Warning! Javascript is disabled. Please enable javascript for a completly functioning application.

Investment Policy Blog

So far investment protection and promotion agreements between Arab States have attracted little attention, but current developments in the region are about to change this.

The two probably most important agreements, which both date back to the 1980s, have not been used very frequently in the past. The majority of investors from Islamic States and even the legal community in these countries and elsewhere were not aware of the existence of these treaties. Partly, this might be due to the fact that the literature and many official documents relating to these agreements are available only in Arabic.

The first agreement is the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organization of the Islamic Cooperation (“OIC”). It was approved and opened for signature on 1–5 June 1981 and entered into force five years after its signature, on 23 September 1986. This agreement is the first multilateral agreement that provides foreign investors with the right to initiate arbitration against their host country, many years before the creation of the North American Free Trade Agreement or the Energy Charter Treaty. Article 17 of the agreement offers resort to arbitration:

“[…] 2. Arbitration. If the two parties to the dispute do not reach an agreement as a result of their resort to conciliation, or if the conciliator is unable to issue his report within the prescribed period, or if the two parties do not accept the solutions proposed therein, then each party has the right to resort to the Arbitration Tribunal for a final decision on the dispute”.

The agreement was signed and/or ratified by numerous Arab countries, including Egypt, Libya, Morocco, Tunisia and Yemen.

The other not very known agreement is the Unified Agreement for the Investment of Arab Capital in the Arab States, which was signed on 26 November 1980 and entered into force on 7 September 1981. This Agreement establishes an Arab Investment Court, open to States and investors.

Under both of the agreements, investors may bring legal action without prior consent. In 2003, a Saudi company, Tanmiah, decided to sue the Tunisian Government to settle an investment dispute under the 1980 Arab agreement of investment. The Court confirmed its jurisdiction and rendered its first decision on 12 October 2004.* The Court has now 7 cases pending where Arab investors filed complaints against other Arab States.

With the recent developments in the Arab region and the revolutions that swept across Egypt, Tunisia, Libya and Yemen, these regional investor protection agreements are set to attract even more attention. Especially because in many Arab countries post-revolution governments revoked investment contracts concluded by the former regimes, foreign investors are exploring legal options.

This raises the likelihood of a rise in investor-State disputes in the region and at the same time raises the question whether the agreements’ substantive provisions allow for balanced interpretations and decisions, weighing the legitimate desire of post-revolution governments to re-design their countries’ investment regimes in the pursuit of sustainable development and inclusive growth on the one hand, and the required protection of foreign assets on the other.

* Walid Ben Hamida, The First Arab Investment Court Decision, Journal of World Investment and Trade 2006, p. 699-721.

6. Dispute settlement

6.2 Investor-State

Follow all discussions

Previous Articles

Investment Policy Blog article image
Posted on May 22, 2012 UNCTAD
Corporate Social Responsibility can and should become an integral part of International Investment Agreements (IIAs)

IIAs to date do not generally provide for obligations on investors. However, IIAs can play a role in promoting responsible investor behaviour by incorporating key elements of broadly accepted principles of corporate social responsibility.

Read more...
Investment Policy Blog article image
Posted on May 22, 2012 UNCTAD
Investment promotion agencies (IPAs) have a role to play in identifying regulatory and administrative barriers to investment

IPAs have a role to play not only in identifying regulatory and administrative barriers to investment and in helping investors overcome those barriers, but also in pushing or leading efforts to break down barriers (e.g. by simplifying rules and procedures).

