It is quite obvious that the current situation in the sphere legal regulation foreign investment is such that it is impossible to ignore the increased attention to the international legal aspect of this problem. The Constitution of the Russian Federation enshrines the provision that the principles and norms of international law and international treaties of Russia are integral part her legal system, have direct effect and are subject to application by government agencies. The Law “On Foreign Investments in the RSFSR” establishes the priority of international law in the Russian Federation. Article 5 states that “if an international treaty in force on the territory of the RSFSR establishes rules other than those contained in legislative acts RSFSR, the rules of the international treaty apply."
Many of the shortcomings of the Russian Foreign Investment Law can be compensated for by the provisions of international treaties aimed at encouraging and protecting foreign investment. Russia participates in more than ten such agreements as the legal successor of the USSR. Especially with regard to agreements on the protection of foreign investments, the Russian Foreign Ministry signed a note in December 1991, according to which Russia assumes the rights and obligations under international treaties concluded by the USSR (see Appendix No. 1).
For investors from countries with which bilateral agreements on mutual protection of investments have been concluded, the provisions on the investment regime established by these agreements will be applied.
By guaranteeing favorable treatment for foreign investors, the State undertakes to provide fair and equitable treatment to their investments and related activities. The relevant provision of the agreements expresses the state’s desire to encourage foreign investment, as well as to treat foreign investors favorably and non-discriminatorily in terms of their rights to own, manage, dispose of and liquidate investments. This obligation is contained in those provisions of agreements that deal with the provision of most favored nation or national treatment to foreign investors.
Most favored nation treatment is mentioned in most agreements (with Great Britain, Germany, Switzerland, Spain, Canada, France, Belgium, the Netherlands, Italy, Austria, Turkey, Korea, China, Finland).
At the same time, the Soviet Union, in a number of concluded agreements (with France, Canada, Spain, Belgium, the Netherlands, etc.) pledged, in addition to most favored nation treatment, to provide foreign investors with “to the extent possible” and in accordance with current legislation” also national treatment .
National treatment is explicitly mentioned in agreements with the United States and Great Britain.
In the agreement with the Republic of Korea, the parties mutually provide the investor with the opportunity to choose the above two regimes, while at the same time retaining “the right to establish or maintain, in accordance with their current legislation, limited exceptions from the national regime” (Article 3 of the Agreement dated December 14, 1990 .)
The wording on this issue in the Treaty with the United States is more complex. It defines national treatment as treatment that is at least as favorable as the best of the most favorable treatment provided by the party state enterprises, other companies or citizens of that party in similar circumstances (Article 1). Analyzing the Treaty, we can come to the conclusion that national treatment is provided reciprocally with certain exceptions. In addition, it is provided that Russian investments will be provided in any US state with the same treatment that is provided to investments of US citizens living in other states.
The possibility of granting national treatment does not exclude the introduction of restrictions for foreign investor engage in certain types of activities. In addition, a permitting procedure may be established for some types of activities. Seizures may be introduced in order to ensure national security, public order. In accordance with international practice the implementation of certain types of activities may be declared a state monopoly and then foreign investors will not have the right to engage in them. In this regard, we can give an example from the legislative practice of Russia. In pursuance of the Decree of the President of the Russian Federation of June 11, 1993 “On the restoration of the state monopoly on the production, storage, wholesale and retail sale of alcoholic products,” the Government of the Russian Federation adopted a corresponding resolution on April 22, 1994. It stipulated that the state monopoly would be implemented through a system of measures that would apply to enterprises engaged in the relevant types of economic activity, regardless of the form of ownership and departmental affiliation, including enterprises created on the territory of the Russian Federation with foreign investment.
At the same time, the national regime does not exclude the creation in certain cases of preferential treatment, the establishment of industries and types of production that are priority for attracting foreign capital. In these areas, foreign investors can receive fringe benefits.
A feature of agreements on the protection of foreign investments is that they provide regulation not only of relations between the states parties to the agreement, but also of relations with a foreign private investor of one of the states party to the agreement within the framework of national system rights. The presence of such a heterogeneous subject composition may serve as a basis for the use of general principles and norms of international law.
This position is confirmed by the fact that reference to the norms and principles of international law, as a rule, is contained in that part of the agreements that concerns the procedure for resolving investment disputes. This provides for the consideration of cases in international arbitration, which makes decisions based both on the provisions of a bilateral agreement and guided by the norms of international law. At the moment, the problem of applying international law within the framework of the national legal system is the subject of debate, and therefore its study requires careful analysis with the participation of international law specialists.
