What is the Importance of the ICSID Agreement in Terms of Investment Law?

1. Background of ICSID (International Centre for Settlement of Investment Disputes)

The intensity of commercial relations, especially with the rapid industrialization since the 19th century, caused many legal problems and the number of cases to increase. This has increased the burden of state courts. Reasons such as prolonged trials and lack of competence of judges in emerging fields have led to some commercial concerns. In order to prevent these concerns, searches for new applications were initiated in the trial. Despite the slow functioning of judicial institutions, the reasons such as the rapid resolution of disputes through arbitration and the fact that the judges who performed the judgment were specialized in the field enabled the arbitration practice to appear as an alternative method of trial to the state courts[1].

Foreign investments are of great importance as an element of international trade practice. Most actors in international commerce, carry out their investment activities in foreign countries[2]. However, the legislation and political situation of a foreign country may cause hesitation among investors. In order to eliminate these hesitations and encourage investors, governments sign bilateral or multilateral agreements on the protection of investments and undertake to protect the rights of investors as foreign investments to their countries.

In this context, “International Center for Settlement of Investment Disputes” (ICSID), one of the arbitration institutions, was established for the purpose of resolving international investment disputes. The purpose of the ICSID Arbitration Center is to ensure that the investment is made by removing the distrust or hesitation of the foreign investor against the courts of the country to which it will invest. In the study, the arbitration practice of this center will be discussed in the resolution of international investment disputes.

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2. International Centre for Settlement of Investment Disputes (ICSID)

The World Bank Group, headquartered in Washington; The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID) are comprised of five related organizations. The common purpose of these subsidiaries, which constitute the World Bank Group, is to contribute to the development of fight against poverty and living standards in developing countries in line with the function they undertake[1].

The International Centre for Settlement of Investment Disputes (ICSID) has a distinctive feature among these organizations. This special position stems from the fact that ICSID constitutes a formation that can be directly applied in disputes between governments and foreign private investors and provides opportunities for mediation and arbitration in order to protect the international investment flow. The main idea is to contribute to the smooth operation of the global investment environment, the elimination of problems with speed and fraud, and the increase in the international investment flow through a neutral and reliable institution that can be used in case of a dispute.

ICSID is one of the five related companies, the resolution of international investment disputes in order enacted in 1966 and approved by Turkey[2]“State and other States of the Convention on the Settlement of Citizens Between Investment Disputes”[3] and established an international center. Its purpose is to work for settlement and arbitration of disputes arising from investments between the states and citizens of other states in line with the provisions of the agreement[4].

In fact, the World Bank has been acting as a mediator in solving investment disputes between governments and private investors at certain periods in the past and providing solutions in some. However, the work in this direction created a heavy overhead for the president and employees of the World Bank, whose mandate was quite extensive. Therefore, there was a need for a specialized organization that could devote time and energy to this issue. ICSID was established within the framework of the “Agreement for the Resolution of Investment Disputes between the Nationalities of States and the Other States”, which came into force on 14 October 1966, to meet this need. The contract is also known as Washington Convention.

As of January 25, 2006, the number of countries that signed the Convention 155. The convention is currently ratified by 143 of these 155 countries[5]. Turkey has signed the ICSID Convention on 24 July 1987. The convention entered into force on 2 April 1989 in our country. Turkey adopted the Convention by putting a reservation on two issues. One of the reservations concerns articles 25/4, which regulates the notification of ICSID to the ICSID by the signatory states, during or after the Convention’s acceptance or approval, which types of disputes will be brought to the ICSID jurisdiction. Turkey in this sense, ownership and also on the immovable property situated in the country of disputes relating to the rights exclusively stating that the Turkish judicial authorities in their jurisdiction, has put its reservation cannot go to the ICSID proceedings on this issue.

One of the reservations that Turkey is concerned is the provision of Article 64th of the Convention. The provision of the said article regulates the issue of forwarding the matter to the ICSID if the disputes arising in the application and interpretation of arbitration decisions cannot be resolved by negotiation. But Turkey disputes in such cases, would be resolved through meaningful negotiations between the parties will be held, to a third party for settlement (Court of Justice) has already put the record will not be applied[6].

To date, there have been 8 cases related to our country or Turkish companies to ICSID. Only one of these cases (Motorola Credit Corporation, Inc. v. Republic of Turkey -Case No. ARB/04/21-) is concluded at present. The other 7 cases are ongoing.

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3. Jurisdiction of ICSID Arbitration Center and İts Importance in Terms of Investment Law

The issue and conditions under which the ICSID Arbitration Center is authorized are covered in Article 25 of the Convention. According to this;

1. The Parties must have signed a written agreement to go to ICSID arbitration,
2. This dispute must be between the citizen of a contracting state and another contracting state,
3. Conflict must result from investment.

Considering that the ICSID arbitration was created in order to eliminate the distrust or hesitation of the foreign investor against the courts of the country to which investment will be made, parties of the of the dispute are required to be a contracting state and a citizen of the other state party to the Convention[1]. However, if a legal person established in a contracting country that is a party to the dispute is controlled by the citizens of the other contracting country, that legal person will be accepted as a foreign investor (art. 25/2 (b)).

