Author: Hannepes Taychayev
On 5 May 2023, Oxford University hosted an online book discussion dedicated to the recently published book, International Investment Law and Investor-State Disputes in Central Asia: Emerging Issues, edited by Kiran Nasir Gore, Elijah Putilin, Kabir Duggal, and Crina Baltag. The main focus of the panel was to examine the current state of play of the Investor-State Dispute Settlement (ISDS) field as it relates directly to the Central Asian region, specifically, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.
The panel began with an introduction by Professor Bui Ngoc Son (Oxford University) and featured four distinguished speakers: Kiran Nasir Gore (Independent Arbitrator and Counsel; Professorial Lecturer at the George Washington University Law School), Elijah Putilin (Independent Arbitrator and Counsel; Professor at Tashkent State University), Evgeniya Rubinina (Partner at Enyo LLP), and Lindsay Reimschussel (Senior Associate at CMS Cameron McKenna Nabarro Olswang LLP). Collectively, the panelists have significant practical experience in ISDS in general and with matters involving the Central Asian region in particular.
Professor Bui opened the discussion by mentioning the book’s significance owing to comprehensive coverage of experiences from five countries in Central Asia, a topic that has not previously been explored in-depth in any other text. He expressed appreciation to the panelists for the discussion which would explore the unique features of the Central Asian region, including the roots of their domestic law systems in the post-Soviet legal system, and how that may impact their respective experience with international investment law and ISDS.
The speakers then proceeded to an unmoderated and free-flowing dynamic discussion around past, present and future themes to thoroughly examine international investment law and ISDS in the Central Asian region.
SETTING THE STAGE
Gore and Putilin launched the discussion with introductory remarks that shed light on the Central Asian region and the book under discussion.
Putilin emphasized the significant role of Central Asian states in international trade, notably through the Great Silk Road. He highlighted the region’s resource-rich nature and its attraction for foreign direct investments, making it one of the fastest-growing investment destinations. Putilin noted the historical connection between investment and investment disputes, tracing the first reported investment arbitration case involving a Central Asian state back to 1996.
Gore then provided an overview of the Central Asian region, laying the foundation for further discussions on international investment law. When studying the region, she stressed the importance of different modes for examination, both “insider” and “outsider” perspectives. She noted that the editors of the book aimed to strike a balance between these perspectives to create a comprehensive resource. She added that a key thesis of the book was that the Central Asian region was intriguing for all, even those not intimately familiar with it. Because of the region’s unique background and significant experience with ISDS, the region offered valuable lessons to both insiders and outsiders. She highlighted the emergence of significant investment cases, some of which would be discussed by the panelists, serving as practical examples of the region’s relevance in the evolving field of international investment law.
PAST: REGIONAL TREATY LEGACIES
During this part of the discussion, attention was directed towards shedding light on Central Asian BITs and investigating the impact of Soviet agreement legacies on the region’s investment landscape. To further set the stage, Rubinina overviewed Central Asian BIT practice (3.1), while Reimschussel delved into the role played by Soviet treaties in the current Central Asian ISDS framework (3.2).
Overview of Central Asian BIT Practice
Rubinina reviewed the investment treaty landscape in Central Asia, with a specific focus on the engagement of Central Asian states in BITs and multilateral investment protection agreements. She explored various factors that influenced the process of treaty-making, highlighted the similarities in treaty provisions, and discussed the evolving jurisprudence within the region.
Rubinina emphasized that Central Asian states, unlike some other nations, did not have a formal investment program, nor did they have any publicly available model BIT that was used as a negotiating standard. However, they actively participated in the investment treaty space and collectively entered into over 150 BITs. She underscored that all five Central Asian states are parties to the Energy Charter Treaty, and Kazakhstan and Kyrgyzstan are signatories to the Treaty on the Eurasian Economic Union, a regional economic integration agreement containing provisions on investment.
She noted that the engagement of Central Asian states in investment treaties has been influenced by their status as resource-rich countries that historically, and especially following the post-Soviet period, imported capital. As a result, many concluded treaties in the 1990s with capital-exporting countries like Turkey, the Netherlands, and China, which were major investors in the region. However, the presence of a significant investment source did not guarantee the existence of a BIT between that capital-exporting state and the recipient of investments. This observation aligned with international trends, as studies have not definitively proven a direct link between the existence of a BIT and foreign investment from a specific state into a specific state. For example, despite substantial Canadian foreign direct investment in Kyrgyzstan’s mining industry, there was no BIT between Kyrgyzstan and Canada.
Since Central Asian states have not historically drawn on their own model BITs during treaty negotiations, the concluded treaties often were influenced by the model BITs of respective capital-exporting nations. Consequently, many BITs involving the region, particularly those with the same capital-exporting countries, shared similar provisions. For instance, the suite of BITs between Central Asian states and Turkey featured comparable provisions. These treaties also contained some grammatical errors and drafting ambiguities, which have been examined in detail in the book. Because of this, certain provisions in Turkish BITs with Central Asian states present interpretive challenges because they were authenticated in multiple languages and those different language versions were not consistent with each other. Specifically, the language regarding bringing a claim to local courts before resorting to arbitration differed among the authentic versions, leading to divergent interpretations and applications. While some tribunals considered it a prerequisite for an investor to attempt litigation in local courts before initiating arbitration, others viewed it as a form of a fork-in-the-road provision. These inconsistent interpretations resulted in jurisprudential developments within the region. She mentioned that a dedicated chapter in the book authored by Diora Ziyaeva explores the procedural prerequisites for investment arbitration in greater detail.