No less significant when considering the issue of Russia’s participation in international agreements on foreign investment is the definition of the concepts of “nationalization” and “expropriation”, which in such agreements have a collective meaning, since these measures mean not only the act of nationalization itself, but also any other acts that result in forced seizure, alienation of investments, as well as actions of the state that can be considered as actually carried out nationalization or expropriation. (For example, freezing accounts, prohibiting the transfer of investments to foreign currency abroad, etc.). International agreements prohibit such actions. In accordance with them, the nationalization of investments is recognized by the parties as legal, that is, it is not considered a violation of the norms and principles of international law, only if it is carried out in the public interest, in accordance with established by law orderly and on a non-discriminatory basis. The latter means that the basis for taking measures against a foreign investor is not considered his nationality or state affiliation if we are talking about a legal entity. At the same time, the recognition of acts of nationalization as legal may concern both acts of individual action - nationalization of the property of a particular investor, and acts adopted in order to restructure the economy - the nationalization of entire sectors of the economy or categories of enterprises, for example, banks.
International agreements, in the event of this kind of nationalization, oblige the contracting state to pay the amount of compensation, and to do so quickly and adequately. The agreements also provide for the payment procedure and the procedure for calculating the amount of compensation.
However, having considered the protection of foreign investments in our country at the state, global level, one cannot help but turn to the usual practice of resolving disputes related to the investment of foreign capital.
At the present stage of development and formation as a legal system new Russia in general, and industry legislation, and in our case it is legislation on foreign investment, the study of the practice of arbitration courts considering disputes of enterprises related to foreign investment is of great importance.
The leading role in Russia in resolving such disputes is played by the International Commercial Arbitration Court (ICAC) under the RF Trade and Industrial Board, which, in terms of the number of cases submitted to it, is firmly among the leading arbitration centers in the world.
The legal basis for the activities of the ICAC is the Law of the Russian Federation on International Commercial Arbitration of July 7, 1993, and on December 8, 1994, the new ICAC Rules (with an Appendix) were approved, which came into force on May 1, 1995.
The features of the new Rules are the flexibility of the arbitration procedure and the provision of wide opportunities for the parties to independently select arbitrators to resolve the dispute. The parties have the right to elect as arbitrators any persons with the necessary qualifications, including foreign citizens. All efforts of the arbitration court should be limited to increasing the efficiency of arbitration proceedings, preventing unreasonable delay of the case and clarity in protecting the rights of the parties involved in the dispute.
The range of problems that arise during the consideration of a particular case by an arbitration court is extremely diverse, but it is necessary to try to consider the most common of them in order to further improve the legal framework in the field of regulation of foreign capital investments.
Very often, disputes regarding the scope of the arbitration clause come before arbitration.
Case N248/1991 can be considered indicative here. The founder, who left the joint venture, presented demands to the latter for payment of monetary compensation for the contribution made, as well as the due share of the profit. To justify the competence of the Arbitration Court, the plaintiff referred to the provisions of the constituent agreement on the right of each of the founders to appeal to this body on any controversial issues related to this agreement.
The defendant challenged the jurisdiction of the arbitration tribunal on the basis of the absence in the constituent or other documents of the joint venture of instructions stipulating the submission to the Arbitration Court of disputes between any of the founders and the joint venture.
The plaintiff, in turn, believed that since his claim arose in connection with the transfer of his share of participation in the joint venture to a third party, it directly relates to issues related to the constituent agreement and falls within the competence of the Arbitration Court.
In its decision, the arbitration tribunal, referring to its Rules, indicated that the existence of a written agreement to submit disputes to the Arbitration Court for resolution can be considered as the basis of the court’s competence, provided that the dispute arose between the parties who entered into such an agreement. Having concluded that the parties to this dispute are one of the founders and the joint venture itself, the arbitrators noted that the above arbitration clause covers only disputes between the founders of the joint venture and does not address the issue of resolving disputes between the founders and the joint venture. Thus, the arbitration concluded that this dispute does not fall within its competence.
The decisions of arbitrators in similar cases show that in practice it is extremely important to clearly define in the arbitration agreement the circle of persons to whom it applies, as well as the consent of these persons to submit disputes to commercial arbitration, in particular the consent of the joint venture itself as an independent subject of the right to consideration by arbitration of relevant disputes between it and its participants.
The question of the competence of the Arbitration Court, although from a slightly different perspective, arose in case No. 177/1993. A foreign company, considering itself a participant in a joint venture, filed a claim against the latter for the return sum of money, transferred as a contribution to its authorized capital.
During the proceedings, it was revealed that the plaintiff intended to enter the joint venture instead of another foreign company. However, the actions required by law to formalize the replacement of a joint venture participant, including making changes to the constituent documents and their subsequent registration in the manner prescribed by law, were not carried out.
