What Are Bilateral Investment Treaties?
(Photo Credits: anjan58)
Oman had signed bilateral investment treaties (BITs) with many countries from all around the world, the latest was ratified today with the Netherlands.
Not a lot of people know what these are. In fact, many governments sign them without knowing what they mean, some think of their signature is just part of a celebratory event that takes place when a minister from a foreign state visits the country and just think of them as a meaningless MOU that has no legal implications.
A Bilateral Investment Treaty is a treaty by which a government promises another government to protect the investment of national of the second country in the first country in return of reciprocal treatment. The text of these treaties is usually quite short and it’s usually less than ten pages long, but the main principles of it are national treatment, free transfer of funds, full protection and security, and protection against expropriation.
While many of these principles might already be existent in national laws of countries (for example, Oman provides protection for foreign investment in its Foreign Capital Investment Law 104/94), the protection of BITs differs in that it could exceed the national level of protection, it could even exceed the protection granted for local investors (e.g. in the case of ‘full protection and security’ which is not usually granted by countries for any investor local or foreign), and the most significant impact of it is that it gives a foreign investor the right to take an action against the host government for a breach of the treaty in International Arbitration. This right will exist regardless of whether there was any contractual arrangement between that government and the investor, and it will surely not be available for local investors.
Such right is risky for governments, as they can be inadvertently in breach, for example, of expropriation indirectly, and then could be sued for millions of dollars at an international arbitration center (horror stories happened to the governments of Pakistan and Turkey).
There are no known records of any investor taking an action against the Omani government, however, last year, a Omani investor successfully was awarded damages of USD $24 million against Yemen by relying on the Bilateral Investment Treaty between Oman and Yemen.
BIT are scary agreements and there is no proof at all that they contribute to the attraction of foreign investment to a country. Many free trade agreements (such as Oman-US FTA) also include a chapter on investment with very similar provisions.
In Oman, the Ministry of National Economy coordinates the negotiation process of bilateral investment treaties with other countries. The Ministry of Legal is responsible for reviewing them prior to signature to ensure their compliance with national laws.
