The Law of Investment in Iraq

The Law of Investment in Iraq The Law of Investment in Iraq By Sami Shubber Lic. en Dr. (Baghdad); Post-graduate Dip...

Author: Sami Shubber

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The Law of Investment in Iraq

The Law of Investment in Iraq By

Sami Shubber Lic. en Dr. (Baghdad); Post-graduate Dip in Law (London); LL.M (London); Ph.D. (Cantab); Barrister-at-Law, Gray’s Inn; Member of the Iraqi Bar; formerly Senior Legal Officer, WHO.

LEIDEN • BOSTON 2009

On the cover: Map of Iraq. This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data Shubber, Sami. The law of investment in Iraq / by Sami Shubber. p. cm. Includes index. ISBN 978-90-04-17286-9 (hardback : alk. paper) 1. Investments, Foreign—Law and legislation—Iraq. 2. Investments—Law and legislation—Iraq. 3. Investments—Government policy—Iraq. I. Title. KMJ3202.S58 2009 346.56707—dc22 2008053462

ISBN 978 90 04 17286 9 Copyright 2009 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoff Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. printed in the netherlands

To the memory of Sir Robert Jennings my Master in the law

Contents Preface .......................................................................................... List of Cases ................................................................................. List of Abbreviations ....................................................................

xv xvii xix

Introduction .................................................................................

1

Chapter I. The Objectives of the Federal Investment Law .......... 1. Introduction ........................................................................ 2. The promotion of investment and the transfer of technology .......................................................................... 3. Encouragement of the Iraqi and foreign private investor ... 4. The development of human resources ................................ 5. Protection of the rights and property of investors .............. 6. Expansion of Iraqi exports and the enhancement of Iraqi balance of payments and balance of trade .......................... 7. Conclusion ..........................................................................

9 9

18 19

Chapter II. The Areas of Investment ........................................... 1. Introduction ........................................................................ 2. The scope of investment ..................................................... 3. Definition of the term “investment” ................................... 4. Ownership of land .............................................................. 5. Investment projects ............................................................. 6. Conclusion ..........................................................................

21 21 21 26 31 33 35

Chapter III. Licensing of Investment Projects ............................. 1. Introduction ........................................................................ 2. Procedure ............................................................................ (a) Application for a license ............................................... (b) Right of appeal .............................................................

37 37 37 37 41

9 13 14 16

viii

Contents

(c) Conditions for the grant of license ............................ 1. The filling-in of the application form ................... 2. Bank guarantee ...................................................... 3. The projects implemented by the applicant .......... 4. Details of the proposed project ............................. 5. Time-table for the implementation of the project 3. The competent organs ...................................................... (a) The federal level-NIC ................................................. 1. Composition of the NIC ...................................... 2. Functions of the NIC ........................................... (i) The adoption of a general national policy and strategy for investment ........................... (ii) The defining of the most important sectors in the investment field ....................................... (iii) The preparation of a map concerning investment projects ........................................ (iv) The preparation of lists of investment opportunities in strategic and federal projects .......................................................... (v) The grant of licenses for investment projects .......................................................... (b) The regional level – The Kurdistan Investment Board .......................................................................... 1. Composition of the Kurdistan Investment Board ..................................................................... 2. Functions of the Kurdistan Investment Board ...... (i) The creation of a suitable environment for investment ..................................................... (ii) The preparation of investment strategies and plans .............................................................. (iii) The preparation of lists of investment opportunities .................................................. (iv) The grant of licenses for investment projects .......................................................... (c) The Governorate level ................................................ 4. Conclusion ........................................................................

44 45 45 45 45 46 48 48 49 51 51 52 53

53 54 55 55 57 58 58 59 60 60 61

Contents

ix

Chapter IV. Incentives to Investors ............................................. 1. Introduction ...................................................................... 2. Repatriation of the investor’s capital and its returns ......... 3. Exemption from taxation and fees .................................... 4. Ownership of land for residential projects ........................ 5. Dealing in shares and bonds ............................................. 6. Lease of land for investment projects ............................... 7. Project insurance ............................................................... 8. Bank accounts ................................................................... 9. Additional advantages in treaties ....................................... 10. Conclusion ........................................................................

63 63 63 66 74 75 77 79 80 81 83

Chapter V. Guarantees to Investors ............................................. 1. Introduction ...................................................................... 2. Employment of non-Iraqi personnel ................................. 3. The right of entry, residence and exit ............................... 4. Guarantee against expropriation and nationalization ........ 5. Repatriation of salaries and benefits by non-Iraqi personnel .......................................................................... 6. Sale and/or re-export of machinery and equipment ......... 7. Equal treatment with Iraqi investors ................................. 8. Confidentiality of information .......................................... 9. Conclusion ........................................................................

85 85 85 88 89

Chapter VI. Obligations of the Investor ..................................... 1. Introduction ...................................................................... 2. Notification of project readiness ....................................... 3. Maintenance of book-keeping .......................................... 4. Submission of the economic and technical study concerning the project ...................................................... 5. Keeping special records of materials exempted from taxation ............................................................................. 6. Protection of the environment, and respect for Iraqi laws and values ......................................................................... 7. Respect for applicable labour law ..................................... 8. Keeping the work progress in line with the work schedule ............................................................................

95 97 99 100 101 103 103 103 105 106 108 109 111 112

x

Contents

9. Training of Iraqi employees .............................................. 10. Conclusion ........................................................................

114 115

Chapter VII. Sanctions Against Investors .................................... 1. Introduction ...................................................................... 2. Withdrawal of the investment license ............................... (a) Violation of the provisions of the Federal Investment Law ............................................................................ (b) Violation of Article 14, paragraph 7, of the Federal Investment Law .......................................................... (c) Cessation of work on the project for more than three months ....................................................................... 3. Right of appeal ................................................................. 4. Conclusion ........................................................................

117 117 117

Chapter VIII. Settlement of Disputes ......................................... 1. Introduction ........................................................................ 2. Settlement of disputes under Iraqi Law .............................. (a) Disputes arising from employment contracts ............... (b) Disputes relating to crimes ........................................... (c) Disputes between national authorities and investors .... 3. Settlement of disputes under foreign law ........................... (a) Employment contracts of non-Iraqis ............................ (b) Contracts between foreigners ....................................... 4. Arbitration .......................................................................... (a) Arbitration under Iraqi law .......................................... (b) Arbitration under international schemes ...................... 1. The Permanent Court of Arbitration (PCA) ........... 2. The International Chamber of Commerce (ICC) ... 3. The International Centre for the Settlement of Disputes (ICSID) .................................................... 4. The Arab Council for Settlement of Investment Disputes .................................................................. 5. The International Court of Justice (ICJ) ............................ 6. Conclusion ..........................................................................

129 129 129 130 132 133 135 135 137 138 139 143 147 148

117 122 124 126 126

151 154 156 158

Contents

xi

Chapter IX. The Implementation of the Federal Investment Law .......................................................................................... 1. Introduction ........................................................................ 2. Regulations ......................................................................... 3. Instructions .........................................................................

159 159 160 161

Chapter X. Conclusions ..............................................................

165

Appendices ................................................................................... Appendix 1. The Iraqi Investment Law 2006 .............................. The Investment Law ................................................................ Chapter I: Definitions ............................................................. Objectives and means .............................................................. Chapter II: The National Investment Commission and the Investment Commissions in the regions and governorates ......................................................................... Chapter III: Privileges and guarantees ..................................... Chapter IV: Obligations of the investor .................................. Chapter V: Exemptions ........................................................... Chapter VI: The procedure for the grant of an investment license and the establishment of projects ............................. Chapter VII: General provisions .............................................. The reasons for the enactment of the Law ...............................

169 171 171 171 173

184 185 190

Appendix 2. Investment Law in the Iraqi Kurdistan Region ....... Investment Law in the Iraqi Kurdistan Region ........................ Chapter I: General provisions .................................................. Section 1: Definitions .......................................................... Section 2: Fields of investment ............................................ Section 3: Treatment of the foreign investor ........................ Section 4: The allocation of lands ........................................ Chapter II: Exemptions and obligations .................................. Section 1: Tax and customs exemptions .............................. Section 2: Additional exemptions ........................................ Section 3: Legal guarantees .................................................. Section 4: The investor’s obligations ....................................

191 191 191 191 192 193 193 195 195 196 196 197

174 179 181 182

xii

Contents

Section 5: Legal measures upon any contravention by the investor ...................................................................... Chapter III: Investment formations ......................................... Section 1: The Investment Board and its formations and tasks .......................................................................... Section 2: The Supreme Investment Council ...................... Section 3: The Board’s budget ............................................. Chapter IV: Granting of licenses and arbitration .................... Section 1: Procedures on granting licenses to projects ............................................................................. Section 2: Arbitration .......................................................... Section 3: Final provisions ................................................... Necessitating reasons ................................................................

198 199 199 200 201 201 201 202 202 204

Appendix 3. Coalition Provisional Authority Order Number 39 – Foreign Investment ........................................... Section 1: Definitions .............................................................. Section 2: Purposes .................................................................. Section 3: Relation to existing Iraqi Law ................................. Section 4: Treatment of foreign investors ................................ Section 5: Trade offices & branches ......................................... Section 6: Areas of foreign investment .................................... Section 7: Implementing foreign investment ........................... Section 8: Use of real property ................................................ Section 9: Insurance ................................................................. Section 10: Dispute settlement ................................................ Section 11: Dissolution of entities ........................................... Section 12: Tax treatment ........................................................ Section 13: Treatment of investors ........................................... Section 14: International agreements ....................................... Section 15: Evasion .................................................................. Section 16: Entry into force ....................................................

205 206 207 207 207 207 207 208 209 209 210 210 210 210 211 211 211

Appendix 4. ICSID Convention: Convention on the Settlement of Investment Disputes between States and Nationals of Other States .........................................................

213

Contents

Preamble .................................................................................. Chapter I: International Centre for Settlement of Investment Disputes ............................................................................... Section 1: Establishment and organization .......................... Section 2: The Administrative Council ................................ Section 3: The Secretariat .................................................... Section 4: The Panels ........................................................... Section 5: Financing the Centre .......................................... Section 6: Status, immunities and privileges ........................ Chapter II: Jurisdiction of the Centre ..................................... Chapter III: Conciliation ......................................................... Section 1: Request for conciliation ...................................... Section 2: Constitution of the Conciliation Commission ..................................................................... Section 3: Conciliation proceedings ..................................... Chapter IV: Arbitral Tribunal .................................................. Section 1: Request for arbitration ........................................ Section 2: Constitution of the Tribunal ............................... Section 3: Powers and functions of the Tribunal ................. Section 4: The award ........................................................... Section 5: Interpretation, revision and annulment of the award ......................................................................... Section 6: Recognition and enforcement of the award ........ Chapter V: Replacement and disqualification of conciliators and arbitrators ...................................................................... Chapter VI: Cost of proceedings ............................................. Chapter VII: Place of proceedings ........................................... Chapter VIII: Disputes between Contracting States ................ Chapter IX: Amendment ......................................................... Chapter X: Final provisions .....................................................

xiii 213 214 214 214 216 217 218 218 220 222 222 222 223 225 225 225 226 228 229 231 232 233 234 234 235 235

Appendix 5. Arbitration Rules, Iraqi Law of Civil Procedure 1969 .........................................................................................

239

Index ............................................................................................

245

Preface The Iraqi Federal Investment Law came into being in 2006. This is the first time that Iraq has adopted a proper framework for the promotion and encouragement of investment in the country. The adoption of this Law came after the fall of the Ba’ath regime in 2003, and marks the policy of free market economy adopted by the government of the New Iraq. Foreign investment was forbidden under the Ba’ath regime, but the new Law has opened the door for foreign investors, with the aim of promoting the badly needed social and economic development of the country. Iraq has suffered considerably from the consequences of three wars and more than 13 years of sanctions imposed by the Security Council on Iraq, after the invasion of Kuwait in 1990. Moreover, there was terrible destruction of the infrastructure, after the fall of the Ba’ath regime in 2003. The latter had neglected the need for the promotion of investment in all sectors of the Iraqi economy. This work is intended to provide some help and guidance to would-be investors, their legal advisers, as well as practitioners who may be called upon to provide legal advice on investment in Iraq. It provides some analysis, explanation, and interpretation of the Federal Investment Law, which may be of some help, it is hoped, in informing would-be investors of the available incentives, guarantees, the protection of their rights, and the climate of investment in Iraq, as well as the ample opportunities for investment in all sectors of the Iraqi economy. The Iraqi Prime Minister, Nouri Al-Maliki,1 and two Vice-Presidents have publicly invited foreign investors to come and invest in Iraq, pointing out the huge opportunities and the incentives and protection provided by the Federal Investment Law.

1

See for example, “Maliki appeals to Germany to increase investment in Iraq”, the International Herald Tribune, 23 July 2008, p. 5.

xvi

Preface

The work also covers the law on investment adopted by the Iraqi Kurdistan Region, which is known as the Investment Law in the Iraqi Kurdistan Region. The author has, himself, translated the original Arabic text of the Federal Investment Law into English, while the latter Law was available in English, though with some minor translation defects. It is hoped that with the recent and very significant improvement in the security situation in Iraq, more investors, foreign as well as Iraqi, will be encouraged to take part in the economic and social development of the country. In the preparation of this work, I have been very much supported, encouraged and helped by my wife Suzie, who has been the chief editor for this work. Therefore, I would like to extend to her my deep appreciation and gratitude. I would also like to thank my daughter Yasmin and my son Hamoudi, the former typed the first draft of this work, and suffered throughout the process from my bad handwriting, and the latter guided me through the computer intricacies. Sami Shubber Commugny, Switzerland 18 February 2008

List of Cases Champion Trading Co. v. Arab Republic of Egypt ................... 99 Corfu Channel case ................................................................ 156 Maritime Delimitation between Bahrain and Qatar ............... 156 Mavrommatis case ................................................................. 131, 140 Monetary Gold case ............................................................... 156 Nottebohm case ...................................................................... 66 Nuclear Tests case ................................................................... 92 South-West Africa case ........................................................... 124–5

List of Abbreviations AJIL BIT CPA FAO FDI ICC ICJ ICSID ILO IMF IPC NIC PCA PCIJ TPC UN UNCITRAL UNCTAD WB WHO

American Journal of International Law Bilateral Investment Treaties Coalition Provisional Authority Food and Agriculture Organization of the United Nations Foreign Direct Investment International Chamber of Commerce International Court of Justice International Centre for the Settlement of Investment Disputes International Labour Organization International Monetary Fund Iraqi Petroleum Company National Investment Commission Permanent Court of Arbitration Permanent Court of International Justice Turkish Petroleum Company United Nations United Nations Commission on International Trade Law United Nations Conference on Trade and Development World Bank World Health Organization

Introduction Investment is an economic activity aimed at securing a profit for the investor. It goes back a long time in history. It has been said that: Foreign investment in some sense likely dates back to the days of the pharaohs in Egypt with investment being made by the state itself or by merchants from Egypt, Phoenicia and Greece in other countries. The Egyptians, for example, mined tin (necessary for forging bronze) and other metals beyond their borders.1

While investment provides profit to the investor, it can also provide some benefits for the State in whose territory the investment is made. It has been stated that: Foreign investment . . . can provide a way to jump start some economies, a short cut to higher wages, an improved infrastructure, and better schools and hospitals. . . . It can be a motivational force. At a minimum, it can build, maintain and operate important parts of a country’s infrastructure or introduce complex technology to a country lacking it.2

In modern times, foreign investment has become very widespread and covers many economic activities. According to the International Monetary Fund (IMF), as of the end of 2001, the book value of the world’s foreign direct investment (FDI) stood at US$ 6.8 trillion.3 Moreover, it is said that foreign affiliates employ about 54 million people, and their sales have amounted to almost US$ 19 trillion.4 Developing countries

1

2 3

4

See R. Doak Bishop, James Crawford and W. Michael Reisman, Foreign Investment Disputes-Cases, Materials and commentary, (hereinafter referred to as “Foreign Investment Disputes”), 2005, p. 2. Ibid., pp. 7–8. See IMF, Foreign Investment Trends and Statistics, Statistics Department 2003, quoted in Foreign Investment Disputes, p. 8. Ibid.

2

Introduction

are, on the whole, the capital-importing countries and the recipients of foreign investment, and most of them now welcome and invite foreign investment. They have enacted liberal laws and regulations concerning investment, with a view to encouraging foreign investment in their territories.5 It has been said that beginning in the 1980s a . . . favourable attitude towards FDI began to emerge in developing countries. Many were unable to repay their loans amidst the international debt crisis and began to consider FDI as a means of financing their development. The international economy had also began to shift away from natural resources exploitation to less politically sensitive investments in manufacturing, services and high technology. In reaction to these and other changes, developing countries independently began to liberalise their domestic- investment policies. . . .6

Iraq joined this trend in 2006, after the fall of the Ba’ath regime in 2003. However, no legislation existed in Iraq for the regulation of investment, whether for Iraqi or non-Iraqi investors, since the country became independent in 1932. Nevertheless, a weak attempt to legislate on the subject was made in 2002.7 On the other hand, there was some investment in Iraq in the field of oil, even before it became independent. A concession agreement was concluded between the Iraqi Government and the Turkish Petroleum Company (TPC), in March 1925, which after 1929 became the Iraqi Petroleum Company (IPC).8 In March 1931, an agreement was concluded between Iraq and the IPC, whereby the IPC was granted an exclusive concession over the whole of north-eastern Iraq, as well as tax exemption, in exchange for annual payments of substantial sums in gold

5

6

7 8

See Dr. Fath El Rahman Abdalla El Sheikh, The Legal Regime of Foreign Private Investment in Sudan and Saudi Arabia (hereinafter referred to as “The Legal Regime of Foreign Investment”), 2003, p. 5. See Nicholas DiMascio and Joost Pauwelyn “Non-Discrimination in Trade and Investment Treaties: Worlds Apart or two Sides of the Same Coin?” 102 American Journal of International Law (hereinafter AJIL), 2008, p. 53. See below p. 4. See Charles Tripp, A History of Iraq, 2000, p. 60. Iraq was a mandated territory (A Mandate), during the League of Nations era, and the United Kingdom was designated as the Administering Authority on 20 April 1920.

Introduction

3

until exports began, some of which would later be recovered from royalty payments.9

On 14 July 1958, a coup d’état, led by General Abdel Karim Qassim, took place and he became the Prime Minister. The monarchy was then abolished and a republic was established. In December 1961, the Iraqi government proclaimed Law 80, under which it took back roughly 99 per cent of the IPC’s concessionary area, without compensation.10 General Qassim was overthrown by a coup d’état on 8 February 1963, and after several political changes, the Ba’ath Party came to power through a coup d’état, on 17 July 1968. But there was no change in the situation, so far as the question of legislation for investment is concerned. It was not until 1972 that the Ba’ath government nationalised the property of the IPC.11 However, in February 1973, the Iraqi government reached a settlement with the IPC for compensation for the nationalised property of the latter.12 The prevailing political climate and conditions put an end to any foreign investment in the country. Indeed, in 1980, the Iraqi authorities took a decision to prohibit foreign investment in the capital of companies in the private sector.13 During the Ba’ath regime, Iraq was involved in three wars, namely the Iraq-Iran War, 1980–1988, the invasion of Kuwait in 1990, and the First Gulf War, in 1991. At the end of the Iraq-Iran War, the economic situation has been aptly described by an eminent economist, as follows When the Iran-Iraq War ended, Iraq faced a new economic reality. This consisted of heavy indebtedness, a significantly depreciated currency and high inflation. In addition, Iraq had to contend with an array of war-related social problems, including the large numbers of Iraqis who were disabled, widowed and orphaned.14

9 10 11 12 13 14

See ibid., p. 71. Ibid., p. 166. Ibid., p. 208. Ibid. See Abd El-Fatah Mourad, Encyclopaedia of Investment, p. 581. See Dr. Sinan Al-Shabibi: “Prospects for Iraq’s Economy: Facing the New Reality”, The Future of Iraq, The Middle East Institute, 1997, p. 58. The article is reproduced in the United Nations Conference on Trade and Development (UNCTAD), No. 79.

4

Introduction

In 1980, Iraq’s reserves were estimated to be about US$ 36.5 billion. By the end of the Iraq-Iran War, Iraq’s debt to the Arab Gulf States amounted to about US$ 40 billion, and its debts to European countries amounted to about US$ 46 billion.15 On the other hand, the invasion of Kuwait by Iraq, on 2 August 1990, led the United Nations (UN) Security Council to impose, on 6 August 1990, comprehensive economic sanctions against Iraq under Chapter VII of the UN Charter.16 The Security Council prohibited all States, inter alia, from making available to Iraq any funds, or any other financial or economic resources.17 These sanctions lasted until 2003, when, after the fall of the Ba’ath regime, they were removed by the Security Council on 22 May 2003.18 Those wars and the UN sanctions have contributed to the destruction of the Iraqi economy, and did not create the right climate to encourage investment in Iraq. Indeed, the Ba’ath regime was hostile to foreign investment, in general. However, in 2002, the Ba’ath government adopted a new law on investment, in a very weak attempt to encourage foreign investment in the country. The law was entitled “The Arab Investment Law”, under which only Arab foreign investment was allowed in a limited range of activities.19 The Arab Investment Law has been annulled by the Iraqi Federal Investment Law of 2006.20 After the fall of the Ba’ath regime on 9 April 2003, the Administrator of the Coalition Provisional Authority (CPA),21 Mr. Paul Bremer issued

15 16

17 18 19 20 21

Dr. Al-Shabibi is a former senior economist at UNCTAD, and presently the Governor of the Iraqi Central Bank. See ibid., p. 57. See Security Council Resolution 661 (1990), UN Doc. S/RES/661 (1990), 6 August 1990. All the Security Council resolutions on the Iraq-Kuwait crisis are to be found in The Kuwait Crisis: Basic Documents (1991), Cambridge International Documents Series, Vol. I, and The United Nations and the Iraq-Kuwait Conflict 1990–1996, United Nations Department of Public Information, New York (1996). See ibid., operative paras. 3 and 4. See Security Council Resolution 1483 (2000), 22 May 2003, operative para. 10. See the UN/WB – The Investment Climate, p. 3, para. 8, note 6. See Art. 35 of the Federal Investment Law. The UN Security Council recognized the specific authorities, responsibilities, and obligations of the United Kingdom and the United States of America as the occupy-

Introduction

5

Order No. 39, on 19 September 2003, entitled “Foreign Investment”.22 Order No. 39 was intended to improve the conditions of life, technical skills, and opportunities for all Iraqis and to fight unemployment. . . .23

It was also envisaged to promote foreign investment in Iraq, in view of the need for the development of Iraq and its transition from a non-transparent centrally planned economy to a market economy characterised by sustainable economic growth through the establishment of a dynamic private sector, and the need to enact institutional and legal reforms to give it effect.24

The Federal Investment Law of 2006 has annulled that Order.25 Another very important legal development in the area of investment occurred in 2005, when the new Iraqi Constitution was adopted. It contains a provision intended to promote investment in the country. It provides that

22

23 24 25

ing powers in Iraq; the Council also called on all concerned to comply fully with their obligations under international law, including in particular the Geneva Conventions of 1949 and the Hague Regulations of 1907. See thirteenth preambular paragraph and operative paragraph 5 of Resolution 1483 (2003), 22 May 2003. UN Doc. S/RES/1483 (2003). The occupation came to an end on 30 June 2004, the CPA was abolished and Iraq’s full sovereignty was restored. See operative para. 2 of Security Council Resolution 1546 (2004), 8 June 2004. However, the multinational force remained in Iraq, with the consent of the Iraqi government. Ibid., operative para. 9. The multinational force was authorized by the Security Council to take all necessary measures to contribute to the maintenance of security and stability in Iraq. The mandate of the multinational force is to be reviewed by the Security Council at the request of the Iraqi government. See ibid., operative para. 10, and Security Council Resolution 1637 (2005), 8 November 2005, operative paras. 1 and 2. See CPA/ORD/19 September 2003/39 (hereinafter referred to as “CPA Order 2003”). The text of the Order is to be found in the Iraqi Official Gazette, Vol. 44, No. (3980), 2004, p. 27. Ibid., 4th preambular para. Ibid., 8th preambular para. See Art. 34 of the Federal Investment Law.

6

Introduction

the State guarantees the encouragement of investment in the various sectors, which shall be regulated by law.26

Furthermore, in 2005, the newly-established Iraqi Government began to consider the various aspects of developing the Iraqi economy, and the social development of the country. One of the areas relevant to this development was the encouragement of investment and the creation of the right climate for it. It was not until 2006 that a new law on investment was drafted and debated by the Iraqi House of Representatives and approved by them. It was entitled “The Investment Law” (hereinafter referred to as “the Federal Investment Law”). It was then approved by the Presidential Council, as required by the Iraqi Constitution,27 and entered into force after its publication in the Official Gazette on 17 January 2007,28 as required by its Article 36. It may be worthwhile mentioning that the Iraqi legal system is a civil law system, and is generally based on the Egyptian legal system, which, in turn, is based on the French legal system. The various parts of the Federal Investment Law shall be dealt with as follows: first, the objectives of the law shall be treated, then the areas of investment. This will be followed by the licensing of investment projects. The incentives and guarantees to investors will be treated, followed by the obligations of the investor. Next the sanctions against the investment will be treated, followed by the settlement of disputes. The regulations and instructions necessary for the implementation of the Federal Investment Law will be surveyed. And finally, some conclusions will be formulated. The region of Iraqi Kurdistan29 adopted in July 2006 a law entitled “Investment Law in the Iraqi Kurdistan Region” (hereinafter referred to as

26 27

28 29

See Art. 26 of the Iraqi Constitution. See Art. 138, para. 5 (a), of the Constitution. The Presidential Council consists of the President of the Republic and the two Vice-Presidents, elected by the House of Representatives by a two-thirds majority. Ibid., para. 1 (a). See Official Gazette, No. 4031, 17 January 2007, p. 1427. Under the new Iraqi Constitution, the country consists of the capital Baghdad and regions and decentralised governorates, and local administrations. However, the only existing region, at the time of writing, is the Kurdistan Region. See Arts. 116 and 117 of the Constitution.

Introduction

7

“Kurdistan Investment Law”), which has come into force after its publication in the Kurdistan Gazette.30 Reference will be made to the latter Law, as well as to some other laws in the region, where appropriate.

30

The English text of the Kurdistan Investment Law is available at http://www.buyusa .gov/iraq/en/investmentlawkurdistan.html.

Chapter I The Objectives of the Federal Investment Law 1. Introduction The objectives of the Federal Investment Law cover a number of areas and disciplines, ranging from the encouragement of investment and the transfer of technology, to the expansion of exports and the improvement of the balance of trade of Iraq. These objectives are laid down in Article 2 of the Federal Investment Law and are also mentioned in the Reasons for Enacting the Law, mentioned at the end of it.1 The objectives will be dealt with as follows: first, the promotion of investment and the transfer of technology, second, the encouragement of investors, third the development of human resources, fourth, the protection of the rights and property of investors, fifth, the expansion of Iraqi exports and the enhancement of the balance of payments and the balance of trade, and finally some concluding remarks will be attempted.

2. The promotion of investment and the transfer of technology The policy of the New Iraq is to encourage investment, for both the Iraqi and foreign investors, and to create an appropriate climate therefor. This policy is declared in the Iraqi Constitution of 2005, Article 26 thereof provides as follows:

1

It is a legislative practice in Iraq to put the justifications for the legislation at the end of the piece of legislation, rather than at the beginning thereof, as is the case in the legislative practice in the UK.

10

Chapter I

The State guarantees the encouragement of investment in the various sectors, which shall be regulated by law.

The Federal Investment Law gives effect to the Constitution’s injunction. Article 2 of the Law reads as follows: The objectives of this Law are as follows: 1. the encouragement of investment and the transfer of modern technology, in order to take part in the process of the development and growth of Iraq, as well as the enlargement of its bases in industrial production and services and their diversification.

Accordingly, the Federal Investment Law aims at the promotion of investment and the transfer of modern technologies to Iraq. These two elements are envisaged, it would appear, as a vehicle for the economic and social development of the country, in both the industrial and services sectors. Moreover, the objective covers the diversification of the industrial and services sectors, so that the country does not rely on limited resources alone, such as oil, for its economic and social development. The same aim is expressed in the Reasons for the Enactment of the Law. And the encouragement of investment in Iraq is directed at both foreign and Iraqi investors. Furthermore, the encouragement of foreign investment constitutes a complete departure from the previous policies of the former regime. Until 2003, foreign investment was not allowed in Iraq, except for Arab investors, as has been mentioned earlier.2 As a UN/World Bank Assessment Team said in October 2003: During the period of sanctions, little private sector investment was possible due to restrictive investment rules and virtually no formal FDI.3

This objective is fully justified, for Iraq badly needs investment and new technologies, in view of the bad economic situation that prevailed there

2 3

See above p. 14. See Working Paper, Iraq, United Nations/World Bank Joint Needs Assessment – The Investment Climate, October 2003, (hereinafter referred to as “UN/WB – The Investment Climate”) p. 3, para. 8.

The Objectives of the Federal Investment Law

11

for a long time. Thanks to the terrible leadership and adventurous policies followed by the Ba’ath regime, the Iraqi economy has suffered from three wars and comprehensive UN sanctions, with a negative effect on investment. As Dr. Fath El Rahman El Shaikh put it: . . . There have been certain events which have left a negative impact on the investment climate in the Middle East, the most important of which were the two Gulf wars, one between Iraq and Iran in the 1980s, and the other between Iraq and the allied forces resulting from the Iraqi invasion of Kuwait in 1990. These two wars had negative effects on the investment climate in terms of instability and drainage of financial resources diverted to finance the wars. . . .4

Therefore, there was a need to remedy the situation and to create the right climate for the promotion of investment in Iraq. As the World Bank/UN Assessment Team stated: . . . The immediate objective for the [investment] sector is to generate productive investment and turn around the decades-long situation of virtually no productive investment in the private sector. The keys to this, once the security situation is resolved, are: (i) getting private capital flowing. . . .5

In addition, there was tremendous devastation and destruction of infrastructure, as well as looting of many ministries, public institutions, hospitals and so on, after the fall of the Ba’ath regime on 9 April 2003. Consequently, there is now a huge need, and opportunity, for investment, be it foreign or Iraqi, in all sectors of the economy, such as agriculture, telecommunications, water, electricity, health care, and tourism, to name but a few. Moreover, whatever technology existed prior to April 2003 was out-of-date and needed replacement, because of neglect, the wars and the UN sanctions just mentioned. Companies from Australia, Canada, Europe and the USA, to mention just a few, possess great technical advances and expertise in many sectors, such as industry, agriculture, water supply, telecommunications and so on. If these companies invest in Iraq, this will help to transfer some of the know-how and expertise to Iraqis, which

4 5

See the Legal Regime of Foreign Investment, pp. 6–7. See the UN/WB – The Investment Climate, p. 1, para. 4.

12

Chapter I

is badly needed in all the economic sectors. Moreover, such investment would certainly help the economic development of Iraq and enlarge its industrial and service sectors and their diversification. And this is what the Federal Investment Law aims to achieve. In order to achieve its objectives of encouraging investment and the transfer of technology, the Federal Investment Law offers very generous incentives, facilities and guarantees, such as exemption from taxation and fees, non-nationalisation of investment projects and free repatriation of capital and benefits, to give but a few examples.6 It is not unreasonable to say that these privileges, guarantees, and facilities amount to a significant measure of encouraging and promoting investment in Iraq. Therefore, investors, whether foreign or Iraqis, should feel encouraged to invest in Iraq in many of the economic sectors, be it industry, electricity, education, health care, infrastructure and so on. In doing so, the investors will be contributing to Iraq’s economic and social development, as well as making financial gains. So far as the Kurdistan Investment Law is concerned, it does not contain a provision, as such, dealing specifically with its objectives. However, in the part of the Law dealing with the justifications for the legislation, it states this law was issued with the view to creating a climate promoting investment in the Iraqi Kurdistan region . . . in a manner that contributes to the economic development process. . . .7

It may be interesting to point out that the CPA Order 2003 notes that facilitating foreign investment will help to develop infrastructure, foster the growth of Iraqi business, . . . result in the introduction of new technology into Iraq and promote the transfer of knowledge and skills to Iraqis.8

6 7 8

For details of these privileges and guarantees, see below Chapters IV and V. See Kurdistan Investment Law, Necessitating Reasons. See CPA Order 2003, 5th preambular paragraph.


13

3. Encouragement of the Iraqi and foreign private investor The second objective of the Federal Investment Law is the encouragement of the private sector, foreign and Iraqi, to invest in Iraq. This is provided for in Article 2, paragraph 2, of the Law, which reads as follows: The objectives of this Law are: — 2. the encouragement of the Iraqi and foreign private sectors to invest in Iraq, through the provision of the necessary facilities for the establishment of investment projects, and the enhancement of the competitive capacity of the projects covered by this Law, in local and foreign markets.

The first point to note is that this objective is directed at the private sector, both foreign and Iraqi. Furthermore, while the first objective is general, the second is specific and appealing to the private sector, in the area of investment projects. However, it should be stated that the Federal Investment Law does not define the term “investment projects”, but it does define the terms “investment” and “project” in its Article 1. It also defines in the same provision the terms “foreign investor” and “Iraqi investor”. Article 1, paragraph (n), defines the term “investment” as “the employment of funds in any economic activity or project, which brings legitimate benefit to the country”. The term “project” is defined as “any economic activity covered by the provisions of this Law”. (Ibid., paragraph (g)). The term “foreign investor” is defined as “a person who is not an Iraqi national, if he is a natural person, and if a juridical person, that person is registered in a foreign country”. (Ibid., paragraph (i)). The term “Iraqi investor” is defined as “a person who is an Iraqi national, if he is a natural person, and if a juridical person, that person is registered in Iraq”. (Ibid., paragraph (j)). Accordingly, individuals and juridical persons, be they companies or other juridical persons, whether they are Iraqis or non-Iraqis, are covered by the Federal Investment Law, and, as such, are entitled to all the privileges, exemptions and facilities provided under the Law, if they invest in any economic activity in Iraq. What is required is that the foreign investor has the nationality of another State, whatever that nationality may be, and the registration of the juridical person in another State, presumably in

14

Chapter I

conformity with the laws and regulations of that State. Given the prevailing political situation in the Middle East, Israeli nationals and companies registered in Israel will not be included in these categories. Article 2, paragraph 2, of the Federal Investment Law speaks of the extension of the “necessary facilities” for investment projects. However these facilities are not described in the provision. Therefore, it would be reasonable to suggest that they must include the incentives and tax-exemptions, as well as other facilities provided under the Federal Investment Law.9 For these facilities are necessary to encourage and promote investment in the country, be it by Iraqi or non-Iraqi private investors. Furthermore, the second objective aims at the enhancement of the competitive capacity of investment projects in local and foreign markets. This aim could be achieved by having projects producing goods or services of such high quality, and at such reasonable prices, that they can compete with similar products or services, in the Iraqi markets. And if such products or services are exported outside Iraq, then they should compete with similar products or services in those foreign markets. So far as the Kurdistan Investment Law is concerned, it generally aims at the encouragement of Iraqi and foreign private investors, though this is not clearly stated as an objective, as such, of the Law.10 Further, the CPA Order 2003 also aimed at the promoting of foreign investment in Iraq, through the protection of the rights and property of foreign investors.11

4. The development of human resources The Federal Investment Law aims at the development of the human resources in Iraq, according to the needs of the market. It also aims at providing the opportunity of employment for Iraqis. This is laid down in Article 2, paragraph 3, which reads as follows:

9 10 11

For the details of incentives, see below Chapter IV. See the Kurdish Investment Law, Necessitating Reasons. See Sec. 2 of the CPA Order 2003.


15

The objectives of this Law are as follows: — 3. the development of human resources, according to the market needs, and the provision of employment opportunities for Iraqis.

So far as the development of human resources is concerned, this can be achieved through the training of Iraqis on new technologies, and the enhancing of their skills, by investors, particularly foreign investors, who possess the know-how and advanced technology. These will be needed for the operation of investment projects and for the economic and social development of the country. It is common knowledge that Iraqis have had no opportunities, nor any exposure, for decades, to new technologies in industry, scientific fields, and information technology, to give but a few examples. This state of affairs was mainly due to the then prevailing political climate, the wars and the UN sanctions. Therefore, the drafters of the Federal Investment Law consider investment in Iraq as a means of developing Iraqi skills and capacities in the various economic fields. It is to be noted that the provision requires that the extent of the development of human resources be linked to the needs of the investment market. This is probably intended to avoid too much surplus of skilled manpower. Moreover, the drafters aimed at providing the possibility of creating jobs for Iraqis through foreign and Iraqi investments, in view of the high rate of unemployment prevailing in Iraq. The Economist says that the official unemployment rate [in Iraq] is 25–40%; in reality, it may be a lot higher12

Therefore, a foreign investor building a private hospital in Baghdad13 will certainly employ labourers and architects for the construction of the hospital, and will also need doctors, nurses, administrators and so on to run the hospital after its completion. Thus, employment opportunities will have resulted from this investment project. As regards the Kurdistan Investment Law, it contains no reference to the development of human resources, nor to the opportunities of employment 12 13

See The Economist, June 14th–20th 2008, p. 31. Art. 31, para. 2, of the Iraqi Constitution allows the establishment of private hospitals, health care centres and institutions.

16

Chapter I

for Iraqis in the region, through investment, in any of its provisions. However, there is a general and vague reference to the “development process” arising from investment, mentioned in the last part of the Law. But from the overall aim of benefiting the people of the Iraqi Kurdistan Region through investment, it could be inferred from the Law that it covers the topics of the development of human resources and the provision of employment opportunities in the Region. For it provides facilities and incentives aimed at creating a suitable climate for investment, which would result in creating jobs and develop the skills of those employed on investment projects.14 By contrast, the CPA Order 2003 speaks, expressly, of foreign investment creating jobs and transferring knowledge and skills to Iraqis.15

5. Protection of the rights and property of investors The protection of the rights and property of investors is the fourth objective of the Federal Investment Law. This is laid down in its Article 2, paragraph 4, which reads as follows: The objectives of this Law are as follows: — 4. the protection of the rights and property of the investors.

This is a very important objective, for it provides a good incentive to investors. This objective is to be achieved through the protection of the investment project, its capital, machinery, equipment, vehicles and so on, as well as any intellectual rights relating to the project. For example, Article 11, paragraph 1, of the Federal Investment Law gives the investor the right, inter alia, to repatriate his capital and its benefits, outside Iraq. Furthermore, Article 12, paragraph 3, gives the investor the assurance that his investment projects will not be nationalized, nor expropriated.16 This

14 15 16

See Kurdistan Investment Law, Necessitating Reasons. See CPA Order 2003, 5th preambular paragraph. For details of these privileges, guarantees and facilities, see below Chapters IV and V.


