With the gradual lifting of worldwide sanctions and preliminary rebuilding efforts, Syria is on the cusp of re-opening to the skin world. Foreign direct funding into Syria’s financial system might be essential to the success of Syria’s revival. Recent bulletins of considerable commitments by each state and non-state traders from Saudi Arabia, Turkey, and Qatar are doubtless just the start of the numerous capital inflows required to rebuild important infrastructure in Syria.
International traders into Syria will undoubtedly pay attention to the inherent dangers of investing into Syria and the broader dangers of regional instability. This weblog examines how these dangers might be mitigated by early planning and structuring of investments, particularly to profit from worldwide legislation protections accessible beneath bilateral funding treaties (BITs) and different comparable devices.
What are BITs?
BITs present substantive protections to traders of 1 contracting state in respect of their investments within the territory in one other contracting state (on this case, Syria) on the premise that the investor meets the jurisdictional necessities set out in a BIT. Typically, the important thing jurisdictional thresholds that have to be met to profit from a BIT are a lined ‘investor’ and a lined ‘investment’.
Most BITs comprise a broad definition of ‘investment’ that encompasses a spread of tangible and intangible rights resembling shareholdings in firms, concessions to extract pure sources, licencing (e.g. telecoms licences), IP rights, contractual rights, and extra.
If there’s a breach of the relevant substantive protections, an investor can then provoke authorized proceedings towards the state, as per the dispute decision mechanisms offered for within the BIT. Many BITs supply entry to both institutional arbitration (for instance beneath the auspices of the International Centre for the Settlement of Investment Disputes (ICSID)), or advert hoc arbitration beneath the UNICTRAL guidelines. This permits traders to have their disputes determined by a tribunal of impartial arbitrators, slightly than the courts of the host state (which might not be impartial, competent or environment friendly), resulting in an arbitral award that’s internationally enforceable in any of the 172 states which can be events to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).
The existence of strong BIT protections can be a powerful negotiating software in an investor’s favour when participating in negotiations with the state following interference with an investor’s funding. It can be a pre-requisite to (or a minimum of materially scale back the price of) political threat insurance coverage protection.
Syria’s Investment Treaty Landscape
Syria signed its first BIT (with Senegal) in 1975 and its newest BIT (with Saudi Arabia) in 2025. Syria has signed a complete of 45 BITs, of which 33 are in power.[1] Eight BITs have been signed however not ratified (and thus aren’t in impact),[2] and 4 have been terminated (both changed by a more recent BIT, resembling with Switzerland, or left terminated with out different, just like the BIT with Italy).[3] It needs to be famous that even when a BIT has been terminated, it may well comprise a ‘sunset’ provision which generally signifies that its protections are nonetheless legitimate for pre-existing investments for a specified length.
Syria can be get together to multilateral funding treaties (MITs), which function equally to BITs in that they provide traders substantive protections beneath worldwide legislation, however as implied within the identify, stated treaties apply between a number of states. On 4 January 2010, Syria ratified the Organisation of the Islamic Conference Investment Agreement 1981 (OIC Investment Agreement). Syria can be a member of the Unified Agreement for the Investment of Arab Capital within the Arab States 1980 (Arab Investment Agreement), which entered into power on 7 September 1981 (albeit Syria didn’t ratify the 2013 Amendment to the Arab Investment Agreement, which applies solely between ratifying states).[4] These MITs embody sure idiosyncrasies and ambiguities which suggests they need to solely be relied on as a measure of final resort.
Syria ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (ICSID Convention or Washington Convention), which entered into power for Syria on 24 February 2006 and it was additionally one of many first Arab international locations to accede to the New York Convention. Syria’s membership of the Washington Convention and the New York Convention streamlines the enforcement of arbitral awards, together with these ensuing from funding disputes.
Substantive Protections for Investors
Each BIT Syria has entered into will embody its personal set of substantive protections, upon which traders can depend on. The language utilized in every BIT must be thought of very rigorously as a result of nuanced variations in language can materially influence the scope of obtainable safety. Typical substantive protections discovered in lots of BITs that traders needs to be in search of embody:
- A assure of honest and equitable therapy, which is without doubt one of the cornerstones of worldwide funding legislation and one of the relied upon in disputes;
- Full safety and safety, that ensures the bodily (and generally authorized) safety of an funding;
- Protection towards expropriation (be it direct or oblique) with out immediate, sufficient, and efficient compensation;
- Free switch of funds, to ensure the remittance of earnings and dividends;
- A most-favoured-nation clause, which ensures that traders are handled no in a different way than traders from different states which have BITs in power with Syria, which in apply permits traders to ‘import’ extra beneficial substantive protections from different BITs; and
- An umbrella clause, which can be utilized to raise a contractual obligation of a bunch state to a world obligation and should outcome within the failure by the host state to respect its contractual obligations being handled as violation of the BIT.
