referred to as "creeping expropriation."68
Secretary of State Dean Itusk has summarized this policy in the
following manner:
We don't challenge in the strictest constitutional sense the right of a sovereign
government to dispose of properties and peoples within its sovereign territory.
* * * We do think that as a matter of policy it would be wise and prudent on their
side to create conditions which will be attractive to the international investor, the
private investor. 80 our influence is used wherever it can be and persistently,
through our Embassies on a day-to-day basis, in our aid discussions 9and in direct
aid negotiations, to underline the importance of private investment.
A possible exception to the general discouragement of expropriation
might be found in regard to land reform in Latin America. One reason
'ven by the Department of State for opposing a mandatory cutoff of
reign aid to countries 'expropriating American-owned property unless certain conditions were met was that it might discourage land
reform programs in Latin America. On the other hand, protest has
also been made that in certain instances expropriations for kind reform
were undesirable.
In regard to the Cuban agrarian reform law, the United States
stated:
S
The Government of the United States understands and is sympathetic to the
objectives which the Government of Cuba is presumed to be seeking to attain
through this law. Various U.S. programs of technical cooperation and assistance
in the agricultural field undertaken with other countries of this hemisphere and
elsewhere have aimed at the same goal of encouraging greater agricultural production, new crops, and crop diversification so as to raise the standard of living
of the inhabitants of rural areas and thereby contribute to the overall economic
growth of "those countries. The Government of the United States recognizes
that soundly conceived and executed programs for rural betterment, including
land reform in certain areas, can contribute to a higher standard of living, political
stability, and social progress. * * *
At the same time it is evident that a widespread redistribution of land in a
manner which might have serious adverse effects on productivity could prove
harmful to the general economy and tend to discourage
desirable private and
public investment in both agriculture and industry.M
Action taken in Ute event of expropriation
The general pattern of action which the United States has taken
when expropriations occurred without prompt compensation was
established before the Second World War. In the event a U.S.
national could not secure a satisfactory settlement with the government diplomatic representations were made in his behalf. If the
« Address by Undersecretary Ball, May 12,1962, Department of State Bulletin, Jona 4.1982, p. 915.
«Ibid,
n U.S. Congress. Senate Committee on Foreign Relations, hearing on Foreign Assistance Act of 1962,
p. 27.
« Kote of June 11,1969, Department of State Bulletin, June 29,1969, p. 968.
HeinOnline -- 2 I.L.M. 1093 1963
1094
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
25
United States believed the national had still not received just compensation even though all local remedies had been exhausted, further
diplomatic negotiations were undertaken to submit the matter to
international arbitration or adjudication. Sometimes mixed claims
commissions have been established to decide on the validity and
amount of claims.
As the extent of expropriations has increased with the advent of
nationalizations of whole segments of an economy, lump-sum settlements, out of which the United States would pay the claimants, have
become frequent. Mexico, Yugoslavia, Poland, and Rumania provide
examples of this method. In addition, in the case of some countries
with whom a settiement could not be reached, such as Czechoslovakia,
and Hungary, assets in the United States have been used as a fund to
partially compensate American nationals whose property in that
country has been taken.
The use of force or direct intervention to obtain restitution or compensation has not fitted into the usual pattern of U.S. policy.
Possible exceptions might be found in relations with Latin America
during the period which has been termed
at the turn of the century
"gunboat" or "dollarM diplomacy. In this period the concept prevailed
that intervention by the United States was permissible to guarantee
general principles of international conduct and was necessary to prevent European intervention. In his annual message to Congress on
December 6, 1904, President Theodore Roosevelt outlined this concept which has been called the Roosevelt corollary to the Monroe
Doctrine. He stated:
If a nation shows that it knows how to act with reasonable efficiency and decency in sooial and political matters, if it keeps order and pays its obligations, it
need fear no interference from the United States. Chronic wrongdoing, or an
impotence which results in a general loosening of the ties of civilized society, may
in Amerioa^as elsewhere, ultimately require intervention by some oivilized nation,
and in the Western Hemisphere the adherence of the United States to the Monroe
Doctrine may force the United States, however reluctantly, in flagrant oases of
such wrongdoing or impotence, to the exercise of an international police power."
An example of the kind of action that was taken under this policy
may be found in Nicaragua, when the settlement of claims resulting
from the cancellation of concessions was carried out by a mixed claims
commission which had a majority appointed at the initiative of the
United States, and amid marines who had been landed for the general
protection of foreign nationals and property. However, intervention
as a policy even in Latin America was gradually abandoned, and in
1936 the United States renounced the right to unilateral intervention
in Latin America without reservation in signing an inter-American
protocol which stated:
The high contracting parties declare inadmissible the intervention of any'one
of them, directly or indirectly, and for whatever reason, in the internal or external
affairs of any other of the parties.
In some instances, such as Soviet Russia and Cuba, nonrecognition
or the withdrawal of recognition has followed expropriations. However, in these cases as in instances such as Guatemala where other
vigorous policies were pursued, expropriation has been only one of
« Oantenbein, James W„ "The Evolution of Onr Latin American Policy, a Documenta—r Record."
New York, Columbia university Press. 1950, pp. 881-S62.
HeinOnline
--
2 I.L.M.
1094
1963
26
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
many factors involved in determining U.S. policy and may have been
as much a symptom os a cause of bad relations.
Suspension offoreign aid
Economic measures of a punitive nature have followed expropriations on various occasions in the past. For example, the United
States stopped the purchase of Mexican silver for a lew weeks after
the oil expropriation in 1938 and a higher duty was imposed on Mexican oil than on Venezuelan and Colombian oü. Similarly, the Cuban
sugar quota was reduced in 1960. In recent years, the withholding of
foreign aid has presented a newtoolof economic pressure which was not
available in the past.
