Arbitration of Investment DisputesGenerallyThe countries are well aware of the importance of foreign investment and

states have entered into bilateral and multilateral treaties. An increasing

number of European countries concluded such treaties with developing

countries and BITs have come to be universally accepted instruments for

the promotion and legal protection of foreign investments.

Arbitration of Investment Disputes

I. Introduction

Foreign investment is a major and indispensable point both for world

economy and developing countries. Over the past ten years, foreign

investment has grown at a significantly more rapid pace than either

international trade or world economic production generally. The countries

need seriously financing by private foreign investment for their

infrastructure projects and exploitation of natural resources. Investments,

often alters entire methods of production through transfers of know-how,

technology and management techniques, and thereby initiates much

more significant change than the simple trading of goods.

The countries are well aware of the importance of foreign investment and

states have entered into bilateral and multilateral treaties. An increasing

number of European countries concluded such treaties with developing

countries and BITs have come to be universally accepted instruments for

the promotion and legal protection of foreign investments. There are lots

of International organisations which provide a stable framework for

foreign investment disputes. These organisations try to create a standard

treatment for foreign investment and their investors. For instance, North

American Free Trade Agreement and the Energy Charter Treaty. For all

these reasons arbitration has become very attractive instead of court’s

jurisdiction in the settlement of investment disputes. There are some

international conventions provide methods for settlement of investment

disputes. In general, these conventions provide for ad hoc arbitration

under the UNCITRAL Rules or the other institutions e.g. ICC, SCC and in

particular ICSID. These institutions do not arbitrate disputes themselves

but support the arbitral processes conducted under their auspices by

rendering various administrative services, such as providing lists of

arbitrators. Also, we can give some additional treaties, such as NAFTA.

Parties are free to submit investment disputes to these institutionally

supported arbitration facilities.

II. Special Features of Investment Disputes Arbitration

The investment disputes and investment disputes arbitration have some

special features according to the commercial disputes and commercial

disputes arbitration. Judicial systems do not allow the parties to a dispute

to choose their own judges. In contrast, arbitration offers the parties the

unique opportunity to designate persons of their choice as arbitrators,

provided they are independent. This enables the parties to have their

disputes resolved by people who have specialized competence in the

relevant field. In dealing generally, the commercial arbitration needs an

agreement between the disputing parties but investment disputes

arbitration may be possible without such an agreement. Also, an

investment dispute differs from commercial disputes in some respects.

Mostly, the investment disputes concerning the objectives of the

investment, the repatriation of revenues and the ultimate control and

benefit of the investment. All these factors influence the either conduct of

the arbitration and especially the nationality of the arbitrators become

very important subject than in ordinary commercial arbitration.

‘Investment arbitrations are frequently based on provisions in national

investment protection laws or international treaties by which the state

agrees generally to arbitrate investment disputes. These provisions

constitute a unilateral standing offer to the public to submit to arbitration

with any party fulfilling the requirements. The offer is accepted by the

investor when it initiates arbitration proceedings against the state. Until

that time the investor is not bound to arbitrate and the state cannot

initiate proceedings against the investor. Investments are frequently done

by local special purpose companies to meet requirements of local

participation and consortia are structured in a way to allow maximum

profits and tax advantages. When a dispute arises it may be necessary to

determine who is the actual investor; the local company, its direct

shareholders or someone further down the line of ownership and control.’

III. National Investment Laws

As already stated, the foreign investment affects both the economy and

the environment of the countries widely. Because of the importance of

this issue, the countries have regulated this area specifically. These

regulations are different and seem various from country to country.

These regulations include:

(a) Promoting technological development,

(b) Encouraging local participation, and

(c) Promoting local productivity

In dealing generally, national investment protection laws have played a

prominent role in the settlement of foreign investment disputes. So, the

countries have entered into large numbers of treaties and adopted

investment protection laws. These provisions provide an extension to all

foreign investors and contain an open offer to arbitrate disputes with the

foreign investors.

What kind of advantages and utilities to the investors provided by these

provisions?

These provisions provide:

a. a friendly environment,

b. an attract foreign investment,

c. guarantee minimum standards,

d. no discrimination an no expropriation and e. an arbitration of dispute

settlement.

