Track your Manuscript
Enter Correct Manuscript Reference Number:
Get Details
Why Us
Open Access
Rapid publication
Lifetime hosting
Free indexing service
Free promotion service
More citations
Search engine friendly
Go Back       International Academic Journal of Law | Int Aca. J Law; 2(3), 2021: | Volume: 2 Issue: 3 ( June 30, 2021 ) : 52-57
89 Downloads212 Views

DOI : 10.47310/iajl.2021.v02i03.007       Download PDF       HTML       XML

Uzbekistan in 2020: Foreign Direct Investment and Investor-State Dispute Resolution

Article History

Received: 30. 05.2021 Revision: 09 06.2021 Accepted: 19. 06.2021 Published: 30. 06.2021

Author Details

Prof. Dr. Islambek Rustambekov*1 and Mr. Abduaziz Isakulov2

Authors Affiliations

1Deputy Rector of Tashkent State University of Law, Designated Member of Panel of Arbitrators of the ICSID from Uzbekistan, MCIArb

2LL.M in International Dispute Resolution Program Graduate of Fordham University School of Law

Abstract: The article aims at providing a concise overview of updated foreign investment legislation of Uzbekistan enacted recently and it also attempts to analyze current and future challenges of investment-related dispute resolution mechanism for Uzbekistan. The article explores the nuances incorporated into novel law “On Investments and Investment Activities” and it touches examining the dispute resolution mechanism. Moreover, the article also investigates the experiences of foreign countries in terms of building innovative approaches as to resolution of investment disputes with foreign investors and promoting foreign direct investment.In addition to this, the article also analyzes the Uzbek Government desire to cooperate with various economic-trade unions and initiatives, namely the Eurasian Economic Union (EAEU), the Belt and Road Initiative (BRI) and the World Trade Organization (WTO) and presupposes about possible investment disputes that can arise out of Uzbekistan’s participation in such joint economic and trade alliances.In conclusive part, the paper summarizes future legal challenges that Uzbekistan might face in the light of its cooperation with above-mentioned organizations and unions as well as it shares certain proposals as to various aspects of future ISDS policy of Uzbekistan.

Keywords: Foreign direct investment, investment legislation, “one-stop shop” mechanism, incentives and benefits, economic unions, Model BIT.


It is a commonly well-known trend that Foreign Direct Investment (hereafter FDI) has become an important source of private external finance for developing countries. It is different from other major types of external private capital flows in that it is motivated largely by the investors' long-term prospects for making profits in production activities that they directly control.

Furthermore, as globalization offers exceptional opportunities for developing countries to achieve a rapid economic development through trade and investment, FDI is considered as a major incentive to economic growth in developing countries, since it contributes to host country economic growth, by enhancing the country’s capital stock, introducing complementary inputs, inducing technology transfer and skill acquisition, or increasing competition among local industries. But only a few countries have been successful in attracting significant FDI inflows to their country owing to so many reasons.

In part, among other factors promoting FDI such as government stability, flexibility in the government policy, the ease of doing business, stable exchange rates, favorable taxes, the importance of rule of law, specifically, the rules and regulations pertaining to the entry and operation of foreign investors and the degree of protection of investor’s rights are undoubtedly crucial.

At the same time, the effectiveness and reliability of dispute settlement systems, particularly ISDS provisions traditionally have been considered as an important legal mechanism allowing a foreign investor to use dispute settlement proceedings presided over by an impartial panel of arbitrators if a host government expropriates its property or regulates its business in an arbitrary or discriminatory manner.

It is crucial to note that very few rigorous empirical studies have looked specifically at the relationship between ISDS provisions and FDI. But there is a very rich body of research on bilateral investment treaties (BITs), many of which include ISDS provisions as a key component. It is widely accepted by investment experts that ISDS provisions are crucial for increasing the credibility and effectiveness of BITs1. In part, it has been viewed that BITs are most useful when they can substitute for weak domestic legal and regulatory institutions in the host country2.

In this regard, Uzbek Government clearly realizes the importance of FDI, as well as the significance of easily-accessible, flexible, impartial dispute settlement mechanisms and forums available for foreign investors, for stimulating the country’s long-awaited rapid economic growth. Bearing this in mind, Uzbek Government has been trying to introduce several positive changes in foreign investment legislation, which should play a major role in further facilitation of Uzbek economy in near future.