17

assurance, it is submitted, constitutes a very important protection for the investor’s rights and property. The protection of investors’ rights and property under the Federal Investment Law is a reasonable and important measure for the promotion of economic investment in Iraq, in that it helps to create an appropriate investment climate. It also constitutes a significant encouragement to the foreign investor to invest in the country. Thus, foreign capital and know-how would be attracted to the country, with advantages for both the investor and Iraq. The investor is able to invest, make profit, both of which can be repatriated, with the assurance that his rights and property are protected by the laws. At the same time, the investment in question will provide work for Iraqis, economic and social development and the acquisition of new skills for Iraqis. It has been said that from the perspective of foreign investors, the most important aspects of any potential investment are financial (i.e., the potential to earn a reasonable profit) and legal (i.e., the ability to protect the corpus of the investment and its profit-making potential from confiscation, either directly or through unreasonable interference). Prudent investors will not risk substantial capital in a foreign enterprise unless the financial prospects are promising and the legal structure is sufficient to protect the investment. These elements are the sine qua non of a prudent investment.17

The Federal Investment Law, it is submitted, offers these elements to the investor. So far as the Kurdistan Investment Law is concerned, it does not contain a provision similar to Article 2, Paragraph 4, of the Federal Investment Law. On the other hand, it contains provisions providing certain rights and their protection to investors, which are similar to those provided under the latter.18 Therefore, it could be argued that the Kurdistan Investment Law also aims at the protection of the rights and property of the investor, though this is not expressly stated in it. It may be interesting to point out that the latter Law contains a provision expressly providing for the protection of the secrecy of technical and economic information relating to investment projects, and makes any divulgence thereof a

17 18

See Foreign Investment Disputes, p. 8. See below Chapter IV.

18

Chapter I

punishable offence.19 Of course, this point is covered under the Federal Investment Law, it being part of the investor’s rights. It may be worth mentioning that under the CPA Order 2003, the rights and property of foreign investors were also protected.20

6. Expansion of Iraqi exports and the enhancement of Iraqi balance of payments and balance of trade The Federal Investment Law aims at the expansion of Iraqi exports and the strengthening of its balance of payments and balance of trade. This is laid down in Article 2, paragraph 5, which reads: The objectives of this Law are as follows: — 5. the expansion of exports and the enhancement of Iraq’s balance of payments and balance of trade.

The term “balance of payments” means “the difference in value between payments into and out of a country”21 while the term “balance of trade” means “the difference in value between imports and exports.”22 Therefore, the overall objective is to increase Iraqi exports, get more money into Iraq than out of it, and increase the value of exports through investment in the country. For example, if the industrial production of certain goods is increased because of investment, be it Iraqi or foreign, in Iraq, beyond the needs of the country, the surplus products could then be exported outside the country. Such exports would result in gaining foreign currency and benefits for the country, thus improving the balance of payments and the balance of trade. If investment in a particular economic sector, such as agriculture, flourishes, shall we say in the development of palm trees, which has suffered from wars and negligence for decades, the improvement of the production of dates would enable Iraq to export more dates and thus

19 20 21 22

See Art. 7, para. 9, of the Kurdistan Investment Law. See Sec. 2 of CPA Order no. 39. See The Concise Oxford Dictionary, 9th edn. (1995), p. 96. Ibid.


19

expand Iraqi exports and bring in revenues from abroad. Of course, this objective has to be read in conjunction with all the privileges, exemptions from taxation and facilities provided under the Federal Investment Law, for the purpose of promoting investment in the country. It should be noted that this objective is not relevant to the Kurdistan Investment Law, in that matters of balance of payments and balance of trade belong to the federal authorities, though the expansion of exports could take place at the regional level. This is probably the reason why the Kurdistan Investment Law is silent on the subject. On the other hand, the CPA Order 2003 refers to the growth of Iraqi business, which in some sense, could cover exports.23

7. Conclusion The objectives of the Federal Investment Law, like those of any piece of legislation, are intended to show what the drafters of the Law hope to achieve from the legislation in question. These objectives are reasonable, and cover areas of importance and interest to both the investor and the country. It is therefore fair and reasonable to say that they are intended to create an encouraging climate for investment in Iraq. They show the investor, Iraqi and non-Iraqi, that he is welcome to invest in Iraq, and that his interests, rights and property will be protected by the law. Another relevant and useful feature of the objectives of the Federal Investment Law is that they can be used as a tool in the interpretation of its provisions. In accordance with Article 31, paragraph 1, of the Vienna Convention on the Law of Treaties, a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

23

See 5th preambular paragraph of CPA Order 2003.

20

Chapter I

While the Federal Investment Law is not a treaty, there is no reason why the principle of interpretation contained in Article 31, paragraph 1, of the Vienna Convention could not be applied by analogy to it. So far as the Kurdistan Investment Law is concerned, it may be wondered why it does not contain a provision on the objectives of the Law. After all, it follows the scheme of the Federal Investment Law. The drafters of the Kurdistan Investment Law appear to be content to make a general reference to areas expressly mentioned as objectives under the Federal Investment Law. It would have been better to have had a provision dealing expressly with the objectives of the law.

Chapter II The Areas of Investment 1. Introduction The Federal Investment Law does not define the areas of economic activities where investment is possible, though it mentions certain investment projects, such as hotels, private hospitals and educational institutions, but within the context of tax-exemption.1 Nevertheless, the scope of investment under it is very wide. The Federal Investment Law contains a general provision, which subjects all areas of investment to its provisions, with an express exclusion of certain sectors. We shall now survey this area of the Law as follows: first, the scope of investment, second, the definition of the term “investment”, followed by ownership of land, then investment projects, and finally some concluding remarks.

2. The scope of investment The Federal Investment Law provides a very wide scope of investment in Iraq. It allows investment in any economic sector and activity, and in any part of the country, except for oil and gas extraction and production, and banking and insurance sectors. This is laid down in Article 29, which reads as follows: All sectors of investment are subject to the provisions of this Law, with the exception of:

1

See Art. 17, para. 4, of the Federal Investment Law.

22

Chapter II

1. investment in the sectors of oil and gas extraction and production;2 2. investment in the banking3 and insurance sectors.4

Accordingly, it is possible to invest in any project and in any economic sector in Iraq, except those sectors expressly excluded by the provision, namely, the oil and gas extraction and production, banking and insurance. It is to be noted that, insofar as the oil and gas sectors are concerned, the exclusion applies to the “extraction and production” areas. Therefore, it is possible to invest in services, marketing and other commercial activities, which are not considered as extraction and production. For example, it is permissible under the Federal Investment Law to invest in the building of an oil refinery in Baghdad, or in another governorate. In addition, it is open to investors to invest in industrial projects, agriculture, electricity, telecommunications, shares and equities and so on, without any limitations except those relating to the administrative requirements under the Federal Investment Law i.e., the application for a license, and the requirements concerning the application for a license.5 By contrast, the Kurdistan Investment Law enumerates specifically the sectors where investment is possible. Article 2 thereof lists eleven sectors, which include manufacturing industries, electricity, agriculture, hotels, banks, insurance companies and so on. This writer prefers the approach followed by the Kurdistan Investment Law, for it gives the investor a clear picture of the sectors available for investment, instead of a general reference to them, as is the case under the Federal Investment Law. However, Article 29 of the latter, in making a general reference to “all sectors of investment”, it could well be argued, covers all those mentioned specifically by the Kurdistan Investment Law and more. It is to be noted that the scope of the latter is wider than that of the Federal Investment Law, in that it covers banking, insurance, and, by implication, exploration and production of oil and gas.

2 3

4

5

A draft law on oil and gas is under consideration by the Iraqi House of Representatives. The banking sector is regulated by the Banking Law 2003, and the Central Bank Law and Administrative Instructions of 2004. The insurance sector is regulated by The Law Regulating Insurance Activities of 2005, Order No. 10, issued by the Council of Ministers. See Official Gazette, No. 3995, 3 March 2005, pp. 1–28. For details, see below Chapter III.

The Areas of Investment

23

This last sector appears to be covered by Article 2, paragraph 11, of the Kurdistan Investment Law, which reads: The provisions of this Law shall be applied to the projects that are approved by the [Kurdistan Investment] Board in any of the following sectors: — 11. any project in any other sector that the [Supreme Investment] Council decides to include under the provisions of this Law.

The wording of this provision is general and vague, therefore it is capable of being interpreted in two ways: First, had the drafters of the Kurdish Investment Law intended to include the oil and gas sectors in the provision, they would have done so. After all, the sectors enumerated in the ten paragraphs have covered all possible investment sectors, including the banking and insurance sectors. According to this interpretation, no conflict with the Federal Investment Law is likely to arise. The second interpretation may be to the effect that the Supreme Investment Council of the Kurdistan Region could approve investment sectors not specifically mentioned in the preceding ten sectors. It is to be noted that those ten sectors do not include the oil and gas sectors. Therefore, it could be argued that the Supreme Investment Council could approve investment projects in the field of oil extraction and production. This interpretation is based on the wording of the provision which speaks of “any project in any other sector”, that is to say sectors other than those mentioned in the ten preceding sectors. Those sectors do not include oil and gas sectors at all. Therefore, it could be argued that investment projects in the oil and gas sectors could be approved by the Supreme Investment Council. If so, then there would be a serious conflict between the Federal Investment Law and the Kurdistan Investment Law, in that while the former expressly excludes its application to the sectors of oil and gas extraction and production, the latter applies, by implication, to those sectors. So how is this conflict to be resolved? Let us have a look at the relevant provisions of the Federal Investment Law. It is a piece of federal legislation which appears to be intended to apply throughout Iraq. Furthermore, it would appear that it expressly provides for its supremacy over any other laws in the country, in case of conflict. This is clearly stated in Article 33 of the Federal Investment Law, which reads as follows:

24

Chapter II

any provision of a law which contradicts the provisions of this Law shall not be valid.

Article 2, paragraph 11, of the Kurdish Investment Law appears to permit investment in the sectors of oil and gas in extraction and production, whereas the Federal Investment Law excludes those sectors from the scope of its application. Thus, a conflict between the two laws arises, with certain consequences. For example, if the Kurdish Supreme Investment Council concludes a contract with an oil company for the extraction of oil in any part of the Kurdistan Region, this contract will be based on the Kurdish Investment Law, which contradicts the Federal Investment Law. Therefore, according to Article 33 of the latter, the legal basis of that contract cannot be valid; consequently, the contract in question should be considered as an invalid contract. On the other hand, let us have a look at the Iraqi Constitution, in order to see if it can provide a legal basis for the wide power given to the Kurdistan Supreme Investment Council under the Kurdistan Investment Law. According to Article 110, paragraph 7, of the Iraqi Constitution, the federal authorities have exclusive jurisdiction in several areas, including the investment budget. It reads as follows: The federal authorities shall have exclusive jurisdiction in the following: — 5. the preparation of the general and investment budget.

On the other hand, Article 115 of the Constitution provides that any matter not stated to fall within the exclusive jurisdiction of the federal authorities shall belong to the jurisdiction of the regions and governorates which are not part of a region. In the areas of joint jurisdiction between the federal government and the region, in case of conflict between a federal law and a regional or a governorate law, priority shall be given to the law of the region and governorates which are not part of a region.

It may be asked: does the conflict between the Federal Investment Law and the Kurdish Investment Law fall within the orbit of Article 115 of the Iraqi Constitution? The position is not clear, for the regulation of investment in the country is not specifically mentioned as falling within the exclusive jurisdiction of the federal authorities. However, there is a


25

reference to the proposal of an investment budget, as falling within the exclusive jurisdiction of the federal authorities.6 Moreover, the Federal Investment Law was adopted by the federal legislative authority, which clearly intended it not to be contradicted by any other law in the country. In addition, the Federal Investment Law contains provisions which regulate matters which belong to the jurisdiction of the regional and governorate authorities. For example, Article 5 of the said Law deals with the establishment and composition of the regional investment commissions, and the qualifications of their presidents and members. It also requires these Commissions to adopt investment plans, which are not incompatible with the federal investment policies. Therefore, the Kurdistan Investment Law, which appears to permit investment in the sectors of extraction and production of oil and gas, would be in conflict with the Federal Investment Law. And according to Article 33 of the latter, Article 2, paragraph 11, of the Kurdistan Investment Law cannot be considered as a valid provision. Consequently, any contract for oil and/or gas extraction or production based on Article 2, paragraph 11, of the latter Law would not be considered as legally valid. It has been reported in the press that the contracts concluded between the Kurdistan regional authorities and energy companies on oil deals have “infuriated the Iraqi government, which has called them ‘illegal’ attempts to usurp Baghdad’s authority.”7 What has been said above in connection with oil and gas, it is submitted, applies equally to the banking and insurance sectors. It may be worth noting that the Federal Investment Law adopts a very liberal approach, in this context, which is in line with the free market policy adopted by the Iraqi government. It is also in line with the objectives of the Law for the promotion and encouragement of investment in Iraq. It is interesting to note that Article 29 of the Federal Investment Law is very similar to Section 6 of the CPA Order 2003, which is worded as follows: 1) Foreign investment may take place with respect to all economic sectors in Iraq, except that foreign direct and indirect ownership of the natural

6 7

See Art. 110, 7th paragraph. See the International Herald Tribune, 26–27 July 2008, p. 6.

26

Chapter II

resources sector involving primary extraction and initial processing remains prohibited. In addition, this Order does not apply to banks and insurance companies.

As mentioned earlier,8 this Order is no longer applicable.

3. Definition of the term “investment” Article 1, paragraph (n), of the Federal Investment Law defines the term “investment” as the employment of funds in any economic activity or project, which brings legitimate benefit to the country.

This is a very general definition, and it has two elements: (1) The employment of funds in an economic activity; and (2) such an activity should have a legitimate benefit for Iraq. So far as the first element is concerned, it seems to refer to any funds provided by an investor, Iraqi or foreign, in any economic activity. This is so wide as to cover any project in Iraq, such as the establishment of a factory, the building of an electricity plant, the buying and selling of shares, establishing a telephone company, to give but a few examples. Any of these activities is covered by the Federal Investment Law and enjoys all the privileges, exemptions and facilities granted under it.9 Therefore, it seems clear that any economic activity, where funds are used, is covered by that Law. The question may be raised: Does the term “funds” cover money only, or does it cover other activities, such as the provision of services, e.g., a training project, where funds, as such, are not used? This question is raised because the provision uses the Arabic term “MAL”, which means “funds” in Arabic. Two answers may be given. The first is according to a literal interpretation, which is to the effect that the Federal Investment Law appears to be limited to projects where funds are used, for the establishment of an investment project, such as the building of a cement

8 9

See Art. 34 of the Federal Investment Law. For details of these privileges, exemptions and facilities, see Chapter IV.


27

factory. Furthermore, according to The Concise Oxford Dictionary, the term “fund” means, inter alia, “3 (in pl.) money resources.”10 Consequently, the Federal Investment Law would not cover projects not involving the use of funds, such as training projects or the transfer of technology to Iraqis, and, as such, they are not eligible for the privileges, tax exemption and other facilities provided thereunder. The second answer may be to the effect that the term “MAL”, i.e., funds, should be interpreted to cover any economic activity where funds, as well as other resources, such as human resources, are used. This interpretation is in line with the overall purposes and aims of the Federal Investment Law. The latter’s objectives are intended to promote investment in Iraq, and to create the appropriate climate for its achievement. One of its objectives is the transfer of technology to Iraq.11 This could be achieved by investment in human resources, in that the investor would provide his experts to train Iraqis on new technologies. It is submitted that it would be illogical to deny such a project the benefits of the Federal Investment Law, because no funds have been used in the project. As Dr. El Sheikh, commenting on the definition of the term “investment,” says “. . . it includes all forms of invested property, which also embraces know-how.”12 Therefore, it is submitted that the term “MAL” should apply to economic activities where funds are used, as well as where human resourses are used. So far as the second element of the definition of investment under the Federal Investment Law is concerned, it requires any economic activity to be of legitimate benefit to Iraq. Therefore, any investment project which returns some legitimate (i.e., lawful) benefits to Iraq, be it in terms of employment of Iraqi personnel, the gaining of foreign currency from the export of industrial products, training of Iraqis on new skills and so on, would satisfy this condition. By contrast, if a project brings benefits only to a foreign investor, for example, such a project would not come within the definition of investment under the Federal Investment Law, and as such, would not benefit from the privileges and exemptions

10 11 12

See 9th edn. (1995), pp. 548–549. See above p. 16. See The Legal Regime of Foreign Investment, p. 37.

28

Chapter II

provided under the law. However, it would seem difficult to envisage any economic project, which may not be of some benefit to Iraqi individuals, institutions or public authority, in terms of employment, training or the rendering of some services. The question may be raised: is there a quantifying criterion for the term “benefit”? In other words, should the benefit required be substantial, or could it be minor, in order to qualify under Article 1, paragraph (n) of the Federal Investment Law? For example, if a foreign investor establishes a project for the import of foreign goods from abroad, employing some three Iraqi employees, can this project satisfy the second element of the definition of “investment” in the latter provision? The answer may be to the effect that, although the benefit derived in our example is limited to the employment of only three persons, this employment provides some “legitimate benefit” to some citizens of the country. In addition, the import of foreign goods by the foreign investor satisfies a need of the Iraqi population. On the other hand, it could be argued that the benefit required in the definition should be substantive, in order to be covered by the definition of investment. If so, then in our example, the benefit is so small that it may not be in line with the intention of the drafters of the Federal Investment Law. After all, the employment of three persons is insignificant, in terms of providing employment for Iraqis, which may not justify the application of all the facilities and privileges provided by the law. It is submitted that the “benefit” envisaged in Article 1, paragraph (n) of the Federal Investment Law may have to be of a significant nature, in order to be caught by the provision. This construction may be more in line with the intention of the drafters of the Law, than the first one. So far as the Kurdistan Investment Law is concerned, it does not contain a definition of the term “investment”. The same applies to the Sudanese Encouragement of Investment Act, 198013. However, the former contains a definition of the term “foreign capital”, in its Article 1, paragraph 12, which is akin to the term “investment” in the Federal Investment Law, and reads as follows:

13

See ibid., p. 34.


29

Definitions The following terms shall have the meanings hereunder: 12. Foreign capital: The assets in cash or in kind that are invested by the investor or in rights that have cash value in the region

It might be interesting to point out that the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) 1965, which is intended to provide a machinery for the settlement of disputes arising from investments, does not contain a definition of the term “investment”. However there was an attempt to introduce a definition in the Convention, but it was opposed by some delegates and the attempt was unsuccessful.14 At the national level, some legislations contain definitions of the term “investment”, either in a brief way or in an elaborate way.15 For example, the Tanzanian National Investment (Promotion and Protection) Act, 1999, contains a brief definition. It reads as follows: ‘Investment’ means contribution of capital or foreign capital by an investor to a new enterprise or to expansion or rehabilitation of an existing enterprise or a new enterprise.16

An elaborate definition is to be found in the Albanian Law on Foreign Investment, 1993, which provides ‘Foreign investment’ means every kind of investment in the territory of the Republic of Albania owned directly or indirectly by a foreign investor, which consists of: (a) moveable and immoveable, tangible and intangible property and any other property rights; (b) a company, shares in stock or a company and any form of participation in a company; (c) loans, claims to money or claims to performance having economic value;

14

15 16

See Professor Christoph Schreuer, The ICSID Convention – A Commentary (hereinafter referred to as “The ICSID Convention”) p. 122, paras. 81 and 82. This is an excellent work and provides a very thorough analysis of the ICSID Convention. Ibid., p. 132, para. 105. Quoted in The ICSID Convention, see ibid.

30

Chapter II

(d) intellectual property, including literary and artistic works, sound recordings, inventions, industrial designs, semiconductor mask works, know how, trade marks, service marks and trade names; and (e) any right conferred by law or contract, and any license or permit pursuant to law.17

The term “investment” has also been defined in bilateral treaties on investment, and according to Professor Schreuer, “almost all BITs contain definitions of the term investment.”18 He considers Article 1 of the United Kingdom’s Model Agreement for the Promotion and Protection of Investment as typical in this context; it reads as follows: For the purposes of this Agreement, (a) “investment” means every kind of asset and in particular, though not exclusively, includes: (i) Movable and immovable property and any other property rights such as mortgages, liens or pledges; (ii) shares in and stock and debentures of a company and any other form of participation in a company; (iii) claims to money or to any performance under contract having a financial value; (iv) intellectual property rights, goodwill, technical processes and knowhow; (v) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources . . . .19

The US Model Agreement Concerning the Encouragement and Reciprocal Protection of Investment also defines “investment”, and reads as follows: ‘investment’ means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:

17 18 19

See ibid. Ibid., p. 129, para. 99. Quoted in ibid., pp. 129–130, para. 100.


31

(a) (b) (c) (d) (e)

an enterprise; shares, stock, and other forms of equity participation in an enterprise; bonds, debentures, other debt instruments, and loans; futures, options, and other derivatives; turnkey, construction, management, production, concession, revenuesharing, and other similar contracts; (f ) intellectual property rights; (g) licenses, authorizations, permits and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens and pledges.20

4. Ownership of land The question of whether or not an investor can invest in real estate and own land is not clearly dealt with in the Federal Investment Law. For there is no specific provision dealing with this subject. By contrast, the CPA Order 2003 clearly provided that a foreign investor or a business entity with any level of foreign investor participation . . . may not under any circumstances purchase the rights of disposal and usufruct of private real property.21

On the other hand, the Kurdistan Investment Law expressly gives the investor the right to own land. Article 4, paragraph 6, provides that the investor may purchase and lease the lands and real estates necessary for the establishment, expansion, diversification and development of the project. . . .

However, this right does not apply to lands which contain oil, gas, or any precious or mineral resources. This is clearly excluded by Article 19 of that Law, which provides as follows:

20

21

Available at http:/www.state.gov/documents/organization/38710pdf, reproduced in Foreign Investment Disputes, op. 50. See Sec. 8, para. 1, of the CPA Order 2003.

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It is impermissible for the investor to own lands that contain oil, gas, or any precious or heavy mineral resources.

It may be worth noting that the Federal Investment Law deals with ownership of land by investors in an indirect way, and in a particular type of investment. Article 10, which deals with the question of privileges and guarantees of investors, provides that . . . the Iraqi and foreign investor shall have the right, for the purposes of residential projects, to hold the land [in Arabic IHTIFADH FI ALARDH] for a consideration to be defined between him and the land owner, without speculation in the land and in conformity with the criteria laid down by the National Investment Commission, with the approval of the Council of Ministers. The Commission shall facilitate the assignment of the necessary lands for residential projects and the transfer of ownership of residential units to Iraqis, after the completion of the project.

So, it would appear that there is a right to hold land, but only in residential projects. Now the question is: what is meant by the expression “the right to hold land for a consideration”? Surely, the wording here implies a transaction of some sort, whereby one party pays a consideration, to be agreed upon, to the landowner, thus entitling the former to “hold” the land. Therefore, it could be argued that the wording seems to suggest ownership by the investor of the land in question. This standpoint may derive support from the ban on the investor’s right to speculate in the land in question, as stated in Article 10. Moreover, this ownership is subject to the criteria laid down by the National Investment Commission (hereinafter referred to as the “NIC”). In addition, this ownership is limited in duration, in that it comes to an end when the ownership of the residential units of the project is transferred to Iraqis, in accordance with Article 10. Further support for this point of view may be derived from Article 11, paragraph 3, of the Federal Investment Law, which clearly speaks of the lease of land, or Almusataha22 for investment projects for 50 years, extendable. Had the intention of the drafters of the Law been to give only the right to lease land under Article 10, they would have said so, as they have done under Article 11, paragraph 3.

22

For the notion of Almusataha, see below p. 77.


33

On the other hand, it could be argued that the drafters of the Federal Investment Law might have intended to exclude the ownership of the land by the investor, from the scope of the Law. Therefore, they used the expression “to hold the land”, instead of the expression “to own the land”, as was the case under the CPA Order 2003, and the Kurdistan Investment Law. It is submitted that the first interpretation is to be preferred to the second one, for it is more in line with the objectives of the law, and it is limited to residential projects, with the eventual ownership of the residential units reverting to Iraqis, after the completion of the project. Perhaps the limitation imposed on the ownership of land for investment purposes has been motivated by the wish to prevent speculation and gazumping in land that would harm the interests of ordinary Iraqi citizens in acquiring housing. As the UN/World Bank Assessment Team put it: Throughout the [Middle East and North Africa] region, access to land at reasonable prices is an industrial development issue. At this stage, it is not seen as an issue in Iraq, but it could quickly become one. Typically, wherever there are flows of oil, this has resulted in distorted real estate markets. Kuwait’s industrial land prices rival those in Tokyo.23

5. Investment projects The Federal Investment Law provides an appropriate investment climate, in that it provides generous incentives, privileges, exemptions from taxation and facilities, to both Iraqi and foreign investors. Furthermore, it opens the investment market in Iraq wide open to any project. The definition of the term “project” is also very wide under the Federal Investment Law; Article 1, paragraph (g) thereof reads as follows: “ ‘project’ it is an economic activity covered by the provisions of this Law.” Accordingly, any economic activity, which brings some benefit to Iraq, is an investment project, which is covered by the Federal Investment Law, with all the advantages and facilities provided hereunder, wherever such a project is implemented in Iraq. There is a vast opportunity for investment

23

See UN/WB-The Investment Climate, p. 5, para. 20.

34

Chapter II

in Iraq in many sectors, such as industry, agriculture, electricity, health care, communications, housing development, tourism, to mention but a few sectors. The UN/World Bank team made the following observation with respect to the areas of investment in Iraq: In thinking about where investment will flow, it is likely that it will flow where Iraq can enjoy comparative advantage. There are three areas that were mentioned repeatedly to the assessment team: energy, agriculture, and human resources.24

This writer believes that there are also other areas that are available for investment, such as industrial projects, health care institutions, telecommunications, tourism, educational institutions and so on. Moreover, the administrative requirements for investment projects do not seem to be cumbersome. The NIC has been entrusted with the task, inter alia, of simplifying the administrative and licensing arrangements for investors, such as obtaining the necessary approval from the relevant authorities in Iraq.25 As mentioned earlier,26 the enactment of the Federal Investment Law has been motivated by the desire of the Iraqi government to promote economic and social development, for bringing the know-how from abroad and for the development of human resourses. Therefore, the investor, irrespective of his nationality, is very much encouraged to invest in Iraq, in any area other than those specifically excluded by the Law, with all the guarantees, privileges and protection for his investment. Finally, it is to be noted that the Federal Investment Law does not impose any restrictions on national participation or other conditions with respect to investment by foreign investors. A foreign investor can own the investment project wholly or in part, without any restriction as to Iraqi participation in the project in question. By contrast, some Arab investment laws impose certain conditions on foreign investment in their countries. For example, under Sudanese investment laws, there is a screening requirement before a foreign investor can bring in his

24 25 26

Ibid., para. 21. See Art. 9, para. 2, of the Federal Investment Law. See above Chapter I.


35

capital,27 while in Saudi Arabia, the Supreme Economic Council has the discretion to determine, from time to time, the economic areas where foreign investment is not allowed.28 On the other hand, under the Qatari Law on Foreign Capital Investment, 2000, a foreign investor may invest in any economic sector, provided that he has a Qatari partner or partners, whose participation in the capital must not be less than 51%.29 Under the Kurdistan Investment Law, the door is wide open for investment in any sector of the economy of the region. These sectors have been enumerated in Article 2 of the Law. They include projects in manufacturing industries, electricity, tourism, banking and so on. Under the CPA Order 2003, foreign investment was allowed in all economic sectors, except direct and indirect ownership of natural resources sectors involving primary extraction and initial processing, as well as land ownership.30

6. Conclusion The Federal Investment Law offers a wide scope for investment in Iraq. Apart from the sectors of oil and gas extraction and production, banking and insurance, it makes investment available in any economic sector, for both Iraqi and non-Iraqi investors. Even the land appears to be made available for ownership, for investment in residential projects only. The Kurdistan Investment Law has a wider scope for investment, in that it allows the ownership of land for investment for any project, except land where oil, gas or minerals are found, in addition to what is available under the Federal Investment Law. In this respect, the Kurdistan Investment Law seems to be more logical than the Federal Investment Law, in that it allows an investor in a project to own the land necessary for the project, whether the project is for residential purposes or otherwise. It would have been more reasonable for the drafters of the Federal Investment Law to

27 28 29 30

See El Shaikh,, The Legal Regime of Foreign Investment. p. 62. Ibid., p. 64. See Art. 2, para., 1, of the Qatari Law on Foreign Capital Investment 2000. See Secs. 6, para. 1, and 8, para. 1 of the CPA Order 2003.

36

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follow the same approach, while at the same time disallowing speculation in land. On the other hand, the Kurdistan Investment Law allows, by implication, investment in any project in the sectors of oil and gas, while the Federal Investment Law limits investment in such project to sectors other than extraction and production of oil and gas. Thus, it would appear, a conflict between the two Laws exists, which may lead to difficulties in the application of the Kurdistan Investment Law. Moreover, there is no requirement under the Federal Investment Law concerning the share of ownership by Iraqis in a particular project, insofar as foreign investors are concerned. A foreign investor can wholly, or partly, own an investment project. And there is a huge opportunity for investment in Iraq in very many economic sectors, with the appropriate climate offered by the law. It has been reported in the press that investment by Western funds in the Middle East and North Africa has increased considerably in recent years. Private equity investment is reported to have grown to US $5.2 billion in 2006, from US $316 million in 2004.31

31

See the International Herald Tribune, 27 September 2007, p. 1.

Chapter III Licensing of Investment Projects 1. Introduction The Federal Investment Law requires investors planning investment projects in Iraq to obtain a license from the NIC, in Baghdad, and from the equivalent bodies in the regions (IQLEEM) and governorates, before the establishment of the project. It lays down the procedure and the conditions required for a license. It also designates the competent authorities for the grant of a license, in Baghdad, as well as in the regions and governorates. The procedures and conditions appear to be uncomplicated, and are intended to facilitate the grant of a license and to encourage investors. We shall deal with the procedure for applying for a license, the conditions required, and the competent organs for the grant of the license, their composition and functions, at the federal, regional and governorate levels, with some concluding remarks.

2. Procedure Articles 7 and 19 of the Federal Investment Law deal with the procedure for the grant of the license. Article 7 deals with the authority which is competent to consider the application for a license for an investment project, while Article 19 lays down the conditions which have to be fulfilled before the grant of a license. We shall deal with those topics, as follows: (a) Application for a license Article 7 of the Federal Investment Law requires an application to be made for any investment project. It reads as follows:

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Chapter III

(a) The Commission accepts the applications for licenses for investment projects, whose capital is no less than the minimum determined by the Council of Ministers, or the regional Council of Ministers, as the case may be, in regulations to be adopted by the Council of Ministers on the suggestion of the Commission.

Accordingly, an application for a license has to be made to the Commission, which means the NIC in Baghdad, and to the regional and governorate investment committees outside Baghdad. The reference in Article 7 to the “Commission” has to be read in conjunction with the definition of the term “Commission” in Article 1, paragraphs (b), (c), (d), and (e). Article 1, paragraph (b) defines the NIC as follows: The following terms, wherever they occur, shall have the meaning herein specified in this Law, unless there is evidence to the contrary. ... (b) The National Investment Commission: It is the organ established under this Law, which is responsible for the planning of the national investment policies, and for establishing criteria therefor, and for monitoring the implementation of the criteria and instructions in the field of investment. It shall be competent to deal with the strategic investment projects, which are exclusively federal in character.

Paragraph (c) defines the regional investment commission as follows: The Regional Commission: It is the investment commission in the region, which is responsible for the planning of investment, as well as the grant of licenses, in the region.

Paragraph (d) defines the governorate investment commission as follows: The Governorate Commission: It is the investment commission in the governorate which is not part of a region, which is responsible for the planning of investment, as well as the grant of licenses, in the governorate.

Paragraph (e) defines the Commission as follows: The Commission: It is the National Investment Commission, or the Regional Investment Commission, or the Governorate Investment Commission, as the case may be according to the context.

Therefore, the context of the provision would indicate which of these Commissions is the relevant one, which is not always easy. It is to be noted

Licensing of Investment Projects

39

that Article 7, paragraph (a), does not expressly state that the applications for licenses have to be made to those organs; it simply states that “the Commission accepts applications for licenses”. However, the intent is implied, in that paragraph (c) of the provision requires the NIC, or the other relevant commission to take a decision on the application for an investment license within a period not exceeding (45) forty five days from the date of submission of the application.

By contrast, Article 19, paragraph 2, of the Law expressly speaks of the grant of a license on the basis of an application made to the NIC, or to the other relevant investment commissions. It may be worth noting that although the application for a license is a procedural step, in reality the license is the essential element for the establishment of an investment project, for without it no investment project can be established. Moreover, because the NIC and the Regional and Governorate Investment Commissions are responsible for the determination of the national policy of investment, the grant of a license by these organs indicates that they consider the project as one falling within the country’s policy and strategy for investment. Such a determination may be of significant importance for the establishment and the operation of an investment project. It is worth noting that, according to Article 7, paragraph (a), the NIC and the Regional and Governorate Investment Commissions have been granted the power to decide, on their own, the grant of a license, if the project’s capital is less than the minimum, as determined by the relevant Council of Ministers. This limit, as far as is known, has not yet been determined. However, if the value of the investment project is more than two hundred and fifty million US dollars, the NIC must obtain the agreement of the Council of Ministers in Baghdad, before the grant of a license. It would therefore seem that projects of such a magnitude are considered too important to be dealt with by the NIC alone. The involvement of the Council of the Ministers in the grant of a license for such projects may be considered as a check on the authority of the NIC in this respect. It should not be regarded as a hindrance to its work.

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Chapter III

The question may be raised: Is the approval of the Council of Ministers for projects exceeding US $250 million limited to the NIC, or are the Regional and Governorate Investment Commissions also required to do the same? Article 7, paragraph (b) speaks of the approval of the “Council of Ministers”, without any reference to the regions. It could therefore be argued that a license for an investment project in the Kurdistan Region, or in a governorate, the value of which exceeds US $250 million cannot be granted without the approval of the federal Council of Ministers in Baghdad. On the other hand, the Kurdistan Investment Law does not mention any reference to the Council of Ministers in Baghdad, with respect to such situations. Therefore, if a license is granted under the latter Law, for a project the value of which exceeds US $250 million, without the approval of the Council of Ministers in Baghdad, would that be compatible with the Federal Investment Law? According to a literal interpretation of Article 7, paragraph (b), the grant of such a license would not be in conformity with the Federal Investment Law, and as such it should be considered as null and void. It may be wondered whether the non-mention of the regional Council of Ministers in Article 7, paragraph (b) is intentional or an omission. The preceding paragraph of the provision (paragraph (a)) does refer to the Council of Ministers of the regions. This might be considered as an indication that there appears to be a deliberate wish to have the approval of the Council of Ministers in Baghdad in this kind of situation. However, this situation is not likely to cause some friction between the region and the central authorities, because Article 5, paragraph 1, of the Federal Investment Law requires consultation between the Regional and Governorate Investment Commissions and the NIC on issues relating to investment planning, licensing and so on, in order to ensure respect for the legal requirements. Furthermore, Article 7, paragraph (c), of the Federal Investment Law requires the NIC to decide on the grant of a license within 45 days, from the date of the submission of the application. But it is not clear whether the period of 45 days applies to any project, irrespective of its capital, or if it applies only to projects below the US $250 million limit. If the approval of the Council of Ministers is necessary in the latter category of projects, then the 45 days period may not be easily met, given the very wide functions of the Council. On the other hand, the provision does not seem to


41

differentiate between the various categories of investment projects, from the point of view of deciding to grant, or not, a license for a particular project. It would therefore be reasonable to argue that the 45-day period applies to any project, whether its capital is more than US $250 million or not. This approach would be in line with the aim and purpose of the Federal Investment Law for the promotion of investment in Iraq. So far as the Kurdistan Investment Law is concerned, an investor must apply to the Investment Board in the Region (hereinafter referred to as “the Kurdistan Investment Board”), in order to obtain a license for his investment project, according to Article 16, paragraph 1, thereof. According to paragraph 2 of the provision, the Investment Board must decide on the issue of the license, on the basis of an application by an investor, within 30 days from the date on which all the technical, legal, and economic conditions for the license have been met. The Kurdistan Investment Board is based in Erbil, the capital of the Iraqi Kurdistan Region.1 It would appear that the procedure for obtaining a project license in the Iraqi Kurdistan Region is similar to that applicable under the Federal Investment Law, though the period for considering an application is shorter under the Kurdistan Investment Law than that under the Federal Investment Law (45 days in the former and 30 days in the latter). (b) Right of appeal A decision by the NIC concerning the grant or otherwise of a license for an investment project is binding for the purposes of the Federal Investment Law, in accordance with Article 7, paragraph (d), thereof, which reads as follows: The positive decisions of the Commission concerning investment projects are binding, for the purposes of this Law.

The provision is silent vis-à-vis the negative decisions of the NIC, and there is no other provision in the Law which provides for the right of recourse against such decisions. The question therefore may be raised: is

1

See Art. 10, para. 3, of the Kurdistan Investment Law.

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Chapter III

there a right of appeal against a negative decision of the NIC? If so, to which authority does it lie? According to a literal interpretation of the provision, these decisions of the NIC appear to be final and without the right of appeal for the applicant. As mentioned above, the Federal Investment Law is silent on the issue of appeal against a negative decision by the NIC. Had there been an intention to provide for this right, the provision would have mentioned it. It may be interesting to point out that the Federal Investment Law provides for a sort of appeal in cases of differences between the NIC and other public entities, which have a role to play in the process of the grant of a license. Such differences have to be submitted to the Prime Minister for his determination. This is provided in Article 20, paragraph 3, which reads as follows: In the case of a difference between a decision of the National Investment Commission and another public entity involved in the process of licensing, other than the investment commissions, the difference shall be referred to the Prime Minister for his determination.

On the other hand, it could be argued that even in the absence of a right of appeal in Article 7, paragraph (d), against a negative decision by the NIC, such a right exists under the Iraqi legal system. For there is an Administrative Court in Baghdad, which has jurisdiction to review any administrative decision by any public authority or government official. A decision by the NIC, it is submitted, falls within the jurisdiction of the Administrative Court. Therefore, a negative decision by the NIC can be challenged before the Administrative Court in Baghdad.2 So far as the regions and governorates are concerned, according to Article 20, paragraph 4, of the Federal Investment Law, there is a right of appeal against the negative decisions of the Regional and Governorates Investment Commissions. The provision reads as follows: In case of rejection of an application for a license, the applicant has the right to appeal to the Chairman of the Regional or Governorate Investment

2

See Art. 7, para. 2, of the State Consultative Council Act, 1979, no. 65.


43

Commissions within (15) fifteen days, from the date of notification of the rejection. The Chairman has to take a decision on the appeal within (7) seven days. The applicant has the right to appeal against the negative decision of the Chairman to the authority to which the Investment Commission is linked within (15) fifteen days from the date of rejection of the appeal by the Chairman. The decision of the said authority is final.

This position can be criticised on two grounds: First, it is not clear what is the authority to which the Investment Commission belongs, though this has been stated in the case of the Iraqi Kurdistan Region. Secondly, the appeal is made, in both cases, to an executive authority, which is very closely linked with the Investment Commission concerned. Therefore, these are not neutral parties, and as such, their decisions may not be objective. Under the Kurdistan Investment Law, a right of appeal exists against a decision of the Kurdish Investment Board rejecting an application for an investment license. This right is provided under Article 16, paragraph 4, of the Law, which reads as follows: If the establishment application is rejected, the applicant has the right to object to it before the President of the Council within 15 days from the date of his notification of the negative decision. The President of the Council shall consider the objection within a period of not more that 30 days and his decision will be final.