Read more...
Archive
4 comments
Moataz Hussein Posted on 24 October 2012, at 12:18 AM

It is well know that BITs have always been the main influential element within the IIAs network for decades ,till the regionalization trend started to gain momentum during the last few years in many parts of the globe, as a possible solution to the negative aspects of an emerging complicated BITs network similar to a "spaghetti bowl" as described by UNCTAD .
On the other hand ,we have had many Arab countries that are linked to each other by many BITs ,inducing ISDS clauses providing the Arab investor with the right of to resort all international arbitration foras, but actually not well utilized. This refers to many reasons including the non promotion of those legal tools between the Arab business community ,the inaccurate and inconsistent language of some BITs ,or even the non entry into force of other category .
However, the Arab Spring repercussions on increasing treaty -based disputes has helped in granting the kiss of life to many Arab BITs ,as a tool to raise a claims against some Arab spring countries especially before ICSID .
In addition ,the revolutionary measures in those countries has stimulated the desire to make use of the existing regional IIAs ,especially the two signed on the Arab and Islamic levels ,to profit from its ISDS clauses that provide the investor with the right to settle his dispute through conciliation or arbitration without prior consent or through international litigation, as in the case of the Arab Investment Court established by the Unified Agreement for the Investment of Arab Capital in the Arab States.

Nevertheless, these old regional IIAs comprising Arab countries still need much efforts to be revamped before being ready as a viable resort, especially that practical evidences signify the lack of efficiency of the tools established by them ,which is clear with the Arab Investment Court that didn't issue except one decision since its establishment under the 1980 agreement .

Hence ,there is a real need to develop the substantive content of these regional IIAs in order to reflect the new developments that tackled the international investment rule making during recent years ,since these agreements were built mainly on negotiations compromises rather than mutual economic interests and real balance between the investor and the host state .These deficiencies are also clear in the lack of an accurate definitions of the covered "investments" and "investors" ,that could reflect the new trends in defining them in IIAs ,resulting in a disadvantageous position of both the investor and the host state .

However, this might not be an easy mission ,in light of the different economic interests between Arab countries including the oil/capital exporting and non oil/capital exporting categories ,unless realizing the mutual benefits that could be achieved through balancing investors protection and investment liberalization on one side and the admitting the right of the host state to retain the policy space of attain its national objectives on the other side .Besides, there is a need to revamp the ISDS mechanisms established by these regional IIAs through asserting on the important role of ADR mechanisms before resorting to national or international litigation and arbitration. Finally, there is also a need for reforming and activating the Arab Investment Court as a tool that could serve both the Arab investor and the host state ,unlike the case in international arbitration foras which actually serves mainly the investor's interests, even in those cases where the investor violates his contractual commitments or the laws and regulations of the host state .

0 0
Kinda Mohamadieh [ Arab NGO Network for Development ] Posted on 01 November 2012, at 10:53 AM

As rightly indicated by Dr. Walid Ben Hamida, the desire of post-revolution governments to re-design their countries’ investment regimes in the pursuit of sustainable development is legitimate, and could be acted upon by the newly elected authorities. This is of high significance given that the substantive amounts of FDI attracted by Arab countries in the last decades often did not achieve a positive development and socio-economic contribution. Within this context, the regulatory flexibility for Arab governments to rethink their national and regional investment policies and redirect them to serve rights-based development strategies is essential.

In terms of regional investment agreements, such as the Unified Agreement for the Investment of Arab Capital in the Arab States, there is a need to revisit the rules set by the Agreement with the vision and objectives of (1) overcoming the limitations and shortcomings of a model that presents the protection of the investors as an end by itself and then (2) making the Agreement a viable efficient resort/ alternative to bilateral investment treaties (BITs) between Arab countries that are modeled to primarily serve the investor’s interests.

Within this context, the vision behind a regional investment agreement among Arab countries should extend to a model that advances a development-oriented investment policy, public interests, and democratic processes, without subordinating the rights of the investors. Such a policy is expected to ensure that investors do not challenge public interest policies and regulations, and is expected to enhance investors’ engagement with long-term productive investments, oriented to promoting growth and employment generation. Furthermore, it is expected to accommodate the need for policy space to regulate for developmental purposes, allowing for rules that uphold obligations of investors in regard to labor rights, laws that protect the environment and consumers as well as local communities’ rights, and knowledge and technology development.