Since it was established that the plaintiff is not a party to the constituent agreement, in the opinion of the arbitrators, the arbitration clause contained in this agreement, providing for the jurisdiction of the Arbitration Court of the USSR Chamber of Commerce and Industry, does not apply to the plaintiff. As a result, the arbitration court declared itself incompetent to consider this dispute.
In Case No. 364/1993, a question arose about the validity of a transaction entered into by a joint venture before its registration. The arbitration found that at the time of concluding the lease agreement, which gave rise to the dispute, the joint venture (tenant) was not registered and had no powers legal entity didn't have it. The arbitration court found that the transaction was concluded in violation of the requirements of the law and is invalid. Current legislation does not allow an enterprise to operate until it is registered, and this case clearly illustrates the possible adverse consequences of failure to comply with the ban on unregistered enterprises.
In the practice of the ICAC at the Chamber of Commerce and Industry of the Russian Federation, the question arose as to whether a participant who has left an enterprise with foreign investment has the right to claim the return of property that he contributed to the authorized capital, or whether he is entitled only to the corresponding financial compensation for him.
In case No. 351/1993 the plaintiff, who left the joint venture, demanded from the latter, as the defendant, the return of the building, which was the plaintiff’s contribution to the authorized capital. The defendant’s objections indicated that he became the owner of the transferred property, as established Russian legislation and the charter of the joint venture. The charter did not contain provisions on the return to the participant of property contributed as his share to the authorized capital in kind, but stipulated the obligation to pay the retiring participant book value property at the time of disposal. The decision of the sole arbitrator noted that according to the current Russian legislation, legal entities, in accordance with their charters, are the owners of the property contributed by their participants. And since the return of property in kind is not provided, the plaintiff’s claim was denied.
Also, quite often cases related to the activities of branches and representative offices of foreign legal entities are submitted to arbitration. Thus, in cases NN 185/1992, 243/1992. the question arose about the liability of joint ventures (defendants) for transactions concluded by their branches and representative offices. In both cases, the arbitration court recognized such liability, since we were talking about actions committed structural divisions defendants. The latter failed to prove that the heads of these divisions went beyond the powers granted to them, that the enterprises themselves were not aware of the fact of signing such agreements and the progress of their implementation, or that they did not take actions indicating the approval of these transactions.
Of course in this brief overview arbitration practice can only roughly outline the range of legal problems that arise when considering a particular case, but familiarity with the activities of arbitration in the area affecting the activities of enterprises associated with foreign investments is one of the most important components in the study of this topic. Materials from cases published in articles were used Kabatova V.A. “From the practice of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation in Moscow,” magazines “ International trade» 1992 No. 9, “Economy and Law” 1994 No. 3..
Important in terms of creating favorable investment climate has concluded bilateral agreements on the promotion and mutual protection of investments (hereinafter referred to as the Agreement). They fix the key principles, standards and norms of bilateral investment cooperation, ensuring a stable liberal investment regime for the countries that have signed them. The number of such agreements in the world is steadily increasing: from 181 in 1980 to 1,856 agreements at the beginning of 2000.
Bilateral agreements Russian Federation
By 2001, Russia had concluded 53 such agreements, including 12 “inherited” from the USSR. 24 Agreements were signed with OECD countries, 24 with developing countries and countries with transition economy and five Agreements with the CIS countries. 38 Agreements have been ratified and entered into force (see Annex 3)89. The role of such agreements is primarily to create favorable conditions for FDI in a situation where domestic normative base FDI regulation suffers from serious shortcomings.
They are of particular importance from the point of view of attracting small and medium-sized investors, whose interests, as a rule, cannot receive adequate protection through the mechanism of concluding agreements between the investor and the government of the host country. At the same time, as international experience shows, the Agreements are not able to fully compensate for the influence of such factors that cause low investment attractiveness countries, such as political risks, instability exchange rate, limited market capacity and low economic growth potential.
The standard draft Agreement was approved by Decree of the Government of the Russian Federation No. 395 “On the conclusion of agreements between the Government of the Russian Federation and the governments foreign countries on the promotion and mutual protection of capital investments” dated June 1992. It became the basis for negotiations and the conclusion of new agreements in subsequent years. Decree of the Government of the Russian Federation No. 625 of June 26, 1995 amended the Decree of June 1, 1992 and authorized the Ministry of Economy of the Russian Federation to be the lead organization in negotiations on the conclusion of Agreements. Currently, the Ministry has taken over the baton economic policy and trade of the Russian Federation.