FDI Regulation under Uzbek Law

One of positive changes incorporated as a result Business-Investment friendly policy of Uzbekistan was the adoption of new consolidated law “On Investments and Investment Activities3” dated December 25, 2019, that should facilitate a free flow of foreign investment, attract global investors as well as improve Uzbekistan’s reputation in the world economy and polity.

Notably, the law consolidates a number of previous legislative acts relating to foreign investments, investor rights and obligations and investment activity. In part, the Law serves as unified document that combines the main provisions of the laws "On Foreign Investments", "On Investment Activities" and "On Guarantees and Measures to Protect the Rights of Foreign Investors", which all lost their validity since coming into force of the new Law.

It also encompasses social rights issues, such as freedom of foreign labor, freedom of movement and insurance rights for foreign investors. However, the Law does not cover investment matters in relation to concessions, production sharing agreements, investment, equity and venture capital funds as well as other investment-related issues arising out of operations with securities, public-private partnerships and special economic zones, which are regulated by separate Laws4.

It is also worth noting that the new Tax Code came into force beginning from this year to provide a new legal regulatory framework to encourage foreign direct investment.

The Law classifies investments into three categories which are capital investments, financial investments and social investments thereby creating an extensive list of tangible and non-tangible assets that are treated as an investment under Uzbek legislation.

Importantly, the Law introduces novel investor support mechanism called Investment Tax Credit allowing investors to deduct a certain percentage of specific investment-related taxes from their tax liability for a particular period upon expiration of which the investors are expected to pay off their "credited taxes" with interest accrued. The other new mechanism named as Investment Subsidies implies a government financial support in construction of external engineering and communication networks required for investment projects. Alternatively, the investment subsidies may also be granted in the form of tax and customs benefits.

Remarkably, the Law offers several benefits and incentives to investors, which may vary depending on the amount of investment, location, sector of the investment project, expected socio-economic impact and creation of new jobs. Furthermore, the Law expressly prohibits the exclusive benefits that may lead to the investor's dominant position on the respective market.

It is noteworthy that previous laws did not make clear distinction between foreign and domestic investors, whereas the novel Law provides explicit definitions of domestic and foreign investors. Moreover, the Law sets out additional prerequisites for investment agreements made between the Government and Investors stating such agreements to have anti-corruption and antitrust provisions.

The Law also defines the authority vested with the Ministry of Investment and Foreign Trade, and the Business Ombudsman, stating the role of the Ministry in consulting investors and serving them as “one-stop-shop”, while the Ombudsman shall have a custody of coordination and control of legality of inspections concerning business entities.

ISDS under Uzbek Law and its Future Challenges

Most importantly, the above-mentioned Law provides a general procedure of investment dispute resolution, which includes a gradual escalation of available mechanisms being negotiation, mediation and followed by adjudication by Uzbek courts. However, in the event of the exhaustion of the above listed steps, a dispute can be referred to an international arbitration, subject to the inclusion of corresponding arbitration clause into the relevant international agreements.

In addition to this, it should be particularly noted that Uzbek law recognizes the primacy of international law and dispute resolution clauses already enshrined in multiple Bilateral and Multilateral Investment Treaties signed and ratified by Uzbekistan have to be given a proper deference.

As Uzbekistan aspires to become next hot spot for trade and investment, the Government has been considering various options of cooperating with the WTO (World Trade Organization) and the EAEU (Eurasian Economic Union). Moreover, Uzbekistan also plays a pivotal role in the BRI (the Belt and Road) initiative of the People’s Republic of China aimed at making multi-billion dollar investments in Central Asia.

In part, it has been widely discussed that Uzbekistan renewed its interest in joining the WTO and currently there are several task forces working on possible accession of Uzbekistan into the largest economic union of the world5. At the same time, Uzbek Parliament has recently approved Uzbekistan’s observer status in the EAEU6 and the investments arising out of the BRI framework are also expected to grow.

Given the Uzbek Government is open and interested in cooperation with the above-mentioned economic unions and initiatives, in addition to cost-benefit analysis of such cooperation from political, economic and social perspectives, certain caveats need to be taken in terms of possible availing of Uzbekistan to dispute resolution mechanisms offered by these unions. It is worth noting that accession of Uzbekistan into these unions and becoming a participant of the BRI initiative would also mean a creation of new forums for investment-related disputes and it would likely lead to coming into existence of other additional legal grounds for foreign investors to invoke new investment arbitrations through forum and treaty shopping.

