ABSTRACT
The Agreement On Promotion, Protection And Guarantee Of Investments Among Member States Of the Organisation Of the Islamic Conference (“OIC Agreement”), which was accepted in June 1981, signed by Turkey in 1987 and ratified in February 1991, provides some fundamental rights and opportunities to foreign investors who are citizens of the members of the Organization of the Islamic Conference (“OIC”), an international organization recognized as a legal entity under international law. Standards such as the most-favored-nation registration, national treatment for foreign investors, and fair and equal treatment, which are based on mutual protection and promotion agreements in international law, are also based on the OIC Agreement. The investments of foreign investors, who are citizens of member countries, in the host country and the investor’s personality have been provided with legal protection and rights, which are important in international investment law, under the said OIC Agreement, which will be explained in detail below.
In our article, the opportunities provided by the investment agreement to the investors of the contracting states will be summarized by examining the protection and dispute resolution mechanisms.
I. INTRODUCTION
First of all, it should be stated that “regional organizations established under international law, although they have many social, political and economic functions, the most important function is their role in maintaining peace, economic and political stability in a relevant region and the dialogue between the countries in the relevant region. States have come together under the roof of regional unions in order to emphasize cooperation instead of competition by combining their potentials in the international arena1". Since the beginning of the twentieth century, the need for a cooperation in the Islamic world has begun to emerge due to the common values they adopt due to their beliefs, as well as political and economic reasons. The OIC was established with the aim of ending this need and strengthening its role in the international arena by ensuring a unity in the "Islamic" world, especially in economic terms.
Within this structure, it is aimed to strengthen the relations between member states by signing many agreements in various fields, and with this union, increase the role of the member states in world trade. One of these agreements is the OIC Agreement, to which our country is also a party. In our article, the opportunities provided by the investment agreement to the investors of the contracting states will be summarized by examining the protection and dispute resolution mechanisms.
II. ORGANISATION OF ISLAMIC COOPERATION (ORGANIZATION OF THE ISLAMIC CONFERENCE)
A. History
OIC is is an international organization with international legal personality founded in 1969 in Rabat, the capital of Morocco, consisting of 57 member states, to gather Islamic countries under its roof.
The reaction in the Islamic World against the occupation of Jerusalem, one of the most holy sites for Muslims, by Israel after the 1967 war between the Arab states and Israel, increased the desire of Muslim countries to act in close cooperation witheach other. As a result of this need, the first Islamic Summit Conference was held in Rabat in September 1969, upon the joint call of King Faisal of Saudi Arabia and King Hassan of Morocco. With the decision taken at said conference, the Organization of the Islamic Conference was established2.
In the ongoing process, the name of this organization, which was established as the Organization of the Islamic Conference, was changed to the Organization of Islamic Cooperation at the 38th Council of Foreign Ministers heldin June 20113.
III . THE AGREEMENT ON PROMOTION , PROTECTION AND GUARANTEE OF INVESTMENTS AMONG MEMBER STATES OF THE ORGANISATION OF THE ISLAMIC CONFERENCE
A. International Investment Agreements
International Investment Agreements (“IIAs”) are agreements signed between states, aiming to encourage and protect the investments to be made in mutually contracting countries and the investor, and in which the relevant rules are regulated. With these agreements, the investors of the countries that are party to the agreement will be able to make their investments, knowing the rights and guarantees they have in foreign countries.
IIAs are of great importance for investors in terms of protecting fundamental rights and freedoms in the investee country within the framework of international law, determining the conditions of expropriation and nationalization transactions that can be made by the host state, and international arbitration conditions in the resolution of disputes.
The main purpose of the IIAs is to reduce the differences and risks of investors operating in different legal systems, as much as possible, and to ensure that the investor’s investment in the relevant host counrty is treated in an objective, transparent, and fair manner, and to international standards. In order to achieve this aim, IIAs are regulated within certain standards.
These standards can be listed as;
· MFN- Most Favoured Nation Clause
· NT -National Treatment
· Due Dilligence
· FPS- Full Protection and Security Standard
· FET- Fair and Equitable Treatment
There are many bilateral and multilateral IIAs to which Turkey is a party. One of these agreements is the OIC Agreement of the OIC, of which Turkey has been a member since its establishment.
The OIC Agreement was adopted by the Foreign Ministers of the Islamic Conference in June 1981.