As mentioned earlier, a right of appeal against a negative decision of the NIC concerning a license exists under the Iraqi legal system. The Administrative Court in Baghdad has jurisdiction over administrative decisions or acts taken by a government agency, establishment or a government official throughout the whole territory of the country. Therefore, a negative decision by a regional investment commission, which is a government agency, is an administrative decision, and as such, it can be challenged before the Administrative Court. It would have been preferable, for the sake of clarity and certainty of the law, to have stated expressly the right of appeal in both the Federal Investment Law, as well as the Kurdistan Investment Law, to the Administrative Court. It might be interesting to point out that the Jordanian Investment Law expressly provides for the right of appeal against a negative decision to grant a sectoral investment

44

Chapter III

licence to the High Court of Justice in Amman.3 There is also a right of appeal by an investor against a negative decision of the Jordanian Investment Incentives Committee to the Minister of Trade and Industry, and if the Minister agrees with the decision of the Committee, the investor has the right to appeal against the Minister’s decision to the High Court of Justice.4 However, it should be stated that the Iraqi Constitution bans the denial of right of appeal in any Iraqi law.5 (c) Conditions for the grant of license The Federal Investment Law requires certain particulars to be included in an application for a license for an investment project. This requirement is laid down in Article 19, paragraph 2, which reads as follows: The Commission shall grant an investment license, or approve the establishment of a project, on the basis of an application by an investor, and in accordance with easy conditions to be prepared by the Commission. The investor’s application shall contain the following items: (a) The filling-in of the application form prepared by the Commission. (b) A bank guarantee from an approved bank. (c) The projects implemented by the investor, inside and outside Iraq. (d) The details of the project, the subject of the proposed investment, and its economic prospects. (e) A timetable for the implementation of the project.

Accordingly, the Commission issues a license, if it is satisfied that the conditions are fulfilled and the information required is complete, in conformity with the Law. The term “Commission” refers, as mentioned earlier, to the NIC in Baghdad, as well as to the Regional and Governorate Investment Commissions.6 Furthermore, as far as is known, the “easy conditions” mentioned in the provision have not yet been prepared. We shall now proceed to deal with the contents of the application. 3 4 5

6

See Art. 22 of the Jordanian Investment Law, 2003. See ibid., Art. 11, paras. (a) and (b) 1. See Art. 100 of the Constitution, which reads: “ It is prohibited to provide for immunity against appeal vis-à-vis any administrative action or decision, in any law.” See above p. 38.


45

1. The filling-in of the application form This requirement is probably intended for the provision of certain particulars by the investor, such as his name, address, place of residence and so on. The form to be filled-in is supposed to be prepared by the NIC, or the Regional/Governorate Investment Commissions. Such forms, it would appear, are under preparation by each of these organs at the time of writing. This requirement is an administrative formality, which is part of the procedures in many areas of governmental activities in Iraq. 2. Bank guarantee This item requires the applicant to provide a bank guarantee from an approved bank, it would appear, i.e., a bank approved by the Iraqi authorities. This is probably intended to establish that the applicant is sound, from a financial point of view. The guarantee can be issued by any approved bank, be it Iraqi or non-Iraqi, and within Iraq or outside it. For the provision imposes no limitation concerning the origin, or the location, of the guarantor bank. This facility can be construed as an indication of the ease of conditions required for the grant of an investment license, and the approval of the establishment of a project. 3. The projects implemented by the applicant The applicant for a license or the establishment of a project is required to provide information concerning the projects he has implemented, inside and outside Iraq. The intent here is probably to assess the ability and experience of the investor, so that the NIC, or the Regional/Governorate Investment Commissions, can decide to grant or otherwise the license. This requirement is easy to meet, for any serious investor must keep a record of his work on projects implemented by him, in Iraq, the Middle East or in other parts of the world. 4. Details of the proposed project The applicant for an investment license or the establishment of a project is required to provided details concerning his proposed project. They should include the technical, administrative and economic aspects of the project. This is a very important requirement, because of its relevance to the investment policies and strategies of the country, as well as for the

46

Chapter III

economic and social benefits expected from the project. This is a fair demand, which is also necessary to enable the relevant investment commission to assess the technical and economic features of the project, and to see how it fits in with their economic and investment plans. On the other hand, this requirement cannot constitute a hardship for the investor, because the investor must know such details, when he reaches the stage of applying for a license. 5. Time-table for the implementation of the project The applicant for an investment license is required to state when he intends to start his project and when to complete it. This is a reasonable requirement in order to enable the relevant investment commission to assess the duration of the project, the benefits derived from it and so on. It is also relevant to the question of the obligations of the investor under Article 14 of the Federal Investment Law,7 which include the date on which the project will be operational for the purposes of assessing the investor’s compliance with his obligations under that provision. In addition to the contents of the application, Article 19, paragraph 2, speaks of the grant of an investment license, or the approval of the establishment of the project, “on the basis of an application by the investor, in accordance with easy conditions to be prepared by the Commission”. Therefore, the particulars required to be provided are to be in accordance with the “easy conditions” which are to be prepared by the Investment Commission concerned. These “easy conditions”, as far as is known, are under preparation at the time of writing. It may be observed that the conditions of the application for a license seem to be the normal elements required by any authority entitled to make a decision on investment matters. The information relates to the financial reliability of the investor, his professional experience, the details concerning the investment project and its economic significance to the economic and social development, and the time scale envisaged for the completion of the project. This information, it is submitted, is not difficult to provide, and it does not constitute a heavy burden on the investor.

7

For details concerning the obligations of the investor, see below Chapter VI.


47

This is again in line with the purpose of the Federal Investment Law to create an encouraging climate for investment in Iraq. If the required elements are provided, and the easy conditions mentioned above are fulfilled, the relevant investment commission decides to grant the license for the investment project. Moreover, in accordance with Article 20, paragraph 1, of the Federal Investment Law, the investment commission concerned, after deciding to grant the license, is entrusted with the task of obtaining the approval of other concerned governmental departments for that purpose, in accordance with Iraqi law. This is another measure intended to facilitate the task of the investor. For example, if the investment project requires the lease of a piece of land from the government, the NIC would approach the authority concerned and obtain its approval for the lease of the land. Moreover, in order to facilitate the process of the grant of an investment license, Article 20, paragraph 1, empowers the Regional/Governorate Investment commission to establish units in their territories, composed of representatives of the relevant ministries and other authorities, for the purpose of expediting and facilitating the process of the grant of a license. In this case, instead of referring the application to the relevant ministries and other authorities concerned in the process, with inevitable delays, the representatives of these ministries and authorities are in that unit and can take a decision on the application, all at the same time. It is curious that Article 19, paragraph 1, of the Federal Investment Law speaks of the grant of “an investment license”, or the approval of “the establishment of a project”. Does this wording imply a difference between the grant of a license and the approval of the establishment of project? The intent of the provision is not clear. However, in both situations, the NIC, or the other Investment Commissions, must take a decision on the application of the investor. This decision, it would appear, constitutes the authorisation/license to the investor to proceed with his project. It is therefore submitted that the grant of a license implies the approval of the proposed project, whatever the nature of the project may be, i.e., whether it is investment in shares, bonds, or the building of a cement factory. And in both cases, a license is required, and the provision should be interpreted in that sense.

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So far as the Kurdistan Investment Law is concerned, it also requires investors to apply for a license for the establishment of an investment project, but it does not specify the conditions to be fulfilled by the applicant. It merely speaks of the conditions set by the Kurdistan Investment Board. Article 16 of the Kurdistan Investment Law reads as follows: First: For the purpose of benefiting from the exemptions and advantages stipulated in this Law, the investor must obtain a licence for the establishment of the project issued by the Board. Second: The Board shall grant a license for the establishment of the project on the basis of an application submitted by the investor in accordance with the conditions set by the Board. The Board must decide on issuing the license within 30 days from the date all the requirements and technical, legal and economic conditions have been met in accordance with the provisions of this Law. . . .

Perhaps the technical, legal, and economic conditions would be similar to those required by Article 19 of the Federal Investment Law. Nevertheless, it would have been better to mention these requirements expressly in the provision.

3. The competent organs There are two categories of organs competent to grant an investment license under the Federal Investment Law. They are: (a) the NIC at the federal level; and (b) the Investment Commissions at the regional and governorate level. At the time of writing, there is only one regional Investment Commission, namely, the Kurdistan Investment Board in existence. Let us start with the federal level. (a) The federal level-NIC The federal system in Iraq, established under the 2005 Constitution, divides the competence and jurisdiction of the federal and regional authorities. Thus, there are certain matters which are under the exclusive jurisdiction of the federal authorities, while others are entrusted to the


49

regional level, i.e., the regions and governorates level.8 However, there are areas where jurisdiction is shared between the federal authorities and the regional ones. The licensing of investment and related matters appear to belong to this category.9 This is confirmed by the division of powers of the NIC and the Regional and Governorate Investment Commissions, as laid down in the Federal Investment Law. In accordance with Article 4, paragraph 1, of the Federal Investment Law A commission is established under this Law called (the National Investment Commission), with its own juridical personality, and is represented by its President or his nominee. It shall be responsible for the planning of national investment policies, the laying down of the plans, regulations, and criteria therefor, and for the monitoring of their implementation in the sphere of investment. It shall have the exclusive responsibility for the strategic investment projects, which are of a federal character.

It is worth noting that the NIC is linked directly to the Prime Minister,10 its office is in Baghdad, and it can appoint representatives in the regions and governorates.11 The NIC is a very important organ, from the point of view of investment in Iraq. This is apparent from the functions entrusted to it, which shall be dealt with later on, and from the direct link it has to the Prime Minister of the country. 1. Composition of the NIC Article 4, paragraph 2, of the Federal Investment Law deals with the composition of the NIC. It reads as follows: The National Investment Commission shall be run by an Administrative Board, composed of nine members, who possess the relevant experience and specialization for a period of no less than ten years. The members of

8 9

10 11

See Arts. 110 and 115 of the Iraqi Constitution. See ibid., Art. 114, para. 4, which reads: The following areas are subject to the joint jurisdiction of the federal and regional authorities: ... 4. the planning of the development policies and general planning. See Art. 4, para. 3 (h)) of the Federal Investment Law. Ibid., para. 4.

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the Board must have university degrees corresponding to the competence of the Commission, and must not have been imprisoned for a felony, misdemeanour involving honour, or have been declared bankrupt.

Furthermore, the Chairman and Vice-Chairman of the Board are nominated by the Council of Ministers, upon the request of the Prime Minister, for a term of five years. Their nomination is submitted to the House of Representatives for approval.12 The Chairman has the rank of a minister, while the Vice-Chairman has the rank of a deputy minister.13 So far as the other members of the Board are concerned, four of them are appointed by the Prime Minister for a term of five years, with the grade of Director-General.14 The other three members are selected by the Prime Minister, upon the nomination of the Chairman of the Board, from the private sector, and are appointed for a term of five years.15 The Chairman or Vice-Chairman of the Board can only be removed by the House of Representatives, either directly, or upon the request of the Prime Minister, giving his reasons therefor.16 As regards the removal or the replacement of the other members of the Board, this can be done by the Council of Ministers, in case of violation of the regulations and standards set up by the NIC.17 The composition of the NIC shows the importance attached to it by the Iraqi authorities, in that the Chairman and Vice-Chairman of the Board and its members are required to have the relevant expertise for a considerable period of time, i.e., ten years. Furthermore, the process of the appointment of the Chairman and Vice-Chairman involves the executive and legislative authorities of the country. Even their removal from office cannot be done without the involvement of the House of Representatives. On the other hand, the appointment of members of the Board involves the Prime Minister of the country. In addition, the NIC is composed of

12 13 14 15 16 17

Ibid., Ibid. Ibid., Ibid., Ibid., Ibid.,

para. 3 (a). (b). (c). (e). (f ).


51

members from the public and the private sectors. All these features show that this is not an ordinary commission. This is to be expected, in view of the very wide and important functions entrusted to the NIC for the promotion and the development of investment in Iraq. 2. Functions of the NIC The functions of the NIC are laid down in Article 4, paragraph 5, of the Federal Investment Law, which reads as follows: The National Investment Commission shall adopt a general national policy and strategy for investment, and shall define the most important sectors of investment. It shall also prepare a map concerning investment projects in Iraq, in the light of information obtained from the Regional and Governorate Investment Commissions. It shall also prepare lists of investment opportunities in strategic and federal projects, with preliminary information relating to these projects, and making them available to those interested in investment [in the country].

Accordingly, the functions of the NIC are: 1. The adoption of a general national policy and strategy for investment. 2. The defining of the most important sectors in the investment field. 3. The preparation of a map concerning investment projects. 4. The preparation of lists of investment opportunities in strategic and federal projects. 5. The grant of licenses for investment projects. i. The adoption of a general national policy and strategy for investment Article 4, paragraph 5, of the Federal Investment Law entrusts the NIC with the task of setting up a general national policy and strategy in the field of investment for the whole country. This is a very important function of the NIC, in that it is required to look at the whole area of investment, decide what should be the policy for the whole country, and what are the best strategies to promote investment in Iraq. This function avoids a piecemeal approach to investment, and can help provide a comprehensive plan for the whole of Iraq. Furthermore, the NIC is also empowered to

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adopt regulations and criteria for investment, and the monitoring of their implementation, in accordance with Article 4, paragraph 1, of the Federal Investment Law. It would not be speculative to state that the approach of the NIC would be a liberal one and favourable to the promotion and encouragement of investment in Iraq. This standpoint derives support from some of the aims of the NIC mentioned in Article 9 of the Federal Investment Law. For example, the NIC is called upon to simplify the administrative measures for the registration and licensing of investment projects, as well as for obtaining the necessary approval from other authorities for the investors and their investment projects.18 Furthermore, the NIC is called upon to provide advice and information to investors, promote investment and attract investors, and facilitate the assignment of the necessary land and its rent for investment projects.19 ii. The defining of the most important sectors in the investment field The NIC has been given the function of defining the most important sectors for investment in Iraq.20 This is an important function, for the NIC, being responsible for promoting investment in the country, must decide which are the sectors that are important for the country’s economic and social development. It is not difficult to see what these sectors might be, because Iraq is in need of reconstruction and building in many sectors, such as industry, agriculture, water, electricity, telecommunications, information technology, and health care, to give but a few examples. In addition, the composition of the NIC and its link to the Prime Minister gives it the ability to define the most important sectors for investment, in the light of the policies and economic plans of the government. And the experience of members of the NIC and the link with the political organs of the county are important factors in enabling it to determine what sectors are, or are not, important for investment in Iraq.

18 19 20

See ibid., Art. 9, para. 2. Ibid., paras 4, 5, and 6. See ibid., Art. 4, para. 3.


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iii. The preparation of a map concerning investment projects The preparation of a map concerning investment projects represents the practical details of the function of the NIC in the planning of the policy and strategy of investment in Iraq. This function of the NIC is laid down in Article 4, paragraph 3, and entails the designation of areas for investment in the country, according to the prevailing circumstances. It enables the NIC to distribute investment projects in the various parts of the country. It also helps the investor to choose the areas where it would be more advantageous for his investment, in the light of available markets, skills, labour and materials and so on. This is in line with the task entrusted to the NIC to provide advice, information and pamphlets to investors mentioned in Article 9, paragraph 4, of the Federal Investment Law. All this is intended to promote and create an appropriate climate for investment in Iraq. The preparation of maps for investment projects by the NIC is to be carried out in the light of information provided by the investment commissions in the regions and governorates. These organs are in a good position to know, and assess, what are the needs of the region or the governorate concerned, what are the suitable projects, and what is available in their geographical areas in terms of skills, labour and so on, for investment purposes. Therefore, the NIC would be acting on the basis of reliable sources in the relevant areas, rather than acting from a distance in Baghdad. This feature helps to give reliability and credibility to the investment map prepared by the NIC. iv. The preparation of lists of investment opportunities in strategic and federal projects Article 4, paragraph 5, of the Federal Investment Law entrusts the NIC with the task of preparing lists of investment opportunities in strategic and federal projects, and offering them to interested investors, together with preliminary information on these projects. The first comment to be made is that the role of the NIC is limited to strategic and federal projects. Therefore, it would not be entitled to offer investment opportunities relating to regions and governorate projects, unless they relate to strategic projects. Secondly, the Federal Investment Law does not provide a definition of the term “strategic”. Therefore, one has to give it its ordinary meaning.

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According to The Concise Oxford Dictionary, “strategy” means “. . . a plan of action or policy in business or politics etc., (economic strategy).”21 Therefore, the term “strategic projects” could be interpreted to mean those important projects, which are significant for the economic policies and development of the country. Such projects are normally big projects and can include important industrial projects, agricultural projects, electricity projects, water supply projects, training projects in new technologies, and health projects, to give but a few examples. Furthermore, the NIC is also required to make such projects available to interested investors, together with the relevant preliminary information, to would-be investors. This is a significant matter, because it suggests a proactive role for the NIC, in that it would have identified for the interested investors the areas of investment which it considers important and relevant to the development of the country. Thus, it offers the investors ready-defined areas, or sectors, for their investment, with the relevant information. This can be done at international business meetings, exhibition and other fora. The NIC could also, for that purpose, establish offices in important world financial centres, such as London, Brussels, and New York.22 This should enable investors to consider the opportunities and make up their minds, perhaps more easily than otherwise. The overall aim of this function is to promote investment, and to facilitate the task of investors and encourage them to invest in Iraq. v. The grant of licenses for investment projects This is a very important function of the NIC, and it is essential for the start of any investment project in the country. This function is not mentioned in Article 4, paragraph 5, of the Federal Investment Law, but is mentioned in other parts of the Law. Since it has already been dealt with earlier in this study, there is no need for repetition here.23

21 22

23

See 9th edn. (1995), p. 1377. It has been reported in the press that the Tunisian Foreign Investment Promotion Agency has established offices in Paris, London, Brussels, Milan and Cologne, for the purpose of promoting foreign investment in Tunisia. See the International Herald Tribune, 30 June–1 July 2007, p. 17. See above pp. 37–41.


55

(b) The regional level – The Kurdistan Investment Board The Federal Investment Law provides for the establishment of investment commissions at the regional level. Article 5, paragraph 1, of the Law reads as follows: Regions, . . . shall establish investment commissions within the territories under their jurisdiction. These commissions shall be competent to grant investment licenses, plan and promote investment, and open branches in the territories under their jurisdiction, in consultation with the National Investment Commission, in order to ensure that the legal conditions are satisfied.

It should be pointed out that Iraq consists of 18 governorates, three of which, namely, Erbil, Sulaimaniya, and Dehuk constitute the only region presently established in the country known as the Iraqi Kurdistan Region (IQLEEM KURDISTAN),24 and the city of Erbil is its capital. As mentioned earlier, the government of the Iraqi Kurdistan Region has adopted the Kurdish Investment Law, which is, generally speaking, similar to the Federal Investment Law, with some variations. It has provided for the establishment of the Kurdistan Investment Board. However, the Iraqi Constitution provides for the possibility of forming other regions, upon the request of one or more governorates.25 Therefore, if other regions are established, they will have the right to establish a regional investment commission within their territorial jurisdiction. The same applies to any governorate, which is not part of a region. We shall now deal with the licensing of projects, the competent organs dealing with them and their composition, and functions, under the Kurdistan Investment Law. 1. Composition of the Kurdistan Investment Board The Federal Investment Law defines the composition of regional investment commissions. Article 5, paragraph 2, provides that

24 25

See Art. 117, para. 1, of the Iraqi Constitution. Ibid., Art. 119.

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regional . . . investment commissions shall consist of, at least, seven members, including the Chairman and vice-Chairman. The members must have relevant experience and specialization of no less than seven years, and a university degree corresponding to the competence of the investment commission, and must not have been imprisoned for a felony, misdemeanour involving honour, or have been declared bankrupt.

Furthermore, it is left to the council of each region, or governorate which is not part of a region, to regulate the mechanism for the establishment of their investment commissions, and the removal of those members who do not abide by the regulations and criteria laid down by the investment commission concerned.26 The investment commission of a region is linked directly to the Prime Minister of the region concerned and is subject to the supervision of the region’s council.27 It is to be noted that the requirements for membership of an investment commission in a region are, generally speaking, similar to those for the NIC,28 though the years of experience and specialisation are less in the former (7 years instead of 10 years). Moreover the status of the Chairman and Vice-Chairman of such commissions are left to each regional or governorate council to determine. This is a reasonable approach, for it is appropriate to leave those matters to the local authorities, at the regional level. Those authorities would probably be in a better position than the federal authorities to determine the appropriate status and grade for the Chairman and Vice-Chairman of the relevant investment commission, probably bearing in mind the NIC’s practice. The Iraqi Kurdistan Region adopted the Kurdistan Investment Law in 2006, which established the Kurdistan Investment Board. Article 10, paragraph 1, reads as follows: First: The Board shall be formed under the name of “The Kurdistan Region Investment Board.” It shall have a corporate status and enjoy financial and administrative independence. It shall undertake all the necessary legal tasks for the purposes of implementing the provisions of this Law.

26 27 28

Art. 5, para. 3, of the Federal Investment Law. See ibid., para. 6. See above pp. 49–50.


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However that Law does not define the composition of the Board. According to Article 10, paragraph 2, The Board shall have a chairman with the grade of [a] minister. He shall enjoy the rights and powers of the minister. He shall be responsible for running the Board and supervising and controlling its work and everything pertaining to its tasks and all its affairs.

The provision does not mention any other member of the Board. It refers to the Board “implementing” (probably meaning “establishing”) four departments: studies and information department; promotion, evaluation, and licensing department; legal, administrative, and financial affairs department; and industrial cities and zones department. It is submitted that this may not be compatible with the Federal Investment Law, which stipulates that a regional investment commission should consist of, at least, seven members.29 On the other hand, the Kurdistan Investment Law has established a high-powered organ called the Supreme Investment Council. It is composed of the Prime Minister of the Iraqi Kurdistan Region as the President, the Deputy Prime Minister as the Vice-President, and the Ministers of Finance, Economy, Trade, Municipalities, Planning, Agriculture, Industry and the Chairman of the Kurdistan Investment Board, as members.30 It seems that the Council exercises some supervisory powers over the Board.31 2. Functions of the Kurdistan Investment Board The functions entrusted to the Kurdistan Investment Board are described in Article 5, paragraph 5, of the Federal Investment Law, which reads as follows: the Regional . . . Investment Commissions shall lay down their investment plans, which shall not be in contradiction with the federal investment policy. They shall prepare lists of investment opportunities in the areas subject to their jurisdiction, with preliminary information relating to those projects, and making them available to those interested in investment.

29 30 31

See Art. 5, para. 2, of the Federal Investment Law. See Art. 14, para. 1, of the Kurdistan Investment Law. See Art. 10, para. 6, and Art. 14, para. 3, of the Kurdistan Investment Law.

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The substance of Article 5, paragraph 5, just quoted, is repeated in Article 10, paragraph 6, of the Kurdistan Investment Law. They are not different in nature from those of the NIC, except that those of the Regional Commission are more limited in scope. These functions are: 1. 2. 3. 4.

The The The The

creation of a suitable environment for investment. preparation of investment strategies and plans. preparation of lists of investment opportunities. grant of licenses for investment projects.

We shall now deal with these functions. i. The creation of a suitable environment for investment Article 10, paragraph 6, of the Kurdistan Investment Law entrusts the Kurdistan Investment Board with the task of creating “a suitable environment for investment so as to achieve economic development in the region.” It may be asked: What constitutes a “suitable environment for investment”? The answer may be to the effect that what is meant by the expression is the creation of a climate where investors are encouraged, and feel a sense of security, insofar as their property, rights and persons are concerned. A most important element to that end is the establishment of security in the region. This is the case in the Iraqi Kurdistan Region. Security has recently improved significantly in all other parts of Iraq, and particularly in Baghdad it has improved considerably. Another important element in this context is the offer of incentives, and protection of rights, to the investor, which the Kurdistan Investment Law offers.32 This function is, en essence, similar to the first objective of the Federal Investment Law.33 ii. The preparation of investment strategies and plans Article 5, paragraph 5, of the Federal Investment Law gives a regional investment commission, which in this case is the Kurdistan Investment

32 33

See below Chapter IV. See above p. 9.


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Board, the power to prepare investment plans for the region. This function is also described in Article 10, paragraph 6, of the Kurdistan Investment Law. This function is not different from that given to the NIC, except that it is limited to the area under the jurisdiction of the Iraqi Kurdistan Region. Therefore, what has been said earlier with respect to the similar function of the NIC applies here.34 However, attention must be drawn to the requirement of Article 5, paragraph 5, of the Federal Investment Law that such plans cannot be in contradiction with federal investment policy. This is an important requirement, which is intended to harmonise the investment policies of the regions with those of the federal authorities; for otherwise there would be confusion and inconsistencies. For example, if the federal investment policy allows a foreign investor to own an investment project in its entirety, the Kurdistan Investment Board cannot require that a foreign investor must own only 50% of the project. This is logical, for the NIC is responsible for the national strategic policy for investment for the whole country, and the Kurdistan Investment Board has to abide by this policy. It would probably be unfortunate, and even illegal, if the Kurdistan Investment Board were to adopt investment plans, which are incompatible with those of the federal authorities, as we have seen earlier under the heading Scope of Investment.35 And at any rate, regional Investment Commissions are required by Article 5, paragraph 4, “to coordinate their work with the National Investment Commission”. iii. The preparation of lists of investment opportunities The Kurdistan Investment Board has the authority to prepare lists relating to investment opportunities in the areas under its jurisdiction, according to Article 5, paragraph 5, of the Federal Investment Law, as well as Article 10, paragraph 6, of the Kurdistan Investment Law. The Board can offer these opportunities, with the preliminary relevant information, to investors who wish to invest in the geographical area of Kurdistan. This function might also be relevant to the element of creating a suitable investment climate in the Iraqi Kurdistan Region.

34 35

See above pp. 51–52. See above pp. 23–25.

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This function of the Kurdistan Investment Board is similar to that of the NIC, except that it is limited to the territory of the Iraqi Kurdistan Region. Therefore, what has been said with respect to the NIC applies here.36 iv. The grant of licenses for investment projects The requirement of obtaining an investment license applies at both the federal and regional levels. Therefore, an investor, intending to invest in a project in the Iraqi Kurdistan Region, must apply to the Kurdistan Investment Board for a license before he can establish his project. This is in conformity with Article 5, paragraph 1, of the Federal Investment Law, as well as Article 16, paragraph 2, of the Kurdistan Investment Law. The application for a license has to comply with all the requirements of the latter provision, as well as with Article 19, paragraph 2, of the Federal Investment Law. Both provisions are similar in substance, though the latter lays down, expressly, very important requirements concerning the contents of the application for an investment license, which is missing in the former. Therefore, what has been said earlier with respect to the latter, equally applies here.37 (c) The Governorate level Article 5, paragraph 1, of the Federal Investment Law provides for the establishment of investment commissions at the governorate level. It reads as follows: . . . Governorates which are not part of a region shall establish Investment Commissions within the territories under their jurisdiction. These Commissions shall be competent to grant investment licenses, plan and promote investment, and open branches in the territories under their jurisdiction, in consultation with the National Investment Commission, in order to ensure that the legal conditions are satisfied.

36 37

See above pp. 53–54. See above pp. 37–41.


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Article 5, paragraph 2, deals with the composition of governorate Investment Commissions, and reads as follows: . . . Governorate Investment Commission shall consist of, at least, seven members, including the Chairman and Vice-Chairman. The members must have relevant experience and specialization of no less than seven years, and a university degree corresponding to the competence of the Investment Commission, and must not have been imprisoned for a felony, misdemeanour involving honour, or have been declared bankrupt.

Furthermore, Article 5, paragraph 5, deals with the functions of governorate Investment Commission. It reads as follows: . . . Governorate Investment Commissions shall lay down their investment plans, which shall not be in contradiction with the federal investment policy. They shall prepare lists of investment opportunities in the areas subject to their jurisdiction, with preliminary information relating to those projects, and making them available to those interested in investment.

The establishment, composition, and functions of the governorate Investment Commissions are identical with those of regional Investment Commissions. Indeed, they are dealt with in the same provision. Therefore, and in order to avoid an unnecessary repetition, it is submitted that what has been said with respect to the regional Investment Commissions, applies, mutatis mutandis, to the governorate Investment Commissions.38

4. Conclusion The requirements for a license for an investment project in Iraq is a normal procedure, which any sovereign State is likely to impose. The purpose is to regulate the sphere of investment in the country. But neither the procedure, nor the contents of the application for a license, is hard to meet. They are simple and are intended to encourage the investor, rather than to discourage him. And these requirements apply to both Iraqi and non-Iraqi investors on the basis of equality.

38

See above pp. 55–60.

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Moreover, the organs that have the authority to grant licenses are called upon to help the investor, in contacting other competent authorities, for the purpose of facilitating the process of licensing. And the period required for a decision on the grant of a license is relatively short, namely 45 days for the NIC and 30 days for the Kurdistan Investment Board and governorate Investment Commissions. It is submitted that there is also a right of appeal against a negative decision for the grant of a license. Furthermore, the Federal Investment Law provides for a decentralized system of licensing investment projects. It allows the regions and governorates to issue licenses in their respective territories. This is an important measure to avoid delays and prolong the process for granting a license, which would otherwise ensue if the licensing were centralized in Baghdad. However, the Federal Investment Law requires the investment plans of the regional and governorate Investment Commissions not to contradict the federal investment policy. This is done for the sake of harmony between the investment policies and plans of the latter and those of the regional and governorate Investment Commissions. It is hoped that this approach will help to encourage investors, Iraqis and non-Iraqis to invest in the country.

Chapter IV Incentives to Investors 1. Introduction The Federal Investment Law takes a liberal approach in the grant of incentives to investors, be they foreign or Iraqis. It provides for a large number of incentives which are intended to encourage investment and to provide the appropriate investment climate in the country. We shall deal with the incentives in the following order: First, the repatriation of the investor’s capital and its returns, then the tax-exemption, followed by the question of ownership of land for residential projects, dealing in shares and bonds, lease of land, project insurance, bank accounts, additional advantages by treaty, and finally a conclusion.

2. Repatriation of the investor’s capital and its returns The first incentive for the investor under the Federal Investment Law is provided in Article 11, paragraph 1, which reads as follows: The investor shall enjoy the following advantages: 1. the repatriation of the capital he has brought into Iraq and its returns, in convertible currency, in accordance with the provisions of this Law, as well as the instructions of the Iraqi Central Bank, after the fulfilment of all his obligations and the payment of all his debts to the Iraqi government and other entities.

According to this provision, any investor has the right to take out any capital he has brought into Iraq for investment purposes, together with any profits or dividends accrued from the investment. The term “capital” is very widely defined in Article 21 of the Federal Investment Law. It reads:

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The capital of a project covered by the provisions of this Law shall consist of: 1. The funds transferred to Iraq through banks, financial companies, or any other lawful means, for the purpose of investment in conformity with the objectives of this Law. 2. The movable and immovable property and intellectual rights imported into Iraq, or bought in the local markets with the funds transferred to Iraq, which are: (a) the movable and immovable property related to the project; (b) the machinery, tools, equipment, buildings, constructions, means of transport, furniture, office equipment, necessary for the establishment of the project; (c) the intellectual rights, which include patent rights, trade-marks, technical know-how, engineering, administrative and marketing services, and the like. 3. The profits, returns and reserves resulting from the investment of the capital in Iraq in a project, if an increase has occurred in the capital of the project, or if the investment is continued in another project covered by the provisions of this Law.

This incentive can be described as a strong one to attract investment in Iraq. Not only can the investor take all his capital, with its very wide definition, and profits, out of the country, but he is also allowed to do so in any convertible currency, and not in Iraqi Dinars, with the possibility of loss on the rate of exchange. Of course, all debts and obligations of the investor to the government and others have to be paid, before the repatriation of the capital and its profits and dividends can take place. Thus, the Federal Investment Law assures the investor that there will be no impediment to the repatriation of his capital and profits, and thus, it is hoped, encourages him to come and invest in the country. Although it is not clearly stated in the provision, it is assumed that the repatriation of the capital and its profit take place when the investment project is liquidated or is sold to another investor, for it is possible under the Federal Investment Law for an investor to sell his project to another investor.1 As Dr. El Sheikh, commenting on this incentive, said: The most important guarantee to foreign investors is the assurance of freedom to remit their profits and repatriate their capitals in cases of liquidation.2

1 2

See Art. 23 of the Federal Investment Law. See The Legal Regime of Foreign Investment, p. 135.

Incentives to Investors

65

The same writer, commenting on the attitude of developing countries on the subject said: . . . There does appear to be an increasing tendency among developing countries to waive exchange control restrictions in favour of foreign investors wishing to transfer abroad their profits and capitals.3

It may be worth noting that Article 11, paragraph 1, of the Federal Investment Law speaks of the “investor”, without any distinction between a foreign and an Iraqi investor. And yet, the wording of Article 21, paragraphs 1 and 2, which defines the term “capital”, as we have seen above, seems to indicate that the investor meant in this context is the foreign investor, alone. If so, then an Iraqi investor who might have brought capital he owns abroad, or might have borrowed money from abroad, to invest in Iraq, may not benefit from this incentive. On the other hand, it may well be argued that the “investor” here covers both the Iraqi and the foreign investor. This standpoint derives support from the wording of Article 11, paragraph 1, which states that “the investor shall enjoy the following advantages” without any distinction between an Iraqi and a foreign investor. Moreover, under Chapter 3 of the Federal Investment Law, on incentives and guarantees to investors, Article 10 clearly states that “the investor shall enjoy all the advantages, guarantees and facilities . . . provided in this Law, irrespective of his nationality.” Therefore, it is submitted that both the Iraqi and foreign investors enjoy the benefits of this incentive. It should be pointed out that Article 7, paragraph 5, of the Kurdistan Investment Law is similar to Article 11, paragraph 1, of the Federal Investment Law. It reads: The foreign investor may return his capital abroad upon the liquidation or disposal of the project as long as this does not contradict . . . the provisions of existing customs and tax laws and procedures.

However, this provision is narrower in scope than Article 11, paragraph 1, of the Federal Investment Law, in that it restricts the application of the incentive to the foreign investor only. Therefore, it would seem that an Iraqi investor, who brought his capital from abroad, would not benefit

3

Ibid., p. 137.

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from this privilege, whereas under Article 11, paragraph 1, any investor, be it Iraqi or foreign, would enjoy this privilege. Another question may also be raised here: What would be the position of an Iraqi who has dual nationality? Would the authorities in the Iraqi Kurdistan Region apply the “genuine link theory” propounded by the ICJ in the Nottebohm case4 to this person? It is submitted that the distinction made here between an Iraqi and a foreign investor is not justified and may not be intentional, for the Kurdistan Investment Law aims at the encouragement and promotion of investment in the Region. This distinction is not compatible with that objective. It may be worth mentioning that the CPA Order 2003 contained a provision similar to Article 11, paragraph 1, of the Federal Investment Law.5 Under the Qatari Foreign Investment Law, 2000, a foreign investor has the right to transfer the investment capital and its returns abroad.6 A similar incentive is granted to the foreign investor under the Sudanese Encouragement of Investment Act, 2000.7

3. Exemption from taxation and fees Another incentive provided under the Federal Investment Law is the exemption from taxation and other fees for the investment project, for a period of 10 years, which can be extended. Article 15, paragraph 1, reads as follows: Any project which has been granted an investment license by the National Investment Commission shall enjoy an exemption from taxes and fees for a period of (10) ten years, from the date of the beginning of the commercial operation, according to the development areas defined by the Council of Ministers, upon the suggestion of the National Investment Commission,

4

5 6 7

In the Nottebohm case between Guatemala and Liechtenstein, the ICJ held that “. . . nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments”. See ICJ Rep. (1955), p. 23. See Sec. 7, para. 2 (d), of CPA Order 2000. See Art. 9 of the Qatari Foreign Investment Law, 2000. See note 2 above, p. 135.


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taking into account the degree of economic development of the area and the nature of the investment project.

Accordingly, any investor who has been granted a license for an investment project by the NIC, will be exempted from any tax or fee in Iraq, it would appear, for all the components of the project. The provision speaks of exemption from “taxes” and “fees”. These terms are defined in Article 1, paragraph K, of the Federal Investment Law as “all kinds of fees and taxes imposed by the applicable Iraqi laws”. Therefore, the exemption is intended to apply to any tax, be it income tax, property tax and so on, imposed by Iraqi legislation. It also applies to any fees, which are normally applicable under Iraqi law, such as registration fees, import fees, customs duties and so on. A foreign, as well as an Iraqi investor, can enjoy the benefits of this incentive. For the provision speaks of “a project which has been granted an investment license”, without any distinction between Iraqi and non-Iraqi investors. So far as the duration of the exemption is concerned, it is for ten years, from the date of the beginning of the commercial operations of the projects, i.e., when the project begins to produce whatever it is intended to produce. For example, if the project is the establishment of an electricity plant, the ten-year period starts from the date on which the plant begins to produce electricity. Furthermore, according to Article 15, paragraph 3, the NIC has the power to extend the period of the exemption from taxes and fees from 10 to 15 years. This is done on the basis of the increased participation of Iraqi investors in the project, and will reach fifteen years, if the Iraqi investor’s share in the project is more than 50%. In addition, according to Article 15, paragraph 2, the Council of Ministers has the power to suggest new laws granting additional exemptions and extending their duration. The provision reads as follows: The Council of Ministers shall have the right, in the national interest, to suggest new laws for the extension, or the grant, of additional exemptions, other than those mentioned in paragraph (1) of this Article, or to offer other incentives, guarantees, or advantages to any project, sector, or area, for any period or percentage which the Council considers appropriate, according to the nature of the commercial activity and its geographical location, as well as the extent of its contribution to the labour employment, and the enhancing of the cycle of the economic growth.

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Therefore, there are possible additions to the incentive under consideration, in terms of enlargement of the exemptions, as well as the extension of their duration, which the Council of Ministers may adopt, one day, in the light of the benefits for the country which the investment project may offer. It may be worth noting that, if the ownership of the investment project is transferred during the exemption period, the exemption continues to apply until the end of that period, whatever that period may be. This is so, provided that the new investor continues the work on the project, in the same sector, or in another sector, if the agreement of the NIC is obtained.8 On the other hand, if during the exemption period, ownership of the project is transferred from one development area to another, it shall be treated, for the purposes of Article 15, paragraph 1, on the same basis as other projects in that area, for the remaining time of the exemption period.9 However, the investor is required to notify the NIC of the transfer of the project.10 Furthermore, Article 17, paragraphs 1–4, of the Federal Investment Law exempts from the payment of fees “the materials and property” imported for the project, i.e., machines, tools, equipment, machinery and means of transport, furniture, office equipment and bedding for hotels, tourist cities, hospitals, schools and colleges, needed for the investment project, provided that they are brought into Iraq within 3 years from the date of the grant of the investment license.11 The same applies to the import of such tools, machinery and so on, which are necessary for the enlargement of the project, its development, or its modernisation, if this leads to the increase of its production capability, provided that such machinery, tools, etc, are brought into Iraq within 3 years from the date of notification by the investor to the NIC of the enlargement or development of the project.12 The provision defines the terms “enlargement” and “development”, for the purposes of exemption. The term “enlargement” means

8 9 10 11 12

See Art. 23 of the Federal Investment Law. Ibid., Art. 16. Ibid. Ibid., Art. 17, para. 1. Ibid., para. 2.