The Role of Soviet Treaties in Present-day Central Asian ISDS
Reimschussel then examined two significant cases, World Wide Minerals v. Republic of Kazakhstan and Gold Pool Limited Partnership v. Republic of Kazakhstan, that addressed the issue of former Soviet states being bound by USSR investment treaties. Both cases dealt with whether Kazakhstan was considered a successor to the Canada-USSR BIT, signed in 1989 and enforced in 1991. Reimschussel mentioned that she had the privilege of working on both cases. Although the arbitral decisions themselves were not publicly available, there was some accessible information regarding these cases. Based on publicly-available information, she provided an overview of the cases, discussed the legal standards, and highlighted the consensus and differences in their conclusions.
Reimschussel noted that these cases illustrated an intriguing aspect: despite two tribunals composed of renowned public international law scholars applying similar standards, they reached different conclusions. Ultimately, determining whether any other Central Asian state was bound by a former USSR BIT would require a thorough examination of the facts, and the outcome would be the result of a fact-intensive inquiry.
Reimschussel also mentioned aspects of public international law that are relevant to this area, such as the Vienna Convention on Succession of States in Respect of Treaties, and the Vienna Convention on the Law of Treaties (VCLT). While the Vienna Convention on Succession of States in Respect of Treaties has limited signatories and its status as customary international law is uncertain, it does specifically address the issue of treaty succession.
PRESENT: NATIONAL LAWS, CORRUPTION, AND EXPROPRIATION
Turning to presently developing areas of practice, the participants discussed the relationship between the domestic law of Central Asian states and BITs (4.1). Moving forward, Reimschussel (4.2) brought attention to the topic of expropriation and its implications for foreign investors in Central Asian states. Additionally, Rubinina addressed the pressing issue of corruption within the context of investment treaties (4.3).
Interaction between Domestic Law and BITs
Putilin focused on the relationship between international investment treaties and national investment legislation in Central Asian states, particularly highlighting the Law of the Republic of Uzbekistan On Investments and Investment Activity as a noteworthy model. He emphasized the progressive nature of national investment legislation and its role in supplementing the network of BITs to protect foreign investments in the region. He noted that national investment laws mirrored the provisions of BITs, providing additional safeguards such as protection against expropriation and a fair and equitable treatment standard. They also granted investors access to investor-state dispute settlement mechanisms. However, according to Putilin, the national legislation of some states went beyond the BITs, he highlighted Uzbekistan’s law on investments and investment activities adopting the law’s multi-tiered approach to investment dispute resolution. This approach reflected Uzbekistan’s commitment to preventing investment disputes and prioritizing negotiation and mediation as the primary means of resolution. The government aimed to create a favorable investment climate and foster mutually beneficial relationships between investors and the state.
Expropriation and its Implications for Foreign Investors in Central Asian States
Reimschussel then transitioned the discussion to expropriation, a substantive issue that had arisen several times in ISDS cases involving the region. She emphasized that the majority of BITs in the region explicitly prohibited expropriation. She also mentioned that allegations of expropriation, both direct and indirect, had been raised in several cases involving Central Asian states.
A unique form of indirect expropriation claim observed in the region was commonly referred to as “creeping expropriation.” This sort of expropriation involved claims of coordinated state actions against an investor and their investment, often involving regulatory agencies, investigations, fines, police involvement, employee harassment, biased court decisions, and detrimental impacts on ownership and business operations.
Issue of Corruption within the Context of Investment Treaties
Another key issue that arose in ISDS cases involving Central Asian states has been corruption allegations and the corruption defense. Rubinina explained that while corruption was a global issue, Central Asian states demonstrated a propensity for raising corruption objections in investment treaty arbitration. She discussed three landmark cases involving Central Asian states as Respondents: Metal-Tech Ltd. v. Republic of Uzbekistan, Vladislav Kim and others v. Republic of Uzbekistan, and Spentex Netherlands, B.V. v. Republic of Uzbekistan, which shed light on the shifting burden of proof and yielded varying outcomes. The analysis underscored the significance of addressing corruption allegations within the context of investment disputes involving Central Asian states.
Both the Metal-Tech and Kim cases have faced criticism. Some argue that the outcome of the Kim case may have overlooked potential corruption, while the Metal-Tech case seemingly allowed the government to evade responsibility for the corruption involving its officials. The Spentex case attempted to strike a middle ground by imposing financial consequences on the respondent while acknowledging the presence of corruption. The handling of corruption allegations in cases involving Central Asian states by future investment tribunals remained an area of interest.