B. OIC Agreement
The OIC Agreement was adopted by the Foreign Ministers of the Islamic Conference in June 1981. Turkey signed the Agreement in 1987 and ratified it in February 1991. As of 31 January 2020, 36 countries have signed the OIC Agreement and the Agreement has been ratified by 29 of them4.This agreement is a basic, multilateral investment agreement for the protection of investors, designed as an alternative to the International Centre for Settlement of Investment Disputes Convention (“ICSID Convention”).
The main purpose of the OIC Agreement is to facilitate the settlement of trade and investment disputes of the member states regarding natural or legal persons who are nationals of the OIC member states. The Agreement, with its third section titled “Investment Guarantees”, provides certain rights and guarantees to natural or legal person investors who are nationals of member states.
C. Fundamental Rights and Opportunities Granted to Investors Under the OIC Agreement
1. Rights Granted to Investor under Most Favoured Natio n (MFN) Treatment
First of all, it would be appropriate to examine the meaning of the most favoured nation treatment in the OIC Agreement. Most favoured nation treatment is defined as “… if it includes an obligation to grant the foreign investor the better rights accorded to an investor from any other nationality, this is the most-favoured nation treatment obligation. This obligation is a relative obligation; It covers not only substantive but also procedural rights. That is, if the state has granted another investor broader or better material or procedural rights, the state should provide that investor with the same rights as a requirement of the most favored nation treatment obligation5". in the doctrine.
The most favoured nation principle is regulated in Article 8 of the OIC Agreement. Pursuant to the relevant article, the contracting states that have signed the OIC Agreement guarantee that they will not provide each other's investors with less privileged and favourable opportunities than they provide to investors from a third country that is not a party to the OIC Agreement. Thus, the investor of the country that is a party to the OIC Agreement will be able to benefit from the most advantageous opportunities enjoyed by the investors of third countries in the host country, and are brought to a position to compete with investors of the third country. Article 8 of the OIC Agreement regarding the Most Favoured Nation Registration is as follows:
“1. The investors of any contracting party shall enjoy, within the context of economic activity in which they have employed their investments in the territories of another contracting party, a treatment not less favourable than the treatment accorded to investors belonging to another State not party to this Agreement, in the context of that activity and in respect of rights and privileges accorded to those investors.
2. Provisions of paragraph 1 above shall not be applied to any better treatment given by a contracting party in the following cases:
a) Rights and privileges given to investors of one contracting party by another contracting party in accordance with an international agreement, law or special preferential arrangement.
b) Rights and privileges arising from an international agreement currently in force or to be concluded in the future and to which any contracting party may become a member and under which an economic union, customs union or mutual tax exemption arrangement is set up.
c) Rights and privileges given by a contracting party for a specific project due to its special importance to that state6".
Within the scope of the “most favoured nation treatment” expressed in Article 8 of the OIC Agreement, in addition to the rights and opportunities specified in the OIC Agreement, the investor will also have the rights and opportunities provided by the host country to natural and legal person investors of countries other than the countries that are party to the OIC Agreement.
2. Rights Provided to Investors Concerning the Risk of “Expropriation”, “Nationalization”
Article 10.2. of the OIC Agreement has the provision “… It will, however, be permissible to: (a) Expropriate the investment in the public interest in accordance with the law, without discrimination and on prompt payment of adequate and effective compensation to the investor in accordance with the laws of the host state regulating such compensation, provided that the investor shall have the right to contest the measure of expropriation in the competent court of the host state. (b) Adopt preventive measures issued in accordance with an order from a competent legal authority and the execution measures of the decision given by a competent judicial authority”.
Under the relevant provision, the foreign investor has a guarantee that the real value of his investment will be paid in case of direct and indirect expropriation, and thus is protected against the risk of “expropriation” and “nationalization”.
3. Rights Provided to Investors Regarding Money Transfer
Pursuant to Article 11 of the OIC Agreement, amounts such as dividends, profits, sales prices, amounts to be paid in return for various agreements, compensation fees, investment loan installments arising from activities within the scope of investment carried out by foreign investors in the host country are freely transferred abroad through banks or private financial institutions.
Pursuant to the relevant article, the host country undertakes the guarantee of free transfer of capital and net profits in cash to any contracting party without discrimination, legal or banking restrictions, and without imposing taxes and duties on the transfer. Accordingly, the capital will be repatriated either on completion of the investment or five years after the date of transfer to the host country, whichever comes first, depending on the nature of the investment. Again, pursuant to this article, an upper limit has been drawn for these transactions, emphasizing that the transfer must be concluded without delay within the normal time required for the completion of bank transactions. Accordingly, this period shall not exceed 90 (ninety) days from the date of application for the transfer.