The need to improve Russian practice in developing and concluding bilateral agreements on the promotion and mutual protection of investments
The agreements concluded by the USSR and the Russian Federation were developed in accordance with international legal norms and are mainly based on standard models approved by the governments of the USSR and the Russian Federation. At the same time, since June 1992, when the last Model Agreement was approved, great changes have occurred both on the world stage and in Russia, necessitating the need to improve Russian practice in developing and concluding Agreements. The most important changes include:
changes in international practice conclusion of Agreements in connection with the widely implemented policy of liberalization of attracting foreign investment;
Russia’s signing and/or its intention to join in the near future a number of multilateral international economic organizations and agreements that influence the formation of the terms of the Agreements;
the need of the CIS member countries to implement measures to create a common investment space;
identification in practice of shortcomings, shortcomings and omissions of the current Model Agreement and the Agreements themselves (inconsistency with standard provisions, the presence of outdated provisions, insufficient consideration of the specifics of counterparty countries, lack of a well-thought-out policy when choosing new counterparty countries);
development of Russian legislation on investment issues, including issues of foreign investment, which has not yet been reflected in the Agreements.
Let us illustrate how changes in Russian legislation affected the adopted bilateral international agreements. The latest Model Agreement was drawn up taking into account the provisions of the law on foreign investment of 1991. Currently, this law has lost force due to the adoption on July 9, 1999 of the new Law “On Foreign Investment in the Russian Federation” (No. 160-FZ), which came into force effective July 14, 1999. The Law “On Foreign Investment in the Russian Federation” contains a number of new definitions and provisions or clarifications that are not in the Model Agreement, but in the Agreements themselves (for example, the concept of “foreign direct investment” is clarified, the concepts “ investment project", "priority investment project", etc.).
On the other hand, many of the terms and conditions of already concluded Agreements are formulated much more broadly than in this law. This indicates that when developing the law, positive developments in the field of regulation of foreign investment were not adequately taken into account. The law, in particular, did not take into account such successful provisions of already concluded and ratified Agreements as the issue of compensation for damage to the investor in connection with war, armed conflict, and civil unrest. The law does not say anything about the application of the MFN regime, which excludes discrimination of investors on a country basis. It establishes provisions for treatment only in relation to the investor and profits, but does not highlight separate provisions for treatment in relation to capital investments, as provided for in international practice.
Not only the Law “On Foreign Investments in the Russian Federation”, but also a number of other important laws currently contain contradictions to recognized international norms and rules, which the Russian side will have to eliminate if it joins certain international economic organizations or unions. For example, the Law “On Amendments and Additions to the federal law“On Production Sharing Agreements” dated January 8, 1999, being generally a significant achievement in the development of Russian legislation on foreign investment, contains a number of provisions that contradict the conditions of TRIMS. At the same time, as noted above, in the Agreements between Russia and the United States, Japan and Kuwait, as well as in the Energy Charter Treaty, the contracting parties assumed obligations to comply with these or similar norms.
The tasks, the solution of which is of key importance for increasing the effectiveness of concluded Agreements, include the following.
Reasonable selection of counterparty countries. The bilateral nature of the Agreements determines their dual task, which consists not only of creating favorable conditions for the influx of FDI from the relevant countries, but also of protecting the interests of Russian business in these countries. Thus, the criterion for selecting counterparty countries should be both their investment potential and the interests of domestic investors in relation to investing capital in the territory of the respective countries and receiving assistance in penetrating their markets. This primarily applies to countries in which Russian companies are already conducting investment activities or carrying out operations to create a sales network and promote export goods to the market. In the future, new Agreements may be concluded with two categories of countries: 1)
countries from whose territory an influx of capital into the Russian economy can be expected in the next decade (Australia, Ireland, Israel, Singapore, Malaysia, Brazil, Saudi Arabia); 2)
countries that are actual and potential recipients of Russian FDI, as well as those of interest from the point of view of foreign trade expansion Russian companies(Iran, Morocco, Tunisia, Indonesia, Syria, Jordan, Yemen, Sri Lanka, Algola, etc.).
Development and adoption of a new text of the Model Agreement of the Russian Federation on the promotion and mutual protection of investments. This task is important not only due to the fact that the current Model Agreement is somewhat outdated and does not regulate a number of issues important for investors, but also due to the ongoing adjustments to those already concluded and the preparation of new Agreements. The basic principles for developing a new Model Agreement should be: -
compliance with the interests of Russia as a country - a recipient of capital and an investor country, taking into account the primary task of attracting FDI to the country; - taking into account changes in the legal framework and law enforcement practice in Russia; -
analysis and taking into account the experience of concluding Agreements of Russia, as well as other developing countries and countries with economies in transition; -
taking into account and using the provisions of multilateral (including regional) investment agreements; -
ensuring multiple options when preparing texts of Agreements, allowing the use of flexible tactics for developing compromise solutions, taking into account the negotiating position of counterparty countries.
In parallel with the development of the text of the Model Agreement, it is advisable to prepare a Methodological Regulation on the procedure for concluding and entering into force of the Agreements of the Russian Federation on the promotion and mutual protection of investments, aimed at specifying and streamlining decision-making procedures related to ensuring the implementation of the concluded Agreements.
