ЎЗБЕКИСТОН
ҚОНУНЧИЛИГИ
ТАҲЛИЛИ
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UZBEK LAW REVIEW
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ОБЗОР
ЗАКОНОДАТЕЛЬСТВА
УЗБЕКИСТАНА
2017
№
2
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ЎЗБЕКИСТОН
ҚОНУНЧИЛИГИ
ТАҲЛИЛИ
♦
UZBEK LAW REVIEW
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ОБЗОР
ЗАКОНОДАТЕЛЬСТВА
УЗБЕКИСТАНА
73
I. Rustambekov
PhD in Law, Head of Department of TSUL
THE ROLE AND IMPORTANCE OF BILATERAL
INVESTMENT TREATIES IN THE REPUBLIC OF
UZBEKISTAN IN ATTRACTION OF FOREIGN
INVESTMENTS
Abstract:
Bilateral Investment Treaties in their effect
on foreign investments, the domestic business environ-
ment and investment climate is very actual, in particular,
for the Republic of Uzbekistan. This article explores the
role and importance, essence and value of Bilateral In-
vestment Treaties. Specifically, it is mentioned that BITs
only have a positive effect on foreign investment flows in
countries with an already stable business environment.
Key words:
foreign investments, bilateral investment
treaties, protection, risk, arbitration.
Аннотация
:
Двусторонние
соглашения
о
поощре
-
нии
и
взаимной
защите
инвестиций
имеют
большое
значение
в
привлечении
иностранных
инвестиций
,
улучшении
деловой
среды
и
инвестиционного
климата
страны
,
в
частности
,
для
Республики
Узбекистан
.
Дан
-
ная
статья
исследует
роль
и
важность
,
сущность
и
значение
таких
соглашений
.
В
статье
отмечается
,
что
двусторонние
соглашения
о
поощрении
и
взаимной
защите
инвестиций
имеют
только
положительное
вли
-
яние
на
привлечение
иностранных
инвестиций
в
стра
-
нах
с
уже
стабильной
деловой
средой
.
Ключевые
слова
:
иностранные
инвестиции
,
дву
-
сторонние
соглашения
о
поощрении
и
взаимной
защи
-
те
инвестиций
,
защита
,
риск
,
арбитраж
.
Аннотация
:
Инвестицияларни
рағбатлантириш
ва
ўзаро
ҳимоя
қилиш
тўғрисидаги
битимлар
давлатларга
,
жумладан
Ўзбекистон
Республикасида
ҳам
хорижий
инвестицияларни
жалб
этишда
,
ишбилармонлик
ва
инвестиция
муҳитини
яхшилашда
юқори
аҳамиятга
эгадир
.
Мазкур
мақола
бундай
битимларнинг
ўрни
ва
аҳамияти
,
уларнинг
мазмун
-
моҳиятини
таҳлил
қилишга
қаратилгандир
.
Мақолада
инвестицияларни
рағбатлантириш
ва
ўзаро
ҳимоя
қилиш
тўғрисидаги
икки
тарафлама
битимлар
муқим
ишбилармонлик
муҳити
ўрнатилган
давлатларга
хорижий
инвестицияларни
жаоб
этишда
фақатгина
ижобий
таъсир
кўрсатиши
ёритиб
берилган
.
Калит
сўзлар
:
хорижий
инвестициялар
,
инвестицияларни
рағбатлантириш
ва
ўзаро
ҳимоя
қилиш
тўғрисидаги
битимлар
,
ҳимоя
,
хавф
,
арбитраж
.
Introduction
The impact of foreign investments and multinational
firms on developing countries is one of the most hotly con-
tested issues in the current debate over globalization. Pro-
ceeding from it designing a favourable policy to attract
foreign investors has become one of the hottest topics
among developing countries.
As well in the Republic of Uzbekistan, after independ-
ence, a wide range of measures has been adopted on
radically improving the business and investment climate,
introducing universally accepted system of criteria for as-
sessing conditions of doing business in the world practice
and on this basis, ensuring further increase of the coun-
try’s international rating. Favorable climate for doing busi-
ness has been created in the republic, as well as favorable
business environment and reliable legal guarantees for
entrepreneurs are created.
The Republic of Uzbekistan as an equal participant of
the world community from the first days of independence
began to form its base of international agreements in all
spheres of development of society and the state. Thus, in
direction of regulation and protection of investments, the
Republic of Uzbekistan has signed such major conven-
tions as the Washington Convention of 1965 (Uzbekistan
participates from August 25, 1995), the Seoul Convention
of 1985 (Uzbekistan participates from November 4, 1993),
the Treaty to the Energy Charter and the Energy Charter
Protocol on Energy Efficiency and Related Environmental
Aspects signed in Lisbon on April 1995 (Uzbekistan partic-
ipates from December 22, 1995) and others.
As well as, within the framework of activities on attract-
ing foreign investment, the Republic of Uzbekistan pays
special attention to Bilateral Investment Treaties (BIT). In
the first years of independence, or more precisely in 1992,
the first BITs between the Republic of Uzbekistan and
Turkey, Finland, Egypt, China were signed. Every year the
number of such treaties has increased. To date, the total
number of such contracts which is in force are 48. The
number of BITs concluded between nation states faced an
enormous overall growth during the 1990s; today, there
exist about 2600 such treaties.