Aside from any intention merely to retaliate, however, some have
questioned the wisdom of extending foreign assistance to countries
which expropriated the property of U.S. citizens, even while recognizing expropriation as a right of sovereignty. Private investment,
it has been held, contributes to the objective of promoting economic
development just as foreign aid does, so countries which drive out
private investors by expropriation should not expect foreign aid to
makeup the gap. Moreover, the paying of compensation to American
nationals for expropriation of their property by a country receiving
foreign assistance raised the question of whether U.S. funds were in
effect being used to pay the compensation.
Concerned about the expropriations of American-owned property
taking place in countries which were receiving foreign aid, such as
Brazil and Ceylon, Congress in 1962 amended the Foreign Assistance
Act to provide for mandatory action. Proposed by Representatives
Ross Adair and Harris B. McDowell in the House and Senator
Bourke B. Hickenlooper in the Senate, the 1962 amendment required
the President to suspend assistance to a government which expropriated, nationalized, or seized property owned by U.S. citizens if
that country did not take appropriate steps within 6 months to
fulfill its obligations under international law, including equitable and
speedy compensation. The amendment also applied to measures of
"creeping expropriation." Asfinallypassed, the amendment provided:
The President shall suspend assistance to the government of any country
to which assistance is provided under this Act when the government of such country or any governmental agency or subdivision within such country on or after
January 1,1962—
(1) has nationalized or expropriated or seized ownership or control of
property owned by any United States citizen or by any corporation, partnership, or association not less than 60 per centum beneficially owned by United
States citizens, or
(2) has imposed or enforced discriminatory taxes or other exactions, or restrictive maintenance or operational conditions, which have the effect of
nationalizing, expropriating, or otherwise seizing ownership or control of
property so owned,
and such country, government agency or government subdivision fails within a
reasonable time (not more than six months after such action or after the date of
enactment of this subsection, whichever is later) to take appropriate steps, which
may include arbitration, to discharge its obligations under international law
toward such citizen or entity, including equitable and speedy compensation for
such property in convertible foreign exchange, as required by international law,
or fans to take steps designed to provide relief from such taxes, exactions, or
conditions, as the case may be, and such suspension shall continue until he is
satisfied that appropriate steps are being taken and no other provision of this
HeinOnline
--
2 I.L.M.
10 95
1963
1096
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
27
Act shall be construed to authorize the President to waive the provisions of this
subsection."'
The Department of State had been opposed to this amendment and
submitted a memorandum during the hearings stating:
We believe that the injection of the U.S. foreign assistance program into
condemnation proceedings would at best advance the interests of the American
citizen whose property is expropriated only marginally', and, on the other hand,
it can seriously injure the vital 71
U.S. national interests which the foreign assistance
program is designed to further.
The following six reasons were cited for opposing a mandatory
amendment:73
(1) It would give the appearance that the aid programs were
motivated by a desire to protect U.S. private investment and were,
in effect, tools of U.S. capital. This would play into the hands of
Communist propaganda.
(2) A vital element of U.S. foreign policy would be placed at the
mercy of one unreasonable action by a foreign official, possibly not
even a'member of the national government. Unrepresentative persons
hostile to the United States, whose power would be diminished by
the success of the aid program, might encourage inadequately compensated expropriations.
(3) The amendment might retard some of the economic and social
reforms being sought in connection with the aid program, particularly
in Latin America, such as land reform, which might require expropriations. Although adequate compensation in such cases would be
expected, fear that the United States might deem the compensation
inadequate and cut off all aid could deter the reforms.
(4) U.S. policy could be placed by the amendment in the hands of
one intransigent American citizen whose actions could provoke
expropriation and prevent a reasonable settlement. A proper
appraisal of the claims by the United States might be very difficult.
(5) Judging the reasonableness of compensation offered is frequently difficult, as shown by eminent domain cases in the United
States. A decision by the United States that it did not agree with
the judgment of a local court on the value of the property would not
win respect and could be viewed as unwarranted interference in the
internal affairs and violate our own principle of the rule of law.
(6) Flexibility is required rather than a rigid rule. The interests
of the United States require the balancing of many factors. The
interests of single citizens in matters of eminent domain
are among
the factors to be evaluated but should not control it.73
In spite of the opposition of the executive branch, the amendment
was passed. Among the reasons used in support of the amendment
were (1) that it would protect American property owners against
arbitrary or discriminatory practices; (2) that by providing greater
security to American property owners abroad, it would encourage
more private American investment in underdeveloped areas; and (3)
that it is unwise to permit countries to believe that the United States
will provide aid to them at the same time that they are violating the
rights of American citizens; that countries must be told that they
cannot take American property on the one hand and receive American
aid on the other.
"Seo. 629(e).
_ 'LS* 8 ' Congress, Senate Committee on Foreign Relations, hearings on Foreign Assistance Act of 1962,
P. 668.
»Ibid.
» Ibid.
H e i n O n l i n e - - 2 I . L . M . 1096 1963
1097
28
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
Since the adoption of this amendment it has been applied only to
Ceylon. In the case of the Brazilian expropriations which played a
large part in inspiring the amendment, satisfactory agreement on a
settlement was subsequently reached.
On March 18,1963, an author of the amendment, Representative
Ross Adair, stated that in addition to being a salutary influence in
Brazil, the amendment had influenced several countries enacting
agrarian reform measures which were expropriatory in nature to make
or request changes in the legislation.74
In addition, the Clay report in March 1963, on the foreign aid program described the amendment as "helpful."7S
Ceylon, on the other hand, has protested in effect that 6 months did
not provide an adequate time to reach agreement. After contending
that there was nothing "dilatory or evasive" about Ceylon's procedure
for providing compensation to the expropriation, a representative of
Ceylon raised these questions:
* * * The point to consider is whether the 6 months spelled out in section 620(e)
has any special merit of its own as a determination of speed. Should not the companies have been given a ohanae to exhaust remedies provided within the framework of the national laws before involving nations in this way? Is the threat of
an aid cutoff in this case compatible with the broad perspectives
and farseeing
objectives which made bilateral cooperation in aid possible? n
(B) PREVENTIVE MEASURES
Because much of the damage to the climate for investment is done
as soon as expropriation occurs, the United States has worked on the
theory that prevention of trouble is the best action.