IV. Bilateral Investment Treaties

Bilateral Investment Treaties (BITs) have a considerable place in the

settlement of investment dispute and proliferated over the last three

decades. The first modern bilateral investment treaty was entered into

nearly forty years ago between Germany and Pakistan. Over the decades

that followed an increasing number of European countries concluded such

treaties with developing countries. It is however only since the late 1980s

that BITs have come to be universally accepted instruments for the

promotion and legal protection of foreign investments. In dealing

generally, Bilateral Investment Treaties provide an unexceptionally

arbitration with impressive and well used contrivance. They also

guarantee certain standards and characterized categories for foreign

investment. There are lots of arbitration proceedings which are based on

provisions in BITs. They give some choices to the investors. The clauses

provide for ICSID arbitration, between ICSID and other institutions such

as the ICC, the AAA or the SCC. There are some differences between BITs

provisions. Some BITs provisions include all types of disputes under an

extensive definition of investment; others only cover certain types of

disputes. The final difference is that, they provide various type of

arbitration as mentioned above.

‘In a recent case a party successfully invoked a BIT despite an exclusive

jurisdiction clause for the main claim. In Vivendi Universal v Argentine

Republic, the French investor had entered in a concession contract with

Tucuman, a province of Argentina. The contract did not make any

reference to the BIT between Argentine and France. It provided that

disputes relating to the interpretation and application of the contract

should be submitted to the exclusive jurisdiction of the administrative

courts a Tucuman. Vivendi started ICSID proceedings against the Republic

of Argentina, which had neither been a party to the concession nor

participated in the negotiations. Vivendi alleged that the actions of the

Tucuman authorities constituted a breach by Argentina of the provisions

in the relevant BIT, according to which investors are guaranteed fair and

equitable treatment and prohibited expropriation. Vivendi argued that for

this reason its claims against Argentina were covered by Article 8 BIT

providing for ICSID arbitration. The tribunal assumed jurisdiction stating

the need to distinguish between contractual claims against Tucuman and

the claims for breach of the BIT brought by the investor against

Argentina. The latter were not effected by the exclusive jurisdiction clause

in the Concession Contract but could be referred to arbitration under the

ICSID Convention.’

V. The North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) was implemented on

January 1, 1993. It is designed to remove barriers between US, Canada

and Mexico over the next fifteen years. NAFTA includes two important side

agreements on environmental labour issues that extend into cooperative

efforts to reconcile policies, and procedures for dispute resolution

between the member states. NAFTA is known in French as ALENA and in

Spanish as TCL or TLCAN. NAFTA is an alternative resolution for the

settlement of investment disputes. In this deal, three contracting states

guarantee some certain standards of treatment for the investors. For

instance;

- the right to control investment,

- the right to repatriate profits without restrictions,

- and certain conditions for expropriation

NAFTA contains three different mechanisms for dispute settlement but the

most relevant and important is Chapter 11. A Part A set out the

substantive obligations of the contracting satates; Part B sets out

Settlement of Disputes between a Party and an Investor of another Party

and Part C sets out the significant terms and definitions. According to

non-mandatory provisions of Article 1118 the disputing parties shall first

try to settle any disputes amicably. Chapter 11 establishes a mechanism

for the settlement of investment disputes that assures both equal

treatment among investors of the parties to the Agreement in accordance

with the principle of international reciprocity and due process before an

impartial tribunal. A NAFTA investor who alleges that a host government

has breached its investment obligations under Chapter 11 may, at its

option, have recourse to one of the following arbitral mechanisms:

§ The World Bank's International Centre for the Settlement of Investment

Disputes (ICSID);

§ ICSID's Additional Facility Rules; and

§ the rules of the United Nations Commission for International Trade Law

(UNCITRAL Rules).

Alternatively, the investor may choose the remedies available in the host

country's domestic courts. An important feature of the Chapter 11 arbitral

provisions is the enforceability in domestic courts of final awards by

arbitration tribunals. Furthermore, if a controversial state measure affects

several investors then the state or investor may ask the Secretary

General to establish a ‘super- tribunal’ under UNCITRAL rules to hear all

claims in a single arbitration which is the most peculiar feature of NAFTA

arbitration. In NAFTA arbitration, the arbitration tribunal consist of three

arbitrators, one to be appointed by each party.