The Convention did not include the definition of “investment”. Although not defined, investment encompasses new forms of investment, including both traditional capital forms of capital contributions and service contracts and technology transfers[2]. Indeed, this requirement did not pose a serious problem in applying to ICSID arbitration. Disputes arising from any other reason other than investment shall not be under the authority of ICSID. Therefore, it is necessary to determine whether the disputes are caused by investment or not.

Today, it is observed that the ICSID arbitration institution is frequently referred in the investment contracts concluded by the governments of the member states and investors who are citizens of other member states. It is also observed that governments can enter further commitments to take investment disputes to ICSID. Within this framework, the ICSID arbitration institution has been included in nearly twenty investment law regulations and over 900 bilateral investment agreements. ICSID stands out as one of the main mechanisms for resolving disputes in the four multilateral trade and investment agreements that have been signed recently. These agreements are; North America Free Trade Agreement, Energy Charter Treaty, Carthage Free Trade Agreement, and Cologne Mercosur Investment Protocol.

As generally known, the word “investment” is left undefined in the Washington Convention intentionally in order to include both conventional methods of investment such as capital grants and the modern methods of investment such as transfers of technology and the service contracts.

Besides, the presence of foreign capital is a necessity for applying to ICSID Arbitration. The companies that are considering application should therefore make the necessary changes in their shareholder structure accordingly[3]. The bilateral investment agreements of the State which is a Party to the dispute should also be considered. Considering these, the support of a competent attorney that is proficient with the legal and taxational structure of this system is also advised.

For the companies that contain foreign capital/foreign investors and that are in conflict with States or State-owned administrative bodies, the ICSID Arbitration comes into view as a valuable dispute resolution alternative in comparison to the conventional litigation, thanks to the reasonably short trial period and the internationally acclaimed fair and impartial exercise of the institution. When the increase in the number of disputes between the companies with foreign capital and the governmental institutions, and the portfolio of foreign investors in Turkey is considered, it is apparent that ICSID Arbitration is a preferable choice for the companies with foreign investors[4].

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4. Evaluation and Conclusion

Although it is a rule to settle disputes between individuals by courts, the parties who fall into the dispute can delegate their authority to decide on this dispute to private individuals, according to the principle of free will, by taking an agreement from the courts of the state. Parties’ agreements on the examination and decision of the dispute by private individuals are called “arbitration”.

Today, many disputes are resolved by arbitration. ICSID is also an international institution established to resolve international investment disputes. The purpose of the institution is to work for settlement and arbitration of disputes arising from investments between the states and citizens of other states in line with the provisions of the ICSID Convention.

In this study, the explanations regarding the historical history of the ICSID Arbitration Center, the establishment process, and the evaluation of the ICSID Convention in terms of investment law have been given, and in which cases and how ICSID arbitration can be applied. As a result, the role of ICSID arbitration will continue to develop in the future, given that both states accept the ICSID arbitration in international investment disputes and the number of applications to ICSID arbitration is increasing.

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Bibliography:

[1] Nmehielle, V. O. ıbıd, p. 22

[2] Lowenfeld, A. F. Ibıd, p.47

[3] “The “ICSID Convention”, also called the “Washington Convention”, will be referred to as “Convention” in the following sections.

[4] Nomer E. Ekşi N. Öztekin G., ıbıd. p.106

[5] The ICSID Caseload-Statistics, ıbıd. p.17

[6] Ormanoğlu B.  ıbıd p.96, 97

[7] The ICSID Caseload-Statistics, ıbıd. p.17

[8] Ormanoğlu B.  ıbıd p.96, 97

[9] Nomer E. Ekşi N. Öztekin G., ıbıd. p.113

[10] Supnik, K. M. ıbıd, p. 387

[11] Chung, O. ıbıd, p. 956.

[12]http://www.kasaroglu.av.tr/en/alternative-dispute-resolution-for-foreign-investors-ICSID

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• Chung, O. (2006). The lopsided international investment law regime and its effect on the future of investor-state arbitration. Va. J. Int’l L., 47, 953.
• Gaillard, E. (2009). Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice. International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, 403-416.
• http://www.kasaroglu.av.tr/en/alternative-dispute-resolution-for-foreign-investors-ICSID
• https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf
• Law No. 3460 on the Approval of the Convention on the Resolution of Investment Disputes Between Citizens of States and Other States. TURKISH CODE
• Lowenfeld, A. F. (2009). The ICSID convention: origins and transformation. Ga. J. Int’l & Comp. L., 38, 47.
• Nomer E. Ekşi N. Öztekin G. (2008). International Arbitration Law. I:3, İstanbul.
• Nmehielle, V. O. (2001). Enforcing Arbitration Awards Under the International Convention for the Settlement of Investment Disputes (ICSID Convention). Ann. Surv. Int’l & Comp. L., 7, 21.
• Ormanoğlu B. (2004). International Arbitration in the Resolution of Disputes Regarding Foreign Capital Investments, Maliye Bakanlığı Bütçe ve Mali Kontrol Genel Müdürlüğü, Ankara.
• Supnik, K. M. (2009). Making amends: Amending the ICSID convention to reconcile competing interests in international investment law. Duke Law Journal, 343-376.
• The ICSID Caseload-Statistics (2012). International Centre for Settlement of Investment Disputes, Issue 2012-2.

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