A procedural mechanism should be created to ensure radical acceleration of the consideration and ratification of concluded Agreements in the State Duma. Of the 53 Agreements concluded by Russia as of the beginning of 2001, only 38 were ratified, and a number of Agreements were in the State Duma for five years or more (in particular, the Agreements with the USA and Poland were submitted for ratification back in 1993) . This situation undermines Russia’s investment image and objectively prevents the creation of favorable conditions for large-scale influx of FDI from the relevant countries.
There should be regular publication in Russian and English of a collection of texts of concluded and ratified Agreements.
Among the international treaties related to investment regulation,
The most common are bilateral agreements on the promotion and mutual protection of investments.
Such treaties are mainly devoted to the protection of foreign investments and foreign investors.
In such agreements, from 15 to 25 articles are devoted to their guarantees:
1. from nationalization and requisition and other types of forced seizure
2. participation in the privatization of investors.
3. guarantee of protection investor property.
4. translation profit received by the investor in his country.
5. “grandfather clause” - a guarantee against the adoption by the authorities of the country of the place of investment of legislation that worsens the situation of investors.
These agreements define who is meant by a foreign investor (for example, foreign organization with/without legal entity status). The concept is given investments investment activities and foreign investment.
There are 3 approaches to understanding foreign investment:
- these are material assets and intellectual rights.
- This the process of investing valuables in the economy of another country
- this is a nested registration material assets and intellectual rights.
One of characteristic features bilateral investment agreements is the fact that they are concluded, as a rule, by economically and politically unequal partners: between economically developed state- an exporter of capital and a developing state seeking to attract foreign investment.
Since 1994 the use begins Standard project The Government of the Russian Federation as the basis for negotiations between the Government of the Russian Federation and the governments of foreign states on the encouragement and mutual protection of investments (third stage). During the period from 1994 to January 1, 1999, the Russian Federation concluded bilateral international treaties on the protection of foreign investments with 18 more states, including the Czech Republic, Kuwait, India, Norway, etc. The last investment-powerful country on this list is Japan.
Agreements on the encouragement and mutual protection of investments are of particular importance in the context of the well-known incompleteness and instability of the national legislation of the Russian Federation on investment issues. Due to the constitutional principle of priority application of the rules of international treaties, these agreements have a direct regulatory impact on the relevant relations, making it possible to compensate for the shortcomings of Russian legislation.
The purpose of an international treaty is stated in the preamble. In general, foreign investment protection agreements have the following objectives:
1) create a favorable regime for investments and related activities;
2) ensure adequate protection of foreign property;
3) provide investors with the opportunity to freely transfer income received from investment activities;
4) guarantee the consideration of disputes in international arbitration
Attracting foreign capital to the Russian economy is one of the priority areas for implementing the foreign economic strategy of the Russian Federation for the long term. Building up investment potential and improving the investment climate in the country largely depends on improving legislative framework and investment policies aimed at protecting the rights and interests of both domestic and foreign investors.
International legal regulation of investment relations between Russia and its main trade and economic partners is carried out on the basis of intergovernmental agreements on the encouragement and mutual protection of investments.
States concluding such agreements, firstly, acquire the opportunity to ensure the effective implementation of the rights of their individuals and legal entities in the territory of another signatory state and, secondly, guarantee the application of the investment regime provided for in such an agreement, regardless of possible changes, including in the field of legislation, in the recipient country.
Agreements on the promotion and mutual protection of investments, as a rule, are concluded by states on the basis of draft standard agreements approved by them, which contain a certain standard list of guarantees for the protection of foreign investors. Standard agreements make it possible to ensure the uniformity of their content, but do not exclude amendments and additions to them if there is written mutual consent of the parties.
Similar standard agreements have been developed in Germany, the USA, Great Britain, Switzerland, the Netherlands and some other countries.
When concluding such agreements, the Russian Federation is also guided by the standard agreement approved by Government Decree No. 456 of June 9, 2001 (as amended by Government Decrees of April 11, 2002 No. 229, December 17, 2010 No. 1037), which replaced the earlier the current standard agreement approved by the Government Decree of 1992 (with amendments and additions of 1995).
The new model agreement takes into account the requirements of the WTO and contains a number of important provisions regarding the mechanism for resolving investment disputes.
Its other main difference is the tightening of the provisions of the article related to the capital investment regime. In particular, it provides for the retention by each contracting party of the right to apply and introduce, in accordance with the legislation of its state, exemptions from national treatment (NR) in relation to investments of investors of the state of the other contracting party, provided that such exemptions are not applied or introduced on a discriminatory basis according to compared with the regime applied or introduced in relation to investments by investors of any third state.
