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Wide-ranging investments made in foreign jurisdictions face much insecurity, particularly when investing in countries with extensive levels of political and regulatory risk or developing judicial systems, as is often a concern for international investors entering certain Asian and African countries. In such circumstances, investors are particularly concerned about the legal protections that are available to them during the life of their investments. Bilateral and multilateral investment treaties (“BITs”, “MITs”) have become the principle vehicle to overcome these challenges and mitigate the risks of government intervention.
BITs are international law instruments – treaties – agreed between two states. MITs are treaties agreed between more than two states. The purpose of BITs and MITs is to create a stable legal environment that fosters foreign direct investment. This is achieved by the “host state” (i.e. the state in which the investment is made) agreeing to provide certain guarantees and standards of protection to the investments of private foreign investors (i.e. those with the nationality of, or incorporation in, the “home state”). The investor is also provided with the opportunity to enforce its rights under the investment treaty against the host state through independent international investment arbitration. This is the major innovation of investment treaties, as traditionally it was only states that had standing to bring claims against each other.
Rights and obligations under investment treaties are reciprocal, protecting the investments of investors from each state in the territory of the other state. Structuring investments correctly can maximise those rights and protections, and has become a modern commercial imperative when transacting internationally.
Escalating investment securities:
When structuring foreign investments, prudent investors will seek advice on the protections available under the domestic legislation of the host state as well as the investment treaties to which that host state is a party.
In order to rely on the protections offered by a particular BIT, a foreign investor will need to qualify as a defined “investor”, as mentioned above, and its “investment” must fall within the definition of the protected type of investments under the relevant BIT. Most BITs adopt a broad definition of qualifying investments, ranging from tangible to intangible property, company shares to contractual rights.
The common categories of substantive BIT protections and guarantees owed by host states to foreign investors/ investments include the following:
No expropriation without compensation: not to expropriate investments unless it is for a public purpose, in accordance with law and due process, with the provision of prompt, adequate and effective compensation;
Fair and equitable treatment: all investors/ investments will be treated fairly and equitably (an open category that includes upholding legitimate expectations, the rule of law and good faith etc.);
Full protection and security: including to maintain the investor’s legal rights and protect physical assets from insurrection;
No discrimination: not to adopt measures that discriminate investments based on type, industry, nationality etc;
National treatment: not to treat foreign investors/ investments less favourably that domestic investors/ investments;
Most favoured nation treatment: the most favourable treatment available to investors/ investments of one state will be afforded to investors/ investments of other states;
Umbrella clause: general commercial contracts with the host state and investor are elevated to protection under the BIT; and
Free transfers: investors may convert investment returns into a currency of their choice and repatriate out of the host state.
National Laws and Regulations regarding Foreign Investment
Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy Act of 2005, the Industrial Policy Act of 2010, and the Bangladesh Economic Zones Act 2010. The Industrial Policy Act of 2016 was approved by the Cabinet Committee on Industrial Purchase on February 24, 2016 and replaces the Industrial Policy of 2010.
The Industrial Policy Act of 2016, which replaced the 2010 Act, offers incentives for “green”, high-tech, or “transformative” industries. Foreign investors who invest $1 million or transfer $2 million to a recognized financial institution can apply for Bangladeshi citizenship. The Government of Bangladesh will provide financial and policy support for high-priority industries (those that create large-scale employment and earn substantial export revenue) and creative (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming) industries. Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT) and software, pharmaceuticals, leather and leather products, and jute and jute goods.
International investment arbitration and Dispute Settlement:
International investment arbitration is a mechanism to resolve investment disputes between a foreign investor and the state hosting the investment. It is different in many respects from international commercial arbitration, which involves two private parties, usually corporations.
ICSID Convention and New York Convention
Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it consented in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.
Investor-State Dispute Settlement
Bangladeshi law allows contracts to refer dispute settlement to third country forums for resolution. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.
In practice, enforcement of arbitration results is applied unevenly and the government has challenged ICSID rulings, especially those that involve rulings against the government. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution times can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.
Bangladesh is a signatory of the New York Convention and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the District Judge Court bench and foreign arbitration is under the authority of the relevant High Court division of the Supreme Court of Bangladesh.
Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in April 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The council committee is headed by the President of International Chamber of Commerce – Bangladesh (ICC,B) and includes the presidents of other prominent chambers such as like Dhaka Chamber of Commerce and Industry (DCCI) and Metropolitan Chamber of Commerce and Industry (MCCI). The center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh (AmCham) can sometimes help to resolve transaction disputes.
The Author has attained LLM in International Commercial Arbitration under the University Utara Malaysia. Currently he is practicing with a law firm, Bhuiyan & Mir focusing on International Commercial Arbitration, Religious Arbitration and Corporate Arbitration. He is the Young Professional member of Singapore International Arbitration Centre (YSIAC), Singapore and Young International Arbitration Group (YIAG), London. He can be reached at email@example.com.