VI. The Energy Charter Treaty

The Energy Charter Treaty was entered into in 1994 by 49 countries from

Western, Central and Eastern Europe, Japan and Australia. The

fundamental objective of the Energy Charter Treaty’s provisions on

investment issues, is to ensure the creation of a “level playing field” for

energy sector investments throughout the Charter’s constituency, with the

aim of reducing to a minimum the non-commercial risks associated with

energy-sector investments.

The Treaty ensures the protection of foreign energy investments based on

the principle of non-discrimination. By accepting the Treaty, a state takes

on the obligation to extend national treatment, or most-favoured nation

treatment (whichever is more favourable), to nationals and legal entities

of other Signatory states who have invested in its energy sector. The

Treaty thus carries the equivalent legal force of a unified network of

bilateral investment protection treaties. The majority of the Treaty’s

investment-related provisions, aimed at the creation of the appropriate

investment climate, are self implementing. In its present form, the Treaty

obliges Contracting Parties to accord non-discriminatory treatment only to

existing investments made by investors of other Contracting Parties.

‘According to Article 26(2) of Energy Charter Treaty, an investor from a

Contracting State alleging a violation of treaty obligations has the right to

bring direct claim against the state (a) in the courts or administrative

tribunals of the host state, or (b) in line with a pre-agreed dispute

settlement procedure, or (c) in arbitration proceedings. The investor is

not bound by earlier contractual commitments when making its choice. It

may opt for arbitration even though the contract with state included a

forum selection clause in favour of the host state’s court or a different

type of arbitration. An investor opting for arbitration can choose between

arbitration under the ICSID Rules, the ICSID Facility Rules, and the SCC

Rules or ad hoc under UNCITRAL Rules.’

There is not a special enforcement regime according to Energy Charter

Treaty. Therefore with the exception of arbitration under ICSID rules,

enforcement has to be based on the New York Convention.

VII. Arbitration Proceedings under The ICSID Convention

ICSID was established under the (the Convention) which came into force

on October 14, 1966. ICSID has an Administrative Council and a

Secretariat. The Administrative Council is chaired by the World Bank's

President and consists of one representative of each State which has

ratified the Convention. What are the purposes of the Convention? The

fundamental purposes of the Convention are to ensure an attract and

encourage foreign investment and a special forum for the settlement of

investment disputes. The Convention also provides to improve of world

development in good health. The purposes mentioned above are prepared

under the auspices of the World Bank. Also, the “Additional Facility” is

formed to cover cases which fall outside the extent of the ICSID

Convention in 1978. ICSID Convention have been ratified from 130

States. So, the ICSID arbitration is a preferable method for to settlement

of investment disputes. Nearly, 100 disputes have been referred to ICSID

arbitration.

More significance is the scale of investment covered by ICSID clauses. In

addition to arbitration agreements in favour of ICSID in investment

contracts numerous bilateral and multilateral investment protection

treaties and national investment laws now provide for arbitration under

ICSID or the Additional Facility. ICSID arbitration is governed by

international rules and ICSID awards are not submitted to the scrutiny of

national courts for annulment or enforcement.

7.1 The Scope of the ICSID Convention

The scope of the Convention is defined in Article 25 (1). According to the

Article; “(1) The jurisdiction of the Centre shall extend to any legal

dispute arising directly out of an investment, between a Contracting State

(or any constituent subdivision or agency of a Contracting State

designated to the Centre by that State) and a national of another

Contracting State, which the parties to the dispute consent in writing to

submit to the Centre. When the parties have given their consent, no party

may withdraw its consent unilaterally.

The Article 25(1) of the ICSID Convention needs some requirements for

the Centre to have jurisdiction: These are;

- the dispute needs to be of legal nature;

- the dispute needs to arise directly out of an investment;

- the non- State party to the dispute needs to be a national of another

Contracting State;

- consent to submit the dispute to ICSID needs to be granted by both

parties in writing and needs to be expressed by the parties to the dispute.

The necessary consent may be contained in an arbitration agreement

concluded between the state and the investor within the framework of the

investment contracts or after the dispute arisen. Once an arbitration

agreement has been concluded, no party can unilaterally revoke its effect.

(a) Requirements as to the parties involved

The Convention needs some requirements to be applicable for the parties.

These requirements are stated in Article 25(2). According to the Article;

- One of the parties to the dispute must be a Contracting State or a

“constituent subdivision or agency” which has been registered with the

Centre.

- The other party must be national of another Contracting State.

