One of the key considerations when looking at overseas investment, particularly in the emerging markets, is the protection that the foreign investor will have from state expropriation of the investor's assets and from other interference in the investment. Structuring investments to take advantage of a Bilateral Investment Treaty (BIT) is the primary way of claiming investment protection. Please see our Middle East exchange from January 2011 which covers investor protection using BITs.
In a recent arbitral ruling in Singapore, a Saudi investor successfully argued that the state of Indonesia had a case to answer under a little known treaty – the investment treaty of the Organisation of Islamic Cooperation.
What is the OIC?
The Organisation of Islamic Cooperation was formerly known as the Organisation of Islamic Conference. It was established in 1969 and aims (amongst other things) to enhance and consolidate the links between the Islamic member states and to strengthen intra-Islamic economic and trade cooperation, in order to achieve economic integration, leading to the establishment of an Islamic Common Market. It is currently the second largest intergovernmental organisation, after the UN, with 57 member states.
The agreement for the protection, promotion and guarantee of investments among member states of the OIC was signed in Baghdad in 1981. 27 member states have ratified the agreement, including the UAE, Saudi Arabia, Oman, Libya, Pakistan and Syria.
Article 17-1 of the agreement states that "until an organ for the settlement of disputes is established, disputes that may arise shall be entitled through conciliation or arbitration ….". There follows detailed procedures for the bringing of claims through conciliation and to arbitration.
In other respects, the agreement sets out provisions which are commonly found in BITs.
Relevant case and commentary
In the recent case, a UNCITRAL tribunal with its seat in Singapore had to rule on whether the OIC agreement permitted arbitration proceedings to be taken by an investor against the host state. The tribunal held that it did. In the case, the investor was a Saudi national who was claiming against the state of Indonesia in relation to the nationalisation of a bank in which he held capital. It is believed that this is the first time an arbitration under the OIC has reached a jurisdictional ruling.
The revival of this agreement between Muslim states is worth considering for GCC investors in relation to investments in the wider Middle East (outside of the GCC) or the Far East.