In addition, none of the contracting parties is obliged to extend to investments of investors of the state of the other contracting party the advantages that it provides to investments of investors of any third state in connection with participation in a free trade area, customs or monetary union, common market and any similar economic integration entities , as well as on the basis of agreements to avoid double taxation or other tax arrangements.
A separate provision in new edition restrictions on the application of the most favored nation (MFN) and NR regime are provided. The treatment provided by Russia cannot be better than that which our country is ready to provide within the framework of its WTO obligations, including obligations under the General Agreement on Trade and Services (GATS). However, upon completion of the negotiation process on Russia’s accession to the WTO, our country managed to record in the “List of exceptions from Article II (MFN)” of the GATS “a measure regarding investment activities and available investment protection” in all sectors of trade in services, which is reflected in the “Protocol of December 16, 2011 on the accession of the Russian Federation to the Marrakech Agreement on the Establishment of the World trade organization dated April 15, 1994." This means that Russia, by including such a clause, will fulfill all obligations under existing bilateral intergovernmental agreements and agreements that may be concluded in the future on mutual protection and promotion of investments.
The current Model Agreement model basically responds common standards, developed by international contractual practice in the field of investment protection. At the same time, a number of countries insist on including in draft agreements articles containing provisions on MFN and IR without exceptions, which creates certain difficulties during negotiations.
As of March 1, 2016, 80 bilateral intergovernmental agreements on the promotion and mutual protection of investments are in force. The Russian side has completed domestic procedures in relation to 68 agreements, and 63 agreements have entered into force.
The Russian Ministry of Foreign Affairs actively interacts with the Russian Ministry of Economic Development, providing, within its competence, the necessary assistance in conducting negotiations with foreign countries on the conclusion of these agreements.
International bilateral agreements on the protection of foreign investments. It is quite obvious that the current situation in the field of legal regulation of foreign investment is such that it is impossible to ignore the increased attention to the international legal aspect of this problem.
The Constitution of the Russian Federation enshrines the provision that the principles and norms of international law and international treaties of Russia are an integral part of its legal system, have direct effect and are subject to application by state bodies. The Law on Foreign Investments in the RSFSR establishes the priority of international law in the Russian Federation. Article 5 states that if an international treaty in force on the territory of the RSFSR establishes rules other than those contained in the legislative acts of the RSFSR, the rules of the international treaty apply. Many of the shortcomings of the Russian Foreign Investment Law can be compensated for through the provisions of bilateral international treaties aimed at encouraging and protecting foreign investment.
Russia participates in more than ten such agreements as the legal successor of the USSR. Especially with regard to bilateral agreements on the protection of foreign investments, the Russian Foreign Ministry signed a note in December 1991, according to which Russia assumes the rights and obligations under international treaties concluded by the USSR, see Appendix. For investors from countries with which bilateral agreements on mutual protection of investments have been concluded, the provisions on the investment regime established by these agreements will be applied.
By guaranteeing favorable treatment for foreign investors, the State undertakes to provide fair and equitable treatment to their investments and related activities.
The relevant provision of the agreements expresses the state’s desire to encourage foreign investment, as well as to treat foreign investors favorably and non-discriminatorily in terms of their rights to own, manage, dispose of and liquidate investments. This obligation is contained in those provisions of agreements that deal with the provision of most favored nation or national treatment to foreign investors. Most favored nation treatment is mentioned in most agreements with the UK, Germany, Switzerland, Spain, Canada, France, Belgium, the Netherlands, Italy, Austria, Turkey, Korea, China, Finland. At the same time, the Soviet Union, in a number of agreements concluded with France, Canada, Spain, Belgium, the Netherlands and others, pledged, in addition to most favored nation treatment, to provide foreign investors with national treatment as far as possible and in accordance with current legislation.
The national regime is directly mentioned in agreements with the USA and Great Britain.
In an agreement with the Republic of Korea, the parties mutually provide the investor with the opportunity to choose the above two regimes, while at the same time reserve the right to establish or maintain, in accordance with their current legislation, limited exceptions from the national regime of Art. 3 Agreement of December 14, 1990. The wording on this issue in the Treaty with the United States is more complex. It defines national treatment as treatment that is at least as favorable as the best of the most favorable treatment accorded by a party to state-owned enterprises, other companies or citizens of that party in similar circumstances Art. 1 . Analyzing the Treaty, we can come to the conclusion that national treatment is provided reciprocally with certain exceptions.
In addition, it is provided that Russian investments will be provided in any US state with the same treatment that is provided to investments of US citizens living in other states.
The possibility of granting national treatment does not exclude the introduction of restrictions for a foreign investor to engage in certain types of activities. In addition, for some types of activities a permitting procedure may be established. Seizures may be introduced to ensure national security and public order. In accordance with international practice, the implementation of certain types of activities may be declared a state monopoly and then foreign investors will not have the right to engage in them. In this regard, we can give an example from the legislative practice of Russia.