"National of another Contracting State" means stated in Article 25(2)(a)

and (b). It should be noted that under clause (a) of Article 25(2) a natural

person who was a national of the State party to the dispute would not be

eligible to be a party in proceedings under the auspices of the Centre,

even if at the same time he had the nationality of another State. This

ineligibility is absolute and cannot be cured even if the State party to the

dispute had given its consent.

- Clause (b) of Article 25(2), which deals with juridical persons, is more

flexible. A juridical person who had the nationality of the State party to

the dispute would be eligible to be a party to proceedings under the

auspices of the Centre if that State had agreed to treat it as a national of

another Contracting State because of foreign control.

7.2 Specifics of ICSID Arbitration Proceedings

The ICSID Arbitration rules become functional after the authorization of

the ICSID Arbitration by the parties. There is not a consequential

difference between the ICSID proceedings and the other institutional

arbitration. The ICSID Arbitration rules are handled by the ICSID

Convention. In this deal, It must not be possible to apply national law to

the ICSID proceedings. The tribunal has a power to decide the application

of appropriate rule to the issue if,

(a) The arbitration tribunal;

The ICSID Convention does not contain a restriction for the appointment

of the numbers of arbitrators from the parties. They are free to agree in

this issue. In the absence of an agreement a three member tribunal will

decide the issue; one arbitrator appointed by each party and two party

appointed arbitrators together agree on the chairman. The arbitrators

must have a different nationality from the parties. If the parties appoint

all members of the tribunal together can they appoint arbitrators of their

nationality? This is the difference of the Convention. Because, the other

institutions only need that sole arbitrator or the chairman is impartial

national.

The parties can appoint the arbitrators within 90 days after sending

notification or they can agree on any period for appointment of

arbitrators. But, if such an attempt fails then the appointment of the

arbitrators can be made by ICSID panel members who should not be of

the same nationality as any of the parties.

Article 14 necessitate, designated arbitrators shall be high moral

character and recognized competence in the fields of law, commerce,

industry or finance, who may be relied upon to exercise independent

judgment. Competence in the field of law shall be of particular importance

in the case of persons on the Panel of Arbitrators. The parties may

challenge any arbitrator who does not fulfil these requirements. A decision

on any challenge is taken by the other members of the tribunal or, if they

cannot agree (or sole arbitrator has been appointed) by ICSID.

(b) Powers of the arbitration tribunal and Applicable Law;

The arbitration tribunal can decide on its own jurisdiction. The Tribunal

shall decide a dispute in accordance with such rules of law as may be

agreed by the parties. The law applicable to the substance pf the case can

be chosen by the parties. Such choice does not need to be express or

even in a specific form if the tribunal finds clear evidence of the parties’

agreement on law. In the absence of such agreement, the Tribunal shall

apply the law of the Contracting State party to the dispute (including its

rules on the conflict of laws) and such rules of international law as may be

applicable.

Unless otherwise agreed by the parties, the Tribunal may, if it deems it is

necessary at any stage of the proceedings,

(a) call upon the parties to produce documents or other evidence, and

(b) visit the scene connected with the dispute, and conduct such inquiries

there as it may deem appropriate.

‘The question of the applicable law has been addressed in several cases

and by ad hoc committees during annulment actions. The relationship

between the law of the host state and the rules international law was

explored in detail by the ad hoc committee constituted for the annulment

action in the Amco v Indonesia arbitration. The Committee held that[t]he

law of the host State is, in principle, the law to be applied in resolving the

dispute. At the same time, applicable norms of international law must be

complied with since every award has to be recognized and pecuniary

obligations imposed by such award enforced, by every Contracting State

of the Convention (Article 54(1), Convention). Moreover, the national

State of the investor is precluded from exercising its normal right of

diplomatic protection during the pendency of the proceedings and even

after such proceedings, in respect of a Contracting State which complies

with the award (Article 27, Convention).

The thrust of Article 54(1) and Article 27 of the Convention makes sense

only under the supposition that the award involved is not violation

principles and rules of international law. The above view on the

supplemental and corrective role of international law in relation to the law

of the host State as substantive applicable law, is shared in case law ...

and in literature ....., and finds support as well in the drafting history of

the Convention ....’

(c) ICSID Award

The Tribunal shall decide questions by a majority of the votes of all its

members. The award of the Tribunal shall be in writing and shall be

signed by the members of the Tribunal who voted for it. The award shall

deal with every question submitted to the Tribunal, and shall state the

reasons upon which it is based. Any member of the Tribunal may attach

his individual opinion to the award, whether he dissents from the majority

or not, or a statement of his dissent. The Centre shall not publish the

award without the consent of the parties.