Accordingly, governments in the region need to address the high concerns as well as evidence experienced in various regions of the world on the impact of the model of investor-state dispute settlement (ISDS) on the fundamental ‘right to regulate’ on behalf of public interest and for development. In a position statement released by over thirty renowned academics in 2010, it was stressed that the model of investor –state arbitration “…poses a serious threat to democratic choice and the capacity of governments to act in the public interest by way of innovative policy-making in response to changing social, economic, and environmental conditions”.

Arab countries have not been far from scrutiny under ISDS; indeed Egypt is among the countries appearing most frequently as a respondent under ICSID, just after Argentina and Venezuela (source: http://kluwerarbitrationblog.com/blog/2012/10/25/icsid-curious-facts/; by Inna Uchkunova, International Moot Court Competition Association (IMCCA).

It is important to note that, several countries, developed and developing, have undertaken steps to address the challenges and threats posed by the model of investment rules skewed solely to protect the investor. For example, Australia opposed the inclusion of investor -state dispute settlement in the Australia-US FTA and in the Trans-Pacific Partnership (TPP) Agreement due to concerns about the way it would limit their ability to regulate. South Africa initiated a review of its Bilateral Investment Treaty Policy Framework when its impact on national policy space became apparent.

Options for qualifying the inclusion of ISDS, or refraining from offering ISDS in an agreement, as well as clarifying the scope of the substantive clauses and its application under the regional investment agreements, should be discussed with the view of respecting policy space for development. This is a core challenge in the overall task of revisiting investment policy frameworks in the Arab countries.

0 0
Howard Mann [ IISD ] Posted on 02 November 2012, at 4:53 PM

Dear Walid,

I do not have the text at hand, but my recollection is that the dispute settlement provisions are more complicated than just the single sub-section you quote above. My view at the time of reading it is that consent is in fact required, prior to the point in the process that you quote in Art 17.2. I think it would be useful if all the related provisions were quoted before endorsing the conclusion that no consent is required in the process. Unfortunately, the recent tribunal decision on this issue has been reported on but is not public, a subject in itself related to the two previous comments.

best,
Howie

0 0
Howard Mann [ IISD ] Posted on 09 November 2012, at 2:15 PM

I have posted below the full text of the dispute settlement provision in the OIC. Unlike the conclusion of Prof. Walid, it seems to me that case-by-case agreement to dispute settlement is patently required by this text. While a failure of the conciliation process set out triggers a right to arbitration for either party (para 17.2(a) that Prof Walid quotes), entry into the conciliation process itself expressly and patently requires consent of both disputing parties. Absent such express consent, which requires a statement of the dispute by both parties, there is no other entry point into the dispute settlement system. Arbitration is only available if conciliation fails and conciliation is only available if both sides agree in writing. Conciliation and arbitration are seen as one continued dispute settlement process, not two distinct processes with separate entry points. It is a logical and internally complete process.

Sadly, it appears the decisions Prof. Walid refers to remain secret and unreviewable against what seems to be the clear text of the treaty. The text follows below.

Best,
Howie

Article 17
1. Until an Organ for the settlement of disputes arising under the Agreement is established, disputes that may arise shall be entitled through conciliation or arbitration in accordance with the following rules and procedures:
1. Conciliation
a) In case the parties to the dispute agree on conciliation, the agreement shall include a description of the dispute, the claims of the parties to the dispute and the name of the conciliator whom they have chosen. The parties concerned may request the Secretary General to choose the conciliator. The General Secretariat shall forward to the conciliator a copy of the conciliation agreement so that he may assume his duties.
b) The task of the conciliator shall be confined to bringing the different view points closer and making proposals which may lead to a solution that may be acceptable to the parties concerned. The conciliator shall, within the period assigned for the completion of his task, submit a report thereon to be communicated to the parties concerned. This report shall have no legal authority before a court should the dispute be referred to it.
2. Arbitration
a) If the two parties to the dispute do not reach an agreement as a result of their resort to conciliation, or if the conciliator is unable to issue his report within the prescribed period, or if the two parties do not accept the solutions proposed therein, then each party has the right to resort to the Arbitration Tribunal for a final decision on the dispute.

0 0