The ongoing ICSID Case No. ARB (AF)/18/1 arising out of investment-related claim filed by the investor from Russian Federation against the Republic of Belarus was invoked under the Agreement for Encouragement and Mutual Protection of Investments in the Member State of the Eurasian Economic Community (2008) and Treaty on the Eurasian Economic Union (2014)7, and it serves as an excellent example of new investment arbitration invoked under novel legal grounds.

The WTO also has a Dispute Settlement Body for trade disputes between states, and an Appellate Body seated in Geneva, Switzerland, which Uzbekistan should bear in mind in its accession proceeding.

Notably, since January 1, 2015 the Court of the Eurasian Economic Union has been resolving disputes between members of the Eurasian Economic Union, some of which, such as the Republic pf Belarus, for example, are not WTO members.

From the investor state dispute settlement (ISDS) perspective existing forums, such as ICSID, should also be considered for Uzbekistan by virtue of being a signatory to the ICSID Convention. At the same time, as a member-participant of the BRI initiative, Uzbek Government should also consider possible interplay of ICSID forum with dispute resolution ambitions of CIETAC (China International Economic and Trade Arbitration Commission).

Interestingly, the CIETAC has announced the adoption of special international investment arbitration rules aimed at promoting the effective and expeditious resolution of the BRI related investor claims. Furthermore, the CIETAC’s Secretary General, Wang Chenjie, when presenting the rules, mentioned that international investment arbitration is the main way to resolve disputes between investors and host states, but that until now, no Chinese institution offered its own procedure, and there have been investment cases in which the Chinese side has been “treated unfairly because of a lack of understanding of Chinese laws and practice8”.

From the perspective of proper ISDS mechanism for Uzbekistan in terms of dealing with the gravity between FDI volumes, and protections offered via bilateral and multilateral investment treaties, the experience of Brazil might come handy in cost-benefit analysis of forming new Model BIT of Uzbekistan and creating the Uzbek Government’s own policy as to resolution of investment disputes with foreign investors.

It is worth noting that Brazil’s experience with investment agreements stands in sharp contrast to that of other countries. In part, at the time when most states were promoting BITs between them, Brazil declined to do so. Preliminarily, BITs have not always been off Brazil’s agenda. In the 1990s – a period when the number of BITs worldwide grew exponentially – Brazil signed 14 of them (including with the United Kingdom, France, and Italy), though these were subsequently never ratified. The agreements were later withdrawn in 2002, apparently on the basis that treaty provisions providing for international investor-state dispute settlement were unconstitutional. For (presumably) the same reason, Brazil did not sign the ICSID Convention either9.

Notwithstanding the lack of BIT protections on offer to foreign investors, Brazil has seen no shortage of foreign direct investment. Indeed, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2017, Brazil ranks as one of the top economies in the world for FDI. In 2016 alone, it attracted almost US $60 billion’s worth FDI all without having signed one single BIT10.

Despite no shortage of FDI without BITs, Brazil changed track in 2013, when the drafting of a model Brazilian investment agreement began, culminating in its Model CFIA (Cooperation and Facilitation Investment Agreement) in 2015. According to the Brazilian government, the Model CFIA is an alternative to the “traditional” BIT. Interestingly, Brazil only recently joined the collection of states that have adopted international investment agreements (IIAs), but in doing so it developed a noteworthy approach in the form of the CFIA.

It is worth noting that the Brazilian investment agreement breaks the BIT mold in several ways: First, it shifts the focus from investment protection to its facilitation. Second, it embeds investment guarantees within a broader regulatory context that takes other public policy objectives into account. Third, because the model agreement has emerged in yet differs from a world where the BIT format prevails, it is designed to maintain its own normative independence from staple BIT provisions. And finally, the model agreement operates as a classic piece of public international law in that it treats investment relations as horizontal interactions between the treaty parties.