Accordingly, the OIC Agreement secures the contracting state investors by drawing upper limits for the transfers of capital and net profit.
4. Regulations Regarding the Situations Where the Investor's Right to Compensation Arises
Article 13 of the OIC Agreement provides the right to compensation under certain circumstances to natural and legal person investors of the contracting states for any damage caused by the actions and transactions of a contracting party or its central administration, local authority or public enterprises. According to the relevant article; i. Violation of any of the rights or guarantees accorded to the investor under this OIC Agreement;
ii. Breach of any of the international obligations or undertakings imposed on the contracting party arising under the OIC Agreement for the benefit of the investor or the non-performance of whatever is necessary for its execution, whether intentionally or due to negligence; iii. Non-execution of a judicial decision requiring enforcement, directly connected to the investment; iv. Causing harm, by an act or omission, or by any other means, In such cases, the investor is provided with the opportunity to indemnify their losses.
Accordingly, the compensation will be equal to the loss suffered by the investor, depending on the type and amount of the loss. If it is not possible to restore the investment to its pre-loss condition, compensation will be monetary. In cases where the damage will be compensated in monetary terms, the determination of the amount to be paid will be clarified within 6 months from the occurrence of the damage, and it will be paid within 1 year from the date on which the amount of compensation is agreed upon, or completion of the work to determine the amount of compensation. As can be seen, in the event that the investor incurs a loss due to the actions of the central administration, local auhority or public enterprises, the amount to be paid for the compensation of the investor's losses will be determined within a short period of 6 months from the occurrence of the loss, and this determined amount will be paid to the investor within 1 year from the date of determination. In this case, the investor will have the opportunity to compensate for such a loss within a maximum of 1 year and 6 months.
5. Regulation Regarding the Application of National Treatment to Foreign Investors
Article 14 of the OIC Agreement has the provision “The investor shall be accorded a treatment not less than that accorded by the host state to its national investors or others regarding the compensation of damage that may befall the physical assets of investment due to hostilities of international nature committed by any international body or due to civil disturbances or violent acts of general nature.”.
Pursuant to this provision, it grants the “Right of National Treatment” to natural or legal person investors who have are citizens of the member states. Pursuant to the "Right of National Treatment", the contracting states guarantee that the other party to the agreement will not give the investor of the state less privileged opportunities than it gives to its own investors. Thus, the foreign investor is brought to a competitive position with the own investors of the host country.
6. Dispute Resolution Mechanisms Under OIC Agreement
a. “Arbitration” and “Conciliation” Mechanisms
With Article 16 of OIC Agreement, the investor is given a choice. Accordingly, the investor will have the right to apply to the national judicial system in the host country. In addition, the OIC Agreement also allows disputes to be resolved before an arbitrator. In this case, the investor, while choosing one of the dispute resolution mechanisms, will lose the right to apply to the other mechanism.
Article 16 of OIC Agreement is as follows: “The host state undertakes to allow the investor the right to resort to its national judicial system to complain against a measure adopted by its authorities against him, or to contest the extent of its conformity with the provisions of the regulations and laws in force in its territory, or to complain against the non-adoption by the host state of a certain measure which is in the interest of the investor, and which the state should have adopted, irrespective of whether the complaint is related, or otherwise, to the implementation of the provisions of the Agreement to the relationship between the investor and the host state.
Provided that if the investor chooses to raise the complaint before the national courts or before an arbitral tribunal then having done so before one of the two quarters he loses the right of recourse to the other.”
Article 17 of OIC Agreement regulates the next step. The article begins with the provision, “Until an Organ for the settlement of disputes arising under the Agreement is established, disputes that may arise shall be entitled through conciliation or arbitration in accordance with the following rules and procedures.” According to this, a body will be established for the settlement of the disputes arising between investor and government. However, since this body has not been established yet, disputes will be resolved through ad hoc conciliation or arbitration, which is regulated in the same article, until the said body is established.