The United States has gradually rejected the drafting of a multilateral treaty or code as an effective preventive measure although it
hag participated in many such attempts.
When a proposal was made by Representative Seiden in 1957 to
establish a commission with the primary purpose of studying the advisability of a uniform code to protect the United States and its
citizens from nationalization or confiscation of property, the State
Department took
the position that its bilateral treaty program was
more practical.77
Primarily the multilateral approach has been rejected on the grounds
that attempts in this direction have been futile, with differences in
legal systems, national policies, and economic interests providing
extremely difficult obstacles to agreement. Sometimes these differences have resulted in a watered-down provision which was not
satisfactory to anyone.
At other times attempts to draft a multilateral treaty have resulted
in a sharp cleavage between the capital-exporting countries, who were
interested in securing protection for their investors, and the capitalimporting countries, who were interested in maintaining or increasing
their freedom of action. As the number of underdeveloped countries
has grown, the United. States has expressed concern that the provisions
whicn might be adopted by the majority would dilute the safe standards for ]ust compensation already recognized in international low.
'< Congressional Record, Mar. 18,1963, p. 1182.
n Committee To Strengthen the Security of the Free World. Seport to tbe President of the United
States, "Scope and Distribution of U.S. Military and Economic Assistance Programs," Mar. 20,1963, p. 3.
- ™ Letter of First Secretary of the Embassy of Ceylon, Washington Post, Feb. 25,1962, p.A-16.
* Protection of private Investments overseas, U.S. Congress, House, hearings before an Ad Hoc Subcommittee of the Committee on Foreign Affairs on HJ . Bes. 180, Feb. 28 to Mar. 13,1957, p. 14.
HeinOnline
--
2 I.L.M.
1097
1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
29
Consequently, the United States in repent years has not encouraged
attempts to draft multilateral conventions.
Bilateral treaties
The conclusion of bilateral treaties, on the other hand, has been one
of the chief methods by which the United States has attempted to
prevent problems from arising out of expropriations. Thorsten V.
Kalijarvi, then Deputy Assistant Secretary of State for Economic
Affairs, testified in 1957:
The experience of the Department of State over many years has convinced us
that the bilateral treaty of friendship, commerce, and navigation offers the most
practical means of affording treaty protection to American investors abroad.'8
Bilateral negotiations, he stated, permit adjustments to be made
to take care of individual differences between countries in economic
and legal structures and "may be expected to produce the best results
as far as U.S. interests are concerned."
Provisions for the protection of private property have been embodied
primarily in general commercial treaties, now commonly called treaties
of friendship, commerce, and navigation, although peace treaties and
agreements on other subjects have also contained them.78 Examples
may be found quite early in American history. The Oregon Treaty
with Great Britain in 1846, for instance, contained articles relating
to respect for property and providing for valuation of lands that might
be taken for public use.
The provisions within the commercial treaties have undergone considerable evolution. Prior to 1923, the general practice in the treaties
was to incorporate broad statements of principle setting forth the
standards of treatment which were to be accorded in providing
property protection for the alien. Sometimes it was most-favorednation treatment (treatment not less favorable than that accorded to
the most favored nation), sometimes national treatment (treatment
equal to that afforded to nationals), sometimes a combination of these
two standards or an even less specific standard such as "full and
perfect protection."
Occasionally, however, even the early treaties included specific
references to expropriation or compensation for expropriation. The
first such provision appears to have been that in a treaty with Switzerland in 1850 which provided that in cases of expropriation the citizens
of one country wouki "be placed upon an equal footing with the
citizens of the country in which they reside with respect to indemnities
for damages they may have sustained." *° In addition, treaties with
underdeveloped states, in some of which the United States had extraterritorial privileges, were apt to contain more specific provisions.
_ Between 1923 and 1938 the'language became more specific. Beginning with the treaty with Germany signed December 8,1923, the commercial treaties frequently provided that property would not be taken
without due process of law and withoutpayment of just compensation.
In addition, the degree of protection afforded to the nationals of other
countries and their property was that required by international law.
Following is the formula that was incorporated in the treaties:
The nationals of each High Contracting Party shall receive within the territories
of the other, upon submitting to conditions imposed upon its nationals, the most
«ibid.
«J wuson. Robert K.. "Property-Protection Provisions In US. Commercial Treaties," American Journal
of International Law, January 1951, p. 91.
» Wilson, op. d t , p. 96.
HeinOnline - - 2 I.L.M. 1098 1963
30
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
constant protection for their persons and property, and shall enjoy in this respect
that degree of protection that is required by international law. Their property
shall not be taken without due process of law and without payment of just compensation."
Since the end of the Second World War there has been an accelerated
program to negotiate treaties of friendship, commerce, and navigation with firm provisions for compensation in the case of expropriation. These treaties were viewed as an important method of encouraging private investment abroad.
In addition to the Senate approval of the individual treaties,
Congress endorsed the treaty program in the Mutual Security Act of
1954, as amended, which provided that the President should—
accelerate a program of negotiating treaties of commerce and trade * * * which
shall include provisions to encourage and facilitate the
flow of private investment
to nations participating in programs under this Act.82
In the later treaties the provisions providing for compensation
in the case of expropriation have become more detailed. They added
the concept that the payment should be "prompt," at or prior to the
time of taking, in an effectively realizable form (foreign exchange in
the national's own currency), and should represent the full equivalent
of the property taken. The new general formula read:
Property of nationals and companies of either Party shall not be taken within
the territories of the other Party except for a public purpose, nor shall it be taken
without prompt payment of just compensation. Such compensation shall be in
an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provisions shall nave been made at or prior to the time
of taking for the determination and payment thereof."
Following is a list of friendship, commerce, and navigation or similar
treaties now in force between the United States and other countries.84
Seventeen of them have been concluded since the end of the Second
World War.