Structuring Investments to Obtain Protection
Not all BITs present the identical protections to traders. For instance, some BITs comprise limitations on who might be an ‘investor’ or which ‘investments’ are lined. Some BITs additionally embody so-called ‘denial of benefits’ clauses, which preclude an investor from benefitting from protections if there is no such thing as a ‘substantial business activity’ performed within the host state, or if the investor is managed or owned by individuals having the nationality of neither contracting state to the BIT.[5] An important safety provision in a BIT might be relied upon by states to attempt to justify their acts (or omissions), in occasions of nationwide safety or emergency – which Syria has confronted for over a decade.[6] Finally, some BITs comprise sub-optimal dispute decision provisions. For instance, some BITs require the exhaustion of native cures (earlier than the courts of the host state) earlier than having recourse to worldwide arbitration. Others present much less benefit selections of fora for worldwide arbitration.
Investors can tackle limitations by structuring investments in such a means as to acquire the advantage of a selected treaty. This train is much like tax planning, the place traders construction their investments to reap the benefits of beneficial double tax treaties. For instance, an investor from Italy (which now not has a BIT with Syria), can incorporate a authorized entity in a foreign country which does have a BIT with Syria with the intention to profit from that BIT. However, this requires cautious planning and consideration of the exact language of the BIT. If the Italian investor in our instance integrated a particular objective car in Switzerland to profit from the Switzerland – Syria BIT, this could possibly be problematic because the definition of ‘investor’ in that BIT requires “real economic activities in the territory of the same Contracting Party”.[7]
It can be vital to think about the timing of a company restructuring to profit from funding treaty protections. Arbitral tribunals usually reject claims by events which have engaged in ‘treaty shopping’ if the restructuring was carried out after a dispute has arisen or was contemplated. It is due to this fact advisable to construction an funding appropriately on the outset or, with respect to present investments, to restructure as quickly as potential.
Future Ahead
For the primary time in many years, international traders are critically considering injecting capital in Syria. The sums wanted to rebuild are more likely to be within the lots of of billions of {dollars}. Nevertheless, with a nascent institutional framework and wider regional instability, investing in Syria stays a dangerous proposition. Structuring investments to profit from the strongest accessible BIT protections is an economical and vital train for any international investor to mitigate dangers within the occasion of state interference sooner or later.
[1] BITs in power: Germany – Syria BIT (1977); France – Syria BIT (1977); Libya – Syria BIT (1993); Pakistan – Syria BIT (1996); Yemen – Syria BIT (1996); China – Syria BIT (1996); Egypt – Syria BIT (1997); Indonesia – Syria BIT (1997); United Arab Emirates – Syria BIT (1997); Iran – Syria BIT (1998); Belarus – Syria BIT (1998); Sudan – Syria BIT (2000); Bulgaria – Syria BIT (2000); Bahrain – Syria BIT (2000); Tunisia – Syria BIT (2001); Kuwait – Syria BIT (2001); Jordan – Syria BIT (2001); Morocco – Syria BIT (2001); Ukraine – Syria BIT (2002); Greece – Syria BIT (2003); Spain – Syria BIT (2003); Turkey – Syria BIT (2004); Russia – Syria BIT (2005); Switzerland – Syria BIT (2007); Cyprus – Syria BIT (2007); Romania – Syria BIT (2008); Czech Republic – Syria BIT (2008); Malaysia – Syria BIT (2009); Slovakia – Syria BIT (2009); Armenia – Syria BIT (2009); Azerbaijan – Syria BIT (2009); Philippines – Syria BIT (2009); and the Lebanon – Syria BIT (2010), respectively.
[2] BITs not in power: Senegal – Syria BIT (1975); Algeria – Syria BIT (1997); Qatar – Syria BIT (2003); Oman – Syria BIT (2005); North Korea – Syria BIT (2006); Tajikistan – Syria BIT (2007); France – Syria BIT (2009); and the Saudi Arabia – Syria BIT (2025), respectively. To be aware, in relation to the 2009 BIT with France that’s signed however not ratified, the France – Syria (1977) is in impact as an alternative.
[3] Terminated BITs: Switzerland – Syria BIT (1977), changed by the 2007 BIT; Lebanon – Syria BIT (1997), changed by the 2010 BIT; Italy – Syria BIT (2002); and the India – Syria BIT (2008), respectively.
[4] The Arab Investment Agreement gives for the creation of an Arab Investment Court. Some of Syria’s BIT present an possibility for traders to refer disputes to the Arab Investment Court. See Article 5(2)(b), Tunisia – Syria BIT (2001) and Article 6, Jordan – Syria BIT (2001).
[5] See Article 11, Azerbaijan – Syria BIT (2009).
[6] See Article 12, Cyprus – Syria BIT (2007).
[7] Article 1(2)(b), Switzerland – Syria BIT (2007).