Role of bilateral investment treaties in attraction of for-
eign direct investments (FDI) are very important, in par-
ticular, for developing country such as Uzbekistan.
Investors always face risks because changes in market
prices and opportunities cannot be perfectly predicted ex
ante. However, in many developing countries the risk goes
beyond ordinary market risk. Investors may have little trust
in the reliability and fairness of property rights and govern-
ment enforcement, and conversely, local businesses, citi-
zens, and politicians may have little confidence in the mo-
tives and staying power of international business. Investors
complain that the rules are unclear and variable over time.
Critics in the host country worry that international investors
will reap most of the gains and will flee at the first sign of
trouble. In the extreme, the distrust on both sides can be so
large that little or no investment takes place, even when this
investment would be beneficial to both parties. In recent
years international investors in low- and middle-income
countries have been aided by the growth of bilateral invest-
ment treaties (BITs). These are treaties signed between the
home countries of investors and potential host countries
that set a general framework for the negotiation of FDI
deals. They bind the host country to treat all foreign inves-
tors from the home country in ways that will protect their
investments and that give them either parity with or ad-
vantages over domestic investors [4].
Bilateral Investment Treaties, its essence and value.
BITs are «agreements between two countries for the
reciprocal encouragement, promotion and protection of
investments in each other’s territories by companies
based in either country» [5]. Several studies [8] illustrate
the positive effect of BITs on FDI and on development.
The vast majority of BIT
‐
negotiations [9] take a model
agreement of the capitalexporting state as their starting
point, followed by modifications requested by the capital-
importing country.
BITs represent one of the main policy tools that gov-
ernments have used to decrease the (perception of) in-
vestment risk and attract foreign investment. By signing a
BIT the host country commits itself to fair and equitable
treatment of foreign investors.
The BIT serves to attract foreign investment by grant-
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ing broad investment rights to investors and creating flexi-
bility in the resolution of investment disputes. This flexibil-
ity typically includes allowing for any investment dispute to
be resolved by international arbitration, most often under
the auspices of the International Centre for the Settlement
of Investment Disputes (“ICSID”) [5].
Beyond attracting investment, developing countries
hope that BITs will have peripheral benefits. For example,
binding foreign investment disputes to international arbitra-
tion may serve not only as a signal that the current gov-
ernment is friendly towards FDI, but it may also lock future
governments into the same policy stance. Further, BITs
may provide symbolic benefits to the current government.
For example, signing a BIT may signal a willingness to
sign international treaties in other areas. For countries in
transition, BITs may provide a shortcut to policy credibility
in the international arena [4].
BITs are commonly known as agreements between two
signatories in order to provide legal standards of protection
for foreign investors. This legal protection is a supplemen-
tary offer provided for the signatory countries other than
those specified in the national laws. Similar to the national
laws, the treaty needs to be ratified to come into effect. Ac-
cording to Salacuse (1990), the basic structure of any BIT
encompasses eight topics: 1) scope of application 2) condi-
tions for the entry of foreign investment 3) general stand-
ards of treatment of foreign investments 4) monetary trans-
fers 5) operational conditions of the investment 6) protection
against expropriation and dispossession 7) compensation
for losses 8) investment dispute settlement [7].
Basically, BITs vary across countries. They differ ac-
cording to negotiations between countries; nevertheless,
they share a common provision in which investors are
entitled to fair and equitable treatment from the signatory
governments—there is no discrimination against foreign
investors. The treatment is also applicable to the protec-
tion against expropriation and the mechanism of dispute
settlement. BITs typically provide dispute resolution by an
international div; that is, investors can sue the national
government at the international arbitration level if there is
any violation of the treaty.
The basic provisions of a bilateral investment treaty
(BIT) typically guarantee certain standards of treatment for
the foreign investor (see Dolzer and Stevens 1995;
UNCTAD 1998). By entering into a BIT, signatories agree
to grant certain relative standards treatment such as na-
tional treatment (foreign investors may not be treated any
worse than national investors, but may be treated better
and, in fact, often are) and most-favored nation treatment
(privileges granted to one foreign investor must be granted
to all foreign investors). They also agree to guarantee cer-
tain absolute standards of treatment such as fair and equi-
table treatment for foreign investors in accordance with
international standards after the investment has taken
place. BITs typically ban discriminatory treatment against
foreign investors and include guarantees of compensation
for expropriated property or funds, and free transfer and
repatriation of capital and profits. Further, the BIT parties
agree to submit to binding dispute settlement should a
dispute concerning these provisions arise. Ostensibly,
these provisions should secure some of the basic re-
quirements for credible protection of property and contract
rights that foreign investors look for in host countries. They
should also protect foreign investors against political and
other risks highly prevalent in many developing countries.
Far from being neutral, foreign investors are often granted
higher security and better treatment than domestic inves-
tors [3].
