Vanderbilt Journal of Transnational Law

First Page



Large natural resource projects in underdeveloped countries provide great benefits to United States investors, to host countries and to the United States itself. Yet concession agreements to exploit natural resources are notoriously controversial and notoriously unstable. This article will examine the United States national interest in guaranteeing equity investments in foreign natural resource development and will argue that concession agreements in large natural resource projects in the developing world go through a highly predictable evolution, reflecting changes in the relative bargaining positions of the foreign investors and the host governments. Initial agreements reflect the foreign company's quasi-monopolistic control over the skills necessary to bring a major operation on-line, and reflect a heavy discounting for the risk of failure. The initial agreements may also reflect the host country's ignorance of industry practices, and of international tax and accounting procedures. The result is that almost all large natural resource concessions appear, after the fact, to have been written with terms highly favorable to the foreign investor.