Precisely, the Brazilian approach changes the conversation, by placing investment facilitation at its center. The idea is simply to make it easier for foreign investors to navigate domestic legal and regulatory hurdles. In part, the traditional BIT approach has been to confer rights such as the right to fair and equitable treatment that ultimately enable investors to seek redress against the host state in cases of alleged breach. In contrast, the CFIA's investment facilitation provisions are fundamentally about streamlining the domestic regulatory context in which investors must operate. The BITs were conceived as a means of compensating for institutional shortcomings in the protection of investments in host states, while the Brazilian model focuses precisely on rectifying those shortcomings11.

The traditional BIT approach has been to confer rights such as the right to fair and equitable treatment that ultimately enable investors to seek redress against the host state in cases of alleged breach. In contrast, the CFIA's investment facilitation provisions are fundamentally about streamlining the domestic regulatory context in which investors must operate.

Second, the CFIA innovates by situating foreign investment within a broader regulatory context. The agreement acknowledges the state's right to regulate in areas such as health, labor, and the environment12 and helps to combat corruption, money laundering, and terrorism financing relating to investments by, for instance, exempting signatories from protecting “investments made with capital or assets of illicit origin13.” Regarding investors, the CFIAs include provisions on corporate social responsibility14. Unlike traditional BITs, which often evade the question of investor obligations15, recent CFIAs also subject investors to obligations that cover compliance with the domestic law of the host state16.

Third, the CFIA avoids language that might jeopardize its normative independence from traditional BITs. It omits basic BIT standards of investment protection, such as fair and equitable treatment, indirect expropriation, and full protection and security. In fact, the Brazilian agreements explicitly exclude these provisions17, recognizing that their use might encourage arbitrators to transplant BIT norms into the CFIA context.

Finally, the Brazilian model differs from BITs in that it is firmly embedded within public international law. Although commentators recognize that investment rules have recently moved closer to the public (international) law end of the spectrum, most investment agreements are unlikely ever to fall neatly into a single classification, given their hybrid character. Yet this longstanding definitional challenge does not apply to the Brazilian model. Its purpose is ultimately to facilitate foreign investment by private parties, but the CFIA approaches investment relations as state-to-state interactions.

To briefly conclude, the recent proliferation of CFIAs by Brazil is an innovative approach that may be seen to address a recent trend of criticism against investor protection and, in particular, investor-state arbitration.


The growth of investment treaties and investment treaty arbitration has led, within a short space of time, to a lively debate about the benefits, justification, and problems of this special regime for foreign investors. Indeed, this debate has developed into what is often called a “legitimacy crisis” of international investment law18. Symptoms of this crisis are expressed by the withdrawal of some states from BITs and the ICSID as well as the efforts of many countries to recalibrate their investment treaty obligations and to reconsider investment treaty arbitration19.
It has also been widely discussed about the possibly harmful impact of investment treaties on states’ right to regulate,
inter alia, for the protection of the environment, human rights, or other public interests and such critics question the democratic accountability, independence and impartiality of arbitrators, the vagueness of treaty standards, which deprecate the institution of investor-state dispute settlement.

Given Uzbekistan has already signed more than 50 BITs and ECT (Energy Charter Treaty) since 1992 and recently updated its national law on investments, the future plans of Uzbek Government to cooperate with WTO, EAEU and the BRI as well as enlargement of its economic and trade relations with new countries would bring several legal issues in terms of dealing with investment disputes. In turn, this tendency demands from Uzbek Government to think of innovative approaches to tackle with upcoming challenges and incorporate them wisely as it may deem necessary into its international agreements, and its Model BIT, which is expected to come out soon.

Regardless of which approach Uzbekistan would follow either the Brazilian experience or the experiences of countries that still adhere to BIT-based dispute settlement system, Uzbek Government should remain committed to strengthening the Rule of Law in the country, particularly, by directly implementing the important standards of investment protection such as Fair and Equitable Treatment as well as Full Protection and Security into its national legislation rather than giving them effect in BITs.

In that vein, Uzbek Government should also intensify its work on ensuring due process in a greater sense within its domestic courts and administrative agencies, that would require adherence to the supremacy of law, equality before the law, fairness in the application of the law, separation of powers, legal certainty, procedural and legal transparency, and avoidance of arbitrariness, all of which should serve for promoting foreign investors’ trust in reliability and effectiveness of Uzbekistan’s legal system.


  1. Allee, T., & Peinhardt, C. (2010). Delegating differences: Bilateral investment treaties and bargaining over dispute resolution provisions. International Studies Quarterly54(1), 1-26.

