Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Compatibility Between US-BIT Norms and the Need for Local Remedies Through Relevant Egyptian Investment Laws

Document Cited authorities 2 Cited in Related
Vincent
Published date01 August 2018
Pages452-476
Date01 August 2018
Author
DOI10.3366/ajicl.2018.0241
<p>Egyptian law allows for arbitration and negotiation if any dispute arises between Egypt and a foreign nation. Egypt is a signatory in several ‘international investment agreements’ signed with a host of foreign nations, considering the fact that foreign investments have a good stake in the region. Not only does the Egyptian constitution open many channels and protective measures to encourage foreign investment in the region, but the current laws in Egypt also grant investors full protection, incentives and less interference from the government. Often it is criticised that while Egyptian law attracts foreign investments, at the same time it should take into account the public interest, national laws and domestic jurisdiction.</p> <p>This article examines to what extent Egypt's current investment legal framework favours domestic interests and how the lopsided Bilateral Investment Treaties (BITs) signed by Egypt with a number of nations and the adoption of US-BIT norms show a bias towards the interests of foreign investment entities. Evidently, most of these BITs contain clauses that have resulted in disputes that are submitted to the International Centre for Settlement of Investment Disputes (ICSID) for proper settlement. This article scrutinises the arbitration cases filed before ICSID in respect of investor-state disputes involving Egypt in order to understand the significance of the BITs in general and the adoption of US-BIT norms in particular.</p> INTRODUCTION

Historically, investment laws have been enacted by each successive government in Egypt to offer legal privileges to foreign investors to boost investments. These legal privileges included tax exemption, subsidised energy costs and international disputes settlement. All these incentives indicated that the Egyptian parliament had passed such investment laws that were consistent with the regime's policies. In spite of this there were many lawsuits against Egypt in international arbitration forums. Though Salacuse opined that the laws of the concerned host country formed the basis of the legal structure of any investment treaty, there were also the provisions of the norms of International Investment Agreements (IIAs), and particularly of Bilateral Investment Treaties (BITs).1 The principal norms of IIA and BIT are Free Transfer, Nationalisation and Expropriation, Compensation for Damages Due to War and Similar Events, Settlement of Disputes between the Investor and the Host State, Subrogation and Promotion and Protection of Investments which includes a few sub-norms such as security, equitable treatment and Most Favoured Nation (MFN) provisions.2

Under these IIAs and BIT norms, the Egyptian investment laws grant several incentives and guarantees to foreign investors:3 for instance, it grants any foreign investor, normal or legal person, the right to transfer his income earned in Egypt; to own projects up to 100 per cent; to enjoy guarantees against confiscation, seizure, nationalisation and compulsory pricing; to own land; to own bank accounts in a foreign currency; to enjoy immunity from administrative detention; to repatriate capital and profits to his country; and finally, not subjected to Egyptian policy on staff recruitment and equal treatment regardless of nationality. Notably, these privileges and guarantees are consistent with requirements of the norms of BITs. The next section discusses the norms of BIT in detail.

 US-BIT NORMS AND RELEVANT EGYPTIAN LAWS

According to Salacuse, BIT norms are ‘standards of behavior defined in terms of rights and obligations’. He also asserts that BITs specify standards of ‘treatment’ that host states are obliged to accord to investors and investment from their treaty partners. This clearly confirms that BITs offer protection to foreign investors against any political risk resulting from placing their assets under host country jurisdiction and what the host country must give to investors and their investments’.4 According to UNCTAD, at the beginning of 2014, the total number of all investment treaties was 3,236, consisting of 2,902 BITs and 334 other types of international investment agreements.5 Approximately 180 countries had signed at least one of these agreements with Egypt.6 In framing the Egyptian investment law, Egypt made use of the six ‘core’ BIT norms of US Bilateral Investment Treaties7 which are considered to be the six basic benefits to investors (see Figure 1).8 Each norm is discussed below as found in the US-BIT.

Six ‘core’ norms of US-BITs.