The second paragraph of the said article, titled “Arbitration”, contains the provision, “If the two parties to the dispute do not reach an agreement as a result of their resort to conciliation, or if the conciliator is unable to issue his report within the prescribed period, or if the two parties do not accept the solutions proposed therein, then each party has the right to resort to the Arbitration Tribunal for a final decision on the dispute.” Since it is understood from the writing of the article that the conciliation procedure is characterized as a prerequisite, there are opinions that it is necessary not to resort to arbitration without applying to the conciliation procedure7. However, in 2011, Saudi Arabian citizen Hesham T. M. Al-Warraq applied to Ad Hoc Arbitration (“Al-Warraq Arbitration”) for a dispute regarding the violation of the OIC Agreement against the Indonesian state regarding the loss of banking investments. The arbitral tribunal established in accordance with the UNCITRAL Ad Hoc Arbitration rules underlined the important details regarding the OIC Agreement arbitration procedure with its final award dated 15 December 2014.8
The following comments were made in the Al-Warraq Arbitration
· Referring also to the general interpretation rule in Article 31 of the Vienna Convention on the Law of Treaties, dated May 22 1966, Article 17 of the OIC Agreement implicitly provides the investors of the contracting state with the right to apply for arbitration against the host state, according to the provision of Article 17, the dispute can be submitted to arbitration by an investor without making a separate contract with the host state, party to the contract.
The regulation in the OIC Agreement that the investors will lose their right to apply to the other if they choose to bring their complaint before the national courts or one of the arbitral tribunals has not been perceived as a bifurcation clause by the arbitral tribunal. In other words, it was not found obligatory to exhaust domestic remedies before applying to arbitration, and comments were made that the parties were not obliged to be subject to conciliation negotiations before applying to arbitration.
While the said regulation is a prerequisite for the application to arbitration, according to the opinions in the doctrine, it will not be a prerequisite according to the decision rendered in the arbitration proceedings. Since the contradiction has not been resolved, it is clear that it would be safer to apply for conciliation before apply to arbitration under the OIC Agreement.
b. Ad Hoc Arbitration Procedure
Institutional arbitration is defined as a type of arbitration in which the will to arbitrate is carried out by the parties, but only by an arbitration institution designated by the parties. In institutional arbitration, the parties that will apply for arbitration do not determine the procedures and rules regarding the functioning of the arbitration, however the procedures and rules of the institutional arbitration center are applied. On the other hand, Ad Hoc arbitration is a type of arbitration in which the arbitrators, the place of arbitration, the arbitration procedure and the substantive law rules to be applied to this arbitration procedure are determined by the parties themselves and there is no mediation of any organization9. In line with the regulation in Article 17 of the OIC Agreement, it is envisaged that ad hoc arbitration will be used for the resolution of disputes during the period until the OIC investment dispute resolution body is established and starts to operate. The details of the arbitration procedure are regulated in the second paragraph of Article 17 of the OIC Agreement.
In line with the regulation in subparagraph (b) of the relevant article, the process will begin when the party requesting the resolution of the dispute through arbitration sends a notice clearly explaining the nature of the dispute and notifying the name of the arbitrator appointed to the opposite party. Within 60 (sixty) days from the receipt of the notice to the other party, the other party will be under the obligation to appoint an arbitrator and notify the other party of this. After the appointment of the second arbitrator, the two arbitrators selected will decide on a third arbitrator, who will cast the decisive vote, again within 60 (sixty) days from the date of the second arbitrator's election. However, if the opposing party fails to appoint the second arbitrator or the two arbitrators fail to appoint the third arbitrator within the specified time limits, each party to the dispute shall have the right to request the Secretary General to complete the formation of the arbitral tribunal and the arbitral tribunal will be formed in this way as a last resort.
In line with subparagraph (c) of the article, the arbitral tribunal will hold its first meeting on the date and place determined by the third arbitrator. The tribunal will then decide on the place and time of its meetings and other matters pertaining to its mandate.
Finally, subparagraph (d) of the article has the provision, “d) The decisions of the Arbitration Tribunal shall be final and cannot be contested. They are binding on both parties who must respect and implement them. They shall have the force of judicial decisions. The contracting parties are under an obligation to implement them in their territory, no matter whether it be a party to the dispute or not and irrespective of whether the investor against whom the decision was passed is one of its nationals or residents or not, as if it were a final and enforceable decision of its national courts.” With this provision, the OIC Agreement regulates a direct enforcement mechanism in favour of the investor in the execution of arbitral awards. In accordance with the application of the relevant article, the foreign arbitration award will have the function of a definitive judgement given by the Turkish courts. In this case, for the aforementioned arbitral awards, it will be possible to apply for enforcement proceeding with judgement, such as definitive judgement.