In pursuance of the Decree of the President of the Russian Federation of June 11, 1993 On the restoration of the state monopoly on the production, storage, wholesale and retail sale of alcoholic products, the Government of the Russian Federation adopted a corresponding resolution on April 22, 1994. It stipulated that the state monopoly would be implemented through a system of measures that would apply to enterprises carrying out relevant types of economic activity, regardless of their form of ownership and departmental affiliation, including enterprises created on the territory of the Russian Federation with foreign investment.
At the same time, the national regime does not exclude the creation in certain cases of preferential treatment, the establishment of industries and types of production that are priority for attracting foreign capital.
In these areas, foreign investors may receive additional benefits. A feature of agreements on the protection of foreign investments is that they provide regulation not only of relations between the states parties to the agreement, but also of relations with a foreign private investor of one of the states party to the agreement within the framework of the national legal system. The presence of such a heterogeneous subject composition may serve as a basis for applying general principles and norms of international law when resolving a dispute between a state and a private investor. This position is confirmed by the fact that reference to the norms and principles of international law, as a rule, is contained in that part of bilateral agreements that concerns the procedure for resolving investment disputes.
This provides for the consideration of cases in international arbitration, which makes decisions based both on the provisions of a bilateral agreement and guided by the norms of international law.
At the moment, the problem of applying international law within the framework of the national legal system is the subject of debate, and therefore its study requires careful analysis with the participation of international law specialists. No less significant when considering the issue of Russia’s participation in international bilateral agreements on foreign investment is the definition of the concepts of nationalization and expropriation, which in bilateral agreements have a collective meaning, since these measures mean not only the act of nationalization itself, but also any other acts the result of which is forced seizure, alienation of investments, as well as state actions that can be considered as actually carried out nationalization or expropriation.
For example, freezing accounts, prohibiting the transfer of investments in foreign currency abroad, etc. Bilateral agreements prohibit such actions. In accordance with bilateral agreements, the nationalization of investments is recognized by the parties as legal, that is, it is not considered a violation of the norms and principles of international law, if it is carried out in the public interest, in accordance with the procedure established by law and on a non-discriminatory basis.
The latter means that the basis for taking measures against a foreign investor is not considered his nationality or state affiliation if we are talking about a legal entity. At the same time, the recognition of acts of nationalization as legal may concern both acts of individual action - nationalization of the property of a particular investor, and acts adopted in order to restructure the economy, nationalization of entire sectors of the economy or categories of enterprises, for example, banks.
Bilateral agreements in the event of such a nationalization oblige the contracting state to pay an amount of compensation. The agreements also provide for the payment procedure and the procedure for calculating the amount of compensation.
FORMS OF FOREIGN INVESTMENT SYSTEM FOR ADMISSION OF FOREIGN CAPITAL Considering the issues of legislative regulation of foreign investments, it should be noted that at the moment the need to adopt a system for admission of foreign capital has become urgent, which is confirmed by the successful practice of regulating this area of relations in developed countries market economy. The Law on Foreign Investments in the Russian Federation provides for the implementation of foreign investments through equity participation in enterprises created jointly with legal entities and citizens of the Russian Federation; creation of enterprises wholly owned by foreign investors, as well as branches of foreign legal entities; acquisition of enterprises, property complexes, buildings and structures, shares in enterprises, shares, shares, bonds and others valuable papers, as well as other property that, in accordance with the legislation in force on the territory of the Russian Federation, may belong to foreign investors, acquisition of rights to use land and other natural resources, acquisition of other property rights, other investment activities not prohibited by the legislation in force on the territory of the Russian Federation, including the provision of loans, loans, property and property rights. Art. 3. The law provides for various forms of cooperation with foreign partners and attracting foreign resources, but, at the same time, all regulation of foreign investment was practically reduced to establishing the procedure for registering a joint venture. This significantly narrowed the scope of the law and ultimately alienated a significant number of potential investors.
The subsequent appearance of individual legal acts. For example, the Order of the Council of Ministers of the Government of the Russian Federation dated October 7, 1993, providing for attraction on the basis of loan agreement with the Deutsche Bank for Foreign Investment for the development of the Tyumen region, Decree of the President of the Russian Federation dated December 22, 1993. On issues of production sharing agreements for subsoil use, practice government agencies carrying out registration of enterprises with foreign investments, in particular Russian Agency international cooperation and development, which previously carried out not only the registration of newly established enterprises with foreign investment, but also cases of their acquisition of shares of Russian joint stock companies. indicates that in Russia there is an objective need for legislative regulation not only the activities of joint ventures, but also other legal forms of foreign investment.
