Investment Agreement with Libya Gra
Investment Agreement with Libya Grants Exceptional Benefits: Treaty Opens the Way for Egyptian Investments in Libya
Investment treaties rarely attract attention. This is due to the fact that too many of them have been entered all over the world, and that most legal systems worldwide have been liberalized in the last two decades so that investments seem to be able to flow without need for special treaties. Egypt, as a matter of fact, is one of the largest treaty signatories in the world, as it is party to over one hundred such international agreements.
Typically, an investment treaty – known in international law as BIT (Bilateral Investment Treaty) – provides a framework for giving investors in the home country the best treatment offered by the host country to investors from anywhere else (known in international law as “Most Favored Nation Clause”). In addition it typically provides for a frame-work of consultation, and includes dispute settlement provisions which grant the right to resort to international arbitration in case of failure to pursue fair litigation in the home country.
On November 27th, an amendment to the BIT between Egypt and Libya was published in the Official Journal. This is an amendment which was entered into by both governments on December 12th, 2006 then approved by the Egyptian Parliament on July 13th, 2007, ratified by the President of the Republic on July 16th, 2007 and published on November of this year. The Decision of the Minister of Foreign Affairs issuing the amendment states that it is to be effective as of June 29th, 2008.
Why this particular amendment is of significance is due to two reasons: the first is that Libya is a relatively «closed» country to foreign investment, and this is precisely what gives an investment treaty any significance. In other words, if the treaty were entered into between two countries that are entirely open to foreign investors, it would have little value because investors from both sides would be capable of doing their business without need for special protection or treatment. It is when a country is relatively “closed” that investors from the other country stand to benefit from the protections and privileges accorded by the treaty.
The second reason is that the amendment to the original BIT between Egypt and Libya – originally entered into in 1990 – goes a significant step beyond the Most Favored Nation treatment (in international law “MFN”). As previously said, MFN treatment means that the host country is obliged to give investors from the home country the best treatment it gives to investors from any other country, hence «most favored». It does not, however, give investors the same treatment as its own nationals.
If, accordingly, some sectors in the economy are reserved or restricted to the benefit of national investors, then they would remain so, even under an MFN clause. The amendment of the BIT with Libya precisely goes this further step by granting investors in each of the two countries the same treatment granted to its national investors. This is an extremely significant step. If, for example, financial services in one country were restricted to companies with 51% ownership by nationals also, then it would be open to investors from the country which is granted the same national treatment. And since significant restrictions exist in the case of Libya in the face of foreign investors, the application of the amendment means that Egyptian companies can now get the treatment that Libyan companies and investors enjoy in Libya. A note of caution is required. Often these agreements are entered into without full operational arrangements being made in the signatory countries to ensure their application. This means that application lags behind the coming into force of the agreement. In practice, therefore, some delay may occur and some lack of clarity would be typical. But the fact remains that the legal text is out and is made effective and it does represent a great opportunity for Egyptian companies interested in doing business in Libya.
Investment treaties rarely attract attention. This is due to the fact that too many of them have been entered all over the world, and that most legal systems worldwide have been liberalized in the last two decades so that investments seem to be able to flow without need for special treaties. Egypt, as a matter of fact, is one of the largest treaty signatories in the world, as it is party to over one hundred such international agreements.
Typically, an investment treaty – known in international law as BIT (Bilateral Investment Treaty) – provides a framework for giving investors in the home country the best treatment offered by the host country to investors from anywhere else (known in international law as “Most Favored Nation Clause”). In addition it typically provides for a frame-work of consultation, and includes dispute settlement provisions which grant the right to resort to international arbitration in case of failure to pursue fair litigation in the home country.
On November 27th, an amendment to the BIT between Egypt and Libya was published in the Official Journal. This is an amendment which was entered into by both governments on December 12th, 2006 then approved by the Egyptian Parliament on July 13th, 2007, ratified by the President of the Republic on July 16th, 2007 and published on November of this year. The Decision of the Minister of Foreign Affairs issuing the amendment states that it is to be effective as of June 29th, 2008.
Why this particular amendment is of significance is due to two reasons: the first is that Libya is a relatively «closed» country to foreign investment, and this is precisely what gives an investment treaty any significance. In other words, if the treaty were entered into between two countries that are entirely open to foreign investors, it would have little value because investors from both sides would be capable of doing their business without need for special protection or treatment. It is when a country is relatively “closed” that investors from the other country stand to benefit from the protections and privileges accorded by the treaty.
The second reason is that the amendment to the original BIT between Egypt and Libya – originally entered into in 1990 – goes a significant step beyond the Most Favored Nation treatment (in international law “MFN”). As previously said, MFN treatment means that the host country is obliged to give investors from the home country the best treatment it gives to investors from any other country, hence «most favored». It does not, however, give investors the same treatment as its own nationals.
If, accordingly, some sectors in the economy are reserved or restricted to the benefit of national investors, then they would remain so, even under an MFN clause. The amendment of the BIT with Libya precisely goes this further step by granting investors in each of the two countries the same treatment granted to its national investors. This is an extremely significant step. If, for example, financial services in one country were restricted to companies with 51% ownership by nationals also, then it would be open to investors from the country which is granted the same national treatment. And since significant restrictions exist in the case of Libya in the face of foreign investors, the application of the amendment means that Egyptian companies can now get the treatment that Libyan companies and investors enjoy in Libya. A note of caution is required. Often these agreements are entered into without full operational arrangements being made in the signatory countries to ensure their application. This means that application lags behind the coming into force of the agreement. In practice, therefore, some delay may occur and some lack of clarity would be typical. But the fact remains that the legal text is out and is made effective and it does represent a great opportunity for Egyptian companies interested in doing business in Libya.