Countrv
Date of
signature
Dot« o/
signature
Country
Argentina
1853 Japan
Austria
— 1928 Korea
Belgium i
187S Latvia
Bolivia
1868 Liberia..
Brunei
.,
1850 Luxembourg
Morocco
China
1946
Colombia
1846 Muscat and Oman
Costa Bica
_
1851 Netherlands
Denmark
1961 Nicaragua
Estonia
— 1925 Norway.
Ethiopia
1951 Pakistan
Finland
1934 Paraguay
ƒ1822 Spain
France•
U959 Switzerland
Germany
1954 Thailand
Greece
1951 Turkey..
Honduras
1927
Iran
1955 United Kingdom
Iraq
1938 Vietnam
Ireland
- 1950 Yugoslavia
Israel
1951 Zanzibar
Tfol»
Z1848
Ital
yÜ951
i New treaty signed Feb. 21,1961, nas not yet entered into force.
-
-
-
1953
1956
1928
1938
1962
1837
1958
1957
1956
1928
1959
1859
1902
1850
1937
{gg
1815
1961
1881
1833
'i Wilson, op. d t , p. 98.
" Hearings on H.J. Bes. 160, op. cit., p. 16.
« Department of State; friendship, commerce, and navigation and similar treaties in force in whole or
in major part.
HeinOnline
--
2 I.L.M.
1099
1963
1100
EXPROPRIATION OP AMBRIGAN-OWNBÖ PROPERTY
31
According to the Department of State, deep-seated opposition by
the public and officials to some of the commitments contained in these
treaties has prevented the treaty program from making greater headway-, particularly in Latin America. The State Department has
stated:
Such treaties are regarded as tending to infringe upon the sovereignty and independence of individual countries. The feeling is widespread that therightsof
aliens should be governed solely by the constitutions and laws of the country in
which they reside or in which tbeir property is situated rather than by standards
established by international agreement.85
Investment guarantee program
In addition to the bilateral treaty program, a second method by
which the United States has sought to deal with the expropriation
problem is the investment guarantee program. This program originated as part of the Economic Cooperation Act cf 1948. It was
designed to encourage private investment abroad by providing insrrance protection against some of the risks, in addition to normal business risks, which are faced in some foreign countries.
Originally the program covered only the risk of inconvertibilitv of
earnings or profits from approved projects into dollars. In 1950 it
was extended to cover loss on an approved project by reason of
"expropriation or confiscation by action of the government of a participating country." The coverage was later broadened further.
In practice the guarantee program helps prevent expropriation
problems in two ways. First, it decreases the likelihood of an expropriation by requiring an agreement on the subject between the
United States and the country in which a guaranteed investment is to
be made. These agreements provide for consultation between the two
governments on any projects on which the investment guarantees
are issued, with the United States agreeing not to issue a guarantee
unless the project has been approved by the other government for that
purpose.
Second, in the event an expropriation does occur, prompt payment
can be made to the affected American nationals from the guarantee
funds while the United States pursues agreed procedures for settlement. The agreements provide that in the event an investor is paid
under the program, the United States is recognized as the succeeding
claimant and direct negotiations for settiement will be undertaken
between the two governments. If the negotiations are not successful
within a reasonable period, the agreements generally provide that the
claim will be referred to a sole arbitrator selected by mutual agreement
or, if agreement on an arbitrator cannot be reached, designated by the
President of the International Court of Justice.
The guarantees may be obtained on new investments, or additions
to old investments, in any nation which has entered the required agreement. The investor obtaining the guarantee pays a fee of 0.5 percent
per annum of the face value for guarantees and 20 percent of the
equity. The maximum duration ofthe contract is 20 years.
11
U.S. Congress, Senate Committee on Foreign Relations, hearings on Foreign Assistance Act of 1982,
p. 603.
HeinOnline
--
2 I.L.M.
1100
1963
1101
32
EXPROPRIATION OP AMERIGAN-0WNED ERQPBRTT
A s of April 30, 1963, expropriation guarantees were available in
the following 49 countries:
Afghanistan
Bolivia
China
Colombia
Congo (Brazzaville)
Congo (Lêqpoldville)
Costa Rica
Dominican Republic
Eouador
El Salvador
Ethiopia
Gabon
Ghana
Greece
Guatemala
Guinea
Haiti
Honduras
India
Iran
Israel
Ivory Coast
Jamaica
Jordan
Korea
Liberia
Malaya
Morocco
Nepal
Nicaragua
Niger
Nigeria
Pakistan
Panama
Paraguay
Philippines
•Portugal
Sierra Leone
Spain
Sudan
Thailand
Togo
Trinidad-Tobago
Tunisia
Turkey
Uruguay *
Venezuela
Vietnam
Yugoslavia
The Mutual Security Act of 1959 excluded economically developed
countries for purposes of the mvestment guarantee program. Therefore, although agreements have been signed by Austria, Belgium,
Finland, Federal Bepublic of Germany, Ireland, Italy, Japan, and
Luxembourg, guarantees may no longer be issued for investments there.
However, guarantees are s tin available for the underdeveloped oversea
dependencies of Denmark, France, Netherlands, Norway, and the
United Kingdom.87
Although Argentina, Chile, and Peru have signed investment guarantee agreements, they have not agreed to incorporate provisions
with respect to expropriation. Brazil and Mexico do not yet participate m the investment guarantee program at all.
The United States has sometimes encountered difficulties in attempting to negotiate investment guarantee agreements with respect to
expropriation. In a statement by the executive branch regarding
Latin America, the main problem was said to be political, that Latin
American legislative bodies were reluctant to take action on an agreement involving foreign (particularly
United States) investment which
might prove unpopular politically.8* According to the statement:
Most Latin American governments are in power by a slim majority and cannot
afford unpopular action suoh as ratification of the proposed agreement, unless the
agreement is justified by the eoonomio advantage.89
As of March 31, 1963, guarantees against expropriation had been
issued for 34 countries, totaling $461,976,670, and m addition90 appliThe
cations were in process for $1,327,332,038 m 48 countries.
number of applications had sharply increased following the expropriations in Cuba and revisions in the guarantee program.