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the addition of fixed capital intended to increase the production capacity of the project, in terms of goods, services, or materials of more than (15%) fifteen per cent.13

The term “development” is defined as the replacement of the existing machinery either partially or completely, or the development of existing tools and equipment of the project by adding new machines or equipment, or parts thereof, for the purpose of increasing the production capacity, or for the improvement and development of new types of products or services.14

It may be observed, en passant, that these definitions should have been included in the definition article of the Federal Investment Law (Article 1). In addition, spare parts imported for the investment project are exempted from the payment of fees, provided that their value does not exceed 20% of the value of the equipment, machinery, tools, etc. of the project, and that they are not used by the investor for purposes other than those relating to the project.15 It is to be noted that the provision speaks of exemption from the payment of “fees” only, on the imported items. The question then arises as to whether or not the term “fees” here also covers “taxes”. The term “fees” is defined in Article 1, paragraph (k), as “all kinds of fees . . . imposed by the applicable Iraqi laws.” According to a literal interpretation of Article 17, the exemption applies to “fees” only. This standpoint may derive support from the wording of Article 15, paragraph 1, where the drafters of the Federal Investment Law provided for exemption from “taxes and fees”. Had the intention been to cover both taxes and fees in Article 17, the drafters would have said so. On the other hand, it could be argued that the absence of any reference to the term “taxes” in Article 17 might be due to an oversight on the part of the drafters of the Law. For the policy and aims of the Federal Investment Law are to encourage and promote investment in Iraq. To deny the benefit of tax exemption to such items, it is submitted, would not be compatible with the aims of the Law. Further-

13 14 15

Ibid. Ibid. Ibid. para. 3.

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more, if the Law aims at attracting and encouraging investment in Iraq, it does not make sense to provide exemption from fees, but to impose taxes on items imported for the project, in the context of Article 17. Therefore, it would probably be reasonable to conclude that some oversight in the drafting of the provision might have occurred. This interpretation of the provision is more in line with the objectives of the Federal Investment Law than the first one, and it is the one preferred by this writer. It may be worth noting that some specific investment projects have been granted additional facilities by Article 17, paragraph 4, of the Federal Investment Law. These projects are hotels, tourism establishments, hospitals, health care institutions and rehabilitation centres, educational and scientific institutions. These projects enjoy further exemption from import fees on the furniture, bedding items and other items, imported for the purpose of the renewal and modernisation of these entities, at least once every 4 years. This is so, provided that these items are brought into Iraq, or are being used for the project, within 3 years from the date of the decision of the NIC approving the import lists and quantities thereof. Furthermore, these items, as well as those mentioned in paragraph 3 of Article 17, cannot be used for purposes other than those for which they have been imported.16 Therefore, if any of the exempted equipment tools, machinery, spare parts and so on, are sold in Iraq, contrary to the provisions of the Federal Investment Law, or not used for the investment project, or used for purposes other than those for which they have been authorised, the investor must pay the taxes, fees and fines on these items.17 Moreover, these exemptions are granted, once the license for the investment project is granted, it would appear, and without the need for any further measure on the part of the Iraqi authorities. This exemption from taxation and fees under the Federal Investment Law may be contrasted with that prevailing under the Sudanese Encouragement of Investment Act, 2000, the Qatari Law on Foreign Capital Investment in Economic Activities 2000 (hereinafter referred to as “the Qatari Foreign Capital Investment Law”), and the Jordanian Investment

16 17

See Art. 18 of the Federal Investment Law. Ibid.


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Law, 2003. So far as the Sudanese Act is concerned, the exemption from taxes and fees can be effective only upon the approval of the Minister of Finance. According to Dr El Sheikh, . . . tax exemptions and other concessions to be accorded to investors do not apply as of right. They depend rather on the discretion of the Minister of Finance and National Economy. The Minister’s discretion in according these tax exemptions and other concessions to investors is not absolute. In exercising this discretion the Minister must take into account consideration of the type, extent, period of concessions and the extent of the achievement of the investment project for the economy . . . ”18 He goes on to say that “This opens the door for political influence and leads to preferential treatment and discrimination even among investors of the same nationality.19

Under the Qatari Foreign Capital Investment Law, the Ministry of Finance, Economics and Trade “may” exempt the foreign capital, imported equipment, tools and machinery, raw materials, for the project, from income tax and customs duties.20 And under the Jordanian Investment Law, an investor has to apply to the Chairman of the Committee of Investment Incentives, requesting to benefit from the exemptions and incentives. The request is then submitted by the Chairman to the Committee to take its decision on the request of the investor.21 By contrast, under the Federal Investment Law, once the investor obtains the license for his project, these exemptions apply to the project, without any intervention from any ministry in Iraq. And if any of the exemptions is denied to the investor, it is submitted, he can go to a court of law and enforce their application. Thus, it seems clear that the Federal Investment Law is more liberal than the laws of those Arab States just mentioned. The exemptions provided under the Federal Investment Law are very wide and generous. They should provide strong incentives to any bona fide investor to invest in Iraq, as well as creating the right climate for investment in the country. Dr. El Sheikh, assessing the effect of the grant of tax exemptions, says:

18 19 20 21

See The Legal Regime of Foreign Investment, p. 87. Ibid., p. 100. See Art. 7 of the Qatari Foreign Capital Investment Law. See Art. 10 of the Jordanian Investment Law, 2003; also see Art. 8 thereof.

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They essentially serve as a signal from the government of a capital-importing country to foreign investors that they are welcomed.22

So far as the Kurdistan Investment Law is concerned, it provides for exemptions from taxation, fees, and customs charges in a way similar to that of the Federal Investment Law. They are laid down in Article 5 of the Kurdistan Investment Law, which reads as follows: First: The project shall be exempted of all non-customs taxes and duties for a period of 10 years as of the date on which the project begins offering its services or as of the day of actual production. Second: The vehicles, machinery, equipment and imported machines for the project shall be exempted from taxes and duties and the condition to obtain import license, provided they are imported through the border crossings of the Region within two years from the date of the approval of their lists by the Chairman of the Board and are used exclusively for the purposes of the project. Otherwise, it will not be included in these exemptions and the investor will be compelled to pay the tax and will be penalized by paying double the sum of the due tax. Third: The spare parts imported for the project shall be exempted of taxes and duties provided their value is not more than 15 percent of the price of the machinery and equipment upon the prior approval of their lists and quantities by the Chairman of the Board. Fourth: The machinery and equipment needed for the expansion, development, or modernization of the project shall be exempted of taxes and duties. Fifth: The raw materials needed for production shall be exempted of customs duties for a period of five years, provided the types and quantities of these materials are determined by the Board, while giving priority to the use of locally available raw materials that are suitable for the investment project in quantity and quality. Sixth: The investor may in accordance with the provisions of this Law import the needs of his project, including machinery and equipment. These imports shall be exempted of all customs duties provided they enter through the border crossings of the region and are used exclusively for the purposes of the project.

These exemptions also apply without the need for any intervention from any ministry in the Iraqi Kurdistan Region, once the Investment Board

22

See The Legal Regime of Foreign Investment, p. 112.


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has issued the license for the project. An investor can resort to a court of law in the Kurdistan Region to enforce their application, should the need arise for such an action. However, there are some minor and serious differences between the Federal Investment Law and the Kurdistan Investment Law. With respect to the minor difference, for example, according to the Kurdistan Investment Law, the machinery and equipment have to be imported within 2 years from the date of approval of their lists by the Chairman of the Investment Board,23 instead of 3 years under the Federal Investment Law. Furthermore, the percentage of exemption of spare parts is 15% under the former,24 instead of 20% under the latter. As regards the serious differences, according to Article 5, paragraph 2, of the Kurdistan Investment Law, the former, in order to enjoy exemption from taxes and duties, the imported vehicles, machinery, equipment and machines, have to “be imported through the border crossings of the region,” i.e., the Iraqi Kurdistan Region. There is no such requirement under the Federal Investment Law. Moreover, while it is not crystal clear, it would appear from the wording of Article 5, paragraph 2, of the Kurdistan Investment Law that, if these equipment and machinery are imported through another crossing area, the investor will have to pay double the taxes due. The linking of the application of the exemptions to the geographical area through which they pass cannot be justified by any logic. Furthermore, it is not helpful to the investor, and it is not conducive to the creation of a suitable climate for investment in the Iraqi Kurdistan Region, which the Kurdistan Investment Law aims to achieve. It contradicts the Federal Investment Law, and as such, it would be considered as invalid, by virtue of Article 33 of the Federal Investment Law. Therefore, it would seem that an investor importing his machinery through the Jordanian border crossing would be able to challenge the validity of the provision before a court of law, if he is denied the exemption from taxation provided under the Kurdistan Investment Law.

23 24

Ibid., para., p. 2. Ibid., para. 3.

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4. Ownership of land for residential projects As an incentive to investors, Iraqis and non-Iraqis, the Federal Investment Law gives the investor the right to acquire land, for a consideration to be agreed upon between him and the land-owner, and without speculation in the land. This incentive is provided in Article 10 of the Federal Investment Law. It reads as follows: The investor, irrespective of his nationality, shall enjoy all the privileges, facilities and guarantees, and shall be subject to the same obligations contained in this Law. The Iraqi and foreign investor shall have the right, for the purposes of residential projects, to hold the land, for a consideration to be agreed upon between him and the landowner, without speculation in the land and in conformity with the criteria laid down by the National Investment Commission, with the approval of the Council of Ministers. The Commission shall facilitate the assignment of the necessary lands for residential projects and the transfer of ownership of residential units to Iraqis, after the completion of the project.25

This acquisition of land by the investor is subject to criteria to be set up by the NIC, with the approval of the Council of Ministers. Furthermore, it seems to be limited to projects for building residential areas in the country only. For the provision goes on to describe the role of the NIC in facilitating the allocation of the necessary land for such projects, and the transfer of ownership of residential units to Iraqis, at the end of the project. There appears to be no right for investors to acquire land, as such, for investment.26 But an exception is made here, probably in order to encourage the building of housing for Iraqis, as the country suffers from a huge shortage of housing. Of course, the investor will enjoy all the tax exemption provided by the Federal Investment Law for the import of building material, equipment, installations and so on.27 Furthermore, projects of this nature provide employment possibilities for Iraqi workers

25 26 27

For details see above pp. 31–33. See also above p. 31. For tax exemption, see above pp. 66–70.


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and architects, and help the social development in the country. These are in line with the objectives of the Federal Investment Law.28 A similar incentive exists under Article 4, paragraph 6, of the Kurdistan Investment Law, which reads as follows: The investor may purchase and lease the lands and real estates necessary for the establishment, expansion, diversification and development of the project in accordance with the provisions of this Law taking into consideration the provision of Paragraph (Third) in this Article.

The Kurdistan Investment Law is more liberal than the Federal Investment Law in that it expressly allows investors to own land and real estate for the establishment of projects, their expansion and diversification. By contrast, the Kurdistan Investment Law does not allow investors to own land, which contains oil, gas, precious or heavy mineral resources.29 It may be wondered why the federal legislator did not allow the ownership of land, for the purposes of establishing projects and their expansion. For example, if an investor wants to build a private hospital, or a training centre for computers, why should he not be allowed to own the land on which such projects are established? After all, there is no shortage of land in Iraq, and the speculation in land could have been disallowed, which is the case under Article 10 of the Federal Investment Law. The CPA Order 2003 banned the ownership of land by foreign investors.30

5. Dealing in shares and bonds This incentive is directed at the foreign investor, who is permitted by Article 11, paragraph 2, to deal, freely, with shares and bonds in the Iraqi stock exchange and money market, and to have portfolios in such bonds and shares. The provision reads as follows:

28 29 30

See above Chapter II. See Art. 19 of the Kurdistan Investment Law. See Sec. 8, para. 1, of CPA Order 2003.

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A foreign investor shall be entitled: (a) to deal in shares and bonds listed in the Iraqi stock exchange, (b) to establish portfolios in such shares and bonds.

Accordingly, foreign investors can buy and sell shares of Iraqi companies, without any limit, it would appear, of the percentage of the share of the capital of such companies. That is to say, a foreign investor can own any percentage of shares of Iraqi companies, and sell them, without limitation. The same applies to bonds, and the establishment of portfolios in the country. Article 1, paragraph (m) defines the term “portfolio” as “a collection of investments in shares and bonds.” Of course, an Iraqi investor has the same incentive, even though the provision does not mention that. As an Iraqi citizen, he or she, can do so without the need to provide for this entitlement in the Federal Investment Law. It may be interesting to point out that some Arab States impose a limit on the ownership of shares by foreign investors in their companies. For example, under the Qatari Foreign Capital Investment Law, a foreign investor is not allowed to own more than 25% of the shares of a share-holding company offered in the Doha stock exchange, unless the contract, or the statute establishing the company, allows a higher percentage of participation in its capital. In the latter case, this percentage must have been approved by the Council of Ministers, upon the suggestion of the Minister of Finance, Economy, and Trade.31 Under the United Arab Emirates law, it would appear, the maximum permissible ownership of shares of national companies is 49% of the company’s capital.32 The aim of this incentive appears to be to encourage the foreign investor to invest in shares and bonds, so that this commercial activity is strengthened and enhanced by foreign investment. It also amounts to a declaration that the share and bond markets are open to foreign investors. In some countries, foreigners are not allowed to trade in shares of national companies. For example, the Saudi Arabian stock market is closed to foreign investors, except for those living in the Kingdom.33 Moreover, it is only

31 32 33

See Art. 2, para. 4, of the Qatari Foreign Capital Investment Law. See the International Herald Tribune, 1 October 2007, p. 18. See the International Herald Tribune, 26 September 2007.


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very recently that the Saudi Arabian authorities have opened the share market for the citizens of the Gulf Cooperation Council only.34 There are no large commercial companies in Iraq, at the present time, and the stock exchange is at its early stages of development. So far as the Kurdistan Investment Law is concerned, there is no similar incentive available under it to the foreign investor because there is no stock exchange market in that part of the country, at the present time.

6. Lease of land for investment projects Another incentive to the foreign and Iraqi investors is the right to lease the land necessary for the establishment of a project, or the making of a contractual arrangement relating to the use of the land on which the project is established, known in Arabic as “ALMUSATAHA”, for a period not exceeding 50 years. This is laid down in Article 11, paragraph 3, of the Federal Investment Law, which reads as follows: The investor shall enjoy the following advantages: — 3. The lease of the lands necessary for the project, or the making of ALMUSATAHA for an established project, for a period not exceeding (50) fifty years, which can be extended with the agreement of the National Investment Commission, taking into account the nature of the project and its economic significance for the national economy.

The term “ ALMUSATAHA” is an Iraqi concept, which means under Iraqi law a contractual arrangement for the use of land between the landowner and another party, whereby the latter can use the land for a period of 50 years, after which the land and whatever was built on it, reverts to the landowner. It is a concept probably similar to leasehold in the U.K. This incentive appears to be intended to provide a facility for the investor,

34

See ibid. The Gulf Cooperation Council can be described as a regional organization, with the following Member States: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. See Bowett’s Law of International Institutions, 5th edn. (2001) by Philippe Sands and Pierre Klein, pp. 240–241.

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in view of the ban by the Federal Investment Law on the ownership of land, other than for residential projects. It concerns the land on which an investment project is to be established, or is already established. This period of 50 years can be further extended by the NIC. But it is not clear from the provision as to whether or not the extension would be for another period of 50 years. The provision simply states that that period is “capable of extension” with the agreement of the NIC, but without specifying the length of the extension. It might be argued that the extension of the lease, or the ALMUSATAHA, could be for a further 50-year period, as a maximum, depending on the assessment by the NIC of the nature of the project and its advantages for the Iraqi national economy. This incentive is a useful device in creating a reasonable climate for investors. While the rent of the necessary land for an investment project is a contractual matter between the landowner and the foreign investor, the legislator has intervened here in order to assure the investor of the long period of lease he can contract for. In addition, the legislator intended the NIC to have a say in the extension of the 50-year period. This long period of rent can be helpful for long-term projects, such as agricultural projects, the building of private hospitals or clinics, or educational institutions. So far as the Kurdistan Investment Law is concerned, any investor, foreign or Iraqi, can lease the land necessary for the establishment, expansion, diversification, and development of an investment project, within the areas and periods of time, determined in the light of the objectives of the project and its actual needs.35 It might be interesting to point out that under the CPA Order 2003, the lease of land for investment purposes by a foreign investor was allowed, but the duration of the lease was limited to 40 years, renewable for a further period of 40 years.36

35 36

See Art. 4, para. 6, of the Kurdistan Investment Law. See Sec. 8, para. 2, of CPA Order 2003.


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7. Project insurance The Federal Investment Law permits the investor, Iraqi and non-Iraqi, to insure his investment project with any insurance company against the risks which may harm his investment. Article 11, paragraph 4, reads as follows: The investor shall enjoy the following advantages: — 4. the insuring of his investment project with any national or foreign insurance company he considers suitable.

This facility is intended to give the investor the right to insure his project, as well as the freedom to choose any insurance company for that purpose. Thus, for example, a foreign investor can take out an insurance policy with an English insurance company, or an Iraqi one, against any risks he considers relevant to his investment project. Such a measure, it is hoped, should encourage foreign investors to invest in Iraq. It has been said that the concept of investment insurance has now been recognized as an effective device for improving the investment climate.37

It would appear that there are three basic types of risk feared by foreign investors, namely, expropriation, damage resulting from war, revolution or insurrection, and inconvertibility or non-transfer of funds.38 It may be worthwhile mentioning that several capital-exporting industrial countries have adopted national programmes providing insurance for their nationals’ investment abroad. All have the same general purpose and format. They provide insurance against [the] three basic types of risk.39

It seems that there are now some forty-eight investment and export credit insurance agencies grouped under the International Union of Credit and

37 38 39

See El Sheikh, op. cit., p. 196. See ibid., p. 203. Ibid., pp. 202–203.

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Investment Insurers (the Bern Union), which is an organization comprising national, regional and international agencies specializing in investment and credit export insurance worldwide.40 Finally, it should be pointed out that the Kurdistan Investment Law contains a provision similar to Article 11, paragraph 4, of the Federal Investment Law.41 On the other hand, the CPA Order 2003 gave the foreign investor the right to obtain insurance coverage, for all aspects of his operations, from any foreign or Iraqi source.42

8. Bank accounts The Federal Investment Law permits the investor, Iraqi and non-Iraqi, to open bank accounts, in foreign or Iraqi currencies, or both, at any bank in Iraq, or outside it, for the purposes of his licensed project This is laid down in Article 11, paragraph 5, which reads as follows: The investor shall enjoy the following advantages: — 5. the opening of bank accounts in Iraqi or foreign currency, or both, in any bank, in Iraq and outside Iraq, relating to his licensed project.

This is a good measure, designed to facilitate the task of the investor, particularly the foreign investor, in arranging the financial aspects of his operations in Iraq. Furthermore, the foreign investor has complete freedom to open accounts at any bank, be it in Iraq or outside it, and in Iraqi currency, foreign currency, or both currencies. This freedom, it is submitted, is very important for facilitating the investor’s import and export operations in Iraq. This way the investor does not feel restricted to use a particular bank or currency, and thus would feel encouraged to invest in Iraq.

40 41 42

See ibid., p. 197. For details concerning these organizations, see ibid., pp. 202–262. See Art. 7, para. 1, of the Kurdistan Investment Law. See Sec. 9 of CPA Order 2003.


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The Kurdistan Investment Law contains a provision similar to Article 11, paragraph 5.43

9. Additional advantages in treaties The Federal Investment Law provides for the possibility for additional privileges and incentives to those already granted under it, for foreign investors in bilateral or multilateral treaties, to which Iraq is a party. This possibility is laid down in Article 22 of the Federal Investment Law, which reads as follows: A foreign investor shall be entitled to additional advantages, in accordance with treaties between Iraq and his national State, or multilateral treaties to which Iraq is a party.

It is interesting to note that one whole provision has been devoted to deal with this matter. This may indicate the importance attached by the drafters of the Federal Investment Law to the role of treaties in the provision of more advantages to foreign investors in Iraq. Article 22 is, of course, intended to apply to foreign investors only. Furthermore, it provides the legal basis for advantages, other than those already granted under the Federal Investment Law, if Iraq were to conclude a bilateral treaty with the national State of the investor, or if Iraq became a party to a convention on investment. For example, if Iraq and State A were to conclude an investment treaty, Iraq could grant nationals of State A investing in Iraq more advantages than those provided for in the Federal Investment Law, such as the right to establish investment projects without the need to apply for an investment license, or extending the exemption for taxation from 10 to 20 years, or allowing the ownership of land for any project. This measure would be one of the ways of applying Article 22 of the Federal Investment Law. The same would hold true, if Iraq were to conclude a multilateral treaty on investment, for example, with the Gulf States, providing for exemption from taxation of salaries of foreign labourers

43

See Art. 7, para. 7, of the Kurdistan Investment Law.

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working in Iraq on investment projects covered by that treaty, and giving them the right to transfer all their salaries abroad. These facilities would be additional to those granted under the Federal Investment Law, but would be granted under a multilateral treaty, in conformity with Article 22. Such additional advantages would apply to the nationals of another state, if Iraq had a treaty with that State providing for the application of the most-favoured-nation clause. This clause is defined in the U.S. Treaties on Friendship, Commerce and Navigation, as follows: Treatment accorded within the territories of a party upon terms no less favourable than the treatment accorded therein, in like situations, to nationals, companies, products, vessels or other object, as the case may be, of any third party.44

This means that if Iraq were to conclude an investment treaty with State Y granting the advantages provided under the Federal Investment Law, and if the treaty contained the most-favoured-nation clause; if subsequently, Iraq concluded an investment treaty with State Z granting investors who are nationals of that State more advantages than those provided under the Federal Investment Law, the nationals of State Y would benefit from the grant of such advantages, by virtue of the most-favoured-nation clause. It seems that bilateral treaties can offer a useful device for investment. It has been said that more than 2200 bilateral investment treaties have been concluded by both developed and developing countries covering every region of the world.45 The grant of additional advantages in treaties is a useful device to cover future situations. However, Iraq, as a sovereign State, has the right under international law to provide such additional advantages in treaties it concludes with other States, without the need for a specific reference to that right in the Federal Investment Law. But the specific reference to this right may be construed as an indication of the intention of the drafters of the Law to create a favourable investment climate in Iraq. Mention should be made of the position under the Kurdish Investment Law. The Iraqi Kurdistan Region does not possess a treaty-making

44 45

See U.S.-South Korea Treaty, 1956, quoted in El Sheikh, op. cit., p. 148. See Foreign Investment Disputes, p. 8.


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power, since this domain is reserved for the federal government by the Iraqi Constitution.46 However, the Kurdistan Investment Law permits the Kurdistan Investment Board to grant additional incentives and facilities to investment projects licensed there. Accordingly, Article 6, paragraph 1, provides that: The Board may, for the requirement of the public interest in the region, grant additional incentives and facilities to investment projects that are licensed under the provisions of this Law and that enjoy one of the following two characteristics . . .: 1. Projects that are established in the less developed areas in the region; 2. Joint projects by national and foreign investors.

It would therefore seem that the Kurdistan Investment Law provides for two situations for the grant of additional incentives: 1. the project must be in a less developed area of the Region; 2. it is a joint project between a foreign investor and an Iraqi in the Kurdistan Region. In either case, additional advantages and incentives to those already in the Kurdistan Investment Law would be granted. These conditions might be justified by the needs in the region to promote less developed areas there, and to promote local participation in foreign investment projects. No such conditions exist under the Federal Investment Law. It may be interesting to point out that the CPA Order contained a provision on the application of the most-favoured-nation clause to foreign investors in Iraq.47

10. Conclusion The Federal Investment Law offers very generous incentives to the investors in Iraq, be they Iraqi or non-Iraqi. The package of incentives offered under it are comprehensive. They cover very important matters, from the point of view of the investor. For example, the incentive of the investor to repatriate his capital and its returns, is an essential element in assuring the investor of the right conditions for his investment. Furthermore, the

46 47

See Art. 110, para. 1, of the Iraqi Constitution. See Sec. 14 of CPA Order 2003.

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duration of the exemption from taxation, namely 10 years, is generous too. The same holds true vis-à-vis the lease of land for projects, which is 50 years extendable according to the circumstances of the investment project. Moreover, these exemptions, and facilities accrue, and apply, once the investment project is licensed, it would appear, without intervention from any other Iraqi authority. This is not the case in some other Arab States, as we have seen earlier in this work,48 where the exemptions offered are subject to the discretion of the ministers concerned. The grant of privileges, facilities and exemptions is intended to encourage investment in Iraq, and to create a suitable climate for that purpose. An investor, foreign or Iraqi, should feel encouraged by the availability of such incentives to invest in the country. However, the Federal Investment Law may be criticised for not putting the provisions dealing with incentives in a proper chronological order. For they are dealt with in Chapter 3 (Articles 10 and 11), then in Chapter 5 (Articles 15–18), then chapter 7 (Article 22–26). It would have been more appropriate for all the relevant provisions to be grouped in one section or more, in chronological order. This is the case under the Kurdistan Investment Law (Articles 5–7).

48

See above pp. 76–77.

Chapter V Guarantees to Investors 1. Introduction The Federal Investment Law provides a number of guarantees to the investor. They are intended to assure the investor that his investment and assets in Iraq will be protected by law, and that no arbitrary measures will be taken against him. These guarantees are laid down in Article 12 of the Federal Investment Law, and shall be dealt with in the following order: first, the employment of non-Iraqi personnel will be treated, followed by the right of entry, residence and exit to the investor, the guarantee against expropriation and nationalization, the repatriation of salaries and benefits of non-Iraqi personnel, the sale or re-export of machinery and equipment, the equal treatment of investors, and finally some concluding remarks.

2. Employment of non-Iraqi personnel The investor has been guaranteed the right to employ non-Iraqi personnel on his investment project in Iraq, subject to certain conditions. This is laid down in Article 12, paragraph 1, of the Federal Investment Law, which reads as follows: This Law guarantees to the investor the following: 1. The investor has the right to employ and use personnel, who are not Iraqis, where it is not possible to employ Iraqis who possess the required qualifications and are able to carry out the same tasks, according to criteria laid down by the National Investment Commission.

Accordingly, the investor, whether Iraqi or non-Iraqi, has the right to employ, and use the services of non-Iraqis on his project, provided that:

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(a) there are no Iraqi citizens who possess the required qualifications for the job; (b) the available Iraqis are incapable of carrying the same tasks as the non-Iraqis; and (c) the employment of non-Iraqis should be in accordance with criteria laid down by the NIC for that purpose. These conditions appear to be cumulative, therefore, if one of them is missing, the investor will not be able to employ non-Iraqi personnel. Accordingly, if there are no Iraqi citizens possessing the skills required for work on the investment project in Iraq, the investor has been guaranteed the right to bring into the country foreigners who possess such skills, in order to carry out the tasks required for the implementation of the project (condition (a)). By contrast, if there are Iraqi citizens who possess the required skills, the investor will not be allowed to employ non-Iraqis for the same tasks. On the other hand, if there are Iraqi personnel, with the right qualifications for the job, but who lack the necessary experience, the investor, it would appear, is allowed to employ non-Iraqis on his project. For in this case, while the Iraqis possess the right qualifications, they may not be capable of carrying out the same tasks as non-Iraqis (condition (b)). Moreover, the employment of non-Iraqi personnel has to be in conformity with criteria to be adopted, for this purpose, by the NIC (condition (c)). So far as is known, no such criteria have been formulated by the NIC. It should be stated that this guarantee is given to both the Iraqi and non-Iraqi investor. Therefore, an Iraqi investor intending to bring some personnel from abroad for his project has to comply with these conditions, in the same way as a foreign investor. The approach adopted in this respect by the Federal Investment Law is a reasonable one, for it would be in the interest of both the country and the investor, to use such locally available skills, and help to promote them. It is understandable, from the point of view of the Iraqi government, that Iraqi citizens should be employed to do the work on investment projects, instead of non-Iraqis, especially at a time when many skilled Iraqi professionals have left the country because of the prevailing insecurity, after the fall of the Ba’ath regime in 2003. It would also probably be cheaper for

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the investor to use available and qualified Iraqis in the implementation of his project, instead of non-Iraqis brought from outside the country. Furthermore, this approach is also in line with the objectives of the Federal Investment Law concerning the development of human resources, and the provision of employment opportunities for Iraqis in the sphere of investment activities.1 It should be pointed out that a similar guarantee exists under the Kurdistan Investment Law, though it expressly speaks of giving “priority to local manpower”. This is laid down in Article 7, paragraph 2, of the Law, which reads as follows: The investor may employ the necessary local and foreign manpower for the project, while giving priority to local manpower in accordance with existing laws in the region.

In effect, this amounts to the same requirement as under the Federal Invetment Law, even though it is worded differently. It would be reasonable to assume that Article 7, paragraph 2, implies that the “local manpower” should be qualified and capable of doing the required tasks on the project. It may be interesting to point out that in the Sudan, . . . it is the policy now that Sudanese nationals must be employed whenever they are qualified for the job.2

Furthermore, it would seem that some developing countries insist on having a certain proportion of the personnel of foreign investors be of their nationals. For example, Burma (Myanmar) requires that 25% of skilled personnel of a foreign investor must be Burmese nationals, Pakistan requires 50%, while Saudi Arabia requires no less than 75% of the total workforce.3

1 2 3

See above Chapter I. See Dr. El Sheikh, The Legal Regime of Foreign Investment, p. 67. Quoted by Dr. El Sheikh, see ibid., p. 66.

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3. The right of entry, residence and exit Article 12, paragraph 2, of the Federal Investment Law provides the foreign investor, and his non-Iraqi employees working on his investment project, with the guarantee to reside in Iraq, and to facilitate their entry and exit, to and from Iraq. The provision reads as follows: This Law guarantees to the investor the following: — 2. The foreign investor and those non-Iraqis working on his investment projects have the right of residence in Iraq, as well as the facilitation of their entry and exit, to and from it.

Accordingly, the foreign investor, as well as his non-Iraqi employees, are guaranteed the right to reside in Iraq, and to enter and exit from it, easily, at any time, presumably throughout the duration of the investment project. This guarantee applies, it would appear, to all non-Iraqi employees, whether skilled or non-skilled. This position may be compared with the position in the Sudan, where the entry of foreign employees working on investment projects is limited to those specialized and highly skilled people. Dr. El Sheikh says: According to the immigration laws and policy directives, the employment of aliens in Sudan is confined only to those performing jobs related to the preparation of specialized and highly technical matters.4

The guarantee provided under the Federal Investment Law is a necessary measure for the movement of the foreign investor and his foreign employees to and from Iraq. For, if the foreign investor has to comply with too many formalities, this would probably delay the start of the project, which is not in the interest of promoting investment in Iraq. Furthermore, if the project operations require the foreign investor, or any of his employees, to leave the country very quickly, or suddenly, he can do so and return to Iraq without impediment, according to the provision. It would appear that the investor can bring his foreign employees into Iraq, without much delay. This again, is a measure intended to allow

4

See ibid., p. 67.


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the investment project to operate without delay, for the provision speaks of the “facilitation of their entry and exit” for the investor’s employees, to and from Iraq. Delays in immigration formalities, e.g., the grant of a visa, or a residence permit vis-à-vis foreign employees, can have a negative impact on the operations of the project, and can be harmful to the interests of the foreign investor. The question may be raised: Why did the Iraqi legislator restrict this guarantee to the foreign investor? After all, an Iraqi investor may well need to employ non-Iraqis, with special skills, on his investment project. The answer may be to the effect that it is easier for an Iraqi investor to deal with the questions of residence, entry and exit of his non-Iraqi personnel, than for a foreign investor. After all, he is assumed to be in Iraq and is more familiar with Iraqi rules and regulations. But, all the same, it would have been better to include the Iraqi investor in this guarantee, as well. It should be pointed out that the Kurdistan Investment Law does not deal with the issues of residence, and the entry and exit of foreigners to and from Iraq, for this is a matter which belongs to the federal authorities in Baghdad.5

4. Guarantee against expropriation and nationalization The Federal Investment Law guarantees to the investor, Iraqi and non-Iraqi alike, the non-nationalization and non-expropriation of their investment projects in Iraq. This is laid down in Article 12, paragraph 3, which reads as follows: This Law guarantees to the investor: — 1. the non-expropriation or nationalization of the investment project, which is subject to the provisions of this Law, partially or totally, except when a final judicial decision is rendered against the investor.

This guarantee assures the investor that the Iraqi government is not going to expropriate, nor nationalize, the investment project or his assets in

5

See Art. 110, paras. 1 and 5, of the Iraqi Constitution.

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Iraq. It may be asked: What is the meaning of the terms “expropriation” and “nationalization”? According to Oppenheim, the terminology has no precise accepted technical meaning. ‘Expropriation’ conveys in a general sense the deprivation of a former property owner of his property, and is equivalent to a ‘taking’ of property; . . . . ‘nationalisation’ usually connotes a transfer of property from private ownership to some form of state or public ownership.6

However, it seems that for practical purposes the two terms may be, and commonly are, used interchangeably.7 It should be pointed out that under international law, Iraq can expropriate the property of foreign and Iraqi investors. According to Oppenheim, It is now accepted that, subject to any international engagements to the contrary, expropriation of alien property is not in itself contrary to international law, provided that certain conditions are met.8

These conditions are that the expropriation must not be arbitrary, and must be based on the application of duly adopted laws; it should be in the public interest; non-discriminatory between aliens and nationals; and compensation should be paid for the expropriated property.9 However, there is much disagreement as to the appropriate standard of compensation. But according to Oppenheim, Clearly, the compensation will satisfy the requirements of international law if it meets the traditional standard of being paid promptly, being adequate in amount and being effective in the manner and form of its payment to recompense the former owner for the loss of his property. Each element of this standard allows a considerable margin of appreciation in the light of the circumstances of the case.10

6

7

8 9 10

See Oppenheim’s International Law, 9th edit. Vol. 1, Parts 2 to 4, p. 916, note 9, edited by † Sir Robert Jennings and † Sir Arthur Watts. See Dr. El Sheikh, The Legal Regime of Foreign Investment, p. 120. See also Parry and Grant, Encyclopaedia Dictionary of International Law (1986) pp. 124–5, and p. 252. See Oppenheim, op. cit., pp. 918–9, para. 407. See ibid., pp. 919–921. See ibid., pp. 921–922.


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The guarantee of non-expropriation and nationalization of the property and investment projects of foreign investors is a very important one, from the point of view of foreign investors. For it is known that foreign investors in developing countries fear that such a measure may be taken against their investment projects in those countries. Such fear would constitute, it would appear, an impediment to foreign investment in developing countries. As Dr. El Sheikh put it: A serious impediment to foreign private investment in a developing country is the fear of loss through expropriation, nationalization and similar measures. Any developing country that seeks to encourage the flow of foreign private capital to be invested in its territory is anxious to moderate these fears by establishing assurances and guarantees to foreign investors of the security of their investment. Indeed, the International Chamber of Commerce concedes that ‘the fear of expropriation has probably been considered one of the main impediments to the international flow of private capital.’11

Furthermore, according to Bishop, Crawford and Reisman, from the perspective of foreign investors, the most important aspects of any potential investment are financial . . . and legal (i.e., the ability to protect the corpus of the investment and its profit-making potential from confiscation, either directly or through unreasonable interference). Prudent investors will not risk substantial capital in a foreign enterprise unless the financial prospects are promising and the legal structure is sufficient to protect investment. These elements are the sine qua non of a prudent investment.12

Therefore, the Federal Investment Law, in providing this guarantee, must be understood to have been intended to remove any such fear. It is to be noted that Article 12, paragraph 3, does not use the usual terminology in some legislation with respect to nationalisation, namely “except for the public good and by virtue of a law,”13 or “on grounds or reasons of public utility, security, or the national interests.”14 The absence

11 12 13

14

See The Legal Regime of Foreign Investment, p. 114. See Foreign Investment Disputes, p. 8. See sec. 17 (1) (a) of the Sudanese Encouragement of Investment Act, 2000, ibid. p. 125; also Art. 8 of the Qatari Foreign Capital Investment Law. See General Assembly, Resolution 1803 (XVII) of December 1962, 4th operative paragraph.

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of such wording could be interpreted to the effect that the Iraqi government has waived its right under international law to nationalise foreign investment, therefore, there is no need to refer to the notions of public utility or national interests, as justifications for such a measure. It could also be possible to argue that perhaps the drafters of the Federal Investment Law, not being international lawyers, might not have been aware of the existence of the right to nationalize foreign investment under international law. However, the first interpretation is to be preferred, because it is in line with the objectives of the Federal Investment Law. But the question may be raised: can the Iraqi government expropriate/nationalize the investment project of a foreign investor, despite the guarantee not to do so? Two answers may be given. The first is that, as a sovereign State, Iraq has the right under international law to expropriate/nationalise the investment project of a foreign investor in its territory. This is so, of course, in the absence of treaty obligations to the contrary, and subject to the conditions specified by international law mentioned above. The second answer may be to the effect that, in offering the foreign investor the guarantee against expropriation/nationalization of his investment in its territory, Iraq has estopped itself from acting against that guarantee. Furthermore, the expropriation of a foreign investment in this case would be in breach of the principle of good faith.15 Finally, the guarantee offered above constitutes, it could be argued, a unilateral act, which binds Iraq. Unilateral acts are defined by Oppenheim as . . . acts performed by a single state, which nevertheless have effects upon the legal position of other states, particularly (but not exclusively) in their relations with the actor state.16

Furthermore, the ICJ held in the Nuclear Tests case that It is well recognized that declarations made by way of unilateral acts, concerning legal or factual situations, may have the effect of creating legal obligations. . . . When it is the intention of the State making the declaration that it should become bound according to its terms, that intention

15

16

On the principle of good faith, see Professor Bin Chen, General Principles of Law as applied by International Courts and Tribunals, p. 105 et seq. See Oppenheim, op. cit., pp. 1187–1188, para. 576.


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confers on the declaration the character of a legal undertaking, the State being thenceforth legally required to follow a course of conduct consistent with the declaration.17

Whether State A declares its intention to stop nuclear testing, or State B adopts a statute on its investment policy, it is submitted, there is a unilateral act concerning a legal situation, in the words of the ICJ. This unilateral act binds the declaring State to follow a course of conduct consistent with that declaration, be it for the cessation of nuclear tests, or the non-expropriation/non-nationalization of the property of a foreign investment in its territory. This writer believes that it is very unlikely that the Iraqi Government would change its position with respect to the guarantee to investors not to expropriate/nationalise their investment in its territory. Even if the Iraqi Government were to amend the present Federal Investment Law and allow expropriation/nationalisation of the property of foreign investors in Iraq, this amendment would not apply to the then existing investment projects in the country. This is clear from Article 13 of the Federal Investment Law, which reads as follows: Any amendment of this Law will not have a retrospective effect and will not affect the guarantees, exemptions and rights granted thereunder.

The question may be raised: If the Iraqi government were to decide to expropriate/nationalise the investment project of an Iraqi of dual nationality, what would be the position under international law? Under international law, a State has to pay compensation to the alien for the nationalization of his property, as we have seen earlier.18 On the other hand, “international law does not prohibit the expropriation by a state of the property of its own nationals.”19 It would appear that a State does not have to compensate its own nationals under international law, for the expropriation/nationalisation of their assets. If the Iraqi, in our example, has dual nationality, Iraqi/Swiss, could Switzerland provide diplomatic protection for him and make a

17 18 19

See ICJ Rep. (1974), p. 267, para. 43. See above p. 92. See Oppenheim, op. cit., p. 918, note 26.