A certain role in attracting foreign investment is played by the creation commercial organizations with 100 percent - 17 foreign participation.
Serious Western investors are currently not so much interested in partnerships with Russian organizations, how much is the acquisition of reliable production control elements. For Russian economy Medium and small enterprises owned by foreign capital are very useful in industries that are not of strategic importance.
But in a number of industries that are key to National economy, the creation of such organizations, especially large enterprises capable of taking into their own hands most of Russian market, should be licensed by Decree of the Government of the Russian Federation N 1418 of December 24, 1994, a licensing system for regulating economic activity was introduced in a number of industries, which also applies to foreign investors. In the context of increasing volumes of foreign investment in Russia, there is a need to strengthen antimonopoly control in this area, primarily over the nature of mergers and acquisitions.
Law of the Russian Federation On Amendments and Additions to the Law on Competition and Restriction of Monopolistic Activities in commodity markets dated May 25, 1995, applies to all business entities, and therefore to the operations of foreign companies. Investment legislation directly provides for the possibility of foreign investors participating in the privatization of Art. 37 of the Law. By purchasing blocks of shares of privatized enterprises owned by the state at investment tenders, foreign investors enter into purchase and sale agreements with the relevant property funds, which include certain guarantees for investors, including the preservation of the personnel of these enterprises, but most do not stipulate sanctions from the Russian side if investors fail to fulfill these obligations.
Granting foreign investors the rights to develop and develop natural resources and conduct economic activities related to the use of facilities located in state property, but not transferred to enterprises, institutions, organizations for full economic management or operational management, is carried out on the basis of concession agreements, Art. 40 of the Law. The concessionaire receives the exclusive right to explore and extract natural resources at his own risk and expense in the territory allocated to him.
He owns the products and can freely sell them after mandatory deliveries to the local market, the amount of which is specified in the agreement.
In accordance with Russian subsoil legislation, concessions must be granted on a competitive basis through tenders. Production sharing agreements are in many ways similar to concession agreements.
The difference is that a foreign company that undertakes to master the development of a certain natural resource, pays the receiving party with part of the extracted products, and division of production is carried out. In this regard, a special tax regime is used, which provides for the replacement of taxes, duties and other obligatory payments by the distribution of manufactured products between the investor and the Russian Federation, constituent entities of the Russian Federation. The relations under consideration are regulated by the Law of the Russian Federation On Production Sharing Agreements adopted in December 1995, which, however, does not correspond to the Law On Subsoil on very significant issues 1 on the nature of the rights arising, contract or permit 2 payments for the use of subsoil 3 termination of agreements and licenses and many other things.
The international practice of cooperation with foreign investors also knows such a form as the creation of contractual joint ventures, while the Russian and foreign partners do not create a new legal entity. The conclusion of an agreement on joint activities (contractual joint ventures), the provision of targeted long-term international loans, and the conclusion of such foreign trade transactions as agreements on the transfer of technology, know-how, licensing, leasing agreements, etc. can be considered as an investment of capital. In particular, the legislation of the European Common Market applies special criteria for assessing foreign trade agreements for the transfer of technology, agreements related to specialization and cooperation of production, and joint ventures type agreements.
Application to externally trading operations assessments related to determining whether the purpose of concluding an agreement is to transfer the right of control over the activities of a party to a transaction to its counterparty means using the control criterion for the purpose of making a decision on the admission of foreign capital.
This procedure is provided for, for example, by the law on foreign investment in Canada. The mechanism for regulating legislation on foreign investment should be aimed at assessing the contribution made by a foreign investor and the possible impact of the investment on the state of market relations.
As the experience of adopting laws on foreign investment in industrial developed countries, the achievement of these goals is ensured through the system of admission of foreign capital.
When implementing a system for admitting foreign capital, it seems appropriate to establish a procedure for registering investments, not of a legal entity - a foreign investor, with its subjective rights, but of the investments themselves.
This may include registration of the fact of making a contribution to the property of a newly created or already existing enterprise, registration of the purchase of shares, registration of a foreign trade transaction for the import of equipment intended to be a contribution to an enterprise with foreign investment, a license agreement, etc. Registration of legal facts indicating receipts from abroad of material assets intended to become capital, i.e. when making a profit, is government regulation investments, and the criteria according to which the relevant competent state body will make decisions on the admission of foreign capital must be clearly established in the legislation on foreign investment.
End of work -
This topic belongs to the section:
Legal regulation of foreign investment in Russia
Foreign investors constantly complain that Russia remains at risk of negative changes in politics, economics and law. Anxiety for the future of invested capital is fueled by extremist slogans.. The image of Russia is also deteriorating due to the increase in crime and the lack of peaceful living conditions for families of individuals..
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