As of May 31, 1963, no payments nave had to be made on the
expropriation guarantees. Although Cuba signed an agreement in
1957 covering expropriation, no applications for investment guarantees
against expropriation had been received for that country.
« Not yet in force as it most be ratified by Uruguayan legislature.
"Agency for International Development, Divestment Guaranties Division, Office of Development
Finance and Private Enterprise. Cumulative report of all specificriskinvestment guarantees Issued since
tbe beginning of the program through Mar. 31,1963.
•> Senate bearings, p. 606.
»Ibid.
n cumulative report, op. cit
HeinOnline -- 2 I.L.M. 1101 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
33
In addition to guarantees'issued against the specific risk of expropriation, under a new program barely underway "all risk" guarantees
may cover "such risks as the President may determine." 9l These
guarantees potentially offer protection against "creeping expropriation" as well as direct expropriation.
(C) U.S. POLICY COMPARED TO POLICY OF OTHER COUNTRIES
The usual policies followed by the United States after expropriations
have occurred have been much the same as those followed by other
countries confronted with the same situation. In large part this is
because a fairly well developed body of accepted international law
exists on the subject. Although the concept of nationalization and
the attaining of independence by formerly dependent peoples have
injected new theories to be considered, nevertheless the legal procedures for settiement are well defined.
In recent years other countries, as well as the United States, have
generally settled claims arising out of expropriations through diplomatic channels,
with the terms incorporated into an international
agreement.92
One case of expropriation was taken to the International Court of
Justice. This was the nationalization of the Anglo-Iranian Oil Co.
in 1951. After a diplomatic settlement failed the British Government
presented the case to the International Court of Justice. However,
the Court declared itself to be without jurisdiction in that instance
because of the terms of Iran's acceptance of tbe optional clause. An
agreement on settiement was reached after a new government came
into power in Iran. The case of Suez has already been discussed.
In regard to attempting to prevent expropriation problems, the
United States appears to have taken the leadership. Iirst of all, the
investment guarantee program is unique, with not even
private insurance against expropriation being available elsewhere.93
The second area m which the United States has assumed leadership
is in the negotiation of bilateral treaties. While the United States has
actively sought treaties providing protection against expropriation,
very few other countries in the postwar period have
concluded treaties
containing specific provisions along this line.94 One expert in this
phase of
international law has attributed this to the following two
factors.96 First, the preeminent economic strength of the United
States has assured her of extensive bargaining power. Second, the
treaties are reciprocal, and stipulations that compensation must be
aid in advance binds the United States in its exercise of eminent
§omain as well as the other party. In his view, not many states would
be willing to assume detailed and extensive obligations toward the
protection of foreign property in their own country even to secure the
protection of its own nationals abroad.
11
Foreign Assistance Act of 1961 as amended, sec. 221(b) (2;.
» White, op. cit., p. 255.
» Op. cit., p. 251.
« White, op. cit.. p. 248. According to White, only three treaties not involving tbe United States have
been concluded in tbe postwar period with specific expropriation provisions: Treaty of Commerce Between
India and Afghanistan, Apr. 4, i960: Commerda] Treaty Betnreen Poland and Czechoslovakia, 1917; Treaty
of Commerce, Establishment and Navigation, Mar. 2,1959.
" White, op. oit, p. 251.
HeinOnline - - 2 I.L.M. 1102 1963
1103
34
"EXPROPRIATION OP AMERICAN-OWNED PROPERTY
Y. INTERNATIONAL EFFORTS
The problem of expropriation has been discussed at several international meetings, both official and private.
(A) PRIOR TO WORLD II
Even in the early part of the century, a few international conferences
dealt directly or indirectly with the problem of expropriation. For
example, at the Second Hague Conference of 1907 a convention was
signed in which the parties agreed "not to have recourse to armed
force for the recovery of contract debts claimed from the government
of one country by the government of another country as being due to
its nationals." BB The agreement specified that it did not apply when
the debtor state refused to reply to an offer of arbitration or caused
an arbitration to be unsuccessful.
At the Cannes and Genoa Conferences in 1922, the European powers
dealt with the problem of economic relations with Russia. Their
conclusions were much the same as those of more recent times—that
every state has the right to regulate its own property but that foreign
capital will
be made available only if a country provides a sense of
security.97
Similarly the League of Nations occasionally dealt with matters
touching upon expropriation. A conference was held in 1929 to consider a convention on the treatment of foreign nationals and enterprises.
The purpose of the proposed convention was to promote equitable
conditions for nationals of one country carrying on business in another.
The method proposed for accomplishing this was to embody in a
common statute the safeguards which were necessary for the establishment and conduct of a business in
a foreign country and to prevent unfair or differential treatment.98 This conference was unable
to reach agreement.
In addition, in 1930 a Conference on the Codification of International Law considered the subject of the responsibility of states
for damages caused on {heir territory to the person or property of
foreigners. Although this was one of the subjects which had been
considered "ripe for regulation," the Conference was unable to reach
agreement on it. Among the problems discussed were whether a
nation was responsible for damages resulting from legislation incompatible with its international obligations (for example, a nationalization law not 99providing for compensation) and the remedies open to
the foreigner.
« Convention respecting the limitation oTtbeVempldyment of force for the recovery of contract debts,
Malloy, William M., "Treaties, Conventions, International Acts, Protocols, and Agreements, 1776-1999,"
'" Friedman, op. cit., pp. 101-106.
M League of Nations, International Conference on tbe Treatment of Foreigners, Geneva, Nov. 6,1929.
preparatory documents. Series of League of Nations publications U. "Economio and Financial, 1929,"
» Conference for tbe Codification of International Law, The Hague, Mar. 13,1930,firstreport submitted
to the Council by tbe Preparatory Committee for the Codification conference. League of Nations Document 0-73, M-38,1929, V., reprinted in supplement to the American Tournai of International Law, vol. 24,
1930, p. 24.