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claim against Iraq? Oppenheim, after referring to Articles 4 and 5 of the Convention on Certain Questions Relating to Conflict of Nationality Laws 1930,20 considers the rules described in those articles as “probably to be regarded as rules of customary international law”, and applies them in the following circumstances: (1) A national of the claimant state is also a national of the respondent state with which he is also most closely connected: the rule reflected in Article 4 suggests that the claimant state should not be allowed to present a claim on his behalf, and Article 5 leads to no different conclusion (being strictly irrelevant, since it in terms relates only to the position vis-à-vis third states).21

Therefore, it would not be possible, in our example, for Switzerland to claim against Iraq. On the other hand, Collier and Lowe say . . . it is sometimes said, in apparently general terms, that the State of dominant nationality, with which the individual has demonstrated stronger links, may bring a claim against the other State, the State of ‘subordinate’ nationality.22 They go on to say the jurisprudence of the Iran-U.S Claims Tribunal is consistent with such a rule: but the better view is that the reasoning behind the Iran-U.S. Claims Tribunal decisions is more narrowly confined.23

On this view, it would be possible for Switzerland to claim against Iraq, in our example, assuming that it is “the State of dominant nationality.” It is submitted that Oppenheim’s view is to be preferred, as it probably reflects the position under international customary law. It should be pointed out that no similar problem is likely to arise with respect to for-

20

21 22 23

According to Article 4 of the Convention on Certain Questions Relating to Conflict of Nationality Laws 1930, a state may not give diplomatic protection to one of its nationals against a state whose nationality that person possesses. And according to Article 5 of that Convention, if a person has more than one nationality, he shall, within a third state, be treated as if he had only one; in particular, it is laid down that that third state shall recognise exclusively either the nationality of the state in which he is habitually and principally resident or, the nationality of the state with which he appears in fact to be most closely connected. See ibid., p. 884, para. 395. Ibid., Introduction and Part 1, p. 516, para. 151. See The Settlement of International Disputes, op. cit., p. 192. Ibid.


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eign corporations. For, in accordance with Article 1, paragraph (i), of the Federal Investment Law, a foreign investor, which is a juridical person, is any entity “registered in a foreign country”. Thus, registration in a foreign country is the decisive test. However, there is one possibility for the expropriation/nationalisation of investment projects under Article 12, paragraph 3, of the Federal Investment Law, namely, the enforcement of a final judgment of an Iraqi court of law. This case will therefore be, in essence, an enforcement of a judicial decision against the investor, rather than an expropriation/nationalization of the assets of a foreign investor. It should be pointed out that the Kurdistan Investment Law is silent on the question of the expropriation/nationalization of investment projects in the Iraqi Kurdistan Region. Therefore, in law, this guarantee does not exist under the Kurdistan Investment Law, and there is the possibility of expropriation/nationalization of investment projects in the Region. However, this possibility cannot stand, for to do so would be contrary to the Federal Investment Law, which does not allow expropriation/nationalization of foreign investment in Iraq. Article 33 thereof provides that “any provision of a law which contradicts the provisions of this Law will not be valid.”

5. Repatriation of salaries and benefits by non-Iraqi personnel Another guarantee provided under the Federal Investment Law is the repatriation of the salaries and benefits of certain categories of non-Iraqi personnel of the investor. This is laid down in Article 12 of the Federal Investment Law, which reads as follows: This Law guarantees to the investor: — 2. the technical and administrative employees on a project, who are not Iraqis, have the right to repatriate their salaries and emoluments, in conformity with this Law, after the fulfillment of their obligations and the payment of their debts to the Iraqi Government and any other parties.

The first observation to be made is that this guarantee is given to the foreign administrative and technical employees of the investor, only. Thus,

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it would seem that other categories of employees, such as labourers, repairers, and auxiliaries are excluded from the enjoyment of this guarantee. This is unfair and discriminates against these categories of employees of the investors. On the other hand, it might be argued in mitigation that the intention might have been to encourage the investors to use local labourers, and other categories of employees not covered by the provision, on his investment projects. In this case, there is no need to repatriate salaries and benefits. The second observation is that the provision does not set a limit on the proportion of salaries and emoluments, which can be transferred abroad. It simply speaks, in general terms, of the right to repatriate salaries and emoluments, without any restriction. Therefore, it would be reasonable to suggest that the whole salary, or any part of it, can be transferred abroad. It seems that some developing countries impose a limit on the proportion of salaries of foreign employees of investors, which can be transferred abroad. For example, the previous Egyptian investment law permitted foreign employees and technicians to transfer only 50 percent of their salaries.24 On the other hand, foreign employees under Indonesian law are permitted to transfer abroad only 20 percent of their salaries, and this practice finds parallels in Syria and Brazil.25 The third observation is that this guarantee is granted to the foreign, as well as to the Iraqi investor, who may need to employ foreign technicians, or administrators, on his project. Finally, the categories of personnel covered by this guarantee must pay their debts and obligations to any individual, entity, or to the Iraqi Government, before the transfer of their salaries abroad. This guarantee to the investor, both Iraqi and foreign, appears to be intended to help the investor to bring from abroad the technical, or managerial, cadres for his project. It should also encourage such cadres to come and work on such projects in Iraq. This is always subject to the condition that there are no Iraqis with the same skills and capable of carrying out the same tasks, as required by Article 12, paragraph 1.

24 25

See The Legal Regime of Foreign Investment, p. 137. See ibid.


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It should be pointed that the Federal Investment Law is silent on the question of taxation on the salaries of the technical and managerial staff of investors. Therefore, it could be argued that they do not seem to be subjected to any taxation in Iraq. This standpoint can derive support from the exemption from taxation on the investment project, its equipment, tools, etc., and spare parts, as stated in Article 15 and 17 of the Federal Investment Law. It is submitted that if equipment and spare parts are exempted from any taxes or fees, then a fortiori the salaries of the foreign technicians and administrators should enjoy the same facilities. Furthermore, the provision speaks of the fulfillment of the obligations and payment of debts of such personnel to the Iraqi government and other parties, before such a transfer can take place. There is no mention in the provision of the payment of taxes to be paid to the government. Had the intention been to impose taxes on those salaries, the provision would have said so. The Kurdistan Investment Law contains a provision similar to Article 12, paragraph 4, of the Federal Investment Law. Article 7, paragraph 4, of the latter provides that non-Iraqi employees in the project and those dealing with them abroad the region shall have the right to transfer their dues and wages abroad in accordance with existing laws.

This provision is more liberal and fairer than Article 12, paragraph 4, of the Federal Investment Law, in that it extends this guarantee to “non-Iraqi employees in the project”, without any distinction between “technical and administrative employees” and other categories of employees of the investor. This approach, it is submitted, is more appropriate than that adopted by the Federal Investment Law.

6. Sale and/or re-export of machinery and equipment Although this heading is not mentioned as a guarantee, as such, under the Federal Investment Law, it would be appropriate to consider it as a guarantee. It grants the investor, Iraqi or non-Iraqi, the right to sell, or assign, his equipment, machinery, tools and so on, which are exempted from taxation and fees, to another investor in Iraq. This is provided in

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Article 24, paragraph 1, of the Federal Investment Law, which reads as follows: The investor has the right, subject to the approval of the Commission, to sell, or assign, his project properties to another investor covered by the provisions of this Law, provided that he uses them for his project.

The term “project properties” is defined in Article 1, paragraph (h), of the Federal Investment Law to include the tools, equipment, machinery, and their annexes, means of transport, office furniture and equipment, furniture and other necessary items for hotels and tourist cities, hospitals, schools and colleges. Furthermore, according to Article 24, paragraph 3, the investor is entitled to re-export all those machinery, tools, furniture and equipment, just mentioned, with the agreement of the NIC. On the other hand, according to Article 24, paragraph 2, the investor can sell the materials and property, which he has imported without the payment of taxes and fees, to any person, or another project not covered by the provisions of this Law, after notification of the Commission and the payment of the taxes and fees due on them.

This is a facility intended to help the investor, presumably, at the end of this project, to dispose of the equipment he has brought into Iraq, either through their sale to another investor in Iraq, or to re-export them. This facility can be rather significant in big projects, where a lot of machinery and equipment have to be brought into the country for the implementation of the project. Even vis-à-vis small projects, it can be considered as a signal to an investor that the country is more than willing to cooperate with, and help him, even at the end of his investment. It is also a useful addition to the list of guarantees offered to investors. Under the Kurdistan Investment Law, there is no reference to the reexport of machinery, equipment and so on, brought into the Region by the investor for the project. But Article 7, paragraph 6, gives the assurance that the investor may transfer his investment wholly or partially to another foreign investor or national investor or concede the project to his partner with the approval of the [Kurdistan Investment] Board.

This position is similar to that under Article 24 of the Federal Investment Law.


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7. Equal treatment with Iraqi investors The Federal Investment Law treats the foreign investor on the basis of equality with the Iraqi investor, insofar as all the privileges, guarantees, facilities and obligations are concerned. This equal treatment is mentioned expressly in Article 10 of the Law, which reads, in part, as follows: The investor, irrespective of his nationality, shall enjoy all the privileges, facilities and guarantees, and shall be subject to the same obligations contained in this Law . . .

This guarantee is in line with the rule in international law, which prohibits discrimination by States against aliens in the area of expropriation/nationalization of their property.26 It is also in conformity with the minimum standards of treatment of aliens in international law. According to Oppenheim, The state in whose territory an alien resides must afford his person and property at least that level of protection which is sufficient to meet those minimum international standards prescribed by international law, and must grant him at least equality before the law with its own nationals as far as safety of person and property is concerned.27

According to UNCTAD, national treatment standard is perhaps the single most important standard of treatment enshrined in international investment treaties.28

This guarantee affords national treatment, and provides also an assurance, to the foreign investor that no discrimination will be exercised against his investment in Iraq. Equal treatment, it is submitted, is an important element in creating a favorable climate for foreign investment in Iraq. In the case between Champion Trading Co. v. Arab Republic of Egypt, an investment tribunal noted that

26 27 28

See Oppenheim, op. cit., p. 920; and Legal Regime of Foreign Investment, p. 131. See Oppenheim, op. cit., p. 910, para. 405. See UNCTAD, National Treatment 7, UNCTAD/ITE/IIT/11 (Vol. IV) (1999), quoted by DiMascio and Pauwelyn, loc. cit., p. 68.

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the purpose of [national treatment in the U.S.-Egypt BIT] is to promote foreign investment and to guarantee the foreign investor that his investment will not because of his foreign nationality be accorded a treatment less favourable than that accorded to others in like situations.29

Under the Kurdistan Investment Law, the guarantee of equal treatment of foreign investors with Iraqis is dealt with in Article 3, which reads as follows: The foreign investor and capital shall be treated as the national investor and capital.

A similar guarantee was provided under the CPA Order 2003.30

8. Confidentiality of information The guarantee of confidentiality of technical and economic information, relating to investment projects, is provided expressly only by the Kurdistan Investment Law. No similar guarantee exists under the Federal Investment Law. The guarantee is laid down in Article 7, paragraph 9, of the former, which reads as follows; The investor shall under this Law enjoy the right to maintain the secrecy of technical and economic information pertaining to his project, as well as investment enterprises in accordance with the provisions of the existing laws, rules and regulations in the region. Whoever discloses any information that is in his possession by virtue of his post and deals with investment enterprise and technical, economic, or financial aspects of the project under the law is punishable.

This is a very useful guarantee to the investor, so far as the protection of the secrets of his project is concerned. The protection of intellectual property may become relevant in certain industrial projects, which the Kurdistan Investment Law aims at protecting. It goes so far as to consider the disclosure of such secrets a criminal offence, presumably punishable

29 30

See ibid., p. 69, note 123. See Sec. 13 of the CPA Order 2003.


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under the federal criminal law. As far as is known, no separate criminal law exists in the Iraqi Kurdistan Region, at the present time. It is curious that the Federal Investment Law is silent on this subject. It may be an omission on the part of the drafters of the Law, but it would not endanger the intellectual property rights of the investor. This is because the rights of the investor are, generally, protected under Article 2, paragraph 4, of the Federal Investment Law, as one of the objectives of the Law.31

9. Conclusion The guarantees offered to investors in Iraq, for both Iraqis and non-Iraqis, are very generous and, indeed, should lead to the encouragement of those investors to invest in economic projects in the country. The guarantees of repatriation of capital, and the non-nationalisation of the foreign investor’s property and assets in Iraq are a very important factor for the elimination of the fear of foreign investors. They also offer a package of very helpful measures to investors, such as the easy entry and departure into and out of Iraq, and the repatriation of salaries of non-Iraqis working on the technical and managerial operation of the project. The equal treatment of Iraqi and non-Iraqi investors is another stimulant to the foreign investor to invest in Iraq. These guarantees, it is submitted, constitute very important concessions in favour of investors, and are intended to create an appropriate climate for investment in Iraq. It is hoped that they will achieve the desired end in the near future.

31

See above p. 16.

Chapter VI Obligations of the Investor 1. Introduction The Federal Investment Law, while granting investors very generous incentives and guarantees, at the same time imposes on them certain obligations. These obligations are, on the whole, not so onerous and do not seem to be intended to discourage, or limit, the sphere of activities of investors. However, some of these obligations seem to be intended to prevent abuse by investors. A number of these obligations are normally expected to be respected by ordinary citizens. On the whole, they are administrative in nature, and are in line with the exercise of sovereignty by a State, as well as the objectives of the Federal Investment Law. These obligations are laid down in Article 14 of the latter, and we shall deal with them in the following order: first, the notification of project readiness, then the maintenance of book-keeping, followed by the submission of feasibility and technical studies concerning the project, the keeping of special records of the materials exempted from taxation, the protection of the environment, security, health, public order, then respect for applicable labour laws, keeping the actual progress of work on the project in line with the work schedule submitted by the investor, and the training of Iraqi employees.

2. Notification of project readiness According to Article 14 of the Federal Investment Law: The investor is obliged: 1. To notify the National Investment Commission, the Regional Investment Commission, or the Governorate Investment Commission, as the case may

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be, in writing, immediately after the completion of the installations and the provision of the necessary supplies to them, for the purposes of the project, as well as the date of the beginning of the commercial operations of the project.

Accordingly, the investor is required to notify the NIC in Baghdad, the Regional or Governorate Investment Commissions in the region and the governorate concerned, in writing, and immediately after the work on the installation of the equipment, machinery and so on of the project, is completed. Furthermore, the investor is required to specify the date on which the commercial activities of the project will begin. The written notification is to be addressed, either to the NIC, in cases of federal projects, or to the Regional or Governorate Investment Commissions, in cases of regional projects. The notification is an administrative measure intended to keep the relevant investment commission informed of the progress of the work on the project and the beginning of its commercial operations. It is submitted that this is not a hard task for the investor, and its implementation would probably enhance cooperation between him and the relevant investment commission. Indeed, those investment commissions are entrusted by the Federal Investment Law with the task of following up on the progress of the work on licensed projects, according to Article 9, paragraph 2, of the Law. Therefore, it would be reasonable to expect the investor to keep these commissions informed about the preparations for the project and the installation of the necessary equipment, and their completion, as well as the date on which commercial operations will begin. So far as the Kurdistan Investment Law is concerned, it contains a similar obligation, which is laid down in Article 8, which reads as follows: The investor shall abide by the following: — 2. inform the [Kurdistan Investment]Board about the completion of the project and that it has begun offering its services or actual production.

The information regarding the completion of the project and the provision of services or other products, can be made orally or in writing. For the provision does not mention that the notification should be “in writing”. Nor does it require notification “immediately”, after the completion of

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the installations of the equipment, machinery and so on, of the project. The notification has to be made to the Kurdistan Investment Board. It may interesting to point out that the Jordanian Investment Law, 2003, contains a similar obligation vis-à-vis investors in Jordan.1

3. Maintenance of book-keeping According to Article 14 of the Federal Investment Law, The investor is obliged: — 2. To maintain regular book-keeping, which can be verified by an accountant licensed in Iraq, in conformity with the law.

The first observation to be made is that the provision requires the investor, Iraqi and non-Iraqi, to maintain regular book-keeping, which is a normal commercial practice. And the Federal Investment Law requires the investor to follow this practice. Furthermore, the book-keeping process is required to be verified by an accountant, licensed to practice his profession in Iraq. The accountant could be Iraqi or non-Iraqi, but he has to be licensed to practice his profession by the Iraqi authorities. To require a qualified accountant to carry out the task is probably intended to ensure the observance of professional practices. The verification has to be made according to applicable Iraqi law. This obligation might have been intended to show transparency in the context of investment operations in Iraq. This obligation, it is submitted, is not very hard on the investor, and it appears to be in line with commercial practices. There is no similar obligation imposed on the investor under the Kurdistan Investment Law. However, there is an ambiguous provision in the latter, which provides access for the employees of the Kurdistan Investment Board to collect and obtain data on the various aspects of the project. This is laid down in Article 8, which reads as follows:

1

See Art. 14, para. 1, of the Jordanian Investment Law, 2003.

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The investor shall abide by the following: — 3. Ensure the necessary facilities for the Board’s specialized employees enabling them to collect and obtain the necessary data on the various aspects of the project for the purposes of the Board.

The expression “the necessary data on the various aspects of the project” could be interpreted to include the verification of the accounts of the investor. But there is no obligation on the investor to maintain regular book-keeping. However, any investor is well advised to maintain regular book-keeping as a useful commercial measure. At any rate, the Federal Investment Law has to be respected in this context. On the other hand, the Jordanian Investment Law, 2003, contains a provision which is almost identical with Article 14, paragraph 2, of the Federal Investment Law.2

4. Submission of the economic and technical study concerning the project Another obligation imposed on the investor by the Federal Investment Law is laid down in Article 14, paragraph 3, which reads as follows: The investor is obliged: — 3. To submit a study relating to the technical and economic significance of the project and any information, statements, or documents, which may be asked for by the Commission, or any other relevant authority, concerned with the appraisal of the project and the progress in its implementation.

Accordingly, the investor is under an obligation to submit a study relevant to the economic and technical significance of the project, which may be requested by the NIC, Regional or Governorate Investment Commissions, or any other authority concerned with the project. It would appear that this is intended to provide technical and economic information relevant to the investment project, which is in the process of being established. This study seems to be intended to keep these Commissions informed about

2

See Art. 14, para. 2, of the Jordanian Investment Law, 2003.


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the technical and economic aspects of the project and the progress made in its implementation. Furthermore, it would appear from the wording of the provision that this obligation is applicable after the grant of the investment license, for it refers to the information and documentation relating to the progress of the project and its establishment. If so, then it is odd, for the investor is required to provide details concerning the economic significance of the project, as one of the conditions of the application for a license for the project in the first place.3 Why is he then being asked, again, to submit more or less the same thing, after the grant of the license? It may be argued, in mitigation, that this obligation arises only when a request is made to the investor by any of the entities mentioned in the provision, whereas in the context of the grant of a license the economic significance of the project must be stated in the application form. Furthermore, the investor may be required to submit information, statements or documents with respect to the assessment of the project, and the progress made in its implementation. Here again, this obligation arises only when one of the entities mentioned in the provision asks for a statement or a document. In this case, as well as in the case of the study concerning the economic or technical significance of the project, the obligation may not arise at all. By contrast, the other obligations mentioned earlier under Article 14, paragraphs 1 and 2, must be respected, without the need for any request for their submission. The elements of the obligation contained in Article 14, paragraph 3, are intended for the provision of the relevant information concerning some aspects of the project, to the relevant investment commission or concerned authority. Again, this is not a difficult task for the investor, and it is not intended as a discouragement for him. The Kurdistan Investment Law does not contain a provision similar to Article 14, paragraph 3, of the Federal Investment Law. This may be due to the fact that the investor has to provide the economic and technical study of the project when applying for a license for his project.4

3 4

See Art. 19, para. 2, (d); see also above Chapter III. See Art. 16, para. 2, of the Kurdistan Investment Law.

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5. Keeping special records of materials exempted from taxation Article 14, paragraph 4, of the Federal Investment Law requires the investor to keep special records of imported materials for his project. It reads as follows: The investor is obliged: — 4. To keep special records of materials imported for the project, which are exempted from fees in conformity with the provisions of this Law, with a specification of the period of the depreciation of these materials.

Accordingly, an investor, Iraqi and non-Iraqi, must keep special records of imported materials necessary for his project. The expression “materials imported for the project”, should be understood to mean any item, equipment, machinery, tools, and so on, as defined in Article 1, paragraph 1 (h), of the Federal Investment Law, which have been imported, free from the payment of fees, for the implementation of the project. The provision uses the term “fees” only and does not mention “taxes”. Does this indicate an intention to differentiate between “fees” and “taxes”? It is submitted that both “taxes” as well are covered, and the omission to mentions “taxes” is probably due to an oversight on the part of the drafters of the law.5 Keeping record of imported materials which are exempted from the payment of taxation and fees is an important obligation, from the point of view of the Iraqi authorities, because it enables them to verify what imported equipment, machinery, or tools can be disposed of, or reexported, by the investor. Moreover, if the investor wishes to sell some of his equipment, during or at the end of the project, he can do so under the Federal Investment Law.6 Therefore, if the sale is in conformity with the latter Law, there would be no problem, but if otherwise, the investor would have to pay the appropriate taxes, fees and fines, according to Article 18 of the Federal Investment Law. In addition, when the records show the limit of the depreciation period, then the authority would be in

5 6

See above p. 69 on the discussion of the question of “taxes” and “fees”. The investor can sell his project, or machinery or equipment to another investor, according to Article 24, para. 1; see also above pp. 97–98.


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the picture, insofar as the issue of taxation is concerned. It would seem reasonable to state that this obligation is probably intended to prevent abuse of the privilege of tax and fee exemption granted under the Federal Investment Law. This seems to be a fair and reasonable obligation. It should be pointed out that a similar obligation exists under the Kurdistan Investment Law,7 as well as the Jordanian Investment Law.8

6. Protection of the environment, and respect for Iraqi laws and values Article 14, paragraph 5, of the Federal Investment Law imposes an obligation on the investor, which consists of several elements. It reads as follows: The investor is obliged: — 5. To protect the environment, abide by the national and internationallyrecognised standards of quality control of food products, applicable laws concerning security, health, public order and the social values of Iraq.

The first element of the obligation is the protection of the environment. This is a perfectly legitimate concern for the Iraqi authorities, for some investment projects, such as industrial projects and mineral exploitation, can cause major damage to the environment. Iraq has a Ministry of the Environment, which was set up after the fall of the Ba’ath regime in 2003. Therefore, the investor has to take all the necessary measures to protect the environment from any pollution, which may be caused by his activities on the investment project. In case of failure to protect the environment, the investor would be liable to repair the damage caused to the environment. This is in line with the principle of “the polluter-pays” under international environmental law. According to Sands

7 8

See Art. 8, para. 4, of the Kurdistan Investment Law. See Art. 14, para. 3, of the Jordanian Law, 2003.

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the polluter-pays principle is the requirement that the costs of pollution should be borne by the person responsible for causing the pollution and consequential costs.9

The second element is the observance of national and internationally recognised standards, adopted by the relevant international organs in the area of quality control of food products. The most important international organ in this context is the WHO/FAO Codex Alimentarius Commission. The latter is the principal organ of the WHO/FAO Joint Food Standards Programme, which was established in 1963, and whose objectives are the protection of consumers’ health, and the ensuring of fair practices in the food trade. The Commission adopts international food standards containing requirements for food aimed at ensuring for the consumer a sound, wholesome food product free from adulteration, correctly labelled and presented.10 The third element of the obligation is the respect for Iraqi laws on security. Here again, this is a legitimate concern for a sovereign State, particularly at the present time and in the prevailing security conditions in Iraq. It would seem reasonable to state that the investor is required to abide by the security regulations in the country, such as the limitation on his freedom of movement in certain areas, or the observance of curfews, where applicable. This is also a protection for the investor himself. The fourth element of the obligation is the observance by the investor of public health laws in Iraq. This is an important safeguard for the public health of the country, for it entails for the investor, for example, the respect for limitations on the use or import of unsound food, dangerous materials, or the employment of unhealthy personnel. This aspect of the investor’s obligation is also relevant to the protection of the environment. The fifth element is the respect for public order in Iraq. The term “public order” is defined by Professor David Walker as

9

10

See Phillippe Sands, Principles of international environmental law, Vol. 1, (1995), p. 213. On the Codex Alimentarius Commission, see † L.P. Dobbert “Le Codex Alimentarius vers une nouvelle méthode de règlementation internationale” (1969) XV Annuaire Français de Droit International, p. 679 et seq; also Sami Shubber “The Codex Alimentarius Commission under International Law”, 21 International and Comparative Law Quarterly, (1972), p. 631 et seq.


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the state of peaceful co-existence among members of the public generally in which there is an absence of breach of the peace, fighting, rioting, disturbance, or conduct which causes unreasonable interference with or disturbance to quiet living.11

The obligation to respect public order is a perfectly normal expectation from any citizen of a country. Therefore, this is more so vis-à-vis the foreign investor. Keeping the peace, and behaving in a reasonable and responsible way, on the part of the foreign investor, is a perfectly normal expectation. It is in the interest of the foreign investor to be law-abiding, in order to protect his reputation in the country. Finally, the investor is required to respect the social values of the country and to conduct himself according to them. It is to be observed that this obligation is probably directed at the foreign investor, who may not be familiar with Iraqi social values, which an Iraqi investor is presumed to know. Here again, this obligation is expected to be observed by any responsible citizen in Iraq, a fortiori then a foreign investor is expected to abide by it. Therefore its imposition on the foreign investor does not create a hardship for him. A similar provision exists under the Kurdistan Investment Law.12

7. Respect for applicable labour law Article 14, paragraph 6, of the Federal Investment Law requires the investor to respect the applicable labour laws in Iraq vis-à-vis his workers. It reads as follows: The investor is obliged: — 6. To abide by applicable Iraqi laws concerning salaries, leave, working hours and working conditions and other conditions, as a minimum.

Accordingly, the investor, Iraqi and non-Iraqi, has to pay his employees and workers the salaries at the rate specified in labour legislation in Iraq, as a minimum. Of course, he can pay more than the minimum, but he

11 12

See The Oxford Companion to Law, 1980, p. 1015. See Art. 8, para. 5, of the Kurdistan Investment law.

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is obliged to respect the minimum. The same applies to leave provided for in Iraqi labour legislation. If the employees or workers are entitled to, shall we say, one-month leave per year, in a given Iraqi statute, the investor has to give the workers employed by him on his investment project a month’s leave each year, as a minimum. The same applies to the working hours of workers. This applies, it would appear, to both Iraqi and nonIraqi workers and employees. So far as working conditions are concerned, these cover issues such as the provision of a safe and healthy environment for workers, provision of health care for them and so on. And if there are other conditions provided by Iraqi legislation in the field of employment, it is the duty of the investor to observe them. This obligation is intended to protect workers from abuse by investors. Furthermore, it is intended to protect the health of workers and to provide a safe working environment. And this would be a normal requirement in any civilized country, and in line with the aims of the International Labour Organisation (ILO).13 This obligation, it is submitted, is not unreasonable and should not constitute a heavy burden for the investor. It should be pointed out that the Kurdistan Investment Law does not contain a similar obligation vis-à-vis the investor. Nevertheless, the investor would have to respect this obligation by virtue of the Federal Investment Law.

8. Keeping the work progress in line with the work schedule In accordance with Article 14, paragraph 7, of the Federal Investment Law,

13

According to Article 1, paragraph 1, of the Preamble of the Constitution of the ILO, the Organization is established to protect the objects set forth in the Preamble of the Constitution, which include the regulation of hours of work, the establishment of a maximum working day and week, the provision of an adequate living wage, and the protection of the workers against disease and injury arising out of his employment. See Constitution of the International Labour Organization and Standing Orders of the International Labour Conference, 2004, p. 5.


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The investor is obliged — 3. To keep the actual work progress on the project in line with work schedule submitted by him, provided that the time difference between the two cannot be more than six months. The National Investment Commission should lay down penalty clauses, and shall also have the right to withdraw the investor’s license, if the six-month period is exceeded.

The first point to be made is that the wording of the Arabic original version of the provision lacks the desired clarity. For example, it is not clear from the wording where should the “penalty clauses” be included? Should they be in the original investment agreement, or would they be imposed, after the period of six months has been exceeded? The writer has tried to distil the intention of the drafters of the Federal Investment Law from the confused wording. Therefore, it would be reasonable to construe the provision as follows: An investor has to keep the progress of the work on the project in line with the work schedule, which, presumably, he has submitted in the application for the project license. Therefore, any delay in the completion of the work on the project of up to six months, from the date of the work schedule submitted by the investor, can be tolerated. But any excess of the period of six months will expose the investor to penalties, which the NIC can impose, including the withdrawal of his investment license. For example, if an investor submits a work schedule in June 2008, presumably when applying for a license, to the NIC, stating that the project should be ready, shall we say, by the end of 2008, then the investor, it would appear, is obliged to keep to that date, as the deadline for the completion of the project. If there is a delay in having the project ready for operation, then this delay must not exceed 6 months, i.e., it must not go beyond June 2009. If that happens, the NIC can impose penalties on the investor. It would appear that this provision might have been intended to prevent any undue delays in completing the establishment of a licensed project, and to oblige the investor, Iraqi and non-Iraqi, to keep to the original date he provided in the work schedule, with a period of acceptable delay of no more than six months. This obligation seems to be a reasonable one, in that it puts the pressure on the investor to maintain the progress of the work on the project and to adhere to the dates promised for the establishment of the project. Of

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course, there may be some circumstances which may prevent the investor from keeping to such dates, but it is hoped that the NIC would take into account the good faith of the investor in determining the results of such delays. It is submitted that this obligation cannot be considered as a discouragement to the investor, even if the final penalty can be the withdrawal of his license. No similar provision exists under the Kurdistan Investment Law, therefore the obligation under the Federal Investment Law applies.

9. Training of Iraqi employees The last of the obligations imposed on the investor is to train his Iraqi employees and to enhance their skills and competence. This is laid down in Article 14, paragraph 8, of the Federal Investment Law, which reads as follows: The investor is obliged: — 8. To train his Iraqi employees, and to enhance their skills and capacities, and that priority should be given to the employment and use of Iraqi personnel.

This obligation is aimed at the training of Iraqi employees of the investor and the improvement of their skills and abilities, and it applies to the Iraqi and foreign investor. This may take the form of training the Iraqi personnel on the use of modern technology, such as the use of computer and other new technologies. It may also involve the sending of some Iraqi employees abroad, for further training on new machinery, visiting manufacturing establishments and so on. This is especially relevant, at this juncture, when many skilled and highly qualified Iraqis have left the country, because of the security situation. It is also in the interest of the investor to enhance the capacity of his employees, which would lead to the improvement of their performance on the project and thus benefit the investor. Furthermore, the provision requires the investor to give priority to the employment of Iraqi personnel on the investment project. What


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is required is giving priority, but not exclusivity, to the employment of Iraqis. This favourable treatment for Iraqi personnel has to be seen in the light of the high unemployment rate in the country, which according to The Economist, is 25–40%, as the official rate; in reality, it may be a lot higher.14 But it should not be seen as a constraint on the freedom of the investor. Moreover, this requirement does not seem to be intended to affect the investor’s right to employ non-Iraqis on the project.15 The obligation to give priority to the employment of Iraqis is very important towards reducing the very high rate of unemployment in the country, and it is also in line with the third objective of the Federal Investment Law, namely, the development of human resources and the creation of work opportunities for Iraqis.16 A similar obligation is imposed on the investor under the Kurdistan Investment Law, though the wording is slightly different from the wording of Article 14, paragraph 8, of the Federal Investment Law.17

10. Conclusion The obligations imposed on the investor under Article 14 of the Federal Investment Law, while numerous, are not too onerous in nature. They can be described as legitimate obligations, which any State can reasonably impose in the area of investment, be it local or foreign. And they are not intended to discourage the investor. However, some of these obligations can be expected to be observed even by ordinary citizens in any country. For example, the protection of the environment, the observance of public health, and the respect of social values are obligation expected to be observed by any citizen in a civilized society. Indeed, they are often respected voluntarily by citizens of many countries in the world. On the other hand, certain obligations are imposed in the exercise of sovereignty

14 15 16 17

See See See See

The Economist, June 14th–20th 2008, p. 31. above pp. 85–87. above pp. 14–16. Art. 8, para. 6, of the Kurdish Investment Law.

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of the State in the interests of the social and economic development of the country. It is curious to note that Article 14, paragraph 7, of the Federal Investment Law exposes the investor to the risk of penalties being imposed on him. While the imposition of penalty is mentioned, expressly, in Article 14, paragraph 7, it is submitted that the violation of any other provision of the Federal Investment Law will expose the investor to the imposition of some penalty, including the withdrawal of the investment license, in accordance with the Article 28 of the Federal Investment Law.18

18

For details, see below Chapter VII.

Chapter VII Sanctions Against Investors 1. Introduction The Federal Investment Law envisages the possibility of imposing sanctions against the investor, Iraqi and non-Iraqi, in certain situations, such as violations of any of its the provisions. However, the Federal Investment Law requires the NIC to give the investor the chance to explain his conduct, before any sanction is imposed. There are two sanctions, which can be imposed under the Federal Investment Law, namely, the withdrawal of the investment license and the liquidation of the project. We shall deal with them in the following order: first, the withdrawal of the license then the liquidation of the project.

2. Withdrawal of the investment license The Federal Investment Law provides for the withdrawal of the investment license from an investment project as a penalty, in the following situations: (a) Violation of the provisions of the Federal Investment Law Article 28 of the Federal Investment Law deals with the situation where withdrawal of the investment license may occur. It reads as follows: In case of violation by an investor of any of the provisions of this Law, the Commission shall notify the investor of the violation, in writing, asking for its removal within a specified period of time. If the investor does not remove the violation within that specified period, the Commission shall call

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the investor, or his representative, to appear before it, in order to explain his position, and shall give him another period of time to settle the matter. If the investor repeats the violation, or does not remove it, the Commission shall withdraw the investment license and suspend the work on the project. The State shall retain the right to deprive the investor from the exemptions and privileges granted to him, from the date on which the violation occurred. Third parties shall have the right to ask for compensation for any damage arising from this violation, without prejudice to any other penalty or compensation provided for under other applicable Iraqi laws.

The first point to be noted is that the penalty imposed by the provision applies to any “violation of any of the provisions” of the Federal Investment Law. Accordingly, not only violations of the provisions relating to the obligations of the investor are caught by this provision, but also any other provision of the Federal Investment Law. For example, if the investor sells in the black market tax-exempted spare parts, which he has imported for the project, this constitutes a violation of the Federal Investment Law and is subject to Article 28. Secondly, the Commission, which should be taken to mean the NIC, the Regional or the Governorate Investment Commissions, is required to notify the investor, in writing, of the violation, with a request for its removal, within a specified period of time. Presumably, the notification would give the investor the particulars of the violation in question, although this is not stated in the provision. This “specified period” is not spelt out in the provision, therefore it would be reasonable to suggest that the NIC, the Regional or the Governorate Investment Commission, would determine the length of this period. If the violation is not removed, the investor, or his representative, will then be called by the relevant Investment Commission to appear before it, in order to explain his position. The Commission will give him another unspecified period of time to correct the situation, depending on the nature of the violation. Here again, the period of time would be determined by the relevant Investment Commission. If the investor does not correct the situation, or he repeats the violation, the Commission is empowered to: (1) withdraw the investment license for the project, and (2) order the suspension of the work on the project. It is to be noted that the Commission is authorised to “withdraw” the license, but not cancel the project. It is also authorised to “suspend” the work on the project, but does not terminate the project. Does this

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imply that perhaps work on the project might be resumed if the investor corrects the situation? There is no indication in the provision that could throw some light on this point. However, it could be argued that since the provision speaks of withdrawal of the investment license and not its cancellation, followed by suspension of the work on the project, and not its termination, if the investor corrects the situation, the licenses could be reinstated and the work on the project could be resumed. This interpretation may derive support from the objectives of the Federal Investment Law, which aim at the promotion and encouragement of investment, rather than penalising the investor. Moreover, Article 27, paragraph 3, of the Federal Investment Law speaks of liquidation of the project in certain circumstances.1 Had the drafters of the latter intended the termination of the project, they would have said so. It may be suggested that the relevant Investment Commission should bear in mind these considerations when the withdrawal of a license or the suspension of work on an investment project occurs. However, if the work on the project is suspended, the Iraqi authorities shall retain the right to deprive the investor from the exemptions from taxation, fees and privileges granted to him under the Federal Investment Law. This deprivation is not retroactive, but it begins to run from the date of the violation of the latter Law. It may be worth noting that the provision states that the State shall retain the right “to deprive the investor” of the exemptions and privileges, but does not say something like “the State shall deprive the investor” of those exemptions and privileges, as stated with respect to the power of the NIC, the Regional or the Governorate Commissions vis-à-vis the withdrawal of the investment license and the suspension of work on the project. Therefore, there is a fair measure of discretion here. This might be interpreted to mean that the Iraqi authorities may not necessarily deprive the investor of those privileges, if something is done by him. On the other hand, it may well be argued that since the deprivation of the investor from the exemptions and privileges is intended to be a sanction and as a deterrent, then the sanction, as such, would probably apply irrespective of the wording of the provision.

1

See below p. 124.

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Furthermore, if the investment license is withdrawn by the relevant Commission, third parties, such as the subcontractors and suppliers of the investor, will have the right to ask for compensation from the investor for any damage arising from the suspension of the work on the project. Moreover, any other penalty, or a compensation scheme applicable under any Iraqi law e.g., labour law, will apply. The penalty applicable under Article 28 is a very serious one, but, at the same time, the investor is offered a fair chance of removing the violation, defending himself, and explaining his situation relating to the work on the project. The procedure laid down in the provision, it is submitted, is fair and reasonable, and any State is entitled to ensure respect for its laws. If the license is withdrawn, then the Iraqi authorities become entitled to deprive the investor of all the exemptions from taxation and fees, as well as other facilities, but only from the date on which the violation occurred. In other words, those exemptions and facilities remain applicable to the investment project until the date on which the violation occurred. However, it is not clear as to what happens to the project after the withdrawal of the investment license and suspension of work. The license is the legal basis of the project, therefore if it is withdrawn then the project would have no legal basis, and that would probably be the end of the project, unless the investor corrects the violation. So far as the Kurdistan Investment Law is concerned, its Article 9 deals with sanctions against investors who violate its provisions, or the conditions of any contract concluded between the investor and any regional government agency, which are more severe than those laid down in Article 28 of the Federal Investment Law.2 It reads as follows: First: Upon any contravention by the investor of the provisions of this Law of any paragraph in the contract concluded between him and the concerned entities, the Board shall warn the contravener and ask him to immediately stop the activity causing the contravention and grant him a suitable period of time to be determined by the Board and commensurate with the nature of the contravention to remove its effects.

2

See Art. 9, para. 1.


