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In the last forty years, the international community has witnessed a fundamental change in the regulation of foreign investment.  Not long ago, the rights of foreign investors vis a vis the state in which they invested (the "host") were protected by two forces. First, foreign investors had the protection of customary international law. Public international law, though lacking an effective enforcement mechanism, offered investors at least some assurance that their investment would not be seized by host governments. Although the existence of expropriations demonstrates that this protection was not perfect, there is no serious doubt that international law offered investors some security. In the context of investments, like in many other contexts, it is recognized that nations consider themselves bound by international law and will often modify their behavior in order to avoid being seen to be as violators of that law.  Beyond the general sense of moral or legal obligation, violations of international law often carry a tangible price. States recognize that a failure to abide by the dictates of international law can have adverse consequences on their relations with foreign states and, in serious cases, may lead to the imposition of sanctions against them. The second source of protection for investors was the international political, and sometimes military, power of their "home" state. To the extent that host nations feared reprisals of some form from the home state of investors, the investment was not at serious risk.
The customary international law that has traditionally applied to takings by the host state is referred to as the "Hull Rule," in reference to Secretary of State Cordell Hull who authored the most famous articulation of the rule in 1932.  The key words, penned by Hull, that have come to represent the traditional "full compensation" position is that the expropriation of property owned by foreigners requires "prompt, adequate and effective" compensation.
The world is very different today. The customary international law that once governed foreign investment was successfully called into question by developing states who advocated an alternative international norm and who ultimately left the international community without any legal standard having the status of customary law. The Hull rule was challenged by developing countries who claimed, on sovereignty grounds, the right to determine how they would treat investors and the standard of compensation that should apply if that treatment was sufficiently harmful. Although many countries continue to advocate the Hull Rule, a sufficient number of developing states oppose it to ensure that it can no longer be considered a rule of customary law.
The bilateral investment treaty has risen to fill the void created by the demise of the old customary rules. Find the other two MITs. These treaties are typically signed between developed and developing nations, and are binding international treaties governing the treatment of foreign investment. Curiously, despite the fact that developing countries as a group have objected vociferously to the Hull Rule for many years (and continue to do so), these same developing countries have signed hundreds of BITs that incorporate obligations equivalent to the Hull Rule. Indeed, looking at the entire text of most BITs, it is clear that they offer investors much greater protection, at the expense of the host countries, than the Hull Rule ever did. For example, and most importantly, BITs include terms that protect the foreign investor against a "contractual breach" by the host. In other words, when a BIT is in place between the host and the home state, an agreement made between the investor and the host is binding on both. A breach of the agreement by the host is a violation of the BIT and, therefore, a violation of international law. The BIT also provides the aggrieved investor with binding dispute resolution mechanisms; thereby creating an enforcement mechanism that is much more effective, and thus better able to ensure compliance by the host than what existed under the Hull Rule. Because BITs allow investors and hosts to establish binding contracts whose terms are subject to arbitration in a neutral forum, potential investors can negotiate for much greater protection than they ever enjoyed under the Hull Rule.
Before proceeding, a note of caution is in order. The bulk of the literature on BITs and foreign investment protection has focused on expropriation, devoting much less attention to other types of disputes between investors and hosts. It is important to recognize, however, that the analysis here encompasses all disputes between investors and hosts. Indeed, disputes that do not involve a direct taking are the more interesting ones today because takings are quite rare. The importance of the contracting provisions and the dispute resolution mechanisms present in BITs is magnified by the rarity of expropriation. The most common source of tension between an investor and a host state is not expropriation but rather conflicts that fall short of a taking. Customary international law -- even under the Hull rule -- provides virtually no protection for the investor against these less extreme actions by the host. BITs, on the other hand, allow potential investors to negotiate for whatever protections and safeguards they feel are needed. In other words, over the bulk of investor-host conflicts, BITs provide the investor with protections that are far superior to those of customary law.
 One commentator has observed that "[a]part from the use of force, no subject of international law seems to have aroused as much debate -- and often strong feelings -- as the question o f the standard for payment of compensation when foreign property is expropriated." Oscar Schachter, Compensation for Expropriation, 78 AM. J. INT'L L. 121, 121 (1984).
 See LOUIS HENKIN, HOW NATIONS BEHAVE 320-21 (1979) (pointing out that international law does, indeed, influence the behavior of nations); THE RESTATEMENT (REVISED) OF INTERNATIONAL LAW, Part I, Chapter 1, Introductory Note ("International law is law like other law, prompting order, guiding, restraining, regulating behavior. States, the principal addressees of international law, treat it as law, consider themselves bound by it, attend to it with a sense of legal obligation and with concern for the consequences of violation.").
 See, e.g., HENKIN, supra note 9 at 97-98 ("International law aims at nations which are in principle law-abiding but which might be tempted to commit a violation if there were no threat of undesirable consequences.")
 Note the relation between international law and protection by the home state. The home state of an investor is less likely to become involved in a dispute between the host and the investor if it views the actions of the host to be legal. When the home state feels that some international obligation of the host state toward the investor has been violated, however, it may choose to take action.
 Hull's rendition of the international requirement for expropriation was part of a dispute between the United States and Mexico concerning the Mexican expropriation of properties located in Mexico but owned by American citizens. For a description of this exchange, see HENRY J. STEINER, DETLEV F. VAGTS, & HAROLD H. KOH, TRANSNATIONAL LEGAL PROBLEMS 456-57 (1994). The notes exchanged during the 1938 dispute are reprinted in 3 GREEN H. HACKWORTH, DIGEST OF INTERNATIONAL LAW § 228 AT 655-65 (1942).
 There have been some efforts to establish multilateral agreements, but these have met with considerably less success than BIT efforts. As of 1996, there were eight multilateral investment treaties in place. See Recent Actions Regarding Treaties to Which the United States is not a Party, 35 INT'L LEGAL MATERIALS 1130 (1996). These include the Arab Magreb Union Treaty on Promotion and Protection of Investments; the North American Free Trade Agreement; the Energy Charter Treaty; the Arab League's Treaty for the Investment of Arab Capital in Arab States; The Agreement for the Promotion, Protection, and Guarantee of Investments among Member States of the Organisation of the Islamic Conference; the Agreement Among the Governments of Brunei Darussalam, The Republic of Indoneisia, Malaysia, The Republic of the Philippines, The Republic of Singapore, and the Kingdom of Thailand for the promotion and Protection of Investments. See Id., Todd S. Shenkin, Trade-Related Investment Measures in Bilateral Investment Treaties and the GATT: Moving Toward a Multilateral Investment Treaty, 55 U. PITT. L. REV. 541, 597 note 267 (1994). None of these multilateral agreements, however, approaches the importance of the existing network of BITs.
An effort has also begun at the OECD where member states have been attempting to draft a multilateral agreement on investment. There have been proposals for similar efforts at the World Trade Organization. See Richard B. Builder & Kenneth J. Vandervelde, Rudolf Dozer & Margrete Stevens' Bilateral Investment Treaties, 90 AM. J. INT'L L. 545, 546 (1995) (book review).
No multilateral agreement, however, is as important to North-South investment as the network of BITs that has come about.
 The vast majority of BITs include one developed and one developing state. Treaties between developing states have also been signed.
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