The effects of the awards are regulated in Article 53(1). The award shall

be binding on the parties and shall not be subject to any appeal or to any

other remedy except those provided for in this Convention. Each party

shall abide by and comply with the terms of the award except to the

extent that enforcement shall have been stayed pursuant to the relevant

provisions of this Convention.

7.3 Remedies against Awards

The ICSID Convention has a special feature for overview of an award. The

Convention differs from the other arbitration regimes in this respect. It

has an internal procedure to manage this activity. Remedies against the

award are limited to those provided for in the Convention and do not

include court involvement.

(a) Rectification, interpretation and revision

If any dispute shall arise between the parties as to the meaning or scope

of an award, either party may request interpretation of the award by an

application in writing addressed to the Secretary-General. Rectification of

clerical, arithmetical or similar errors can be requested within 45 days.

The request shall, if possible, be submitted to the Tribunal which rendered

the award. If this shall not be possible, a new Tribunal shall be constituted

in accordance with Section 2 of this Chapter. The Tribunal may, if it

considers that the circumstances so require, stay enforcement of the

award pending its decision. Also, either party may request revision of the

award by an application in writing addressed to the Secretary- General on

the ground of discovery of some fact of such a nature as decisively to

affect the award, provided that when the award was rendered that fact

was unknown to the Tribunal and to the applicant and that the applicant's

ignorance of that fact was not due to negligence. The application shall be

made within 90 days after the discovery of such fact and in any event

within three years after the date on which the award was rendered. No

time limits exist for requests for interpretation. Interpretation and

revision shall preferably be handled by the original tribunal. The Tribunal

may, if it considers that the circumstances so require, stay enforcement of

the award pending its decision. If the applicant requests a stay of

enforcement of the award in his application, enforcement shall be stayed

provisionally until the Tribunal rules on such request.

(b) Annulment proceedings

Either party may request annulment of the award by an application in

writing addressed to the Secretary -General on one or more of the

following grounds:

• (a) that the Tribunal was not properly constituted;

• (b) that the Tribunal has manifestly exceeded its powers;

• (c) that there was corruption on the part of a member of the

Tribunal;

• (d) that there has been a serious departure from a fundamental rule

of procedure; or

• (e) that the award has failed to state the reasons on which it is

based.

The application shall be made within 120 days after the date on which the

award was rendered except that when annulment is requested on the

ground of corruption such application shall be made within 120 days after

discovery of the corruption and in any event within three years after the

date on which the award was rendered. The annulment proceedings are

not supposed to be an appeal. They are limited to controlling the

legitimacy of the decision making process. ‘The grounds for an annulment

are exhaustively listed in ICSID Convention Article 52(1). Most of the

grounds mentioned are also found in the provisions for control of awards

contained in other arbitration regimes. The grounds mentioned in Article

52 are, however, narrower in that not every excess of power or departure

from a rule of procedure is sufficient to annul an award. By contrast the

ICSID Convention requires a qualified form, or a manifest excess of

powers. Furthermore, violation of public policy is not mentioned as a

separate ground for annulment. Proper constitution of the tribunal and

corruption of an arbitrator have been of no practical importance to date.

The ICSID secretariat manages the appointment process carefully and the

arbitrators appointed are usually of such quality that these grounds do

not arise.’

• i.- Excess of powers ( Article 52(1)(b) )

• An excess of power is one of the issue for the annulment of an

award mentioned above widely. Some reasons can be given for

existing of an excess of power. These are;

• - if the tribunal lacks jurisdiction either because the dispute is not

covered by the arbitration agreement or the other requirements of

Article 25 are not met.

• - Any tribunal which has not been authorised by the parties exceeds

its power if it renders an award.

• - The applies if the award goes beyond what the parties have

requested.

• - When the tribunal disregards the applicable law.

• ii. Serious departure from a fundamental rule of procedure (Article

52(1) (d)) The departure from a rule of procedure needs a double

qualification for annulments. The departure must be serious and to

be a fundamental rule of procedure, i .e rules of natural justice such

as the right to be heard, equal treatment of the parties and

impartiality of the arbitrators.