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Second: If the investor insists on not stopping or removing the effects of the contravention in accordance with provisions Paragraph (First) above, the land will be retrieved from him and the Board shall take ownership of the installations which have been built on it by the investor (if they existed) in due demolish [depreciated ?] value in accordance with the law. The new investor acquiring the land will be responsible for paying this amount and the contravener shall be responsible for any damage resulting from his failure to fulfil his obligations. Third: If the investor has secretly leased the land, which has been assigned for his project, wholly or partly or used it for other purposes than those assigned for it without the approval of the Board, it will be retrieved from him or the part leased or exploited for other than the defined purposes. The investor shall pay double the rent for the period in which he leased the land or exploited it for other than the purposes assigned for it. . . . If the land has been retrieved from him wholly, the contravening inventor shall be treated in accordance with the provisions of Paragraph (Second) above with regard to the installations built on it upon retrieval.”

Accordingly, the first sanction will be the retrieval of the land from the investor, and the Kurdistan Investment Board will take ownership of the installations built on the land, if they exist, with a depreciated value paid for them. In addition, the investor will be responsible for the payment of any damage resulting from his failure to fulfil his obligations. Furthermore, the investor will pay double the rent for the period during which the land was used for purposes other than those originally intended. It may be interesting to point out that the Jordanian Investment Law provides for a very mild penalty for any violation of the investor’s obligations. The penalty consists of a fine not exceeding Jordanian Dinars 500 (the equivalent of US$ 714), for the first violation, and Jordanian Dinars 1,000 (the equivalent of US$ 1,428) if the violation is repeated.3 On the other hand, the Qatari Foreign Investment Law imposes, as a penalty, a fine of between 50,000–100,000 Qatari Riyals (the equivalent of US$ 13,750–27,500) for the violation of that Law by any foreign investor, as well as by a Qatari citizen who is a partner in the project.4

3 4

See Art. 14, para. (b), of the Jordanian Investment Law, 2003. See Art. 16 of the Qatari Foreign Investment Law, 2000.

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(b) Violation of Article 14, paragraph 7, of the Federal Investment Law While the violation of Article 14, paragraph 7, of the Federal Investment Law constitutes a violation of one of its provisions, the Federal Investment Law, nevertheless, has dealt with it specifically. The provision reads as follows: The investor is obliged — 7. To keep the actual progress on the project in line with the work schedule submitted by him, provided that the time difference between the two cannot be more than six months. The National Investment Commission should lay down penalty clauses, and shall also have the right to withdraw the investor’s license, if the six-month period is exceeded.

As we have seen earlier,5 one of the obligations of the investor is that the actual work progress on the project should correspond to the work schedule submitted by the investor, with a period of six months allowed for the time difference between the two dates. And if the period of six months is exceeded, the NIC, the Regional or the Governorate Investment Commission can withdraw the investment license, in conformity with Article 14, paragraph 7, of the Federal Investment Law. So here, there is a second situation where an investor may be deprived of his investment license. However, the provision does not specify what procedure should apply before the license is withdrawn. It simply says that the relevant investment commission has the right to withdraw the investment license. It would appear that the legislature attaches a great deal of importance to the dates in question and the progress of the work on the project. But since the provision does not indicate any procedure to be applied in this situation, it is submitted that it would be fair and reasonable to suggest that the procedure applicable under Article 28 of the Federal Investment Law should apply to cases covered by Article 14, paragraph 7. Accordingly, the investor should be given the opportunity to defend his case and explain the situation, and be given some time to correct the situation.6

5 6

See above p. 112. For details, see above pp. 117–118.


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This standpoint is based on two grounds: the first is that Article 14, paragraph 7, is a provision of the Federal Investment Law, and, as such, it is covered by its Article 28. Therefore, its violation should bring into operation the procedure laid down in Article 28. The second ground is that Article 28 falls under the part of the Law entitled “General Provisions”, starting at Article 21 thereof. Therefore, these General Provisions should apply throughout the Federal Investment Law, including procedures and other requirements laid down in it. For example, Article 33 of the Federal Investment Law provides that any provision of a law which contradicts any of the provisions of this Law shall not be valid.

This shows the priority given to the provisions of this Law over other laws in the country, in the sphere of investment. Thus, its General Provisions should cover all the situations envisaged thereunder. It may be interesting to point out that, according to Article 9, paragraph 3, of the Kurdistan Investment Law, a penalty is imposed against an investor, who violates the terms of the land lease for his project. The penalty is limited to the retrieval of the land, wholly or in part, and the investor will be required to pay double the rent for the period of violation. If the land is retrieved wholly, it would appear that the ownership of the installations built on it, if they exist, will be taken over by the Kurdistan Investment Board, with a depreciated value to be paid. However, the provision does not contain any procedure relating to the application of the penalty. That is to say that the investor is not given the opportunity to stop the violation or to defend himself. It is submitted that, in view of the severity of the sanction, it would be fair and reasonable to apply the procedure contained in Article 28 of the Federal Investment Law. It may be worth noting that the sanctions envisaged under the CPA Order 2003 are described as “evasions”, and they consisted of the suspension or cancellation of the rights of a foreign investor in Iraq. They apply only when Sections 6 (3) and 8 (1) are violated.7 The former

7

See Sec. 15 of CPA Order 2003.

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prohibits the foreign investor from engaging in retail sales, unless US $ 100,000 are deposited in a non-interest bearing account, in an Iraqi Bank, while the latter bans the foreign investor from owning land. (c) Cessation of work on the project for more than three months Another situation, where the withdrawal of the investment license is permitted, is where there is an unsettled dispute between partners, or between the owner of the project and a third party resulting in the cessation of work on the project for three months. This situation is dealt with in Article 27, paragraph 3, of the Federal Investment Law, which reads as follows: If, as a result of a dispute between the partners in a project, or between the owner of the project and a third party, concerning a project subject to the provisions of this Law, the work on the project is stopped for a period of more than three months, the Commission may withdraw the investment license, and ask the owner of the project to settle the matter within a period not exceeding three months. If this period has passed without the settlement of the dispute between the partners, or between the owner of the project and a third party, the Commission shall take the legal measures for the liquidation of the project, and shall notify the owner of the project, or one of the partners, of theses measures. The sum of money obtained from the liquidation shall be deposited in a bank, after the fulfilment of obligations due to the State, or to a third party, in conformity with a judicial decision.

The first point to be made is that the withdrawal of the license and the liquidation of the project are not due to any violation of any provision of the Federal Investment Law. It would seem that the main justification for the intervention of the NIC, and the other Investment Commissions, is the cessation of the work on the project, for more than three months, as a result of the unsettled dispute between the parties thereto. In this case, any of these Commissions, “may” withdraw the project license, but is not bound to do so. A relevant observation made by the ICJ, concerning the use of permissive language can be found in the case of the International Status of South-West Africa, 1950, when the ICJ interpreted Articles 75 and 77 of the UN Charter, in relation to the submission of a territory under the trusteeship system. Article 77 (1) of the Charter provides:


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“The trusteeship system shall apply to such territories as may be placed thereunder. . . .” The ICJ held that “the language used in both articles is permissive (“as may be placed thereunder”).8 (Article 75 of the UN Charter also uses the phrase “as may be placed thereunder”).

The second point to be made is that, before deciding on any measure, the relevant Commission will ask the owners of the project to settle the dispute within three months. But it is not clear how the NIC, or another Commission, gets involved in this context. Should one of the project partners inform the NIC, for example, of the existence of the dispute? Or should a third party do so? Or should the NIC, itself, as part of its monitoring the project, discover the dispute? Furthermore, it seems that the Investment Commission concerned is not required to call the parties and ask them to explain the situation, before withdrawing the license. While this is not stated in the provision, it is submitted that the NIC, or any of the other Commissions, should notify the parties, in writing, of the existence of the unsettled dispute and the resulting cessation of work for more than three months. In view of the seriousness of the sanction, the NIC, or another Commission, should then apply the procedure laid down in Article 28 of the Federal Investment Law. That is to say, ask the parties to settle the dispute within three months. If the dispute is not settled within that period, then the relevant Commission will proceed to take the necessary legal measures for the liquidation of the project. It will notify the owner, or one of the partners of the project, of the measures taken. Furthermore, the funds realised from the liquidation have to be deposited in a bank in Iraq, after the deduction of the State’s rights, or those belonging to a third party, as a result of a court judgment. There is no provision under the Kurdistan Investment Law dealing with the question of the withdrawal of a project license, and the liquidation for a project. But it remains possible to apply Article 28 of the Federal Investment Law to similar situations in the Iraqi Kurdistan Region.

8

See ICJ Rep. (1950), p. 139.

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3. Right of appeal The provisions dealing with the withdrawal of the investor’s license, discussed above, do not provide any possibility of challenging a decision to withdraw a license. Therefore, the question may be raised: Does the investor whose investment license has been withdrawn by an Investment Commission have the right to challenge the latter’s decision? If so, before which authority? A decision to withdraw an investor’s license can be characterised as an administrative decision taken by a government agency, be it the NIC, or a Regional or Governorate Investment Commission. As such, it is submitted, the decision can be challenged before the Administrative Court in Baghdad, in spite of the silence of the Federal Investment Law on the issue. The Administrative Court has the jurisdiction under Iraqi law to deal with the appeal. We have raised the same question vis-à-vis the refusal to grant a license to an investor, therefore, and in order to avoid unnecessary repetition, what has been said there applies here.9 This writer believes that it would have been better to provide expressly for the right of appeal in the Federal Investment Law in such situations. Furthermore, if any penalty is imposed on the investor for the violation of any of his obligations under Article 14, such as the imposition of a fine for causing pollution,10 or a breach of public health laws, the investor has the right to challenge any such decision before the competent Iraqi court.

4. Conclusion As a corollary to the grant of generous exemptions from taxation and other fees for the investment project, as well as the imposition of obligations

9 10

See above pp. 41–44. It might be interesting to point out that the Kazakhstan Government imposed a fine of US$ 609 million on Chevron, for causing pollution in the area of its exploration of oilfields in that country. See the International Herald Tribune, 4 October 2007. Also Exxon Mobile was fined by a US Appeals Court US$ 2.5 billion for the oil spill off Alaska in 1989, which caused damage to fishermen and property owners and others in Alaska, from the oil spill. Ibid., 30 October 2007.


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on the investor, the Federal Investment Law imposes a serious penalty against him. This penalty is the withdrawal of the investment license, in cases of violations of any of the provisions thereof. The same penalty applies in cases of unsettled disputes between partners in an investment project, or between them and a third party, which may end in the liquidation of the project. Article 28 of the Federal Investment Law provides a fair and reasonable procedure to solve the problems, and thus avoid the imposition of the penalty. It is understandable that, if the sanctions were applied for any violation of the provisions of the Federal Investment Law, the exemptions from taxation and the privileges granted to the investor would no longer apply to him. This is so, only from the date on which the violation occurred. However, the situation would return to normal, it would seem, even after the withdrawal of the investment license and suspension of work on the project, if the violation in question were corrected by the investor. It is hoped that in the application of the Federal Investment Law, the NIC, the Regional and Governorate Investment Commissions, as well as investors, would show good sense and responsibility, in the interest of the economic and social development of Iraq, and thus avoid the need to apply these sanctions. So far as the arrangement of the provisions on sanctions is concerned, it would have been clearer had they all been grouped together under a proper heading, such as “sanctions” or “penalties”, or some such heading.

Chapter VIII Settlement of Disputes 1. Introduction The scheme of the settlement of disputes arising under the Federal Investment Law varies according to the nature of the dispute and the parties thereto. Moreover, while in principle Iraqi law is the applicable law, and Iraqi courts have jurisdiction over such disputes, the Federal Investment Law permits the parties to choose another applicable law and jurisdiction. It also permits the parties to disputes to resort to arbitration for their settlement. The relevant provision for the settlement of disputes is Article 27 of the Federal Investment Law, and we shall proceed to deal with it as follows: first, we shall deal with Iraqi law as the applicable law, and what disputes have been exclusively reserved for its application; next, the settlement of disputes under another applicable law chosen by the parties to the dispute, and the relevant competent courts. Then we shall examine the choice of arbitration for the settlement of disputes. This covers arbitration under Iraqi law, as well as under international arbitration schemes. Lastly, recourse to the ICJ for the settlement of disputes will be treated.

2. Settlement of disputes under Iraqi Law According to Article 27 of the Federal Investment Law, Iraqi law shall apply to disputes arising between the parties who are subject to the provisions of this Law, unless they agree otherwise, except those cases which are exclusively governed by Iraqi law, or are subject to the jurisdiction of Iraqi courts.

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Accordingly, there are three types of disputes: 1. disputes which are subject to Iraqi law; 2. disputes which the parties agree to submit to another applicable law; and 3. disputes which are exclusively subject to Iraqi law. Therefore, the rule is that Iraqi law is applicable to disputes concerning investments governed by the Federal Investment Law, and the exception is the agreement of the parties to choose another applicable law. On the other hand, there are disputes which are exclusively governed by Iraqi law, in which case the parties are not allowed to choose another applicable law. Article 27 of the Federal Investment Law enumerates the disputes which are, exclusively, governed by Iraqi law. They are: a. disputes arising from employment contracts; b. disputes relating to crimes; c. disputes concerning civil law matters between the NIC, another investment commission, or another government agency and an investor. We shall now deal with these disputes: (a) Disputes arising from employment contracts In accordance with Article 27, paragraph 1, of the Federal Investment Law, disputes arising from employment contracts are subject, exclusively, to the rules of Iraqi law, and Iraqi courts have jurisdiction thereon, with the exception of non-Iraqi employees, if the employment contract provides otherwise.

Accordingly, any dispute arising from an employment contract between an investor, Iraqi or non-Iraqi, with one or more of his employees, relating to the investment project, is governed by Iraqi law alone, and Iraqi courts have exclusive jurisdiction to deal with the dispute. For example, if a dispute arises between an Iraqi doctor employed by an investor, Iraqi or non-Iraqi, who has invested in a private clinic in Baghdad, the dispute is

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governed exclusively by Iraqi law, and Iraqi courts are the only competent courts to deal with the dispute. It is to be noted that disputes between an investor and one of his employees, in areas unrelated to the investment, e.g., the rent of an office or a building unrelated to the investment project, is not necessarily governed by Iraqi law. The parties may agree on the choice of another applicable law, because this is a matter unrelated to an employment contract governed by the Federal Investment Law. Furthermore, the provision applies to Iraqi and non-Iraqi employees, unless the employment contract of the non-Iraqi employee provides for the application of another law. For example, if a U.K. citizen is employed on an industrial project in Basra, in the south of Iraq, by an Iraqi investor, the employment contract will be subject exclusively to Iraqi law. However, the parties may agree to subject the dispute to English law. In this case, any disputes arising between the English law and English courts will have jurisdiction over the dispute. This choice of a law is available only to cases of non-Iraqi employees, and must be provided for in the contract of employment. Therefore, Iraqi employees of an investor, whether that investor is Iraqi or non-Iraqi, cannot choose another applicable law for their disputes with their employer. It may be asked: what is a dispute? In international law, the Permanent International Court of Justice (PCIJ) held in the Mavrommatis case that a dispute is a disagreement on a point of law or fact, a conflict of legal views or of interests between two persons.1

The PCIJ applied that definition of a dispute to a situation concerning an internal issue, namely, a concession contract in Palestine given to Mavrommatis. There is no reason why the same definition should not apply to disputes subject to municipal law. Therefore, a disagreement arising between an investor and one of his employees, concerning the interpretation of the employment contract, would amount to a disagreement on a point of law or fact, and as such, would be considered a dispute. It will

1

See PCIJ Ser. A, No. 2, (1924) p. 11. For the definition of investment dispute, see below p. 140.

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be governed by Iraqi law and Iraqi courts will be competent to adjudicate the dispute. It should be mentioned that in Iraq, there are labour tribunals whose jurisdiction extends to disputes specified in the Iraqi Labour Law, No. 71, of 1987. Appeal from decisions of labour tribunals lies to the Court of Cassation. It may be worth noting that the settlement of disputes under the above heading is in line with the principle of territorial jurisdiction under international law. On the other hand, the choice of a law, other than Iraqi law, by the contracting parties, is in line with the principle that the parties are free to choose the applicable law. Professors Collier and Lowe say that in the settlement of disputes “the governing principle is that the parties are free to choose the applicable law.”2 (b) Disputes relating to crimes Any dispute between non-Iraqis arising from the commission of a criminal offence, will be subject to the exclusive jurisdiction of Iraqi law and Iraqi courts. This position is derived from Article 27, paragraph 2, of the Federal Investment Law, which reads as follows: If the parties to a dispute are non-Iraqis, and the dispute does not arise from the commission of a criminal offence, they can agree on the applicable law and competent courts. . . .

The provision deals with this question incidentally, for it deals basically with the choice of law by non-Iraqis. According to the provision, disputes between non-Iraqis arising from the commission of a crime in Iraq, cannot be subjected to the application of a foreign law and a foreign court in any contractual arrangements. This is clear from the wording of the provision. For example, if a foreign investor concludes a contract with an employee, he cannot provide in that contract that in case the employee is injured or killed in Iraq, any dispute concerning the offence shall be governed by a foreign law. This matter has to be decided by a competent Iraqi court, applying Iraqi law. This is so, because of the principle of territorial jurisdiction in criminal cases under international law. The rule

2

See The Settlement of Disputes, p. 239.


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is that crimes committed in the territory of a State are subject to the exclusive jurisdiction of that State, in the absence of treaty obligations to the contrary.3 (c) Disputes between national authorities and investors According to Article 27, paragraph 5, of the Federal Investment Law in disputes arising between the Commission or any other government agency, and any of those subject to the provisions of this Law concerning matters unrelated to the violation of any of the provisions of this Law, but related to civil law matters, the disputes shall be subject to Iraqi law and Iraqi courts shall have jurisdiction to deal with them.

According to the provision, there are three conditions for its application: 1. There must be a dispute between an investor and an investment commission, or any government agency. 2. The dispute cannot be related to violations of any of the provisions of the Federal Investment Law. 3. The dispute must concern a civil law matter. If all these condition are met, then the dispute will be exclusively governed by Iraqi law, and Iraqi courts have jurisdiction to adjudicate the dispute. For example, if a dispute arises between the NIC and an investor relating to the lease of land for the investment project, this dispute relates to a civil law matter, namely the lease contract. Therefore, it will be governed by Iraqi law, and will be subject to the jurisdiction of Iraqi courts. It should be pointed out that the choice of Iraqi law, and the jurisdiction of Iraqi courts, applies at the federal, as well as the regional level. For the federal Civil Code and the federal Law of Civil Procedure apply to the whole of Iraq. Consequently, disputes of the nature described in the provision, occurring in the Iraqi Kurdistan Region, for example, are governed by Iraqi law and are subject to the jurisdiction of the courts in the Kurdistan Region. It is to be noted that disputes arising between the

3

See Shubber, Jurisdiction over Crimes on Board Aircraft, pp. 50–51.

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NIC, or another government entity, which are of a commercial nature, can be referred to arbitration, if it is so provided in the contract between the parties. This topic is treated later on in this chapter.4 It may be interesting to point out that under the Iraqi Law of Civil Procedure, 1969, and its amendments, Iraqi civil courts have jurisdiction over all persons, natural and judicial, including the government, and the courts have jurisdiction over all disputes, except those expressly excluded by a special provision.5

Accordingly, an investor, or the NIC, can bring any dispute between it and the other party before a civil court, in particular, the court of First Instance.6 A decision of the Court of First Instance can be the subject of an appeal to the highest court of appeal in the country, the Court of Cassation.7 It may be interesting to point out that under the Sudanese Civil Procedure Act, a foreign investor who has concluded an investment contract (development agreement) with the Sudanese Government, has the right under the Sudanese Civil Procedure Act to bring an action for breach of contract before the competent court having jurisdiction.8 The Kurdistan Investment Law contains a provision on the settlement of disputes, Article 17 of which provides as follows: Investment disputes shall be settled in accordance with the contractual terms agreed to by the parties. If there is no clause in it for this purpose, the dispute will be settled cordially. And if the cordial settlement is impossible, the two sides may resort to arbitration, whose provisions are stated in existing laws in the region or in accordance with the provisions of the settlement of disputes that exist in any of the international or bilateral agreements to which Iraq is a signatory.

Accordingly, the choice of the applicable law is left to the agreement of the parties to the contract. In the absence of such a choice, the dispute will be settled “cordially”, which probably means by “negotiations”. And if

4 5 6 7 8

See See See See See

below p. 138 et seq. Art. 29 of the Iraqi Law of Civil Procedure, no. 83, 1969. ibid., Arts. 31–32. ibid., Art. 168. El Sheikh. The Legal Regime of Foreign Investment, p. 383.


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the parties fail to settle the dispute through negotiations, they may resort to arbitration. However, if the contract is silent on the choice of law, or arbitration, it is submitted, any dispute arising under the contract will be subject exclusively to Iraqi law.

3. Settlement of disputes under foreign law The Federal Investment Law provides for the possibility of choosing a foreign law, as the applicable law for the settlement of disputes in employment contracts, if the employee is a non-Iraqi. We shall now deal with this topic. (a) Employment contracts of non-Iraqis According to Article 27, paragraph 1, of the Federal Investment Law Disputes arising from employment contracts are subject, exclusively, to the rules of Iraqi Law, . . . with the exception of non-Iraqi employees, if the employment contract provides otherwise.

The provision provides for the possibility for choice of foreign law, if the following conditions are met: 1. The dispute arises from an employment contract. 2. The employment contract is between non-Iraqis. 3. The contract provides for the application of a law other than Iraqi Law. It may be worth noting that, insofar as the second condition is concerned, it would seem that one party to the contract need to be non-Iraqi. This position may be supported by Article 27, paragraph 2, of the Federal Investment Law, which expressly provided the choice of foreign law, when both parties to the contract are foreigners.9 Had the intention of the drafters been to demand that the two parties to the contract should

9

See below p. 137.

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be non-Iraqis, they would have said so, as they did with respect to Article 27, paragraph 2. Accordingly, if an employment contract is concluded between investor A, an Iraqi, and one of his employees, X, a French national, for work on an investment project in Iraq, and the contract provides that the applicable law to the contract will be that of the national State of X, i.e., French law, then in the case of a dispute between the parties arising under that contract, the applicable law will be French law, and French courts alone will have jurisdiction over the dispute. However, if the contract, in our example, is silent on the applicable law, the disputes arising under it will be governed by Iraqi law and subject to the jurisdiction of Iraqi Courts.10 This is an important principle, according to which the parties are free to choose the applicable law to govern their contractual relations. Professors Collier and Lowe are of the opinion that . . . the choice of the law applicable to determine the merits of a dispute is an important matter, because it determines the rules which are applicable to, for example, the interpretation of an agreement, the permissible means of performance, and the consequences of breach.11

The possibility of a choice of an applicable law, other than the Iraqi law, in employment contracts, constitutes an exception to the rule laid down in Article 27, paragraph 1. It is probably intended to encourage foreign employees of an investor to come and work in Iraq. For, knowing that their employment contracts can provide for the application of their national law, with which they are probably more familiar than with Iraqi law, would ensure the protection of their rights. It may also provide some psychological comfort to them. The Kurdistan Investment Law is silent on the topic of employment contracts with non-Iraqis. But its Article 17 speaks in general terms of “investment disputes”, and gives the parties the freedom to choose the applicable law. In the absence of such a choice, it is submitted, Iraqi law alone will apply to disputes arising from employment contracts between an investor and a non-Iraqi employee.

10 11

See above p. 130. See Collier and Lowe, The Settlement of Disputes, p. 239.


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(b) Contracts between foreigners The Federal Investment Law permits non-Iraqis, involved in an investment project in Iraq, to agree in their contract on a choice of law and competent jurisdiction for the settlement of their disputes, other than Iraqi law and Iraqi courts. This is laid down in Article 27, paragraph 2, which reads as follows: If the parties to a dispute are non-Iraqis, and the dispute does not arise from the commission of a criminal offence, they can agree on the applicable law and competent courts, or any other agreement, for the settlement of their dispute.

The first observation to make is that the parties to the dispute must both be non-Iraqis, and within the context of their contractual relations in an investment project. If one of the parties is an Iraqi, then the provision does not apply. Secondly, there must be an agreement between those parties, presumably in a contract and in a written form, on the applicable law and competent courts, for the settlement of the disputes arising from their contractual relations. In the absence of such an agreement the provision does not apply. Thirdly, any such agreement cannot apply to disputes arising from the commission of a crime in Iraq. Fourthly, the parties are also free to agree on any other mode of settlement of their disputes, such as negotiations, arbitration, or conciliation, without reference to Iraqi law. As we have seen earlier, it is possible to agree in an employment contract, where one of the parties is non-Iraqi, on the applicable law and competent courts, excluding Iraqi law and Iraqi courts.12 But that situation is limited to employment contracts only, whereas under Article 27, paragraph 2, it would appear that the parties can agree to choose a foreign law and jurisdiction in any type of contract. The wording of the provision is general and lends itself to this interpretation. However, it should be stated that if the contract between non-Iraqis, for example, a contract between an English investor and a Danish supplier relating to a project in Iraq, is silent on the choice of the applicable law, then the disputes arising in Iraq would be governed by Iraqi law. This point of view can be supported

12

See above p. 130.

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by the preamble of Article 27, which expressly provides that “Iraqi law shall apply to disputes arising between the parties who are subject to the provisions of this Law, unless otherwise agreed.” It may be worth mentioning that the Kurdistan Investment Law does not contain a provision similar to Article 27, paragraph 2, of the Federal Investment Law. On the other hand, the CPA Order 2003 provided for the settlement of disputes between a foreign investor and an Iraqi investor pertaining to investment in Iraq, or between a foreign investor and an Iraqi juridical or natural person, in accordance with the written agreement of the parties.13 This appears to give the parties a freedom of choice of the applicable law and competent courts. The parties may also choose arbitration outlined in Iraqi law.14

4. Arbitration Arbitration is a recognised mode of settlement of disputes at both the international and national levels. It has been defined thus: Arbitration is the name given to the determination of a difference between States (or between a State and a non-State entity) through a legal decision of one or more arbitrators and an umpire, or of a tribunal other than the International Court of Justice or other permanent tribunal.15

At the international level, arbitration dates back to the Treaty of Amity, Commerce and Navigation (the Jay Treaty) of 1794, between the United Kingdom and the U.S., which set up, inter alia, mixed tribunals consisting of an equal number of members appointed by each of the two States, with an umpire in the event of disagreement, to consider claims by nationals of the two States.16 Furthermore, according to Article 33 of the UN Charter, arbitration is one of the means of settlement of disputes, the continuance of which is likely to endanger the maintenance of international peace and

13 14 15 16

See Sec. 10 of CPA Order 2003. See ibid. See Collier and Lowe, The Settlement of Disputes, p. 31. Ibid., p. 32.


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security. Reference of disputes to arbitration at the international level could be made in a bilateral treaty or a multilateral treaty. At the national level, it is necessary to have domestic legislation providing for the institution of arbitration and governing the relationship between arbitral tribunals and the courts.17 The Iraqi Federal Investment Law provides for the settlement of investment disputes, inter alia, by arbitration under Iraqi law or under international schemes. The advantages of arbitration are that it is flexible and allows the parties to the dispute to choose their arbitrators and the place of arbitration, which allows the application of the lex arbitri and thus avoids the question of the applicable law under private international law. Professors Collier and Lowe make the following observation on this topic: It is now quite usual for foreign investors and host States, . . . to agree to settle their disputes by international commercial arbitration, in tribunals where the company and the State litigate against each other on a footing of equality. Those tribunals apply the law chosen by the parties, and this commonly involves the application of public international law.18

We shall now deal with arbitration under Iraqi law, then under the international schemes. (a) Arbitration under Iraqi law The Federal Investment Law permits the contracting parties in an investment project to settle their disputes through arbitration according to Iraqi law. Article 27, paragraph 4, thereof reads as follows: If the parties to a dispute are subject to the provisions of this Law, they may, when concluding their contract, agree on the mode of settlement of their dispute, including recourse to arbitration according to Iraqi law. . . .

The Federal Investment Law contains another provision providing for recourse to arbitration, in disputes between the NIC, or the Regional or the Governorate Investment Commission, or any government agency, and an investor concerning commercial issues. But this reference to arbitration

17 18

Ibid., p. 51. Ibid., p. 58.

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is general, without specifying which arbitration scheme is meant. Article 27, paragraph 5, reads as follows: In disputes arising between the Commission, or any government agency, and any of those subject to the provisions of this Law concerning matters unrelated to the violation of any of the provisions of this Law . . . they shall be subject to Iraqi law. . . . However in commercial matters, the parties to such disputes may agree to resort to arbitration, provided that it is so stated in the contract between them.

The term “dispute” should be understood as defined by the PCIJ in the Mavrommatis case.19 A “commercial dispute” arising within the context of the Federal Investment Law could be characterised as an investment dispute, and when it involves a foreign investor it would be called “a foreign investment dispute”. The latter term has been defined as . . . one between an investor from one country and a government that is not its own that relates to an investment in the host country.20

The general reference to “arbitration” in Article 27, paragraph 5, it is submitted, can include arbitration under Iraqi law, as well as another scheme of arbitration. Therefore, we shall deal with it here as arbitration under Iraqi law. The first point to be noted is that Article 27, paragraph 4, of the Federal Investment Law applies to the parties to the contract covered by its provisions. It would appear that both parties to the contract have to be covered by that Law, because the provision uses the plural “the parties”. Therefore, if one of the parties is not covered by the provisions of the Federal Investment Law, the provision does not apply. As regards the parties to the dispute, they could be investors, an investor and an investment commission or a government agency, or an investor who has bought the project from another investor, in conformity with Article 23 of that Law. For example, a landowner, who has leased his land to an investor for an investment project, may also be covered by the provision. The second

19 20

See above p. 131. See Bishop, Crawford and Reisman, Foreign Investment Disputes, p. 9.


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point is that the agreement to refer disputes to arbitration according to Iraqi law should have been reached at the time of the conclusion of the contract concerning the investment project. It would therefore be possible to argue that if that agreement was reached after the conclusion of the contract, then it would probably not be caught by the provision. In that case, the provisions of the Iraqi Civil Code would probably apply and the Iraqi courts would have jurisdiction. What has been said above with respect to Article 27, paragraph 4, applies to the situations governed by Article 27, paragraph 5, with the following additional conditions stipulated by the latter: (i) The dispute has to be between the NIC, or one of its regional equivalents, or a government agency, and an investor; (ii) The dispute must not be related to a violation of the provisions of the Federal Investment Law; and (iii) The dispute must relate to a commercial matter. Under Iraqi law, a commercial activity is defined as any activity for the purpose of realising a profit, and this purpose is implied, unless the contrary is proved.21

So far as the rules governing arbitration under Iraqi law are concerned, they are to be found in the procedural law, rather than the substantive law. They are laid down in Part Three, Section two, of the Iraqi Law of Civil Procedure, No. 83, 1969, as amended. According to Article 251 of the latter, It is permissible to agree on arbitration in a particular dispute, as well as in all disputes, arising from the implementation of a particular contract.

Furthermore, Article 252 requires that agreement on arbitration must be in writing, and that it is possible to agree on arbitration during the court proceedings. It reads as follows:

21

See Art. 5 of the Iraqi Commercial Code, No. 30, 1984.

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Arbitration agreement has to be in writing. The parties may agree on arbitration during court proceedings. If the arbitration agreement has been established for the court, or if the court approves the parties’s agreement during the proceedings, the court shall adjourn the case until the arbitration award is rendered.

It should be pointed out that, if the parties to a dispute agree on arbitration, they are not allowed to go to a court of law until the exhaustion of the arbitration process. According to Article 253, paragraph 1, of the Law of Civil Procedure, if the parties to a dispute have agreed to settle it through arbitration, they cannot institute proceedings before a court of law before the exhaustion of the arbitration process.

So far as the appointment of arbitrators is concerned, the parties are free to choose their arbitrators, as implied by Article 256 of the Law of Civil Procedure. And in the absence of agreement between the parties on the appointment of arbitrators, or if an arbitrator is removed, or has declined to act as an arbitrator, the court will appoint the arbitrators, upon the request of one of the parties. This provision provides that 1. In the absence of agreement between the parties on the appointment of arbitrators, or in case one or more of the arbitrators declined to take part in the arbitration, or has been removed, or there has been an impediment for him to carry out his function, and in the absence of agreement between the parties on this issue, any party to the dispute may submit a written request to the competent court requesting it to appoint the arbitrator, or arbitrators, after notifying the other parties and getting their reaction. 2. The decision of the court concerning the appointment of an arbitrator, or arbitrators, is final and is not subject to appeal. However, the court’s refusal to appoint arbitrators is subject to appeal. . . .

The arbitral award must be given within six months from the date of acceptance of the arbitrators to act in that capacity, unless there is another period of time agreed upon by the parties for this purpose (Article 262, paras. 1 and 2). Furthermore, according to Article 263, if the arbitrators were unable to settle the dispute within the specific period stated in the arbitration agreement, or within the period specified by law,


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or they were unable to submit their report, because of force majeure, each party to the dispute may request the competent court to extend that period, or to settle the dispute itself, or to appoint other arbitrators to settle the dispute, as the case may be.

The arbitrators are required to apply the rules laid down in the Law of Civil Procedure, unless the arbitration agreement, or a subsequent agreement, releases them, expressly, from this obligation or lays down other procedures to be followed by the arbitrators (Article 265, para. 1). However, it is not clear what substantive law should be applied by the arbitrators to the dispute. The Law of Civil Procedure is silent on the matter. On the other hand, it does provide that “the arbitrators shall settle the dispute on the basis of the arbitration agreement, or its terms and other documents, as well as what the parties submit to them.” (Article 266). It would therefore appear, by implication, that the arbitrator would apply the substantive rules of Iraqi law, or the substantive rules of any other law chosen by the parties to the dispute. In any case, Article 27, paragraph 4, of the Federal Investment Law speaks of recourse “to arbitration according to Iraqi law”. Therefore, it is submitted that Iraqi law is the applicable law to the dispute, substantive as well as procedural. It should be pointed out that the arbitration award under the Law of Civil Procedure cannot be implemented, unless it is approved by the competent court in Iraq, upon the request of one of the parties. (Article 272, para. 1). The competent court has the power to approve, or annul the arbitration award, in part or in whole. In case of annulment of the award in part or in whole, the court may refer the case to the arbitrators to remedy the defect of the award, or it may itself decide the dispute, if the case is suitable for such a settlement (Article 274). If the court decides to deal itself with the dispute, then its decision is subject to appeal in conformity with the law (Article 275). (b) Arbitration under international schemes Article 27, paragraph 4, of the Federal Investment law provides the contracting parties in an investment project with the facility of resorting to arbitration by an internationally-recognised entity, if this is specified in the contract. The provision reads as follows:

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If the parties to a dispute are subject to the provisions of this Law, they may, when concluding their contract, agree on the mode of settlement of their disputes, including recourse to arbitration according . . . to any internationally-recognized scheme.

In addition, Article 27, paragraph 5, provides that in disputes arising between the Commission, or any government agency, and any of those subject to the provisions of this Law . . . in commercial matters, the parties may agree to resort to arbitration, provided that it is so stated in the contract between them.

These two provisions contain identical conditions for the submission of such disputes to arbitration under Iraqi law. Therefore, what has been said earlier with respect to arbitration under Iraqi law applies here.22 The only difference is the reference to internationally-recognized arbitration schemes in Article 27, paragraph 4. Accordingly to the latter provision, if X, an investor in Iraq, concludes an investment contract with an Iraqi government entity Y, they are entitled to choose an internationallyrecognised forum to arbitrate any dispute between them arising from that contract. To that end, they may choose an institutional arbitration, e.g., the International Chamber of Commerce (ICC) or the International Centre for Settlement of Investment Disputes (ICSID). It would seem from the wording of the provision that this facility is open to both Iraqi and non-Iraqi investors. For the provision speaks of “the parties to the dispute”, without making any distinction between an Iraqi and a foreign investor, whereas Article 27, paragraph 1, makes a distinction between an Iraqi employee and a non-Iraqi one, in the sphere of jurisdiction and the applicable law.23 To give foreign investors this possibility is perfectly understandable, but so far as Iraqi investors and Iraqis with dual nationality are concerned, this seems a bit difficult to understand, in view of the availability of arbitration under Iraqi law. However, the intention might have been to make a concession in their favour, in order to encourage

22 23

See above pp. 139–143. See above p. 130.


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investment in the country. After all “resort to arbitration as an alternative to national courts is a privilege, not a right.”24 The choice of arbitration, under the above heading, can be included in either an investment contract, or in an investment treaty between Iraq and another State investing in the country, or with the national State of the investor. It may be worth noting that Article 27, paragraph 5, does not mention agreement to arbitrate in a treaty, but this does not prevent Iraq from concluding a treaty to that effect with another State, under international law. The U.K. bilateral Model Agreement for the Promotion and Protection of Investment offers the following provision for the settlement of disputes: Article 9: Disputes between the Contracting Parties (1) Disputes between the Contracting Parties concerning the interpretation or application of this Agreement should, if possible, be settled through the diplomatic channel. (2) If a dispute between the Contracting Parties cannot thus be settled, it shall upon the request of either Contracting Party be submitted to an arbitral tribunal. (3) Such an arbitral tribunal shall be constituted for each individual case in the following way. Within two months of the receipt of the request for arbitration, each Contracting Party shall appoint one member of the tribunal. Those two members shall then select a national of a third State who on approval by the two Contracting Parties shall be appointed Chairman of the tribunal. The Chairman shall be appointed within two months from the date of appointment of the other two members. (4) If within the period specified in paragraph (3) of this Article the necessary appointments have not been made, either Contracting Party may, in the absence of any other agreement, invite the President of the International Court of Justice to make any necessary appointments. If the President is a national of either Contracting Party or if he is otherwise prevented from discharging the said function, the Vice-President shall be invited to make the necessary appointments. If the Vice-President is a national of either Contracting Party or if he too is prevented from discharging the said function, the Member of the International Court of Justice next in seniority who is not a national of either Contracting Party shall be invited to make the necessary appointments.

24

See Collier and Lowe, The Settlement of Disputes, p. 202.

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(5) The arbitral tribunal shall reach its decision by a majority of votes. Such decision shall be binding on both Contracting Parties. Each Contracting Party shall bear the cost of its own member of the tribunal and of its representation in the tribunal proceedings; the cost of the Chairman and the remaining costs shall be borne in equal parts by the Contracting Parties. The tribunal may, however, in its decision direct that a higher proportion of costs shall be borne by one of the two Contracting Parties, and this award shall be binding on both Contracting Parties. The tribunal shall determine its own procedure.25

On the other hand, an investment contract may be concluded, for example, between the Iraqi Ministry of Industry and a U.K.-registered company, for an industrial project in Iraq. In this case, an arbitration clause providing for the settlement of disputes between the parties would be in conformity with Article 27, paragraph 5, of the Federal Investment Law. The following model arbitration clause, of the Model Clauses prepared by the ICSID, may be used, with appropriate adaptation, for the settlement of disputes by the parties in an investment contract: Clause 22 Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules at present in force. The appointing authority shall be the Secretary-General of the International Centre for the Settlement of Investment Disputes. [The number of arbitrators shall be [one]/[three]. The place of arbitration shall be [name of town or country]. The languages{s} to be used in arbitral proceedings shall be [name of language[s].26

The UNCITRAL Arbitration Rules are a set of rules adopted by the UN Commission on International Trade Law in 1976. The Rules are intended to be used in ad hoc arbitrations. They have been used by regional arbitration centres in Cairo, Kuala Lumpur and elsewhere, and they have been well tried and tested in practice.27

25

26 27

The text of the U.K. Model Agreement is reproduced in Foreign Investment Disputes, pp. 73–79. The text is reproduced in The ICSID Convention, p. 49, para. 19. Collier and Lowe, The Settlement of Disputes, p. 50.