HeinOnline
--
2 I.L.M.
1103
1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
35
(B) ACTION IN THE UNITEO NATIONS
Expropriation in general has been discussed in the United Nations
along several difficult avenues. One of these was the effort to draft
covenants on human rights, when expropriation was discussed both as
it concerns property rights of individuals and as it fits into the national
right of economic self-determination. Along another line, expropriation has been considered as it affects private investments and the
economic development of underdeveloped states. In this regard
there has been a constant counterbalancing of attempts to protect
foreign investors and attempts to reassert the rights of sovereignty
(such as expropriation) which may be exercised by a nation.
Covenants on human rights
The Universal Declaration of Human Eights, adopted by the
General Assembly on December 10, 1948, included an article on the
right to own property. It stated:
(1) Everyone has the right to own property alone as well as in association with
others.
(2) No one shall be arbitrarily deprived of his property.
Efforts were made later by the Human Bights Commission to
include a corresponding article in a draft covenant on economic, social,
and cultural rights. However, these efforts failed in large part because
of differences of view on the relationship of expropriation to the right
to own property. A subcommittee, appointed in 1954 to reconcile
the various points of view, suggested the phrasing:
No one shall be deprived of his property without due process of law. Expropriation may take place only for considerations of public necessity or utility as
defined by law and subject to such compensation as may be prescribed.
This'phraseology and various amendments failed to be adopted,
however, and the question of consideration
of an article on the right
of property was adjourned sine die.100
An article on self-determination in the human rights covenants also
embodied the problem. The Human Bights Commission proposed the
following text:
The right of peoples to self-determination shall also include permanent sovereignty over their natural wealth and resources. In no case may a people be
deprived of its own means101of subsistence on the grounds of any rights that may be
claimed by other states.
After debate in 1955, the Third Committee of the General Assembly
adopted the following text:
The peoples may, for their own ends, freely dispose of their natural wealth and
resources without prejudice to any obligations arising out of international economic cooperation, based upon the principle of mutual benefit, and international
law. In no case may a people be deprived of its own means of subsistence.102
The United States voted against this paragraph. The U.S. delegate,
Mrs. Oswald Lord, took the position that the language did not moke
it sufficiently clear that it was not intended "to impair legal rights of
individuals or authorize expropriation
without adequate, prompt,
and effective compensation."I08
in United Nations Commission on Human Rights, report of the 10th session, Economic and Social Council official records: 18th session, supp. No. 7, F e b . » to Apr. 16,1954.
m Hyde, James N „ "Permanent Sovereignty Over Natural Wealth and Resources," American Journal
of International Law, October 1956, p. 856.
'«Ibid.
'»Ibid.
HeinOnline
--
2 I.L.M.
1104
1963
1105
36
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
Encouragement of private investment and sovereignty over natural
resources
Meanwhile, the expropriation problem had also entered into
United Nations efforts to promote economic development. The
General Assembly passed a resolution on December 21, 1952, recommending—
All member states, in the exercise of their right freely to use and exploit their
natural wealth and resources wherever deemed desirable by them for their own
progress and economic development, to have due regard, consistent with their
sovereignty, to the need for maintaining the flow of capital in conditions of
security, mutual confidence and economic cooperation among nations.101
Although an Indian amendment had laid stress on the "need for
maintaining the flow of capital in conditions of security," the United
States opposed the resolutions in large part on grounds that it did
not give adequate attention to the obligations that governments have
to investors in enterprises that are nationalized. Moreover, the
action developed largely out of an attempt by some members to have
the United Nations recognize the right to nationalize domestic resources and protect that right.105 The U.S. delegate, Isador Lubin,
suggested the resolution might be interpreted as a danger signal
warning investors that they
should think twice before investing in
underdeveloped countries.108
m By a resolution of December 12, 1958, the General Assembly established a Commission on Permanent Sovereignty Over Natural Resources to make a survey of the problem. Although the United States
had not favored the establishment of this. Commission, once established
it took an active part in its work. This Commission drafted a resolution which, as finally adopted by the General Assembly on December
14, 1962, declared:
Nationalization, expropriation, or requisitioning shall be based on grounds or
reasons of public utihty, security, or the national interest'which are recognized
as overriding purely individual or private interests, both domestic and foreign.
In such cases the owner shall be paid appropriate compensation, in accordance
with the rules in force in the state takmg such measures in the exercise of its
sovereignty and in accordance with international law. In any oase, where the
question of compensation gives rise to a controversy, national jurisdiction of the
state taking such measures shall be exhausted. However, upon agreement by
sovereign states and other parties concerned, settlement
of the dispute should be
made through arbitration or international adjudication.107
The vote on the resolution was 87 in favor (including the United
States), 2 opposed (France and South Africa), and 12 abstentions
(the Communist bloc plus Ghana and Burma).
The United States at first proposed an amendment which would
have defined "appropriate" compensation to mean "prompt, adequate,
and effective," compensation but later withdraw it. In doing so the
U.S. representative, Ambassador Philip M. Elutznick, stated that the
U.S.-delegation "was confident that the expression 'appropriate compensation' * * * would be interpreted as meaning, under international law, prompt, adequate and effective compensation." _ In
addition, the final resolution embodied a United States-United Kingdom amendment declaring that "Foreign investment agreements
1H
Resolution 626 (VII).
in "TJ.S. Participation In the United Nations," 1952, p. 110.
lor __webei, Stephen M., "The Story of the UJT.'s Declaration on Permanent Sovereignty Over Natural
Resources," American Bar Association Journal, May 1S63.
HeinOnline
--
2 I.L.M.
1105
1963
1106
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
37
freely entered into by, or between, sovereign states shall be observed
in good faith."