The implementation of the provision of Article 17/(d) is not contrary to the Turkish Bankruptcy and Enforcement Law (“BEL”) no. 2004. In accordance with the “In the enforcement order regarding the enforcement proceeding with judgement against the foreign state, without prejudice to the international treaties, it is also notified that compulsory execution can be carried out on the properties belonging to the debtor state” clause in article 32 of the BEL, the provisions of international treaties will be reserved. Since the contracting states are obliged to implement the arbitral awards like their own court decisions, in line with the relevant provision of the OIC Agreement, the parties will be able to apply for compulsory execution without the need for a separate notification for the execution of the arbitral award. In this respect, the investor will be protected by the OIC Agreement regarding the execution of the awards it has obtained in favour of a possible arbitral trial regarding its investments, and will be able to execute these awards without applying for a separate procedure.
IV. CONCLUSION
In our article, the OIC, which was established in Rabat in 1969 with the aim of increasing the role of the contracting states in international trade and creating a unity in the “Islamic” world, and its Agreement On Promotion, Protection And Guarantee Of Investments Among Member States Of The Organisation Of The Islamic Conference dated 1981 with the aim of securing their investments by offering certain rights and guarantees to natural or legal person investors who are nationals of contracting states, have been examined.
In line with the OIC Agreement, investors were protected against expropriation and nationalization risks, the right of compensation was provided to investors in certain cases, and dispute resolution mechanisms to be implemented in case of possible disputes were envisaged. At the same time, it is aimed to bring the investors of the contracting states to a position where they can compete with the investors of the invested countries and third countries’ investors, in line with the principles of most favoured nation and national treatment for foreign investors.
BIBLIOGRAPHY
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HESHAM T. M. AL WARRAQ v. Republic of Indonesia, Arbitration Proceedings on the Investment Promotion, Protection and Guarantee Agreement between Member States of the Organization of the Islamic Conference in 1981, UNCITRAL Arbitration, Final Judgment, December 2014, Singapore. (Date Accessed 07.01.2022) https://www.italaw.com/sites/default/files/case-documents/ italaw4164.pdf
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Agreement on the Promotion, Protection and Guarantee of Investments among the Member States of the Organization of the Islamic Conference, 1988
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FOOTNOTE
1 Prof. Dr. Selahaddin Bakan, “Ortadoğu’da Bir Bölgesel Örgüt Olarak, İslam İşbirliği Teşkilatı’nın Etkinliği Üzerine Bir Değerlendirme”, Uluslararası Yönetim Akademisi Dergisi, 2021, C.4, V.1, p. 84.
2 Prof. Dr. Selahaddin Bakan, “Ortadoğu’da Bir Bölgesel Örgüt Olarak, İslam İşbirliği Teşkilatı’nın Etkinliği Üzerine Bir Değerlendirme”, Uluslararası Yönetim Akademisi Dergisi, 2021, C.4, V.1, p. 80-86.
3 “Organization of Islamic Cooperation (OIC)”, Ministry of Foreign Affairs of the Republic of Turkey, International Organization Tag.
4 Burkina Faso, Cameroon, Egypt, Republic of Gabon, Gambia, Guinea, Republic of Indonesia, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Mali, Morocco, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkey, the Republic of Uganda and the United Arab Emirates.
5 A. Yeşilırmak, Türkiye’de Ticari Hayatın ve Yatırımın Ortamının İyileştirilmesi için Uyuşmazlıkların etkin Çözümünde Doğrudan Görüşme, Arabuluculuk, Hakem-Bilirkişilik ve Tahkim: Sorunlar ve Çözüm Önerileri, Istanbul 2012, p. 173.
6 Official Gazette (“OG”) dated 28/03/1988, numbered 19768, Decision No. 88/12634 on the Approval of the Agreement on the Promotion, Protection and Guarantee of Investments among the Member States of the Organization of the Islamic Conference.
7 M. Macit Kenanoğlu, Ali Yeşilırmak, Uluslararası Yatırım Hukuku Bakımından Libya Krizi, Küre Yayınları, p.119.
8 Hesham T. M. Al Warraq v. Republic of Indonesia, Arbitration Proceedings on the Investment Promotion, Protection and Guarantee Agreement between Member States of the Organization of the Islamic Conference in 1981, UNCITRAL Arbitration, Final Judgment, December 2014, Singapore.
9 Prof. Dr. İbrahim Özbay, Dr. Öğr. Üyesi Murat Erdem, “Bir Kurumsal Tahkim Merkezi Örneği: İberoamerikan Tahkim Merkezi”, Türkiye Adalet Akademisi Dergisi, 2020, p.451.