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On the other hand, an investment treaty between Iraq and the U.K., in our example, may contain an arbitration clause worded along the lines proposed in the U.K. Model Agreement mentioned above. There are many arbitration centres, which are internationally-recognised, but we shall deal only with the following centres: 1. 2. 3. 4.

The Permanent Court of Arbitration (PCA), The International Chamber of Commerce (ICC), ICSID, and The Arab Council for Settlement of Investment Disputes.

1. The Permanent Court of Arbitration (PCA) The PCA was created by the Hague Convention I for the Pacific Settlement of Disputes 1899,28 which was amended by Convention I of 1907.29 It should be noted that the PCA is neither a court, nor a permanent institution, nor does it, itself, arbitrate disputes.30 The seat of the PCA is at The Hague, in the same building as the ICJ. The PCA has an International Bureau, which serves as registrar for the arbitration tribunal.31 Panels of arbitrators, appointed by the contracting States, are made available for ad hoc arbitral tribunals.32 The PCA is intended to settle disputes between States, however, in 1962, new rules were adopted for the organization of arbitration proceedings between States and public international bodies, on the one hand, and companies or individuals, on the other hand, i.e., State/non State arbitration. In 1992, the PCA optional rules for interState arbitration, for example, were based on the UNCTRAL Arbitration Rules, which had been designed for use in commercial arbitration.33 Unless the parties to the dispute decide otherwise, the ad hoc arbitral tribunal

28

29

30 31 32 33

See Permanent Court of Arbitration, Basic Documents: Conventions, rules, model clauses and guidelines (The Hague, 1998), p. 3; see also The Settlement of Disputes, p. 35. Ibid., p. 17. The text of The Hague Convention on the Pacific Settlement of Disputes, 1907, has been reproduced in The Settlement of Disputes, Appendix 2, p. 285 et seq. See ibid., p. 35. Art. 43 of The Hague Convention, 1907. Ibid., Art. 44. See The Settlement of Disputes, p. 37.

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consists of three arbitrators. In case of failure of the parties to agree on the arbitrators, they could seek the assistance of the PCA’s Bureau, which will present each party with a list of arbitrators. From this list, the arbitral tribunal may, with the agreement of the parties, be constituted.34 If this does not provide a solution, the parties could authorize the SecretaryGeneral of the PCA to nominate the arbitrators or the umpire. An investor in Iraq, when concluding a contract for an investment project with a government entity, may choose to refer the disputes arising under the contract to the PCA for settlement through arbitration. And this recourse will be in line with Article 27, paragraph 4, of the Federal Investment Law. It may be interesting to point out that in 1966, the dispute between the Sudanese Government and Turriff, a commercial company, was referred to the PCA for settlement. It rendered an award, ex parte, against the Sudanese Government.35 2. The International Chamber of Commerce (ICC) The ICC was founded in 1919 and has its headquarters in Paris, France. It has two permanent organs, namely, the International Court of Arbitration (ICA), and the Secretariat. The function of the International Court of Arbitration is to ensure the application of the ICC Rules of Arbitration and Conciliation, in disputes referred to the ICC for settlement.36 The Rules of Arbitration of the ICC lay down the procedure to be followed, if a dispute arises between the parties to a contract providing for the settlement of disputes under the ICC jurisdiction. They specify the rights of the parties to apply to the Secretariat of the ICC Court of Arbitration, in order to initiate arbitration, in case of a dispute arising between them. The request for arbitration must provide certain details, such as the parties to the dispute and state the claimant’s case, with the relevant documentation.37 In case of a challenge to the ICC jurisdiction,

34 35 36

37

See El Sheikh, The Legal Regime of Foreign Investment, p. 403. See ibid., pp. 403–404. Art. 1, para. 1, of the Statutes of the International Court of Arbitration. For the text of the ICC Rules of Arbitration (1998) and the Statutes of the ICA, see 36 International Legal Materials (1997), pp. 1606–1619. See Art. 4 of the ICC Rules of Arbitration.


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the ICC Court decides the challenge, and in the affirmative, the arbitration proceeds, and the arbitral tribunal takes the definitive decision on the existence of its own jurisdiction.38 The parties may agree on a sole arbitrator, or three arbitrators.39 In the latter case, each party nominates one arbitrator, and the third is appointed by the ICC Court, or confirmed by it, if chosen by the parties.40 If the parties do not agree on the number of arbitrators, the ICC Court appoints a sole arbitrator, unless it thinks that the case requires the appointment of three arbitrators.41 So far as the applicable law is concerned, the parties to the dispute may determine the law governing the merits of the dispute, and in the absence of agreement between them, the arbitral tribunal applies the rules of law it determines to be appropriate for the settlement of the dispute.42 The award of the arbitral tribunal is final, and a party against whom an award is rendered must carry it out promptly.43 Under the regime of the Iraqi Federal Investment Law, the parties to an investment contract have the right to choose the ICC for the settlement of any dispute arising from the investment contract. This is so, provided that the investment contract contains a provision to that effect. This position is in conformity with Article 27, paragraphs 4 and 5. Professors Collier and Lowe suggest the following arbitration clause to be included in an investment contract: All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.44

This is a very clear and concise clause.

38 39 40 41 42 43 44

Ibid., Art. 6., para. 2. Ibid., 8, para. 1. Ibid., para. 4. Ibid., para. 2 Ibid., Art. 17, para. 1. Ibid., Art. 28, para. 6. See The Settlement of Disputes, p. 47.

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It may be interesting to mention that the draft Iraqi Law on Oil and Gas, which is pending before the Iraqi House of Representatives, at the time of writing, contains a provision on the settlement of disputes with foreign investors which, inter alia, refers to arbitration using the ICC Arbitration Rules and Procedures, the arbitration to be held in Paris or Geneva. The relevant provision reads as follows: Article 45 1. Disputes relating to the interpretation and application of this Law, or its regulations, shall be settled by negotiations between the parties concerned, in conformity with the principle of good faith. 2. If the dispute is not settled by agreement, is shall be referred to the Minister [of Oil] for settlement, in consultation with the concerned bearers of licenses. 3. If, in good faith, no settlement is reached, the dispute shall be submitted to arbitration or to the competent judicial authorities, in accordance with the agreement contained in the contract. 4. (a) The law applicable to the arbitration between the authority concerned [the Ministry of Oil, the Iraqi National Oil Company or the Regional Authority] and foreign investors shall be Iraqi law, from the point of view of substance [substantive law?], and the regulations concerning the procedures of the International Chamber of Commerce in Paris or Geneva, or the Cairo Regional Centre for the International Commercial Arbitration, shall apply, from the point of view of form [procedural law?], in accordance with the agreement contained in the contract. (b) The contract shall contain the conditions of the appointment of arbitrators, the arbitral award, place of the award, the expenses of the award, and the time-limit for its issue.45

This offers an indication of the willingness of the Iraqi government, inter alia, to go to arbitration in cases of disputes with would-be investors in the areas of oil and gas extraction, development and production. Under the Kurdistan Investment Law, it is possible for the parties to agree on the settlement of disputes concerning investment under the ICC Rules, if the parties agree on that in their contract.46

45 46

This is the author’s translation from the original Arabic text. See Art. 17 of the Kurdistan Investment Law.


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3. The International Centre for the Settlement of Disputes (ICSID) The ICSID was established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States.47 The Convention’s primary aim is the promotion of economic development, which depends in large measure on private international investment. The Convention is designed to facilitate private international investment through the creation of a favourable investment climate.48 The final text of the Convention was adopted on 18 March 1965, and entered into force on 14 October 1966.49 The ICSID is well suited for use for the settlement of investment disputes, in conformity with Article 27, paragraph 4, of the Federal Investment Law. The seat of the ICSID is at the principal office of the World Bank in Washington, D.C.50 ICSID has an Administrative Council and a Secretariat, and maintains a panel of conciliators and a panel of arbitrators.51 The Administrative Council is ICSID’s plenary organ, and each State party to the Convention is represented on it by the same persons who are on the Board of Governors of the World Bank.52 They are generally ministers of finance of the States concerned. The Chairman of the Administrative Council is the Chairman of the World Bank.53 The jurisdiction of ICSID is laid down in Article 25 of the Convention, which reads as follows: (1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent division or agency of a Contracting State designated to the Centre by

47

48 49

50 51 52 53

For an excellent and thorough analysis of the Convention, see Professor Christoph Schreuer, The ICSID Convention. Ibid., p. 4, para. 11. Ibid., paras. 9–10. Art. 68, para. 2, of the Convention requires 20 ratifications, acceptances or approval, and it comes into force 30 days after the deposit of the 20th instrument of ratification, acceptance or approval. So far, the Convention has been signed by 147 States and ratified by 131 States. See ibid., para. 10. See Art. 2 of the ICSID Convention. Ibid., Art. 3. Ibid., Art. 4. Ibid., Art. 5.

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that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

Accordingly, the ICSID jurisdiction extends to “legal disputes”54 which arise directly out of an investment. Moreover, the States involved in the dispute must both be parties to the ICSID Convention, and the parties to the dispute have to give their consent, in writing, to submit it to the ICSID. However, in 1978 the Administrative Council adopted the Additional Facility Rules, which have extended the jurisdiction of the Centre. Article 2 of the latter Rules allows the Centre to deal with disputes between parties if only one of them, rather than both, is a Contracting State or a national of a Contracting State, as well as disputes which do not arise directly out of an investment. Once the parties have given their consent, no party to the dispute may withdraw its consent unilaterally. According to Professor Schreuer, consent may be given in three ways: through a direct agreement between the host State and the investor, through a provision in the host State’s investment legislation that has been accepted by the investor, or through a clause in a treaty that has been accepted by the investor.55

It could be argued that, if an investor concludes an investment contract for an investment project in Iraq, and is aware of the provisions of the Iraqi Federal Investment Law, this would constitute consent to arbitration by ICSID, of course, assuming that Iraq is a party to the ICSID Convention, or the dispute is submitted under the Additional Facility Rules. The same applies if Iraq concludes an investment treaty with another State, accepting the reference to the ICSID of disputes arising from that treaty. It might be likely that Iraq would be a party to the ICSID Convention in the near future. So far as the parties to the dispute are concerned, the dispute has to be between a Contracting State, or a division or an agency of the State, and a national of another Contracting State.

54 55

See the definition of dispute by the PCIJ on p. 131 above. See The ICSID Convention, p. 126, para. 91.


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This would indicate that the investor must be a private individual or corporation. Therefore, States acting as investors have no access to the [ICSID] Centre in that capacity.56

Accordingly, any dispute between the NIC and an investor can be submitted to ICSID. So far as the procedure is concerned, according to Article 36, paragraph 1, of the ICSID Convention, any party to a dispute within the jurisdiction of ICSID has the right to request the Secretary-General of ICSID to establish an arbitral tribunal. The arbitral tribunal shall be constituted, as soon as possible, after the request has been made under Article 36 (Article 37, para. 1). The tribunal shall consist of a sole arbitrator or an uneven number of arbitrators appointed by agreement of the parties. In the absence of agreement between the parties on the number of arbitrators, the tribunal shall consist of three arbitrators, one arbitrator appointed by each party, and the third, who will be the president of the tribunal, shall be appointed by agreement between the parties. (Art. 37, para. 2). It is to be noted that the consent of the parties to arbitration under the ICSID Convention excludes any other remedy. However, a State may require the exhaustion of local remedies before resort to arbitration (Art. 26). Professor Schreuer, commenting on Article 26, says the following: the underlying idea of the exclusive remedy rule and of the principle of non-interference is to provide effective forum and to dispense with other proceedings which for a variety of reasons appear unattractive to the parties. Investors often do not perceive litigation in the courts of host States as a reliable way of protecting their interests. In turn, host States dislike getting involved in litigation abroad . . . In addition, State immunity tends to have a distorting effect on litigation between States and non-States parties before domestic courts. The principle of autonomy for ICSID arbitration, as expressed in Art. 26, therefore, meets a number of needs of the host States and of the foreign investors.57

The arbitral awards rendered by the arbitral tribunal are binding, and are not subject to appeal or to any other remedy, except those provided under

56 57

See ibid., p. 159, para. 167. See ibid., p. 347, para. 4.

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the ICSID Convention (Art. 53, para. 1). States parties to the Convention have undertaken to recognise an arbitral award as binding, and to enforce its pecuniary obligations within their territories, as if it were a final judgment of a court of those States. (Art. 54, para. 1). Furthermore, Contracting States are bound not to give diplomatic protection to their nationals involved in a dispute submitted to arbitration under the ICSID Convention, nor to bring international claims on their behalf in such cases, unless the other Contracting State has failed to abide by and comply with the award. (Art. 27, para. 1). Finally, while the arbitral tribunal determines its own competence, as stated in Article 41 of the ICSID Convention, it is bound, according to Article 42, paragraph 1, to apply “. . . such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.” This is one of the international arbitration schemes that can be chosen for the settlement of investment disputes under the Federal Investment Law, as well as under the Kurdistan Investment Law. 4. The Arab Council for Settlement of Investment Disputes The Arab Council for Settlement of Investment Disputes (hereinafter referred to as “the Arab Council”), was established by Article 4 of the Convention for the Settlement of Investment Disputes between Host States for Arab Investment and Nationals of Other Arab States, 1974 (hereinafter referred to as “the Convention for Settlement of Arab Investment Disputes”).58 The Convention was concluded by eleven States of the Council of Arab Economic Unity, plus the Palestinian Authority.59 The Arab Council is intended as a forum for the settlement of investment disputes arising under the Convention for Settlement of Arab Investment

58

59

For the English text of the Convention, see Legislative Supplement- The Democratic Republic of Sudan, Gazette No. 1243, 15 July 1978, pp. 16–31. See Dr. El Sheikh, op. cit., pp. 417–418. The States parties to the Convention are: Jordan, Sudan, Syria, Iraq, Arab Republic of Egypt, Kuwait and the Arab Republic of Yemen. Ibid., p. 418. See also above note 55, p. 31.


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Disputes. The Council has jurisdiction to settle any legal dispute arising directly from investments between host Arab States, or one of their general organizations or establishments, and nationals of other Arab States, whether natural or juridical persons (Art. 2 of the Convention). Disputes arising under Article 2 have to be settled first by conciliation, failing that then by arbitration (Art. 3 of the Convention). So far as the composition of the Council is concerned, it consists of one or more representatives of each Contracting State (Art. 5, para. 1, of the Convention). It has the authority to appoint conciliation and arbitration committees for the settlement of investment disputes (Art. 6, para. 2 of the Convention). A conciliation committee shall be constituted by mutual consent of the parties, within 45 days after the registration of a written application to refer a dispute for conciliation or arbitration (Art. 10, para. (A) of the Convention). The parties can appoint an uneven number of conciliators or arbitrators, and in the absence of agreement between the parties, the Secretary-General of the Council appoints them from the panels of conciliators and arbitrators (Arts. 10 and 14 of the Convention). The arbitral tribunal shall be constituted within 30 days, after the registration of a request for arbitration, unless the parties otherwise agree (Art. 14, para. (A) of the Convention). The tribunal shall consist of an uneven number of arbitrators appointed as the parties agree. Where the parties do not agree upon the number of arbitrators and the method of their appointment, each party shall appoint one arbitrator, and the third, who shall be the president of the tribunal, shall be appointed by agreement of the parties (Art. 14, para. B) of the Convention). If the tribunal is not constituted in accordance with paragraphs (A) and (B) of Article 14, the SecretaryGeneral shall appoint the arbitrator or arbitrators, after consulting the parties (Art. 14, para (C) of the Convention). The arbitral awards are final and are not subject to appeal; they are binding on both parties, who must abide by, and enforce, them. (Art. 25 of the Convention). Furthermore, if the parties consent to settle the dispute in arbitration under the Convention, they are deemed to have excluded any other remedy, unless it is otherwise provided by the Convention (Art. 19 of the Convention). No international claims can be made on behalf of nationals whose disputes have been submitted for arbitration under the Convention for Settlement of Arab Investment Disputes, except

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when the respondent State has failed to abide by and to comply with the arbitration award. (Art. 39, para. (A), of the Convention). Dr. El Sheikh says that the Arab Council, which he refers to as “ABSID” “. . . in many respects resembles ICSID, if it is not indeed identical except for the organisational provisions.”60 The Arab Council could be used as a means of settlement of investment disputes arising under Article 27, paragraphs 4 and 5, of the Federal Investment Law. For example, an investment contract between the Iraqi Ministry of Electricity and a Kuwaiti investor can provide for the settlement of investment disputes under the contract by the Arab Council.

5. The International Court of Justice (ICJ) While Article 27 of the Federal Investment Law does not provide for the settlement of disputes by the ICJ, it is perfectly possible for Iraq to provide for the jurisdiction of the ICJ in a bilateral investment treaty with another State for the settlement of investment disputes. The jurisdiction of the ICJ is based on consent of the parties to the dispute. In the Monetary Gold case, the ICJ held that it can only exercise the jurisdiction over a State with its consent.61 There is no particular form required for consent, it may be expressed in a treaty, a declaration under the “Optional Clause”, or even in a letter, as was the case in the Corfu Channel case.62 According to Article 36 of the Statute of the ICJ, 1. The jurisdiction of the Court comprises all cases which the parties refer to it and all matters specially provided for in the Charter of the United Nations or in treaties and conventions in force.

60 61 62

Ibid., p. 418. See ICJ Rep. (1954), p. 32. See ICJ Rep. (1948), p. 28. In the case of Maritime Delimitation between Bahrain and Qatar, the ICJ based its jurisdiction on the Minutes signed by the Foreign Ministers of Bahrain, Qatar and Saudi Arabia in Doha in 1990. See ICJ Rep. (1994), p. 112, para. 25.


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2. The states parties to the present Statute may at any time declare that they recognize as compulsory ipso facto and without special agreement, in relation to any other state accepting the same obligation, the jurisdiction of the Court in all legal disputes concerning: a. the interpretation of a treaty; b. any question of international law; c. the existence of any fact which, if established, would constitute a breach of an international obligation; d. the nature or extent of the reparation to be made for the breach of an international obligation.

Therefore, legal disputes concerning investment in Iraq could be brought before the ICJ, if Iraq and the other State have concluded a treaty providing for the jurisdiction of the ICJ (Art. 36, para. 1), or if they have both made declarations under the Optional Clause (Art. 36, para. 2). It is equally possible to provide for the jurisdiction of the ICJ in an agreement between the States parties, after the dispute has arisen, whereby they specifically agree to refer the dispute to the ICJ, or when forum prorogatum applies. The latter term has been described as . . . the name given to the situation where one State refers the case to the Court [ICJ] and the other does some act which can be regarded as submission to the jurisdiction, such as appearing and arguing the case on its merits.63

However, the ICJ may not be the ideal forum for the settlement of investment disputes, because of the time it takes for the proceedings, and the rigorous procedure to be followed. Dr. El Sheikh, commenting on this point, says: . . . [Foreign investors] are obsessed by the idea that the International Court of Justice is the best forum for redressing their grievances. In actuality this is a misconception. The litigation of the World Court is time-consuming as it involves application of rigid procedural complexities. Furthermore, the governments prefer other means of settling investment and commercial disputes to avoid the publicity which usually characterizes the World Court’s decisions.64

63 64

See The Settlement of Disputes, p. 136. See The Legal Regime of Foreign Private Investment, p. 398.

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6. Conclusion The modes of settlement of disputes under the Federal Investment Law offer a number of possibilities for investors, for the settlement of disputes arising from their investment in Iraq. The basic rule is the application of Iraqi law, followed by a choice of a foreign law, then a choice of arbitration. Iraqi law applies when there is no foreign element in the contractual relations of the investment project, which is normal, in view of the territorial principle under international law. But when there is a foreign element in those contractual relations, the parties are allowed to choose an applicable law, other than Iraqi law, provided that such a choice is included in the contract. The Federal Investment Law also provides for the choice of arbitration for the settlement of certain types of investment disputes, e.g., disputes arising between a foreign investor and an investment commission, or a government agency, if so provided in the investment contact. Arbitration could also be chosen for the settlement of disputes in investment treaties between Iraq and other States. The modes of settlement of disputes under the Federal Investment Law offer a flexible approach, which appears to be intended to assure the contracting parties that, apart from certain limited categories of disputes which are subject exclusively to Iraq law, they have full freedom to choose arbitration or another applicable law. If arbitration is chosen, then the parties are free to resort to arbitration either under Iraqi law, or under international arbitration rules and procedures. This approach seems to be intended to create a suitable climate for investment, and to assure the investor that he can choose the law he considers most suitable for the protection of his legal rights, in case of disputes relating to his investment in Iraq.

Chapter IX The Implementation of the Federal Investment Law 1. Introduction Under the Iraqi legal system, there are three types of legal instruments, namely, statutes, regulations and instructions. Statutes are the legal instruments adopted by the legislative authority, which is the House of Representatives. The latter has the authority under the Iraqi Constitution to adopt federal laws.1 Regulations, which are also known as “delegated legislation”,2 are legal instruments whereby the legislature authorizes a minister, or a Secretary of State in the U.K., in a particular statute, to adopt rules containing technical and other details intended to facilitate the implementation of the statute in question. Instructions are legal instruments to be issued by a department, or a government entity, for the purpose of facilitating the implementation of the regulations, which are issued by the minister, or the Secretary of State, for the implementation of the law in question. These three instruments of legislation have been provided for in the context of the Federal Investment Law. The latter Law was adopted by the Iraqi House of Representatives, which has authorized the Council of Ministers to adopt regulations to facilitate its implementation. On the other hand, the NIC has been authorized to adopt instructions to facilitate the implementation of the regulations adopted by the Council

1

2

According to Article 61 of the Iraqi Constitution, “the House of Representatives has the authority: First: to adopt federal laws.” See H.W.R. Wade, Administrative Law, 3rd edn. (1971), p. 314.

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of Ministers. We shall now deal with the delegated legislation in the following order: first regulations, then instructions.

2. Regulations The Federal Investment Law contains a provision dealing with regulations, and reads as follows: Article 30 The Council of Ministers shall: 1. adopt regulations in order to facilitate the implementation of this Law; 2. adopt internal rules defining the authority of the National Investment Commission, its composition, functions, subdivisions, operations, financial matters, and any other matter.

The first point to be noted is that the Iraqi House of Representatives has delegated to the Council of Ministers, which is part of the federal executive authority,3 the power to legislate in the detailed areas mentioned in the provision. Thus, one observes that while the Federal Investment Law contains the basic principles, the regulations deal with the technical details relating to the implementation of the law. The rationale is that the legislative authority prefers to leave the technical and other details to the executive authority. The latter may be more suited to regulate such matters. It has been said that . . . Parliament is obliged to delegate very extensive law-making power over matters of detail and to content itself with providing a framework of more or less permanent statutes.4

The second point to be noted is that Article 30 of the Federal Investment Law gives the Council of Ministers a general power to adopt any regulations, provided that they are intended to facilitate the implementation of the Law. This delegation of authority, it may be observed, is a reasonable

3 4

See Art. 66 the Iraqi Constitution. See Wade, note 2 above.

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one, in that the Council of Ministers is part of the executive authority that deals with the various aspects of the implementation of applicable laws in the country. And as such, they are more in touch with necessary details of the implementation of the Federal Investment Law. The third point to be noted is that Article 30 gives the Council of Ministers the authority to adopt internal rules concerning the NIC, such as its composition, functions, subdivisions and so on. These matters, which require technical, administrative and financial details, can only be dealt with in delegated legislation rather than in the statute itself. Moreover, the executive authority would be more suitable than the legislative authority to deal with such matters, because of its close links with the actual situation on the ground. The Council of Ministers, for example, is better qualified than the House of Representatives to define the subdivisions of the NIC, their functions and what they need in terms of civil servants, and so on. However, in theory, the House of Representatives can deal with such matters, but it would take a very long time and effort to finalise the necessary details for them, and they may at the end seek help from the executive authority. The final point to be mentioned here is that while the regulations are intended to facilitate the implementation of the Federal Investment Law, they cannot contradict, or alter, the provisions of the latter. The regulations are subordinate to the Federal Investment Law. It might be worth mentioning that regulations are normally published in the Iraqi Official Gazette. As far as is known, no such regulations have been prepared, as yet.

3. Instructions Article 31 of the Federal Investment Law provides for delegated legislation intended to facilitate the implementation of the regulations adopted by the Council of Ministers under Article 30 thereof. It reads as follows: Article 31 The Commission shall adopt instructions in order to facilitate the implementation of the regulations adopted by the Council of Ministers, in conformity with the provisions of this Law.

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The first point to note is that the provision gives the NIC the power to adopt instructions intended to facilitate the implementation of the regulations adopted under Article 30 of the Federal Investment Law. In other words, the instructions are intended to facilitate the implementation, not of the Federal Investment Law, but of the regulations adopted to facilitate its implementation. Therefore, the delegated authority is limited to this objective. The second point to be noted is that these instructions would entail more details, refinement and elaboration of the technical, administrative, financial and other matters already adopted by the Council of Ministers. For example, while the Council of Ministers may have provided for the recruitment of civil servants needed to run the operations of the subdivisions of the NIC, the instructions would provide the necessary details relating to the qualifications, terms of office, and the number of candidates to be recruited, as well as to the holding of meetings, the frequency thereof, and so on. The instructions adopted under Article 31 of the Federal Investment Law cannot contain rules contradicting the regulations adopted under Article 30 by the Council of Ministers. Nor can they contain rules contradicting the Federal Investment Law. The instructions constitute the lowest stage of the hierarchy of legislation under the Iraqi legal system. Of course, neither the Federal Investment Law, nor the regulations and instructions, can contradict the Iraqi Constitution, which is the supreme law of the land, in accordance with its Article 13, which reads as follows: 1. This Constitution is the supreme and highest law in Iraq, and it is binding throughout Iraqi territory, without exception. 2. It is not permitted to adopt any law, which contradicts this Constitution. Any provision contained in the constitutions of regions, or any other legal provision, is considered null and void, if it contradicts this Constitution.

Instructions adopted under delegated legislation are published in the publication issued by the ministry, or government department, concerned. In our case, it would probably be the publication of the NIC. So far as is known, no such instructions have been prepared, as yet.

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It should be pointed out that the Kurdistan Investment Law contains a provision dealing with delegated legislation. It is Article 23, which reads as follows: The President of the Council shall issue the necessary guidelines to facilitate the implementation of this Law.

Accordingly, the legislature in the Iraqi Kurdistan Region has delegated the authority to the President of the Supreme Investment Council, who is the Prime Minister of the Region, to adopt “the necessary guidelines” to facilitate the implementation of the Kurdistan Investment Law. However, it is not clear what is meant by the “guidelines”. It would be reasonable to suggest that they are rules similar to “instructions” under Article 31 of the Federal Investment Law. The guidelines would contain rules dealing with technical, administrative, financial and other matters, which are needed to facilitate the implementation of the Kurdistan Investment Law. It should be pointed out that these guidelines cannot contradict the provisions of the latter Law, as is the case with instructions under the Federal Investment Law. The guidelines are normally published in the Kurdistan Official Gazette.

Chapter X Conclusions The Federal Investment Law is the first proper piece of legislation in Iraq since it independence in the 1930s. It signals the move towards a free market economy by the New Iraq, after the fall of the previous regime in 2003. It also shows that the New Iraq is not afraid of foreign investment in the country, contrary to the policy of the previous regime. The policy of the Iraqi government is to encourage investment, be it by Iraqis or foreign investors. It believes that investment is an important factor in the economic and social development of the country. The Iraqi Prime Minister, as well as the two Vice-Presidents, have stated publicly on television that the Federal Investment Law is a very good tool for the promotion of investment in Iraq. And the Iraqi Constitution of 2005, in the part dealing with economic, social and cultural rights, declares that the State guarantees the encouragement of investment in the various sectors.1 The Federal Investment Law is intended to achieve several objectives, which cover several areas. The first of these objectives is the promotion of investment and the transfer of technology, both of which aim at developing the economic and technical sectors in Iraq. Another objective is the encouragement to both Iraqi and non-Iraqi investors, by offering them facilities, generous incentives and protection for their investment projects. Yet another objective is the development of human resources and the provision of employment opportunities to Iraqis. For a long period of time, Iraq was cut off from the outside world, be it before as well as during the Security Council’s sanctions, after the invasion of Kuwait in 1990. During this period, thousands of skilled Iraqis in various sectors of the economy left the country. Others who stayed in the country did

1

See Art. 26 of the Iraqi Constitution.

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not have the opportunity to develop their skills, or to acquire new ones abroad. And there is a large portion of Iraqis, who are unemployed, at the present time. Another objective of the Federal Investment Law is the protection of the rights and property of investors, Iraqis and non-Iraqis, thus providing the right atmosphere for investment in the country. When an investor, for example, is guaranteed that his investment projects will not be nationalised, he will surely feel encouraged to invest in Iraq. And the last of these objectives is the development of the trade sector in Iraq, through the expansion of exports and the improvement of the Iraqi balance of payment and the balance of trade. All these elements are needed for restarting the economic activities in the country. Furthermore, the Federal Investment Law contains an appropriate licensing system, which requires investors to apply for an investment license from the competent authorities in the country. But neither the procedure, nor the content of the application for a license, are difficult and complicated. Furthermore, the competent organs, which grant such licenses, are called upon to help the investor vis-à-vis other national authorities with respect to issues relevant to the license. Investment projects are open in all sectors of the economy, except those mentioned specifically in the Federal Investment Law, namely, oil and gas exploration and production, banking and insurance sectors. Moreover, the Federal Investment Law offers generous incentives to the investor, such as the repatriation of his capital, exemption from taxation and fees, and so on. These incentives are necessary to show the investor that he is welcome to invest in the country, and that he will enjoy some financial benefits. These incentives apply to Iraqi and non-Iraqi investors, who are treated equally in this and other respects. The Federal Investment Law also provides important guarantees to the investor, such as non-expropriation of his investment and property, ease of entry and departure from Iraq, the protection of his rights and so on. This package of incentives and guarantees are aimed at creating a suitable climate for investment in Iraq, and thus encourage investment in the country. On the other hand, the Federal Investment Law imposes certain obligations on the investor, such as notification of readiness of his investment projects to the INC, respect for the environment and applicable labour law and so on. But they are not too burdensome and are not designed as

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a hindrance to his activities. Some of them are expected to be observed by ordinary citizens in any society. There are also two administrative penalties, which can be imposed against the investor, namely, the withdrawal of the investment license and the liquidation of the investment project. They apply in very specific situations. But they are not intended to subject the investor to a totalitarian regime, nor to abuse him. And the investor has been given the opportunity to remove the causes of the penalties. The investor also has the right of appeal against these sanctions under the Iraqi legal system. The Federal Investment Law contains a reasonable scheme for the settlement of disputes arising from investment activities in Iraq. It provides for the application of Iraqi law, as a rule, but it also allows the parties to choose another applicable law. Furthermore, arbitration is also available under the Federal Investment Law, either under the Iraqi arbitration rules, or under the rules of internationally recognised arbitration centres, such as the ICSID and the ICC. Thus, it provides a flexible approach to this subject and allows the investor the possibility of choosing a convenient forum and the applicable law. It should be stated that the Federal Investment Law constitutes a reasonable framework for the encouragement and the promotion of investment in Iraq. Although it is not a perfect piece of legislation, it is a workable one, and constitutes a big advance on the practices followed by the previous regime. It needs time to be tested, and the regulations and instructions envisaged under it to be formulated. It is hoped that, with the significant improvement in the security situation that is taking place in the country at the present time, investors will feel safe and comfortable to invest in Iraq. And there are huge opportunities for investment in Iraq, in many economic sectors. It may be appropriate to say that the Kurdistan Investment Law is very much in line with the Federal Investment Law, and has similar objectives. However, there would be a problem of conflict between the two Laws, in the context of investment in the extraction and production of oil and gas sectors, should Article 2, paragraph 11, of the Kurdistan Investment Law be interpreted liberally. On the other hand, there are some minor differences between the two Laws, which are not likely to hinder investment in Iraq. It is hoped that the NIC, and the other Investment Commissions in

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the country, will take a positive approach in the application of the Federal Investment Law, and show good will to investors in the sphere of their activities. It is also hoped that investors will show courage, good sense and cooperation with those organs in the area of investment in Iraq.

Appendices

Appendix 1 The Iraqi Investment Law 2006 In the name of the people The Presidential Council In conformity with the decision of the Council of Representatives, and in accordance with Article 61, paragraph 1, of the Constitution,1 and after the lapse of the legal time-limit contained in Article 138, paragraph 5 (a),2 of the Constitution, the following law is enacted: Law No. 13 for the year 2006

The Investment Law 3 Chapter I: Definitions Article 1 The following terms, wherever they occur in this Law, shall have the meaning herein specified, unless there is evidence to the contrary.

1

2

3

Art. 61, para. 1, of the Iraqi Constitution reads as follows: “The House of Representatives shall have the authority: 1. to enact federal laws.” Art. 138, para. 5 (a) reads as follows: “The laws and decisions taken by the House of Representative shall be sent to the Presidential Council for approval by unanimity, and their enactment within ten days from the date of their arrival to the Presidential Council. . . .” This is an unofficial translation by the author.

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A. The Council: It is the Council of Ministers. B. The National Investment Commission: It is the organ established by this Law, which is responsible for the planning of the national investment policies, and for establishing criteria therefore, and for monitoring the implementation of the criteria and instructions in the field of investment. It shall be competent to deal with the strategic investment projects, which are exclusively federal in character. C. The Regional Commission: It is the investment commission in the region, which is responsible for the planning of investment, as well as the grant of investment licenses, in the region. D. The Governorate Commission: It is the investment committee in the governorate which is not part of a region, which is responsible for the planning of investment, as well as the grant of investment licenses, in the governorate. E. The Commission: It is the National Investment Commission, or the Regional Investment Commission, or the Governorate Investment Commission, as the case may be according to the context. F. The President of the Commission: It is the President of the National Investment Commission. G. Project: It is any economic activity covered by the provisions of this Law. H. Existing property: They are the machines, tools, equipment, machinery, means of transport, furniture and office equipment exclusively for use on the project, as well as the bedding and other relevant items for hotels, tourist cities, hospitals, schools and colleges. I. Foreign investor: A person who is not an Iraqi national, if he is a natural person, and if a juridical person, that person is registered in a foreign country. J. Iraqi investor: A person who is an Iraqi national, if he is a natural person, and if a juridical person, that person is registered in Iraq. K. Taxes and fees: They are all kinds of fees and taxes imposed by the applicable Iraqi laws. L. Production capacity: The designed production capacity, within a specific time-unit (hour, day . . . etc.) in conformity with the authenticated documents provided by the supplier, which are accompanying the machinery, as well as the economic significance of the project.

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M. Investment Portfolio: It is a collection of investments in shares and bonds. N. Investment: It is the employment of funds in any economic activity or project, which brings legitimate benefit to the country.

Objectives and means Article 2 The objectives of this Law are as follows: 1. The encouragement of investment and the transfer of modern technology, in order to participate in the process of the development and growth of Iraq, as well as the enlargement of its bases in industrial production and services and their diversification. 2. The encouragement of the Iraqi and foreign private sectors to invest in Iraq, through the provision of the necessary facilities for the establishment of investment projects, and the enhancement of the competitive capacity of the projects covered by this Law, in local and foreign markets. 3. The development of human resources, according to the market needs, and the provision of employment opportunities for Iraqis. 4. The protection of the rights and property of the investors. 5. The expansion of exports and the enhancement of Iraq’s balance of payments and balance of trade. Article 3 The following means shall be used to achieve the objectives of this Law: 1. The grant of the necessary privileges and guarantees to projects covered by the provisions of this Law, which are necessary for their continuation and development and with the support that ensures the enhancement of their competitive capacity within local and foreign markets. 2. Grant the projects licensed by the National Investment Commission additional facilities and exemptions from taxes and fees, as provided in the provisions of this Law.

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Chapter II: The National Investment Commission and the Investment Commissions in the regions and governorates Article 4 1. A commission is established under this Law called (the National Investment Commission), with its own juridical personality, and is represented by its President or his nominee. It shall be responsible for the planning of national investment policies, the laying down of the plans, regulations, and criteria therefor, and for the monitoring of their implementation in the sphere of investment. It shall have the exclusive responsibility for the strategic investment projects, which are of a federal character. 2. The National Investment Commission shall be run by an Administrative Board, composed of nine members, who possess the relevant experience and specialization for a period of no less than ten years. The members of the Board must have university degrees corresponding to the competence of the Commission, and must not have been imprisoned for a felony, misdemeanour involving honour, or have been declared bankrupt. 3. (a) The Chairman and Vice-Chairman of the Board are nominated by the Council of Ministers, upon the request of the Prime Minister. The Chairman has the rank of a minister, while the Vice-Chairman has the rank of a deputy minister. The nomination shall be for a term of five years, and shall be submitted to the House of Representatives for their approval. (b) The Prime Minister shall appoint four members of the Board, for a term of five years, at the grade of director-general. (c) The Prime Minister shall appoint three members of the Board from the private sector, for a term of five years, upon their nomination by the President of the National Investment Commission, and their honorarium shall be defined in the internal regulations of the Board. (d) At the end of the term of membership of any member of the National Investment Commission mentioned in paragraphs (a) and (b) of this Article, in cases other than removal from office or resignation, the Prime Minister shall assign that person to any


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government office, with the same grades. The members of the National Investment Commission, mentioned in paragraph (a) of the Article, shall be retired, in cases of non-assignment of offices equal to their official grades. (e) The House of Representatives shall have the authority to remove the President of the National Investment Commission and his deputy, directly or upon the request of the Prime Minister, giving his reasons therefor. (f ) The Council of Ministers shall have the authority to remove any other member of the National Investment Commission, or replace him, in case of non-observance of the criteria and regulations of the Commission. (g) The Board of the National Investment Commission shall meet on the invitation of its President. The quorum for its meetings and for the adoption of decisions and recommendations shall be decided by an absolute majority. The work of the Board shall be regulated by internal regulations to be adopted by the National Investment Commission. (h) The National Investment Commission is linked to the Prime Minister. (i) The scheme for the salaries and emoluments of the personnel of the National Investment Commission shall be regulated by a decision of the Prime Minister, upon the suggestion of the President of the Commission. 4. The Headquarters of the National Investment Commission shall be in Baghdad, and the Commission may appoint representatives in the regions and governorates. 5. The National Investment Commission shall adopt a general national policy and strategy for investment, and shall define the most important sectors of investment. It shall also prepare a map concerning investment projects in Iraq, in the light of information obtained from the Regional and Governorate investment commissions. It shall also prepare lists of investment opportunities in strategic and federal projects, with preliminary information relating to these projects, and making them available to those interested in investment.

