Protection of International Investments. Analysis of Certain Clauses in International Agreements. Uzbekistan Case Study

Abstract

Historically, the phenomena of decolonization and globalization brought key impetus to the evolution of international investment law. Since in the eighteenth and nineteenth centuries, investments were sufficiently protected by the colonial legal systems and diplomatic means, the requisite for international law on foreign investment was minimal. However, after the collapse of colonial system, the risks to foreign investment considerably increased which imposed the need for a separate legal system of law designed to protect foreign investments namely, international investment law. It is supposed to consider the nature of risks to foreign investments first before analyzing the existing legal methods of international investment law devised to protect international investments.

The principle risk that poses a threat to foreign investment is the post –investment changes in political and economic policies of the host state. States seek to modify their political or economic regimes owing to certain circumstances and their right to change their policies is legally supported by the doctrine of permanent sovereignty. Therefore, foreign investors endeavor to minimize those risks by petitioning their home governments to act on their behalf. Specifically, foreign investors ask their home countries to conclude agreements directly with host governments that provide them with expanded rights and enable to protect their investments against inimical laws and regulations of host states. A classic example of these agreements is Bilateral Investment Treaties (BITs) which are typically signed between capital exporting (developed) and capital importing (developing) states in order to grant certain protections to investments made by their nationals in each other’s territory. The substantial majority of BITs are similar in structure containing basic provisions such as standard of treatment, expropriation and dispute resolution designed to protect foreign investments against different risks. However, the proliferation of BITs gave a rise to a robust debate on whether the provisions of these treaties provide investor companies with sufficient protection and stimulate foreign direct investments in the developing countries or whether they include merely general protection mechanisms that do not devise a full protection for particular types of investments such as for long term and capital intensive projects. One of the core aims of this paper is to make a legal examination of the proposition mentioned.

Employing contractual devices for investment protection purposes constitutes another effective legal method of international investment law. In fact, majority of multinational corporations secure their investment by concluding concession agreements with host states particularly by including certain clauses in them such as stabilization, choice – of – law and arbitration. Since the subject matter of typical concession agreements is long term investment projects, they are intended to be immune from interference by the home states during this period. In order to ensure this immunity those three mentioned covenants of investment contract play an essential role. Specifically, ‘stabilization clause’ is designed to freeze the law as it was at the time of the entry of the investment , preventing the foreign government from altering the terms of the agreement by legislation or any other means, without consent of the other contracting party namely investor company. Furthermore, choice-of-law clause seeks to exclude the application of domestic laws of the host state which can easily be changed at will by the sovereign party. Finally, the third clause , arbitration clause is included in the concession agreement in order to allow the choice of a neutral forum for the settlement of disputes which arise from the agreement and to ensure that those disputes being resolved in an impartial manner.

Keywords: Protection of Foreign Investments, BITs, Investment Contracts, Stabilization, ICSID, Investment Law of Uzbekistan