Guidelines on the Treatment of Foreign Direct Investment

During the 1970s, the United Nations took on the task of determining a national standard for how foreign direct investments were to be treated. However, stark disagreement among countries on the issue made the task an impossible pursuit. The World Bank attempted the same feat in 1985, but again experienced insurmountable pushback from the international community. The World Bank tried again in 1991, when Ibrahim Shihata, the vice president and general counsel of the World Bank and the head of the Development Committee, a working group of the World Bank, decided that the World Bank should create guidelines, considered “soft law” or non-binding declaratory rules of conduct, instead of attempting to draft a convention. The Development Committee drafted proposed guidelines, including a provision that set the general standard of compensation for expropriation as “appropriate” and stated that compensation that was “adequate, effective, and paid without undue delay” would generally be considered appropriate. The Development Committee distributed the proposed guidelines to various governments and businesses in order to gather comments. The United States was one of the strongest dissenters to numerous guidelines, particularly the standard for expropriation. The Development Committee eventually revised the guidelines and published the Guidelines on the Treatment of Foreign Direct Investment in 1992 (the Guidelines).