  2. Wälde, T. W. (2005). The" Umbrella" Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases. The Journal of World Investment & Trade6(2), 183-236.

  3. Busse, M., Königer, J., & Nunnenkamp, P. (2010). FDI promotion through bilateral investment treaties: more than a bit?. Review of World Economics146(1), 147-177.

  4. National database of legislation of the Republic of Uzbekistan:








  12. Brazilian Model, supra note 1, art. 16.

  13. Bonnitcha, J., Poulsen, L. N. S., & Waibel, M. (2017). The political economy of the investment treaty regime. Oxford University Press.

  14. MERCOSUR Protocol on Cooperation and Facilitation of Investments art. 13, Apr. 4, 2017. Pursuant to Article 23(3)(c), occasional breaches by the investor may be raised in a report prepared in the process of dispute prevention.

  15. Brower, C. N., & Schill, S. W. (2008). Is arbitration a threat or a boom to the legitimacy of international investment law. Chi. J. Int'l L.9, 471.

  16. See José E Alvarez, “Why Are We “Re-calibrating” Our Investment Treaties?” (2010) 4 World Arbitration & Mediation Review 143. For various reform proposals that aim at restricting investment treaty arbitration, see UNCTAD, “Reform of Investor-State Dispute Settlement: In Search of a Roadmap”, IIA Issues Note No 2 (2013) (accessed 9 June 2014) at pp 4ff

  17. Rustambekov, I. (2019). Opportunities for investment in free economic zones of the Republic of Uzbekistan. Jurisprudence. 2019. P. 18-20.

  18. Gulyamov, S. S., Rustambekov, I., & Bozarov, S. S. (2020). LEGAL BASES FOR BUSINESS ACTIVITIES IN FREE (SPECIAL) ECONOMIC ZONES OF THE REPUBLIC OF UZBEKISTAN. PalArch's Journal of Archaeology of Egypt/Egyptology17(10), 1884-1895.

1 Allee, Todd, and Clint Peinhardt. 2010. Delegating Differences: Bilateral Investment Treaties and Bargaining Over Dispute Resolution Provisions. International Studies Quarterly 54, no. 1: 1–26; and, Wälde, Thomas W. 2005. 
The “Umbrella” Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases. Journal of World Investment and Trade 6, no. 2: 183-236.

2 Busse, Matthias, Jens Königer, and Peter Nunnenkamp. 2010. FDI promotion through bilateral investment treaties: more than a bit? Review of World Economics 146, no. 1: 147–77.

4 Rustambekov I. Opportunities for investment in free economic zones of the Republic of Uzbekistan. Jurisprudence. 2019. P. 18-20; Said S Gulyamov, Islambek R Rustambekov, Sardor S. Bozarov. Legal bases for business activities in free (special) economic zones of the Republic of Uzbekistan. PalArch's Journal of Archaeology of Egypt/Egyptology. 2020. 17/10. –P.1884-1895.

12 Brazilian Model, supra note 1, art. 16.

13 Id., art. 15.

14 Id., art. 14.

15 Jonathan Bonnitcha et al., The Political Economy of the Investment Treaty Regime 14 (2017).

16 MERCOSUR Protocol on Cooperation and Facilitation of Investments art. 13, Apr. 4, 2017. Pursuant to Article 23(3)(c), occasional breaches by the investor may be raised in a report prepared in the process of dispute prevention.

17 See, e.g., id., art. 4(3).

18 See Charles N Brower and Stephan W Schill, “Is Arbitration a Threat or a Boon to the Legitimacy of International Investment Law?” (2009) 9 Chicago Journal of International Law 471 at 473

19 See José E Alvarez, “Why Are We “Re-calibrating” Our Investment Treaties?” (2010) 4 World Arbitration & Mediation Review 143. For various reform proposals that aim at restricting investment treaty arbitration, see UNCTAD, “Reform of Investor-State Dispute Settlement: In Search of a Roadmap”, IIA Issues Note No 2 (2013) (accessed 9 June 2014) at pp 4ff

About IAR Journals
International Academic & Research Consortium is a Scientific Research Consortium under the banner of IARCON Knowledge Hub Private Limited, with the main aim to promote the development and strengthening of the interfaces between various ..
View More
Copyright © 2020 International Acedemic Research Journals. All Rights Reserved.
Designed & Developed by