A Soviet amendment stating that the General Assembly "confirms
the inalienable right of peoples and nations to the unobstructed execution of nationalization, expropriation and other essential measures
aimed at protecting and strengthening their sovereignty over natural
wealth and resources" was defeated.
The United States held that as a whole the positive elements of the
resolution outweighed the undesirable passages such as a Sovietproposed statement in the preamble that "the creation and strengthening of the inalienable sovereignty of states over their natural wealth
and resources reinforces their economic independence." According
to one official:
* * * It is submitted that the force of the U.S. view that appropriate compensation in accordance with international law means prompt, adequate, and
effective compensation was enhanced by the General Assembly's treatment of
the resolution. Moreover, the terms of that resolution—"The owner shall be
paid appropriate compensation"—when coupled with withdrawal of the Afghan
and defeat of the Soviet amendments, make it plain that payment
of appropriate
compensation is a matter not of discretion but of obligation.103
(C) ITO AND BOGOTÁ EFFORTS
The charter of the proposed International Trade Organization,
drawn up by a conference convened at Havana under United Nations
auspices in 1947 and 1948, also contained articles relevant to the
expropriation problem. In a chapter dealing with economic development and reconstruction, the charter, which never came into effect,
contained obligations that no member take "unreasonable or unjustifiable action within its territory injurious to the rights or interests
of nationals of other members in the enterprise, skills, capital, arts, or
technology which they have supplied." The members would undertake to provide adequate security for existing and future investment
and give due regard to the desirability
of avoiding discrimination as
between foreign investments.109 On the other hand, the charter provided that members had the right "to take any appropriate safeguards
necessary to insure that foreign investment is not used as a basis for
interference in its international affairs or national policies" and to
prescribe requirements on investments.,
Originally the U.S. draft had included an international standard
of just compensation for expropriated foreign property, but it was
extensively modified. The rejection of this charter has been attributed in port at least to the unsatisfactory^ investment provisions.
The economic agreement at Bogotá, signed at the Ninth International Conference of American States at Bogotá on May 2, 1948,
included an article (art. 25) stating:
The States shall take no discriminatory action against investments by virtue
of which foreign enterprises or capital may be deprived of legally acquired property rights, for reasons or under conditions different than those that the Constitution of laws of each country provide for the expropriation of national property.
Any expropriation shall be accompanied by payment of fair compensation in a
prompt, adequate and effective manner.110
•«ibid.
i» "Havana Charter for an International Trade Organization," Mar. 24, 1948, Department of Stato
publication 3117, ch. m .
no Pan American Union, "Economic Agreement of Bogota," law and treaty series No. 25, Washington,
D.C., 1948.
HeinOnline
--
2 I.L.M.
1106
1963
38
EXPROPRIATION OP AMERICAN'OWNED • PROPERTY
In signing the convention, however, eight of the Latin American
States made reservations stating that this provision was to be subordinate to provisions of their national constitutions relating to
expropriation.The United States did riot-ratify this agreement, nor. did most .of
the other American States, -and it never.,.entered into force. As in the
case of the Charter of the ITO, this .has been attributed in part to
the provisions on the treatment, of- foreign capital.111
Later at the 1957 Economic Conference another attempt'Was made
by the-Organization of American States to secure multilateral agreement .on the protection of.private foreign investment. In article
25(c) .this draft agreement stated:
"If expropriation takes place, it shall be accompanied by the payment of- a fair compensation in a prompt, adequate, and effective
manner." The -.Conference deckled, however, that unanimous
agreement on' basic points had not been achieved and suggested further study of the problem'.
(n) PRIVATE. INTERNATIONAL GROUPS
In addition to the consideration which has been given to the
expropriation problem at official conferences, ' the matter has also
been the subject of consideration at several private international
meetings. Frequently drafts of multilateral treaties or conventions
on the subject have been suggested.
. The International Chamber of Commerce in June 1949 at Quebec
approved an international 'code of fair treatment for foreign investments which suggested rules to- govern nations in their treatment of
foreign investment. It stated that nations which decided to take
measures for the 'expropriation or dispossession of private property
'owned or managed in whole or in part by foreign nationals should apply
the principle of no- expropriation except m accordance with the
appropriate legal procedure and with fair compensation determined in
advance,.-payable-in< cash or. readily-marketable securities, freely
transferable-ai the-. grevauing.texohangfrratesmand in the currency of
the foreign cremtor,¿um8¿s.othsrwÍ89;agreed.
A committee-of the<Institute:af l&tefuational Law drew up a project
on nationalization in 1950 which included the suggestion of setting up
" economic.' tribunals" which could > consider nönlegal as well as legal
of nationalization
factors to-handle.#ppeafof»néernihg<.settlements
disputes.^3.; At' uhe-institüte'aíconferfiñce at'Siena in 1952, when the
subject'was discussed^-however;the' entire project became the center
it
of sharp cleavage- between its 'supporters and those who held that 111
would have sanctioned'tpartial as opposed to adequate compensation.
At the meeting of the International Law Association at New York
in 1958 the association adopted a resolution, approved by all the delegations except those of the Soviet-bloc and of Indonesia, declaring
. m Meenam, 7. Lloyd, "The United States and Inter-American Security, 1889-1960," Austin, University
of Texas Press. 1961, p. 316.
ui international Chamber of Commerce, "Attracting Foreign investment," brochure 200, March 1959.
"J White, op. cit, p. 270.
'i' Becker, Loftus. legal adviser to the Department of State. "Just Compensation in Expropriation
Oases: Decline and Partial Recovery." Department of State Bulletin, June 1,1959, p. 787.