• iii. Failure to state reasons (Article 52 (1)(e))

• Being in a failure to state the reasons for the award has been

invoked by the applicants in all published annulment decisions.

Where the reasons given contradict each other they covers cases

and the award cannot be based on the reasoning of the remaining

parts besides the complete absence of reasons.

‘The alleged failure to state reasons usually only relates to certain

questions. Ad hoc committees have often adopted a very generous

standard and supplied reasons themselves if they considered the result to

be correct but not sufficiently reasoned. The extent to which reasons that

are not considered to be sufficient can also justify annulment under

Article 52(1) (e) is a controversial issue. Different views exist as to what

is required under Article 48(3). The ad hoc committee in Klöckner v

Cameroon, followed in Amco v Indonesia required the reasons to be

sufficiently relevant that is, reasonably sustainable and capable of

providing a basis for the decision. Such an investigation into the adequacy

of the reasons entails the danger of a review on the merits. To avoid a

review on the merits, the more lenient standard adopted by the ad hoc

committee in Mine v Guinea seems preferable. It was of the opinion

that... the requirement that an award has to be motivated implies that it

must enable the reader to follow the reasoning of the Tribunal on points

of fact and law. The adequacy of thereasoning is not an appropriate

standard of review under paragraph (1)(e), because it almost inevitably

draws an ad hoc Committee into an examination of the substance of the

tribunal’ s decision, in disregard of the exclusion of the remedy of appeal

by Article 53 of the Convention. A Committee might be tempted to annul

an award because that examination disclosed a manifestly incorrect

application of the law, which, however, is not a ground for annulment.

In the Committee’ s view, the requirement to state reasons is satisfied as

long as the award enables one to follow the tribunal’ s reasoning from

Point A to Point B and eventually to its conclusion, even if it had made an

error of fact or of law. This minimum requirement is in particular not

satisfied by either contradictory or frivolous reasons. In addition to the

duty to state reasons Article 48(3) also obliges the tribunal to deal with all

questions submitted to it.’

• iv. Annulment process

• It must be followed by the parties for the annulment of an award:

an application;

• - must be made in writing to the Secretary General within 120 days

after the award is rendered

• - must contain the grounds on which it is based. If the request is

based on an alleged corruption of the arbitrator the time only starts

to run after the corruption has been discovered, within the limit of

three years.

The Chairman of the Administrative Council and the parties appoints the

three member of ad hoc committee. Any of its members should not be in

the same nationality as the parties or the arbitrators of the original

tribunal or should have been appointed to the panel of arbitrators by

either the state party or the home state of the private party.

7.4 Recognition and Enforcement

ICSID awards are subject to a special regime for recognition and

enforcement contained in Article 54 of the Convention. According to

Article 54; Each Contracting State shall recognize an award rendered

pursuant to this Convention as binding and enforce the pecuniary

obligations imposed by that award within its territories as if it were a final

judgment of a court in that State. This obligation exists independently

from whether or not the state in question or its nationals were a party to

the proceedings. Orders for specific performance or other non pecuniary

obligations must be enforced under the New York Convention or the law of

the state of enforcement. A party seeking recognition or enforcement in

the territories of a Contracting State shall furnish to a competent court or

other authority which such State shall have designated for this purpose a

copy of the award certified by the Secretary-General. Each Contracting

State shall notify the Secretary-General of the designation of the

competent court or other authority for this purpose and of any

subsequent change in such designation. Execution of the award shall be

governed by the laws concerning the execution of judgments in force in

the State in whose territories such execution is sought.

VIII. Arbitration under ICSID Additional Facility Rules

It was created under the ICSID Convention, the Centre provides facilities

for conciliation and arbitration of investment disputes between

Contracting States and nationals of other Contracting States. The

Administrative Council of the Centre has adopted Additional Facility Rules

authorizing the Secretariat of ICSID to administer certain categories of

proceedings between States and nationals of other States that fall outside

the scope of the ICSID Convention. These are (i) fact-finding proceedings;

(ii) conciliation or arbitration proceedings for the settlement of investment

disputes between parties one of which is not a Contracting State; and (iii)

conciliation and arbitration proceedings between parties at least one of

which is a Contracting State or a national of a Contracting States for the

settlement of disputes that do not arise directly out of an investment,

provided that the underlying transaction is not an ordinary commercial

transaction. The practical importance of the Additional Facility has

increased considerably with NAFTA, the Energy Charter Treaty, and a

number to BIT’ s referring to its dispute settlement proceedings.