FUTURE: EMERGING ISSUES
In the concluding segment of the discussion, the panelists explored the future outlook and emerging issues related to investment treaties in Central Asian states. The topics covered were as follows: Approaches to Renegotiation and Investment Status Dispute Mechanism in Central Asian States (5.1), ISDS Backlash and Reforms (5.2), Analysis of Pushback Against the Energy Charter Treaty (5.3), and a Case for a Model Treaty (5.4).
Approaches to Renegotiation and Investment Status Dispute Mechanism in Central Asian States
Gore examined Central Asian states’ approaches to the renegotiation of investment treaties as well as their approaches to dispute resolution and arbitration. She raised the issue of the choice of law firms and arbitrators and the need for greater diversity in these processes. Additionally, she discussed the regional response to the backlash against investment treaty arbitration and the involvement of Central Asian states in ISDS reform processes.
Rubinina continued the discussion. She said that the positions taken by Central Asian states in investment treaty arbitrations were influenced by their selection of counsel and advisors. The expertise and qualifications of these legal representatives played a pivotal role in shaping the outcome of the proceedings. Moreover, the internal structure employed by the states in their approach to representation in investment treaty arbitration significantly impacted their decision-making processes.
An analysis of the law firms chosen by Central Asian states revealed a select group of international firms, primarily based in the United States and the United Kingdom. While the establishment of dedicated government departments responsible for coordinating the states’ presentation in these proceedings fostered institutional knowledge and continuity, relying on the same law firms repeatedly could have certain drawbacks. It often led to the repetition of arguments and defenses, potentially compromising the competitiveness of their cases.
Central Asian states, like many others, tend to favor well-known arbitrators who were popular choices globally. This preference for well-known arbitrators is not unique to the region. However, it is disappointing to note that very few arbitrators from the Central Asian region itself have been appointed, unlike in other regions like South America and the Middle East. Encouraging a more diverse pool of arbitrators, including those with a Central Asian background or connection, will be highly beneficial.
ISDS Backlash and Reforms
Rubinina noted that Central Asian states showed less backlash against investment treaty arbitration compared to other regions. Despite losses in investment cases, Kyrgyzstan’s ratification of the ICSID Convention indicated its ongoing commitment to arbitration. Reforms in investment laws reflected a selective approach to arbitration and a preference for bilateralism over open offers.
Participation in ISDS reform processes by Central Asian states has been limited. Kazakhstan’s submission to UNCITRAL Working Group III supported the disclosure and regulation of third-party funding, addressing specific concerns in cases against Kazakhstan and other Central Asian states.
Analysis of Pushback against the Energy Charter Treaty
Reimschussel discussed the Energy Charter Treaty, which faces opposition primarily from E.U. member states, with other signatories remaining relatively silent. Critics argue that the Treaty might favor fossil fuel investments over renewable energy and hinder the transition to sustainable sources. However, recent statistics show a growing number of cases related to renewable energy, suggesting a broader scope of energy sectors being covered.
Reimschussel explained that the Treaty’s sunset provision protects existing investments for 20 years upon withdrawal, but proposed modernization is aimed at phasing out protections for fossil fuel investments over a shorter time span. Until recently, the European Commission supported this modernization. Opting for modernization rather than withdrawal aligns more with climate-friendly goals and reduces reliance on fossil fuels.
Surprisingly, Central Asian states have not yet commented on the current controversy regarding the Energy Charter Treaty. Understanding their positions will require further exploration of local press and regional perspectives.
If European countries withdrew from the treaty, it would still apply in Central Asian states, impacting energy investments and climate-related disputes. Open dialogue among stakeholders is crucial for navigating the evolving energy landscape, considering concerns, statistical trends, and the potential benefits of modernizing the treaty.
Streamlining the international investment regime in Central Asian States: A Case for a Model Treaty
Putilin highlighted the shared challenges faced by Central Asian states in investment-related issues. Existing investment treaties in the region are fragmented, consisting of a mix of old and new agreements. Putilin proposed the adoption of a model treaty applicable to all states, inspired by the African Arbitration Academy’s model investment treaty. This model treaty will address common problems and bring coherence to investment-related regulations. Harmonizing investment protection laws under a model treaty would ensure consistency and provide a comprehensive framework for Central Asian states. This unified approach would streamline dispute resolution, attract investors, and promote economic growth in the region. It is an opportune time for Central Asian states to work towards enhancing their investment regime collectively.
Overall, the panel discussion provided valuable insights into the complexities of international investment law and investor-state disputes in Central Asia. The audience was also captivated by these issues as a lively Q&A session followed where even further issues and complexities were raised. The book is a valuable contribution to support a better understanding of the region’s investment law landscape and the challenges faced by investors. The book most certainly delivers on its goal of demonstrating that Central Asian states play a significant role in the past, present, and future of international investment law, as well as related dispute resolution, and the Central Asian states’ contribution to this area of law should continue to be watched by all stakeholders.
The promo code 20ILI2023 offers a 20% discount on the retail price of International Investment Law and Investor-State Disputes in Central Asia: Emerging Issues in the Wolters Kluwer eStore. The code is valid through 31 October 2023.