H e i n O n l i n e - - 2 I . L . M . 1107 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
39
that the principles of international law on the rights of aliens require—
payment of such full compensation to the alien * * * as may be determined by
agreement between the state and the alien or, in the event of dispute, by an international authority possessing competence or jurisdiction in the matter.11'
At this meeting also there were proposals for special tribunals to
deal with problems arising from nationalization so that each expropriation would not have to be handled on an ad hoc basis. The
Netherlands Branch Committee 'proposed mixed claims commissions
of three members (one each appointed by the disputants and one by
their agreement) to settle differences regarding the legitimacy of claims
and the amount and metbod-of compensation. The Spanish Branch
Committee suggested an International Arbitral Tribunal for this purpose. Earlier, in 1952, the Committee on Foreign Economic Cooperation of the American Bar Association had suggested that an
international commission be approved to adjudicate claims arising
with jurisdiction specifrom confiscation or expropriation of property,
fied in bilateral or multilateral treaties.116
In' 1957 a multilateral convention on the protection of private
foreign investment was drafted by the Society To Advance the Protection of Foreign Investments^ an organization of businessmen in
West Germany. This convention is frequently referred to as the
Abs Code because it was broached at the International Industrial
Development Conference in San Francisco in October 1957 by
Herman J. Abs. One interesting feature of this proposal was that it
called for 30-year guarantees
against expropriation of the assets of
a private foreign investor."7
The Abs Code was later revised and merged with a draft convention
prepared by a group of English and European lawyers under the
chairmanship of Lord Shawcross and submitted by the Government
of the Federal Republic of Germany to the Organization for European
Economic Cooperation.
As circulated for comment by the Council of the Organization for
Economic Cooperation and Development at the end of 1962 with a
statement that the Council had not yet taken a decision on it and
therefore it did not carry- the.endorsement of the OECD, the
convention stated:
No Party 'shall take any measures depriving, directly or indirectly, of his
property a national of .anotheri-J&rty unless the following conditions are complied with:
,, ,'n* • ,
(i) The 'measures are taken in the public .interest and under due process
of hvwj.
(ii)> The'measures are not discriminatory or contrary to any undertaking
widch the-former Party may have given; and
.. (iii) -The measures are accompanied by provision for the payment of just
compensation; Such' compensation shall represent the genuine value of
the property affected, shall be paid Without undue delay, and shall be transferable to'8 the extent necessary to make it effective for the national entitled
thereto."
In addition, this convention provided ior an arbitral tribunal in which
nationals could institute proceedings against a country which had
»» Cited in Becker, on. cit., p. 787.
m Twee. Edward G., "Proposal for the Alleviation of the Effects of Foreign Expropriatory Decrees Upon
International Investments,'' Canadian Bar Review, vol. XXXVI, September 1958. p. 3S7.
•>r Miller, Arthurs., "Protection of Private Foreign Investment by Multilateral Convention," American
Journal of International Law, vol. 69, April 19S9_>. 371.
m Organization for Economic Cooperation and Development, draft convention on the protection of foreign
property, art. 3.
HeinOnline
--
2 I.L.M.
1108
1963
40
EXPROPRIATION OF AMERICAN-OWNED PROPERTY
accepted the jurisdiction of the tribunal in respect of claims by
nationals.
VI. CONCLUDING OBSERVATIONS
A cursory examination of U.S. policy on expropriation could give
the misleading impression that the United States is interested only in
compensation for its businessmen, or that it is unsympathetic to the
economic problems and aspirations of underdeveloped countries. At
international conferences on the subject the Soviet Union has sought
to sharpen this impression. '
Ironically, however, it is largely because the United States has
wanted to assist in the economic development of underdeveloped
countries that active measures have been taken to discourage expropriation. The protective measures which the United States has
initiated have been designed primarily to encourage private investment which has been deemed an important method of helping the
less developed countries attain their goals.
If the United States was not seeking to encourage private investment and economic development, it could be content with taking
legal measures to secure compensation for nationals after they had
suffered losses through expropriation. The expropriation problem
would then eventually take care of itself because American nationals
would probably cease to make investments in those countries where
losses had been suffered for this reason. Even as late as 1952, many
years after the Mexican ou expropriation had been settled, a Department of Commerce survey found that many business executives
expressed fear about investing in Mexico because of expropriation.119
Because the United States does seek to encourage private investment
in underdeveloped countries, however, a more active policy against
expropriation has developed. In the formulation of this policy the
views of American business have necessarily been weighed along with
other factors, since it was their capital and skill which were being
sought. _ One of the prevailing views of American business was expressed in this fashion:
Businessmen from the United States are willing to' take the risks involved in
the transactions of commerce and industry, but they are not willing to run undue
risk or loss through expropriation, devaluation, and other nonbusiness hazards.120
I t was in order to minimize the nonbusiness hazards that programs
such as the investment guarantee program and the bilateral treaty
program have been devised.
The foreign aid program has added to the complexity of the problem. On the one hand, it has been, asked why foreign aid should be
continued to countries which appear unwilling to make the efforts
necessary to attract private capital. On the other hand, it has been
asked whether the threat of cutting off aid, if the procedures for making compensation after an expropriation did not satisfy the United
States, was compatible with tine "broad perspectives and far-seeing
objectives which made bilateral cooperation in aid possible." m Furin Barlow, E. R., and Ira T. Wender, "Foreign Investment and Taxation," Englewood Cliffs, PrenticeHall, 1956, p. 210.
•*> Statement by Richard Wagner, board chairman of tbe U.S. Chamber of Commerce, quoted in "Editorial Research Report," July iL 1962, p. 500.
"i Letter to editor from First Secretary of Ceylon, op. cit.
HeinOnline - - 2 I.L.M. 1109 1963
EXPROPRIATION OP AMERICAN-OWNED PROPERTY
41
ther experience appears to be needed before concrete conclusions can
be reached on the net effectiveness of aid suspension as a weapon
against expropriation.
Finally, since this report has dealt almost entirely with expropriations which have posed problems in international relations, it might
be pointed out that foreign-owned property has also been expropriated
without causing any international difficulties. Nationalizations
were carried out by the United Kingdom and certain Western European countries after the war, for example, without creating international
crises because of a common understanding of "just compensation."
It is when this common understanding of the requirements of international law does not exist that serious problems may result.
O
HeinOnline
--
2 I.L.M.
1110
1963