IX. Foreign Investment in Turkey

In Turkey, developments in foreign investment occurred in the early

fifties. During this period, with the formation of rapid development

strategies and international economic cooperation, the Foreign

Investment Law No. 6224 concerning foreign capital was enacted. The

flexible foreign investment policies and provisions have adopted for to

create a favourable and efficient climate for investors and investment

area, in this deal, Turkey provides a well-secured environment for foreign

capital. Turkey is a party to several bilateral and multilateral agreements

and organizations. Investment Protection Agreements and Avoidance of

Double Taxation Agreements have been signed between Turkey and more

than 30 countries.

Since January 1, 1996 Turkey has been a member of European Customs

Union. This enables free access of Turkish manufactured goods into all

members of the European Union. Turkey is also a member of the United

Nations and the North Atlantic Treaty Organization and is a founding

member of the Council of Europe, the International Bank of

Reconstruction and Development (the World Bank), the International

Monetary Fund and the Organization of Economic Cooperation and

Development (OECD). Furthermore, the Turkish Republic is party to the

General Agreement on Tariffs and Trade (GATT) and the Multilateral

Investment Guarantee Agency (MIGA). It is also one of the shareholders

of the European Bank for Reconstruction and Development (EBRD) and

the Asian Development Bank. Turkey signed a free trade agreement with

the Free Trade Association (EFTA) in 1993. Moreover Turkey is a member

of the Organization of the Islamic Conference and of the Islamic

Development Bank. Turkey continues its active role in the Economic

Cooperation Organization (ECO) which strengthens commercial relations

with Iran and Pakistan. Furthermore, Turkey has taken the lead in forming

the 13 member, Black Sea Economic Cooperation zone (BSEC) which

includes Albania, Armenia, Azerbaijan Bulgaria, Georgia, Greece, Moldova,

Russian Federation and Ukraine.

X. Foreign Investment Legislation

The legislation governing the foreign investments in Turkey has been

shaped by the Foreign Capital Law which was enacted in 1954 and the

Council of Ministers Decree and Communiqués which were last revised in

1995. The Law and the Decree states the framework of general principles

concerning foreign investment. The Government of Turkey is focusing on

improving the investment climate as one of the main pillars of its

economic program. The New Foreign Direct Investment Law provides a

friendly environment and attracts investment for the investors. The New

Law International Standards: "Foreign direct investment" and "Foreign

investor" terms are defined within international standards in order to

clarify the field of application of the Foreign Direct Investment Law. Within

this scope:

Foreign Investor is defined as : a) Real persons who possess foreign

nationality and Turkish nationals resident abroad, b) Foreign legal entities

established under the laws of foreign countries and international

institutions, who make foreign direct investment in Turkey.

Foreign direct investment is defined as:

i) Establishing a new company or branch of a foreign company

ii) Share acquisitions not by means of capital markets, and share

acquisitions through capital markets where the foreign investor owns 10

percent or more of the shares or voting power,

Abolishing Permits

With this Law, all permits granted by the General Directorate of Foreign

Investment are abolished. As a result, all transactions for establishing a

company with foreign capital will be the same as with local companies.

Since all companies established in Turkey within the framework of the

Turkish Commercial Code are accepted as Turkish companies, all duties

and responsibilities are equal regardless of the nature of capital

formation.

National Treatment

The National Treatment, the major principle of foreign investment policy

of Turkey, was emphasized in the new law.

Protection against Expropriation

Principles stated in the Constitution and the Expropriation Law are stated

in the new law, as in the bilateral investment agreements and other

international agreements. Therefore it is clarified that expropriation

cannot take place with any reason other than the above-mentioned

regulations.

Guarantee of Transfers

In the new Law, the right of free transfer of profits, dividends, proceeds

from sale or liquidation of all or any part of an investment, amounts

arising from license, management and similar agreements,

reimbursements and interest payments arising from foreign loans, banks

or special financial institutions is clearly stated.

Access to Real Estate

Legal entities with foreign capital, established and registered under rules

of Turkish Commercial Code can acquire real estate with the same

principles as Turkish nationals. The principle of reciprocity is still valid for

foreign real persons.

Author: Salih Tuygun

Arbitration of Investment Disputes http://www.ketencilaw.com/

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