The first norm of the US-BITs is the National Treatment (NT) or Most Favoured Nation (MFN) treatment during the whole life cycle of investment, i.e. from its establishment or acquisition, through its management, operation and expansion, until its disposition9 to be exercised on foreign investors and their ‘covered investments’. Additionally, the norm also mandates that each foreign investor or his investment will be treated as favourably as the host party would treat its own investors and their investments.

The second norm establishes a balance on the expropriation of investments and provides for the payment of prompt, adequate and effective compensation in the event of expropriation.

The third norm deals with the transferability of funds into and out of the host country without delay according to the market rate of exchange. This obligation is applicable on all transfers related to ‘covered investments’ and helps in the creation of a predictable environment guided by market forces.10

The fourth norm puts a limit on the events or circumstances that amount to impose restrictions on performance requirements. Such restrictions were applicable to such specific circumstances that would force covered investments to resort to inefficient and trade distorting practices such as local content requirements or export quotas, in order to predict an establishment, acquisition, expansion, management, conduct or operation.11

The fifth norm of dispute settlement allows investors from both parties the right to opt for international arbitration in the event of any investment dispute with the host government. The norm also removes the requirement to move the country's domestic courts.12

The sixth norm gives covered investments the privilege to hire and utilise the services of any top managerial official of their choice, regardless of nationality in the arbitration.13

The following subsections scrutinise each of these norms in order to determine their relevance to the domestic legal system and to find out how the allegations and arbitration were dealt with under each norm.

US-BIT Norm of ‘National Treatment’ and ‘Most-Favoured Nation’

Under the norm of ‘National Treatment (NT)’ and ‘Most-Favoured Nation (MFN)’, all investors and their ‘covered investments’ (investments in the territory of the other party) enjoy a favourable treatment, akin to the manner in which the host party treats its own investors and their investments or investors and investments from any third country. Thus this BIT norm ensures NT or MFN treatment during the whole life cycle of investment, i.e. from its establishment or acquisition, through its management, operation and expansion, until its disposition.

National Treatment Norm

There are many Egyptian investment laws that have granted this norm of National Treatment to all foreign investors. To begin with, Article 6 of the Law of the System of the Arab and Foreign Investment Capital and Free Zones (Law No. 43 of 1974) states that the capital that is invested in the Arab Republic of Egypt according to the provisions of this Law will have guarantees and benefits that are stipulated in this Law, whatever the nationality of the owner of this capital or his residence. The US Department of State points out that the Companies Law (Law No. 159 of 1981) of Egypt governs domestic as well as foreign investments in sectors that are not stipulated under the Investment Incentives Law. These sectors are shareholders, joint stocks, limited liability companies, representative offices and or branch offices. The law allows an automatic registration of the company by presenting an application to the General Authority for Investment (GAFI), with some exceptions.14 The Law also relaxed the legal requirement of having at least 49 per cent of Egyptians as shareholders and also allowed 100 per cent foreign representation on the board of directors in order to strengthen accounting standards.15 Similarly, the Investment Incentives Law 8 of 1997 under its Article 12 grants 100 per cent foreign ownership for investment projects.16 In addition, Article No. 37 states that ‘maritime transport projects established in free zones shall also be exempted from the terms and conditions concerning the nationality of the owner of the ship and its crew, as stipulated by the maritime Trade Code, Law No. 84 of 1949 concerning the registration of merchant vessels’ in law No. 8 of 1997.17

The Egyptian capital market is governed by another Law, the Capital Markets Law 95 of 1992,18 with all its amendments and regulations. The Law has privileged all foreign investors to buy shares at the Egyptian Stock Exchange in the same manner as do local investors.19 Additionally, the Prime Ministerial Decree No. 548 for 2005 also removed restrictions on foreign property ownership.20 The Insurance Law 156 of 1998 removed a 49 per cent ceiling on foreign ownership of insurance companies, allowing privatisation of state-owned insurance companies and abolishing a ban on foreign nationals serving as corporate officers.21 The Electricity Law 18 of 1998 allows the government to sell minority shares of electricity distribution companies to private shareholders, both domestic and foreign. Noticeably, the Egyptian Electricity Law, issued by Law No. 87 for the year 2015 represents the general legal framework for the electricity sector for decades to come. The Electricity Law paved the way for a move...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT