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Transparent Legislation as a Guarantee of Investment Attractiveness

25 June 2013

Article 10 of the Law of the Republic of Uzbekistan on Safeguards and Protection Measures For Foreign Investors' Rights  

For any country, foreign investments are a key factor for economic growth, and improvement of the investment climate is a guarantee of investment flow. 

A sufficient and permanently developing legislative base was established in Uzbekistan with the purpose of creating favorable conditions for and protections of foreign investors' interests.  

The President of the Republic of Uzbekistan I.A. Karimov noted in the Conception for Further Deepening of Democratic Reforms and Formation of Civil Society in the Republic that "...in total over 400 laws adopted on reforming the economy have become not only a solid legal foundation for further liberalization and modernization of the economy, but also are a surety for irreversibility of the market reforms conducted" [1].

Among a number of important laws of the Republic of Uzbekistan in the sphere of foreign investment protection and investors' rights and security, the Laws on Foreign Investment, on Safeguards and Protection Measures for Foreign Investors' Rights, which form the basis for a favorable investment climate shall be mentioned. 

In addition, the Republic of Uzbekistan has entered into approximately 50 bilateral agreements on mutual incentives and protection of investment, and ratified a series of multilateral international legal documents in this sphere.

The aforementioned agreements  provide for the settlement of investment disputes, along with the issues of reinforcement and protection of investment,  possible compensation for damage caused to the investments, and free transfer of investments abroad, as stipulated by the documents.

At times in the process of implementing long-term investments, disputes may arise.  Therefore, the existence of an effective system for the protection of  investors' rights, defining the host state's rights and obligations and providing appropriate tools and measures for the protection of those rights and obligations , is a considerable aspect of a favorable investment climate in any country.

In the international arena, transborder  disputes  between the parties due to foreign investment practices are to be resolved by negotiation between the parties, and, in the event a resolution is not reached, by a court hearing in the country which is the recipient of the investment, or by international arbitration.

In this case, the presence of mandatory written consent of both parties for submission of the specific dispute to arbitration is the predicate to such arbitration.

Article 25 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States serves as confirmation of the general availability of international arbitration only where there is express written consent. The Article provides that arbitration of legal disputes arising directly from investments, between a contracting State and an entity of another contracting State, is under the jurisdiction of the International Centre for Settlement of Investment Disputes only where the disputing parties have agreed in writing to submit the specific dispute to the Centre for resolution.

In international practice, the consent of this sort, as a rule, is stipulated in the agreements concluded between the States or within the framework of contracts between an investor and a State-recipient of investment that, in turn, encourages the State aiming to protect its citizens' investments in the territory of other States, to conclude contracts of this kind. In all cases, a specific consent on the part of the host State to arbitrate the specific dispute is mandatory.

As mentioned above, Uzbekistan is a signatory to a number of agreements on mutual incentives and protection of investment. These agreements, along with establishing favorable conditions for investments, contain guidelines regulating the protection of investors' property rights in the event of a dispute with the State-recipient of the investment.    

In particular, a number of agreements signed by Uzbekistan provide the State's consent to refer investment disputes to arbitration under the rules of the International Centre for Settlement of Investment Disputes (Washington, DC), the International Chamber of Commerce (Paris), the Stockholm Chamber of Commerce (Stockholm), or to arbitration under any other institutional or «ad hoc» rules.

If the investment is not covered by such a Bilateral Investment Treaty investors have an opportunity to stipulate the procedure for investment dispute settlement within the framework of agreements concluded with the Republic of Uzbekistan on product sharing, and concession and investment contracts. In such agreements, an explicit consent to arbitrate the specific dispute should be included.

Since 1995, Uzbekistan has been a member of the New-York Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated June 10 1958.

Thus, there are multiple avenues in Uzbekistan for investment dispute resolution, which correspond to the generally accepted rules of international law to the fullest extent.

Unfortunately, however, there are cases in practice where some foreign investors have interpreted incorrectly the legislation of the Republic of Uzbekistan regulating this sphere.

For instance , Article 10 of the Law of the Republic of Uzbekistan on Safeguards and Protection Measures For Foreign Investors' Rights stipulates that if the parties to the investment dispute are not able to reach a negotiated settlement, the dispute shall be resolved by a commercial court of the Republic of Uzbekistan or by arbitration in accordance with the rules and procedures of international contracts (agreements and conventions) on investment dispute settlement, to which the Republic of Uzbekistan is a party.   This Article alone does not contain any explicit consent to arbitrate any specific dispute. An express consent is required.

The Article mentioned above only defines possible options for the resolution of investment disputes and does not contain any consent of the State to arbitrate any particular investment dispute.

An official interpretation of this Article was given by the Constitutional Court of the Republic of Uzbekistan on November 20 2006, with the purpose of confirming its correct understanding.  It is necessary to note that according to the Constitution of the Republic of Uzbekistan, the official interpretation of laws is specifically under the jurisdiction of the Constitutional Court of the Republic of Uzbekistan.

In its Decision, the Constitutional Court gave a concrete explanation that Article 10 is not an expression of consent of the Republic to refer any specific investment dispute to arbitration for resolution.  

In spite of this, there remain some incorrect and mistaken interpretations of the aforementioned Article by some foreign investors.

This circumstance is of concern for Uzbekistan, which as any other State is aiming to increase foreign investments. Following independence, Uzbekistan has been committed to making its legislation transparent and understandable for correct comprehension.

Therefore, this year the Government of the Republic of Uzbekistan plans to submit for consideration to the Parliament a bill for clarifying amendments to Article 10 of the Law on Safeguards and Protection Measures for Foreign Investors' Rights.

In particular, the intention is to clarify that part one of Article 10 is not an expression of consent of the Republic for reference of a certain investment dispute to international arbitration for resolution.

This fact, however, does not imply that any investment dispute in Uzbekistan cannot be considered for resolution by international arbitration. As was mentioned above, the legislation of Uzbekistan provides for various options for issuance of a written consent for reference of disputes to arbitration under bilateral agreements concluded between States as well as between a State and an investor.   

In conclusion, it shall be highlighted that the purpose of this bill is not to change the meaning of Article 10 of the Law on Safeguards and Protection Measures for Foreign Investors' Rights or otherwise to restrict the rights of foreign investors, but to clarify that under this Article of the law, the Republic of Uzbekistan did not give its specific consent to refer any investment disputes to arbitration.  The issue of consent of the Republic of Uzbekistan shall be considered in each specific case, and shall be expressed in written form.   Hence, in order for the Republic to consent to arbitration, its written consent must be provided in a bilateral investment or multilateral investment treaty or in a contractual agreement, for example.

Thus, the proposed draft law fully reflects the interests of investors, and is directed to strengthening the protection of their rights, by providing a clear understanding of the State's legislation and excluding any ambiguities in relations with Uzbekistan as a host State for foreign investment.   

Also, the bill corresponds to the fundamental standards of international law on foreign investment, which encourages governments to act in a transparent manner in relations with foreign investors, so that they are aware in advance of all rules and regulations which will be regulating their investments in order to allow them to plan their investments and to observe these rules.

In connection with this, the amendments proposed to the law, promote transparency and the correct understanding of the Republic's national legislation by foreign investors that have invested or intend to invest funds into the Republic of Uzbekistan, and thereby will increase the attractiveness of the country to foreign investment.     


 [1]I.A. Karimov Conception of Further Deepening of Democratic Reforms and Formation of Civil Society in the Country./ Pravda Vostoka, November 13 2010, #220.