BITs specify a number of guarantees to foreign inves-
tors, including the right to freely transfer funds and assets,
minimum treatment standards and protection from expro-
priation. Expropriation does not only refer to the direct
taking of physical private assets. Virtually all BITs also
include protection against so-called ‘regulatory takings’, or
‘indirect expropriations’, referring to regulatory acts taken
by the host country that deprive investors of the value of
their investment, such as changes in the taxation, regula-
tory measures, or governmental nonfeasance. The most
crucial component of these treaties is the fact that the sig-
natory partners submit to an international dispute settle-
ment mechanism to ensure this protection. The need for
an external arbitration mechanism, which allows investors
to bring claims of treaty violations to international arbitra-
tion tribunals (usually the International Centre for Settle-
ment of Investment Disputes, ICSID)3 is the result of a
time inconsistency problem: in order to attract foreign in-
vestment, a government can assure investors that it will
not expropriate the investments or raise taxes after the
investment is made; yet, once the costs of investments are
borne by the investors, a myopic host country government
might find it optimal to breach its promises and extract
rents or expropriate property or funds. Anticipating this
behavior, investors will not trust the promises made by the
government in the first place and will refrain from investing
in the country. This hold-up problem will thus ultimately
lead to underinvestment. By providing a credible commit-
ment device, bilateral investment treaties aim at overcom-
ing this problem, thereby reducing the risk of investment
and, ultimately, attracting more FDI [11].
As a matter of fact, however, virtually all substantive
rules contained in these treaties are meant to protect for-
eign investors who, although not formally party of the trea-
ty, are clearly their main beneficiaries [1]. It is illustrative
that certain BITs, alongside with the Energy Charter Trea-
ty [2], in case of disputes between foreign investors and
the host State provide access to international arbitral tri-
bunals exclusively to the former. It must also be noted that
obligations imposed upon foreign investors by BITs, such
as the obligation to act in good faith or the obligations to
comply with local laws and regulations [6], are functional
to the enjoyment by foreign investors themselves of the
legal protection provided for by the treaties.
It must also be noted that obligations imposed upon
foreign investors by BITs, such as the obligation to act in
good faith or the obligations to comply with local laws and
regulations, are functional to the enjoyment by foreign
investors themselves of the legal protection provided for
by the treaties [10].
BITs are therefore an important instrument of protec-
tion to foreign investors, for which there is currently not
much legal alternative. Only few regional free trade
agreements contain investment protection provisions like
the North American Free Trade Agreement (NAFTA). The
World Trade Organization’s (WTO) Agreement on Trade-
Related Investment Measures (TRIMs Agreement) impos-
es only rudimentary disciplines on the regulation of foreign
investment that are by far not as comprehensive as and
fall much short of provisions contained in BITs. Of course,
not all BITs are identical in their provisions. Some devel-
oped country investors like the United States insist on
some limited rights of its investors to establish investment
in host countries in the first place, whereas investor’s
rights in most BITs are restricted to fair and equitable
treatment after the investment has already taken place
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and provide no right of entrance. United States BITs often
prohibit certain performance requirements such as local
content, export and employment requirements beyond the
requirements contained in the WTO’s TRIMs Agreement,
whereas BIT programs of other developed countries do
not contain such provisions. Conversely, some non-
developed countries such as China and Eastern European
countries have successfully managed to restrict the com-
pulsory dispute settlement provisions to disputes concern-
ing expropriation or the compensation thereof. However,
by and large BITs tend to be rather similar in their provi-
sions [3].
Conclusion
Bilateral investment treaties have played and continue
to play a crucial role in the promotion of the rule of law and
the development of a stable and predictable legal frame-
work. They are not only there to stay, at least in the near
future: they are also quite successful.
Developing and transition countries have increasingly
engaged in the signing of bilateral investment treaties in
order to attract FDI, based on the widely shared view that
FDI can contribute significantly to economic development
and poverty reduction. However, the degree to which for-
eign investments can be expected to generate employ-
ment, offer access to international technology and know-
how and ultimately create growth, varies considerably
depending on the type of investment.
A general problem with regard to the role of BITs in
Uzbekistan is that still quite a number of people do not
know about the existence and functions of BITs and their
alternatives. Furthermore, most companies do not care
about the legal situation until the harm (e.g. expropriation)
occurs. In this understanding, BITs are merely framework
treaties in the background. However, it is important to
know for national companies that BITs constitute such a
safety net.
In addition, it should be mentioned that BITs are more
effective in stimulating FDI flows, if they are enforced in an
environment of high political stability and an effective legal
system. Furthermore, the effectiveness of BITs in stimulat-
ing FDI flows appear to be greater, if both partner countries
are ratifying members of the ICSID convention. The macro-
economic environment of a host country, by contrast, ap-
pears to have no influence on a BITs effectiveness in attir-
ing FDI. Likewise, exchange rate volatility, as well as cur-
rency crises appear to have no significant impact.
REFERENCES
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and a foreign investor “for alleged breach of an obligation
of the former”.
3. Eric Neumayer and Laura Spess. Do bilateral in-
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