REUTERS | Murad Sezer

The fate of the Turkey-Uzbekistan bilateral investment treaty after 20 years

The bilateral investment treaty (BIT) between Turkey and Uzbekistan (Turkey-Uzbekistan BIT) that was signed on 28 April 1992, which aimed to promote investment in the contracting states and provide protection to the investments of international investors in Turkey as well as Turkish investors in Uzbekistan against non-commercial risks in the framework of international law, is one of the 98 BITs that Turkey signed with other countries. It has been in force since 18 May 1995.

Turkey has followed a programme to conclude new BITs and modify old ones in line with new developments in global investment law. After over 20 years, the Turkey-Uzbekistan BIT is subject to an amendment to consolidate the relationship based on investment incentives between the two countries. Accordingly, in September and October 2017, during a visit to Turkey by Cemşit Kuçkorov, Uzbekistan’s Deputy Prime Minister, several meetings were conducted with the aim of enabling cooperation and exploring the economic and investment potential between the two countries.

As a result of these meetings, a new BIT was signed between Turkey and Uzbekistan on 25 October 2017. The draft law regarding the approval of the ratification of the new Turkey-Uzbekistan BIT was submitted to the Grand National Assembly of Turkey on 3 May 2018. The exact date of its entry into force is currently unknown.

Under the 1992 Turkey-Uzbekistan BIT, “investor” means natural persons deriving their status as nationals of either party according to its applicable law and corporations, firms or business associations incorporated or constituted under the law in force of either of the parties and having their headquarters in the territory of that party. The 2017 Turkey-Uzbekistan BIT expressly requires legal entities also to have substantial business activity in the territory of the state of that contracting party to be qualified as investors.

An investment does not include assets that are claims to money deriving solely from commercial contracts for the sale of goods or services, to or from the territory of the state of the contracting party to the territory of the state of other contracting party; or a loan to a contracting party or to a state enterprise; a bank letter of credit; or the extension of credit in connection with a commercial transaction, such as trade financing for the purposes of the new BIT. As well as this, under the 2017 Turkey-Uzbekistan BIT, in order to qualify as an investment, an asset must have the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profıt, the assumption of risk, and significance for the development of the hosting contracting party.

With the aim of providing fair and equitable treatment to investors of either contracting party, the preamble to the 1992 Turkey-Uzbekistan BIT states that agreeing that fair and equitable treatment of investment is desirable, in order to maintain a stable framework for investment and maximum effective utilisation of economic resources. In addition, under Article II (2) of the BIT, the most favoured nation (MFN) clause, it has been accepted that:

“Each Party shall accord to these investments, once established, treatment no less favorable than that accorded in similar situations to investments of its investors or to investment of investors of any third country, whichever is the most favorable.”

It is mostly accepted by tribunals that an MFN clause gives a right to benefit from substantive guarantees contained in other treaties to which the host state is a party (Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan; EDF International S.A. v Argentina). However, the new BIT limits the application of an MFN clause, and expressly states that it is not applicable to the settlement of disputes between one contracting party and investors of the other contracting party.

Article VII of the current 1992 Turkey-Uzbekistan BIT sets forth the procedure for the settlement of disputes between one party and investors of the other party in connection with investment. It foresees disputes to be submitted to any one of three arbitral bodies, namely ICSID, UNCITRAL and ICC, if such disputes have not been settled by “consultations and negotiations in good faith” within six months of their notification, provided that “if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year”. There has been a long and ongoing debate on the wording of this sentence and it is subject to many ICSID cases. This is because some believe that this wording imposes an obligation on the investor to resort to the national courts of the party (Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan; İçkale İnşaat Limited Şirketi v Turkmenistan), whereas others opine that this is not a requirement, but only an option for the investors (Muhammet Çap and Sehil Inşaat Endustri ve Ticaret Ltd Sti v Turkmenistan).

Although the new Turkey-Uzbekistan BIT made changes to various clauses in the current BIT, undoubtedly the most important change is the removal of this controversial sentence from Article VII (2) of the current BIT. Article 10(4) of the new BIT provides that:

“The host Contracting Party shall be entitled to request from disputing investor to resort to domestic administrative review procedures established by the laws and regulations of the State of that Contracting Party, before submitting the dispute to International arbitration. In any case, this will not impair the disputing investor to resort to forums mentioned in paragraph 4 of this Article whether these review procedures are finalized or not.

Lastly, another change is that, as per Article 10(4)(d) of the new BIT, if the disputing parties so agree, the dispute can be brought before any other arbitration institution, or under any other arbitration rules, other than the three arbitral bodies. There is a five-year time limit to submit the dispute to arbitration. If five years passes from the date when the investor fırst knew or should have known the events that led to the dispute, the dispute may no longer be submitted to arbitration.

As can be seen, although currently not in force officially, the new BIT has many significant differences from the current BIT, but when it will come into force remains a curiosity.

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