A bilateral investment agreement or treaty (BIT) between Japan and Iraq was signed on 7th June 2012. This is the first BIT between Iraq and a major economy and is a significant and credible commitment by Iraq to the rights of foreign investors falling within the BIT’s protections. The BIT will enter into force 30 days after diplomatic notes are exchanged between the two governments confirming necessary national legal steps have taken place.
Iraq has the world’s second largest proven oil reserves. Despite the on-going security difficulties, appetite for investment in Iraq is undoubtedly growing. The Government of Iraq has publicly stated its commitment to securing foreign investment and has previously taken steps on a domestic level to make the country more attractive to foreign investors.
Unlike many developed nations, Japan was slow to enter into free trade agreements with other countries. However, this began to impact on Japan's foreign investment opportunities. As a result, towards the end of the 1990s Japan began by entering into a number of agreements with countries around the Pacific Rim. In more recent years, Japan has begun negotiations with a number of both developed and developing countries (for example, Canada and Mongolia) with the aim of signing BITs.
That Japan is the first of the major economies to take the leap and sign a BIT with Iraq signals Japan's recognition of the importance of BITs and intention to remain at the forefront of investment and development in Iraq. Japan initially strengthened its ties with Iraq by offering a considerable financial assistance package in 2003 in the aftermath of the conflict. The two countries entered into the Japan-Iraq Comprehensive Partnership in 2009 and relations have continued to develop from thereon, as Iraq achieves greater self-reliance and political stability. Japan has provided financial assistance beyond that pledged in 2003, with the money being used for four new projects in the areas of oil, telecommunications and health. Japanese companies are reported to be involved in the associated contracts.
The text of the BIT can be found in English here and Japanese here. Given that this is one of the first of Iraq's BITs, the treaty contains a "most favoured nation" (MFN) provision at Article 4, giving investors of the other contracting party and their investments treatment no less favourable than that given to investors of a non-contracting party. This will provide comfort to Japanese investors in the event that Iraq enters into subsequent BITs with other countries with more favourable provisions than these. However, followers of investment treaty decisions will be interested to note that this MFN treatment is expressly stated not to apply to dispute resolution. A further provision of note is Article 17 which sets out the process for settlement of investment disputes. This includes a three month period for consultations before the dispute can be submitted to arbitration. The interpretation and application of such negotiation provisions is a hot topic in the investment treaty community. It will be interesting to see whether investors are held to this three month period to consult should any disputes arise under this BIT in future.