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Article 5 1. Regions, and governorates which are not part of a region, shall establish investment commissions within the territories under their jurisdiction. These commissions shall be competent to grant investment licenses, plan and promote investment, and open branches in the territories under their jurisdiction, in consultation with the National Investment Commission, in order to ensure that the legal conditions are satisfied. 2. Regional and governorate investment commissions shall consist of, at least, seven members, including the Chairman and Vice-Chairman. The members must have relevant experience and specialization of no less than seven years, and a university degree corresponding to the competence of the investment commission, and who must not have been imprisoned for a felony, misdemeanour involving honour, or have been declared bankrupt. 3. The Regional Council, and the Governorate Council of a governorate which is not part of a region, shall define the mechanism concerning the composition of the Regional Investment Commission and the Governorate Investment Commission, as well as the removal of a member of the Investment Commission, in case of non-observance of its criteria and regulations. 4. The Regional and Governorate Investment Commissions shall coordinate their work with the National Investment Commission, and coordinate and consult with the local governments insofar as the plans and facilities for investment are concerned. 5. The Regional and Governorate Investment Commissions shall lay down their investment plans, which shall not be in contradiction with the federal investment policy. They shall prepare lists of investment opportunities in the areas subject to their jurisdiction, with preliminary information relating to those projects, and making them available to those interested in investment. 6. The Regional Investment Commission shall be linked to the Prime Minister of the Region and shall be subject to the supervision of the Regional Council; while the Governorate Investment Commission shall be linked to the Governor of the governorate and shall be subject to the supervision of the Governorate Council, in conformity with the provisions of this Law.


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7. The Boards of the Regional and Governorate Investment Commissions shall meet on the invitation of the President of the Commission concerned. The quorum for the meetings and for the adoption of decisions and recommendations shall be decided by an absolute majority. The work of the Boards shall be regulated by internal regulations to be adopted by each Investment Commission. Article 6 The Commission shall use electronic correspondence, besides the ordinary mail, in its communications with the official authorities relating to its work and activities, through the local and international networks, in accordance with the conditions to be defined by the Commission. Article 7 (5) The Commission accepts the applications for licenses for investment projects, whose capital is no less than the minimum determined by the Council of Ministers, or the regional Council of Ministers, as the case may be, in regulations to be adopted by the Council of Ministers on the suggestion of the Commission. (6) The Commission must obtain the approval of the Council of Ministers before the grant of a license, if the value of the investment project is more than two hundred and fifty million U.S. dollars. (7) The Commission shall take a decision on the application for an investment license within a period not exceeding forty-five (45) days from the date of submission of the application. (8) The positive decisions of the Commission concerning investment projects are binding, for the purposes of this Law. Article 8 The Commission shall have an independent annual budget, from resources allocated to it from the general budget of the State.

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Article 9 The Commission aims at the encouragement of investment through the following measures: 1. The enhancement of confidence in the investment climate, the identification of investment opportunities, and the stimulation and promotion of investment therein. 2. The simplification of the procedures for the grant of licenses for investment projects and their registration; following up on existing projects, giving them priority in implementation by the official authorities; the completion of the procedures relating to the determination of investors’ applications for licenses; and obtaining the necessary approvals for the investor and his project. 3. The establishment of a unit in the National Investment Commission, as well as in the Regional and Governorate Investment Commissions, which includes authorised representatives from the relevant ministries, and members nominated by the Regional and Governorate Councils, which shall grant the licenses and obtain the approval of the other authorities, in conformity with this Law. 4. The provision of advice, information, and statements to investors, as well as the issue of special publications for that purpose. 5. Laying down programmes for the promotion of investment, and their implementation, in the various parts of Iraq, in order to attract investors. 6. The assignment of the necessary land and its lease, for the purpose of establishing projects, for a consideration to be defined by the Commission, in coordination with the other relevant authorities. 7. To work on the establishment of secured investment areas, with the approval of the Council of Ministers. 8. The encouragement of Iraqi investors through the provision of easy loans and financial facilities, in coordination with the Ministry of Finance, and with the help of the banking establishments; on the condition that the investor who obtains such a loan must employ a number of unemployed Iraqis, in proportion to the size of the loan.


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9. The implementation of any other task related to the competence of the Commission, which may be assigned to it by the Council of Ministers. Chapter III: Privileges and guarantees Article 10 The investor, irrespective of his nationality, shall enjoy all the privileges, facilities and guarantees, and shall be subject to the same obligations contained in this Law. The Iraqi and foreign investor shall have the right, for the purposes of residential projects, to hold the land, for a consideration to be agreed upon between him and the landowner, without speculation in the land and in conformity with the criteria laid down by the National Investment Commission, with the approval of the Council of Ministers. The Commission shall facilitate the assignment of the necessary lands for residential projects and the transfer of ownership of residential units to Iraqis, after the completion of the project. Article 11 The investor shall enjoy the following advantages: 1. The repatriation of the capital he has brought into Iraq and its returns, in convertible currency, in accordance with the provisions of this Law, as well as the instructions of the Iraqi Central Bank, after the fulfilment of all his obligations and the payment of all his debts to the Iraqi government and other entities. 2. A foreign investor shall be entitled: (a) to deal in shares and bonds listed in the Iraqi stock exchange; (b) to establish portfolios in such shares and bonds. 3. The lease of the lands necessary for the project, or the making of ALMUSATAHA4 for an established project, for a period not exceeding (50) fifty years, which can be extended with the approval 4

See above p. 77 for the notion of Almusataha.

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of the National Investment Commission, taking into account the nature of the project and its economic significance for the national economy. 4. The insuring of his investment project with any national or foreign insurance company he considers suitable. 5. The opening of bank accounts in Iraqi or foreign currency, or both, in any bank, in Iraq and outside Iraq, relating to his licensed project. Article 12 This law guarantees to the investor the following: 1. The investor has the right to employ and use personnel, who are not Iraqis, where it is not possible to employ Iraqis who possess the required qualifications and are able to carry out the same tasks, according to criteria laid down by the National Investment Commission. 2. The foreign investor and those non-Iraqis working on his investment project have the right of residence in Iraq, as well as the facility of their entry and exit from it. 3. The non-expropriation or nationalization of the investment project, which is subject to the provisions of this Law, partially or totally, except when a final judicial decision is rendered against the investor. 4. The technical and administrative employees on a project, who are not Iraqis, have the right to repatriate their salaries and emoluments, in conformity with this Law, after the fulfilment of their obligations and the payment of their debts to the Iraqi Government and any other parties. Article 13 Any amendment of this Law shall not have a retrospective effect and will not affect the guarantees, exemptions and rights granted thereunder.


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Chapter IV: Obligations of the investor Article 14 The investor is obliged: 1. To notify the National Investment Commission, the Regional Investment Commission, or the Governorate Investment Commission, as the case may be, in writing, immediately after the completion of the installations and the provision of the necessary supplies to them, for the purposes of the project, as well as the date of the beginning of the commercial operations of the project. 2. To maintain regular book-keeping, which can be verified by an accountant licensed in Iraq, in conformity with the law. 3. To submit a study relating to the technical and economic significance of the project and any information, statements, or documents, which may be asked for by the Commission, or any other relevant authority concerned with the appraisal of the project and the progress in its implementation. 4. To keep special records of materials imported for the project, which are exempted from fees in conformity with the provisions of this Law, with a specification of the period of the depreciation of these materials. 5. To protect the environment, abide by the national and internationally recognised standards for quality control of food products, applicable laws concerning security, health, public order and the social values of Iraq. 6. To abide by applicable Iraqi laws concerning salaries, leave, working hours and working conditions and other conditions, as a minimum. 7. To keep the actual progress on the project in line with the work schedule submitted by him, provided that the time difference between the two cannot be more than six months. The National Investment Commission should lay down penalty clauses, and shall also have the right to withdraw the investor’s license, if the six-month period is exceeded.

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8. To train his Iraqi employees, and to enhance their skills and capacities, and that priority should be given to the employment and use of Iraqi personnel. Chapter V: Exemptions Article 15 1. Any project which has been granted an investment license by the National Investment Commission shall enjoy an exemption from taxes and fees for a period of (10) ten years, from the date of the beginning of the commercial operation, according to the development areas defined by the Council of Ministers, upon the suggestion of the National Investment Commission, taking into account the degree of economic development of the area and the nature of the investment project. 2. The Council of Ministers shall have the right, in the national interest, to suggest new laws for the extension, or the grant, of additional exemptions, other than those mentioned in paragraph (1) of this Article, or to offer other incentives, guarantees, or advantages to any project, sector, or area, for any period or percentage which the Council considers appropriate, according to the nature of the commercial activity and its geographical location, as well as the extent of its contribution to the labour employment, and the enhancing of the cycle of the economic growth. 3. The National Investment Commission shall have the right to increase the number of years relating to the exemption from taxes and fees, proportionately with the increase of the percentage of the participation of the Iraqi investor in the project to reach (15) fifteen years, if the percentage of the participation of the Iraqi investor in the project reaches 50% thereof. Article 16 If the project is transferred from one development area to another, during the period of taxes and fees exemption, the project shall be treated for the purposes of the exemptions provided in Article 15, paragraph 1, for


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the remaining period of exemption, like the projects in the development area to which it has been transferred. However, the National Investment Commission should be notified of the transfer. Article 17 A licensed investment project shall also enjoy the following: 1. Exemption of the materials and property imported for the project from fees, provided that they enter Iraq within (3) three years from the date of the grant of the investment license. 2. The materials and property, imported for the purpose of the enlargement, development, or modernization of the project, if that leads to an increase in its production capacity, shall be exempted from fees, provided that they enter Iraq within three years from the date of notification of the Commission of the enlargement of the development of the project. Enlargement means, for the purposes of this Law, the addition of fixed capital intended to increase the production capacity of the project, in terms of goods, services, or materials of more than (15%) fifteen per cent. Development means, for the purposes of this Law, the replacement of the existing machinery, either partially or completely, or the development of existing tools and equipment of the project by adding new machines or equipment, or parts thereof, for the purpose of increasing the production capacity, or for the improvement and development of new types of products or services. 3. The spare parts, imported for the purposes of the project, shall be exempted from fees, provided that their value does not exceed (20%) twenty per cent of the value of the materials and property of the project, and on the condition that the investor does not dispose of them for purposes other than those for which they were imported. 4. Projects for hotels, tourism establishments, hospitals, health establishments, rehabilitation centers, educational and scientific establishments shall be granted additional exemptions from import fees on the furniture, bedding and other items imported for the purposes

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of development and renewal, at least, once every (4) years, provided that they enter Iraq, or they are used in the project within (3) three years from the date of the decision of the Commission’s approval of the import lists and their quantities, and on the condition that they are not used for purposes other than those for which they were imported. Article 18 If it appears that the materials and property of the project, which were partially or completely exempted from taxes and fees, are sold in violation of the provisions of this Law, or are used for purposes other than those for which they were imported, the investor shall be liable to pay the applicable taxes, fees, and fines, in conformity with this Law. Chapter VI: The procedure for the grant of an investment license and the establishment of projects Article 19 1. The investor shall obtain an investment license, in addition to obtaining other licenses, in order to enjoy the privileges and exemptions offered by the Commission. 2. The Commission shall grant an investment license, or approve the establishment of a project, on the basis of an application by an investor, and in accordance with easy conditions to be prepared by the Commission. The investor’s application shall contain the following items: (a) (b) (c) (d)

The filling-in of the application form prepared by the Commission. A bank guarantee from an approved bank. The projects implemented by the investor, inside and outside Iraq. The details of the project, the subject of the proposed investment, and its economic prospects. (e) A timetable for the implementation of the project. Article 20 1. The Commission shall issue a license for the establishment of a project, through the setting up of a unit in the region, or the governorate which


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is not part of a region, which shall include authorised representatives from the various ministries and other concerned authorities, which shall grant the license and obtain the approval of the other authorities, in conformity with the law. 2. The Commission shall help the investor to obtain an establishment license, by approaching the concerned authorities and seeking their opinion in the matter of the issue of the establishment license. Those authorities shall take their decision with respect to approval, rejection, or revision of the request, within (15) fifteen days from the date of notification by the Commission. The absence of a reply from the authority in question shall be considered as an approval, and in case of rejection, the reasons for the rejection must be given. 3. In the case of a difference between a decision of the National Investment Commission and another public entity involved in the process of licensing, other than the regional commissions, the difference shall be referred to the Prime Minister for his determination. 4. In case of rejection of an application for a license, the applicant has the right to appeal to the Chairman of the Regional or Governorate Investment Commissions within (15) fifteen days, from the date of notification of the rejection. The Chairman has to take a decision on the appeal within (7) seven days. The applicant has the right to appeal against the negative decision of the Chairman to the authority to which the Investment Commission is linked within (15) fifteen days from the date of rejection of the appeal by the Chairman. The decision of the said authority is final. Chapter VII: General provisions Article 21 The capital of a project covered by the provisions of this Law shall consist of: 1. The funds transferred to Iraq through banks, financial companies, or any other lawful means, for the purpose of investment in conformity with the objectives of this Law.

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2. The movable and immovable property and intellectual rights imported into Iraq, or bought in the local markets with funds transferred to Iraq, which are (a) the movable and immovable property related to the project; (b) the machinery, tools, equipment, buildings, constructions, means of transport, furniture, office equipment, necessary for the establishment of the project; (c) the intellectual rights, which include patent rights, trade-marks, technical know-how, engineering, administrative and marketing services, and the like. 3. The profits, returns and reserves resulting from the investment of the capital in Iraq in a project, if an increase has occurred in the capital of the project, or if the investment is continued in another project covered by the provisions of this Law. Article 22 A foreign investor shall be entitled to additional advantages, in accordance with treaties between Iraq and his national State, or multilateral treaties to which Iraq is a party. Article 23 If the ownership of the project is transferred during the period of exemption granted to the project, the project will continue to enjoy the exemptions, facilities, and guarantees granted until the end of that period, provided that the new investor continues the work on the project in the same sector, or in another sector, after obtaining the approval of the Commission. The new investor shall take the place of the former investor insofar as the rights and obligation arising under the provisions of this Law are concerned. Article 24 1. The investor has the right, subject to the approval of the Commission, to sell, or assign, his project properties to another investor covered by the provisions of this Law, provided that he uses them for his project.


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2. The investor can sell the materials and property, which he has imported without the payment of taxes and fees, to any person, or project not covered by the provisions of this Law, after notification of the Commission and payment of the taxes and fees due on them. 3. The investor shall be entitled to re-export the materials and property imported without the payment of taxes and fees, with the approval of the Commission. Article 25 If two companies or two establishments or more are amalgamated, the resulting company or the new entity resulting from the amalgamation, shall be obliged to keep separate accounts for each project before the amalgamation, in order to register and apply the exemptions and facilities contained in the provisions of this Law, for the remaining period of the exemption. Article 26 Any project approved according to the provisions of previous laws shall continue to benefit from the exemption granted in conformity with those laws until the end of the exemption period and in accordance with the conditions laid down in them. Article 27 Iraqi law shall apply to disputes arising between the parties who are subject to the provisions of this Law, unless they agree otherwise, except those cases which are exclusively governed by Iraqi law, or are subject to the jurisdiction of Iraqi Courts. 1. Disputes arising from employment contracts are subject, exclusively, to the rules of Iraqi law, and Iraqi courts have jurisdiction thereon, with the exception of non-Iraqi employees, if the employment contract provides otherwise. 2. If the parties to a dispute are non-Iraqis, and the dispute does not arise from the commission of a criminal offence, they can agree on the applicable law and competent courts, or any other agreement, for the settlement of their dispute.

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3. If, as a result of a dispute between the partners in a project, or between the owner of the project and a third party, concerning a project subject to the provisions of this Law, the work on the project is stopped for a period of more than three months, the Commission may withdraw the investment license, and ask the owner of the project to settle the matter within a period not exceeding three months. If the period has passed without the settlement of the dispute between the partners, or between the owner of the project and a third party, the Commission shall take the legal measures for the liquidation of the project, and shall notify the owner of the project, or one of the partners, of these measures. The sum of money obtained from the liquidation shall be deposited in a bank, after the fulfillment of obligations due to the State, or to a third party, in conformity with a judicial decision. 4. If the parties to a dispute are subject to the provisions of this Law, they may, when concluding their contract, agree on the mode of settlement of their disputes, including recourse to arbitration according to Iraqi law or to any internationally recognised scheme. 5. In disputes arising between the Commission, or any government agency, and any of those subject to the provisions of this Law concerning matters unrelated to the violation of any of the provisions of this Law, but related to civil law matters, they shall be subject to Iraqi law and Iraqi courts shall have jurisdiction to deal with them. However, in commercial matters, the parties to such disputes may agree to resort to arbitration, provided that it is so stated in the contract between them. Article 28 In case of violation by an investor of any of the provisions of this Law, the Commission shall notify the investor of the violation, in writing, asking for its removal within a specified period of time. If the investor does not remove the violation within that specified period, the Commission shall call the investor, or his representative, to appear before it, in order to explain his position, and shall give him another period of time to settle the matter. If the investor repeats the violation, or does not remove it,


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the Commission shall withdraw the investment license and suspend the work on the project. The State shall retain the right to deprive the investor from the exemptions and privileges granted to him, from the date on which the violation occurred. Third parties shall have the right to ask for compensation for any damage arising from this violation, without prejudice to any other penalty or compensation provided for under other applicable Iraqi laws. Article 29 All sectors of investment are subject to the provisions of this Law, with the exception of 1. investment in the sectors of oil and gas extraction and production; 2. investment in the banking and insurance sectors. Article 30 The Council of Ministers shall: 1. adopt regulations in order to facilitate the implementation of the provisions of this Law; 2. adopt internal rules defining the authority of the National Investment Commission, its composition, functions, subdivisions, operations, financial matters, personnel matters, and any other matter. Article 31 The Commission shall adopt instructions in order to facilitate the implementation of the regulation adopted by the Council of Ministers, in conformity with the provisions of this Law. Article 32 The provisions of this Law shall apply to the projects of the mixed sector, the existing and operational projects of the private sector, on the basis of a request from the administration of those projects, and the approval of the Commission, without a retrospective effect.

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Article 33 Any provision of a law which contradicts the provisions of this Law shall not be valid. Article 34 The Order of the Coalition Provisional Authority No. (39) of the year 2003 shall be annulled. Article 35 The Arab Investment Law, enacted by the dissolved Council of the Command of the Revolution No. (62) of the year 2002 shall be annulled. Article 36 This Law shall enter into force from the date of its publication in the Official Gazette.

The reasons for the enactment of the Law This Law is enacted in order to advance the process of the economic and social development, to bring the technical and operational expertise, to develop the human resources, to create job opportunities for Iraqis, through the encouragement of investment and to support the process of establishing investment projects in Iraq, its enlargement and development at the various economic levels, and the grant of privileges and exemptions for these projects.

Appendix 2 Investment Law in the Iraqi Kurdistan Region In the name of God, the Most Merciful, the Most Compassionate In the name of the people The National Assembly of Kurdistan-Iraq In accordance with the provision of Paragraph 1, Article 56, of the amended Law No. 1 of 1992 and on the basis of what was presented by the Council of Ministers of Iraqi Kurdistan, the National Assembly of Kurdistan decided at its session No. 15 held on the 4th of July 2006 to enact the following law: Law No. 4 of 2006

Investment Law in the Iraqi Kurdistan Region Chapter I: General provisions Section 1: Definitions Article 1 The following terms shall have the meanings hereunder: First: Region: The Iraqi Kurdistan Region. Second: Government: The Region’s Government. Third: Council: The Supreme Investment Council. Fourth: President: The President of the Supreme Investment Council. Fifth: Board: The Investment Board in the Region. Sixth: Chairman of the Board: The Chairman of the Investment Board.

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Seventh: Project: Any economic business or investment project established by a natural or corporate person on the land allocated for it and with a national or foreign capital that conforms to the provisions of this Law, and the rules and regulations issued under it. Eighth: Taxes and duties: Include all types of taxes and duties set under existing laws. Ninth: Investor: The natural or corporate person who invests his funds in the Region in accordance with the provisions of this Law, whether national or foreign. Tenth: Concerned entities: Include all the government entities responsible for the sector pertaining to the affairs of the project. Eleventh: Invested money: The value estimated in the national or foreign currency invested in the project. Twelfth: Foreign capital: The assets in cash or in kind that are invested by the investor or in rights that have cash value in the Region. Section 2: Fields of investment Article 2 The provisions of this Law shall be applied to the projects that are approved by the Board in any of the following sectors: First: Manufacturing industries, electricity and the services linked to them. Second: Agriculture in all its sectors, farming, animal stock, forests and the services linked to them. Third: Hotels, tourist and entertainment projects and amusement parks. Fourth: Health and environment. Fifth: Scientific and technological researches and information technology. Sixth: Modern transportation and telecommunications. Seventh: Banks, insurance companies, and other financial corporations. Eighth: Infrastructural projects, including construction projects, reconstruction, housing, roads and bridges, railroads, airports, irrigation and dams. Ninth: Free zones, modern trade markets and the consultancy services linked to them.

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Tenth: Education in all its stages within the framework of the Region’s educational policy. Eleventh: Any project in any other sector that the Council decides to include under the provisions of this Law. Section 3: Treatment of the foreign investor Article 3 The foreign investor and capital shall be treated as the national investor and capital. The foreign investor shall have the right to own the entire capital of any project that he establishes in the Region under this Law. Section 4: The allocation of lands Article 4 First: The Board shall coordinate with the ministries and departments concerned to determine the sites that are allocated for the investment projects in every governorate and that shall be established in the future in accordance with this Law. Their title deeds shall be marked that these sites are allocated for the Board’s purposes. Second: The concerned entities shall coordinate with the Board in determining and allocating the lands needed by the project inside and outside the basic city design by rent or long term lease at encouraging prices in accordance with the rules set by the Board without regard to the provisions of the law on the sale and lease of state property enforced in the Region. Third: The Council may upon the recommendation of the Board acquire ownership of the lands allocated for strategic projects at an encouraging price proposed by the Board or without a price, taking into consideration the nature and importance of the project and the requirements of public interest upon acquiring the ownership, without regard to the provisions of the law on the sale and lease of state property enforced in the Region. Fourth: The lands allocated for investment projects shall be marked as frozen in the concerned real estate departments. The marking shall not be

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removed except with the written approval of the Board after the investor has fulfilled all his obligations. Fifth: The Board may -toward the achievement of its aims- have the powers to own state property free of charge and to own state lands loaded with disposal rights after charging off the disposal rights by compensating their owners fairly and suitably in accordance with the existing laws, rules and regulations in this concern. Sixth: The investor may purchase and lease the lands and real estates necessary for the establishment, expansion, diversification and development of the project in accordance with the provisions of this Law within the limits of area and period set in light of the objectives of the project and its actual needs, while taking into consideration the provisions of paragraph (Third) in this article. Seventh: Specifying the lands necessary for the investment projects to be established in accordance with the provisions of this Law within the limits of the area set in light of the objectives of the project and its actual needs in accordance with special rules set by the Board as an exception from the existing provisions in this concern. Eighth: The changing of the project’s site shall be subject to the same bases and rules for allocating the site of the project at the first time. Ninth: The Concerned Entities shall in coordination with the Board provide the public services, including: water, electricity, sewage, public roads, telecommunications and others to the precincts of the project, provided the necessary funds for this purpose are allocated in the budget. Tenth: In addition to what is enjoyed by the foreign investor including the right to own and lease the lands and the productive vehicles in accordance with the provisions of this Law, he has the right to purchase or lease in the interest of his investment project housing plots and non-productive vehicles that are required by the project with the approval of the Board in accordance with the rules set by the Board for this purpose.


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Chapter II: Exemptions and obligations Section 1: Tax and customs exemptions Article 5 First: The project shall be exempted of all non-customs taxes and duties for a period of 10 years as of the date on which the project begins offering its services or as of the day of actual production. Second: The vehicles, machinery, equipment and imported machines for the project shall be exempted of taxes and duties and the condition to obtain import license, provided they are imported through the border crossings of the Region within two years from the date of the approval of their lists by the Chairman of the Board and are used exclusively for the purposes of the project. Otherwise, it shall not be included in these exemptions and the investor shall be compelled to pay the tax and shall be penalized by paying double the sum of the due tax. Third: The spare parts imported for the project shall be exempted of taxes and duties provided their value is not more than 15% of the price of the machinery and equipment upon the prior approval of their lists and quantities by the Chairman of the Board. Fourth: The machinery and equipment needed for the expansion, development, or modernization of the project shall be exempted of taxes and duties. Fifth: The raw materials needed for production shall be exempted of customs duties for a period of five years, provided the types and quantities of these materials are determined by the Board, while giving priority to the use of locally available raw materials that are suitable for the investment project in quantity and quality. Sixth: The investor may in accordance with the provisions of this Law import all the needs of his project, including machinery and equipment. These imports shall be exempted of all customs duties provided they enter through the border crossings of the Region and are used exclusively for the purposes of the project.

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Section 2: Additional exemptions Article 6 First: The Board may, for the requirement of the public interest in the Region, grant additional incentives and facilities to investment projects that are licensed under the provisions of this Law and that enjoy one of the following two characteristics in accordance with the rules set by the Board for this purpose: 1. Projects that are established in the less developed areas in the Region. 2. Joint projects by national and foreign investors. Second: The Board may grant service investment projects that are established in accordance with the provisions of this Law, according to their nature, especially hotels, hospitals, tourist cities, universities and schools, additional exemption of duties on their purchases of furniture, furnishings and other items for the purposes of modernization and renewal once every three years, provided they are imported into the Region and used exclusively in the project within one year from the issuance of the approval of the list of purchases and their quantities by the Chairman of the Board. Section 3: Legal guarantees Article 7 First: The investor may insure his investment project with any foreign or national insurance company that he considers suitable. This includes insuring all aspects of his operations. Second: The investor may employ the necessary local and foreign manpower for the project, while giving priority to local manpower in accordance with the existing laws in the Region. Third: The foreign investor shall be allowed to transfer the profits of and the interest on his capital abroad in accordance with the provisions of this Law.


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Fourth: Non-Iraqi employees in the project and those dealing with them abroad the Region shall have the right to transfer their dues and wages abroad in accordance with existing laws. Fifth: The foreign investor may return his capital abroad upon the liquidation or disposal of the project as long as this does not contradict the provisions of existing customs and tax laws and procedures. Sixth: The investor may transfer his investment wholly or partially to another foreign investor or national investor or concede the project to his partner with approval of the Board. The new investor replaces the previous investor in the rights and obligations evolving from the project. Seventh: The investor may open in the interest of his licensed project in accordance with the provisions of this Law bank accounts in the national or foreign currency or both with banks inside and outside the Region. Eighth: Taking into consideration the existing laws concerning the boards of directors of shareholding companies, the projects that are registered in accordance with the provisions of this Law shall be considered private sector projects, irrespective of the legal form or nature of the funds participating in it. Ninth: The investor shall under this Law enjoy the right to maintain the secrecy of technical and economic information pertaining to his project, as well as investment enterprises in accordance with the provisions of the existing laws, rules and regulations in the Region. Whoever discloses any information that is in his possession by virtue of his post and deals with the investment enterprise and technical, economic, or financial aspects of the project under the law is punishable. Section 4: The investor’s obligations Article 8 The investor shall abide by the following: First: Define the field of his investment in the projects that he has accomplished, explain his financial position and the contracts he has carried out. Second: Inform the Board about the completion of the project and that it has begun offering its services or actual production.

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Third: Ensure the necessary facilities for the Board’s specialized employees enabling them to collect and obtain the necessary data on the various aspects of the project for the purposes of the Board. Fourth: Keep special records for the materials imported for the project that are exempted of customs duties in accordance with the provisions of this Law. Fifth: Maintain the safety of the environment, security and sanitation and abide by the standardization and quality control systems according to international standards. Sixth: Train and rehabilitate local manpower in the project. Section 5: Legal measures upon any contravention by the investor Article 9 First: Upon any contravention by the investor of the provisions of this Law or any paragraph in the contract concluded between him and the concerned entities, the Board shall warn the contravener and ask him to immediately stop the activity causing the contravention and grant him a suitable period of time to be determined by the Board and commensurate with the nature of the contravention to remove its effects. Second: If the investor insists on not stopping or removing the effects of the contravention in accordance with the provisions of paragraph (First) above, the land will be retrieved from him and the Board shall take ownership of the installations which have been built on it by the investor (if they existed) in due demolish value in accordance with the law. The new investor acquiring the land will be responsible for paying this amount and the contravener shall be responsible for any damage resulting from failure to fulfill his obligations. Third: If the investor has secretly leased the land, which has been assigned for his project, wholly or partially or used it for other purposes than those assigned for it without the approval of the Board, it will be retrieved from him or the part leased or exploited for other than the defined purposes. The inventor shall pay double the rent for the period in which he leased the land or exploited it for other than the purposes assigned for it. The sum will be obtained in accordance with the provisions of the law on


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obtaining government debts enforced in the Region. If the land has been retrieved from him wholly, the contravening investor shall be treated in accordance with the provisions of paragraph (Second) above with regard to the installations built on it upon retrieval. Chapter III: Investment formations Section 1: The Investment Board and its formations and tasks Article 10 First: The Board shall be formed under the name of “The Kurdistan Region Investment Board”. It shall have a corporate status and enjoy financial and administrative independence. It shall undertake all the necessary legal tasks for the purposes of implementing the provisions of this Law. Second: The Board shall have a Chairman with the grade of minister. He shall enjoy the rights and powers of the minister. He shall be responsible for running the Board and supervising and controlling its work and everything pertaining to its tasks and all its affairs. The Board shall implement the following departments: 1. 2. 3. 4.

The Studies and Information Department. The Department for Promotion, Evaluating, and Licensing Projects. The Legal, Administrative, and Financial Affairs Department. The Industrial Cities and Zones Department.

Third: The Board shall be based in Erbil, the capital of the Region, and it may open branches in the governorates of the Kurdistan Region. Each shall be run by an employee with the grade of director general. Fourth: The Board may establish sections and sub-sections and merge them or abolish them when necessary. Fifth: The formations of the Board’s departments and branches and their tasks and powers shall be determined by a system to be laid down by the Board and approved by the Council. Sixth: The Board shall create a suitable environment for investment so as to achieve economic development in the Region and prepare investment

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strategies, plans, and policies and submit them to the Council for approval and coordination with the Board’s branches in the Region’s governorates. Article 11 Whoever assumes the post of Chairman of the Board and director general must meet the following conditions: First: He must have obtained a university degree. Second: He must have had experience and worked in his field of specialization for a period of not less than seven years. Article 12 The decisions issued by the Council on investment projects shall be binding on all the ministries, establishments and departments concerned in the Region for the purposes of this Law. Article 13 The Chairman of the Board has the right of contracting with natural persons or corporate persons inside and outside of the Region to perform tasks and obligations assigned for them to achieve the goals of the Board; the Chairman is to set their rights and responsibilities. Section 2: The Supreme Investment Council Article 14 First: The Supreme Investment Council in the Region shall consist of the Prime Minister as President, the deputy Prime Minister as Vice-President, who shall replace him in his absence, and the membership of the Minister of Finance, Economy, Trade, Municipalities, Planning, Agriculture, Industry and the Chairman of the Investment Board. Second: 1. The President of the Council may call any other minister to participate in the Council meetings for any project that concerns his ministry. 2. The President of the Council may invite the representatives of the private sector concerned with the project. 3. The Council shall establish internal procedures for meetings of the Council and the adoption of decisions by it.


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Third: The Council shall exercise the following powers: 1. Lay down the policies and strategies pertaining to investment that are proposed by the Board within the framework of general policy for the Region. 2. Approve the Board’s plans and activity programs within the framework of the general plan for the Region. 3. Examine the periodic reports submitted by the Chairman on the Board’s work and progress, and matters pertaining to the conditions and climate of investment in the Region. 4. Examine the Board’s financial status and approve its annual budget. 5. Approve the loans and credit facilities offered to the Board with the guarantee of the government, or from banks or other funding corporations, according to set rules and regulations, provided they are confined to the purposes of financing the activities that are undertaken by the Board within the limit of its specializations. 6. Lay down a system for monitoring, following, and evaluating the performance of foreign investments to identify any obstacles they might face and ways to overcome them. 7. Approve the Board’s internal policies. Section 3: The Board’s budget Article 15 The Board has a budget within the budget of the Region’s government. Chapter IV: Granting of licenses and arbitration Section 1: Procedures on granting licenses to projects Article 16 First: For the purpose of benefiting from the exemptions and advantages stipulated in this Law, the investor must obtain a license for the establishment of the project issued by the Board. Second: The Board shall grant a license for the establishment of the project on the basis of an application submitted by the investor in accordance with the conditions set by the Board. The Board must decide on issuing

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the license within 30 days from the date all the requirements and technical, legal, and economic conditions have been met in accordance with the provisions of this Law, while taking into consideration the rules and standards set by the Board. Third: The Board should seek the opinions of the concerned entities on the feasibility of issuing the establishment license. These entities shall express their opinion on the approval, rejection or request amendment within a period of not more than 30 days from the date of referring the application to it by the Board. The lack of a reply shall be considered as approval. And in the case of rejection, the decision must state the reasons. Fourth: If the establishment application is rejected, the applicant has the right to object to it before the President of the Council within 15 days from the date of his notification of the negative decision. The President of the Council shall consider the objection within a period of not more than 30 days and his decision shall be final. Section 2: Arbitration Article 17 Investment disputes shall be settled in accordance with the contractual terms agreed to by the parties. If there is no clause in it for this purpose, the dispute shall be settled cordially. And if the cordial settlement is impossible, the two sides may resort to arbitration, whose provisions are stated in existing laws in the Region or in accordance with the provisions of the settlement of disputes that exists in any of the international or bilateral agreements to which Iraq is a signatory. Section 3: Final provisions Article 18 First: The order of the Prime Minister/Al-Sulaymaniyah administration No. 89 of 2004 that promotes investment in the Kurdistan Region is hereby cancelled and the Investment Promotion Board and its formation under Article 16 of the aforementioned order shall replace it and it rights, obligations, and all its movable and immoveable properties shall revert to the Investment Board formed under the provisions of this Law.


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Second: All investment projects, which have been licensed by the Investment Promotion Board, which was formed under the aforementioned cancelled decision in paragraph “First” above, and the investment projects that were licensed by the Erbil administration under exiting laws, shall be considered legal investment projects and shall continue to enjoy the advantages and incentives granted to them. Third: All other projects that are under study and evaluation and on which no final decision has been made by the cancelled Board shall be referred as investment projects to the Investment Board formed under the provisions of this Law, and the Concerned Entities in the Board shall continue using the procedures that were used by the cancelled Board. Article 19 It is impermissible for the investor to own lands that contain oil, gas, or any precious or heavy mineral resources. Article 20 The investor who carries out shareholding investment projects shall offer the necessary guarantees to protect the funds of the shareholders. The Board shall take the necessary insurance and banking measures to guarantee its rights. Article 21 The Board’s accounts shall be subject to auditing by the Board of Supreme Audit. Article 22 The cases for which there are no provisions in this Law shall be subject to the general rules contained in other relevant laws, provided their provisions do not contradict the provisions of this Law. If there is any contradiction, the provisions of this Law shall apply. Article 23 The President of the Council shall issue the necessary guidelines to facilitate the implementation of this Law.

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Article 24 The Council of Ministers and the Concerned Entities shall implement the provisions of this Law. Article 25 This Law shall be effective as of the date of its issuance and it will be published in the Official Newspaper “Kurdistan Gazette.” [Signed] Adnan Rashad Al-Mufti President of the Kurdistan National Assembly, Iraq

Necessitating reasons This Law was issued with the view to creating a climate promoting investment in the Iraqi Kurdistan Region, removing any legal obstacles, and permitting the investment of national and foreign capital collectively or individually in investment projects in a manner that contributes to the economic development process, and thus contributing effectively and granting facilities and encouraging incentives and tax exemptions for invested capital and establishing an investment board that is concerned with organizing the various aspects for investment operations in the Region.

Appendix 3 Coalition Provisional Authority Order Number 39 – Foreign Investment Pursuant to my authority as Administrator of the Coalition Provisional Authority (CPA) and the laws and usages of war, and consistent with relevant U.N. Security Council resolutions, including Resolution 1483 (2003), Having worked closely with the Governing Council to ensure that economic change occurs in a manner acceptable to the people of Iraq, Acknowledging the Governing Council’s desire to bring about significant change to the Iraqi economic system, Determined to improve the conditions of life, technical skills, and opportunities for all Iraqis and to fight unemployment with its associated deleterious effect on public security, Noting that facilitating foreign investment will help to develop infrastructure, foster the growth of Iraqi business, create jobs, raise capital, result in the introduction of new technology into Iraq and promote the transfer of knowledge and skills to Iraqis, Recognizing the problems arising from Iraq’s legal framework regulating commercial activity and the way in which it was implemented by the former regime, Recognizing the CAP’s obligation to provide for the effective administration of Iraq, to ensure the well being of the Iraqi people and to enable the social functions and normal transactions of every day life, Acting in a manner consistent with the Report of the Secretary General to the Security Council of July 17, 2003, concerning the need for the development of Iraq and its transition from a non-transparent centrally planned economy to a market economy characterized by sustainable economic growth through the establishment of a dynamic private sector, and the need to enact institutional and legal reforms to give it effect,

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Having coordinated with the international financial institutions, as referenced in paragraph 8(e) of the U.N. Security Council Resolution 1483, In close consultation with and acting in coordination with the Governing Council, I hereby promulgate the following: Section 1: Definitions 1) “Administrator” means the Administrator of the Coalition Provisional Authority. 2) “Business entity” means any entity constituted or organized by law of any country, including, but not limited to, any corporation, partnership, joint venture, firm, enterprise, State-owned enterprise, organization, or other similar entity. 3) “Foreign investment” means investment by a foreign investor in any kind of asset in Iraq, including tangible and intangible property, and related property rights, shares and other forms of participation in a business entity, and intellectual property rights and technical expertise, except as limited by Section 8 of this Order. 4) “Foreign investor” means (a) a business entity constituted or organized under the law of a country other than Iraq; (b) a natural person who is (i) a national of a country other than Iraq, (ii) a stateless person not residing permanently in Iraq, or (iii) a national of Iraq residing permanently outside of Iraq; or (c) a business entity constituted or organized by any of the above under the law of Iraq; that is making or has made an investment in Iraq. 5) “Iraqi investor” means (a) a business entity constituted or organized under the law of Iraq other than by a foreign investor; or a natural person who is (i) a national of Iraq residing permanently in Iraq, or (ii) a stateless person residing permanently in Iraq; that is making or has made an investment in Iraq.

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Section 2: Purposes This Order promotes and safeguards the general welfare and interests of the Iraqi people by promoting foreign investment through the protection of the rights and property of foreign investors in Iraq and the regulation through transparent processes or matters relating to foreign investment in Iraq. This Order specifies the terms and procedures for making foreign investments and is intended to attract new foreign investment to Iraq. Section 3: Relation to existing Iraqi Law 1) This Order replaces all existing foreign investment law. 2) This Order is subject to revision by the Administrator, or to adoption or replacement by an internationally recognized, representative government established by the people of Iraq. 3) Future Orders or other guidance will be issued concerning various sectors of the economy. Section 4: Treatment of foreign investors 1) A foreign investor shall be entitled to make foreign investments in Iraq on terms no less favorable than those applicable to an Iraqi investor, unless otherwise provided herein. 2) The amount of foreign participation in newly formed or existing business entities in Iraq shall not be limited, unless otherwise expressly provided therein. Section 5: Trade offices & branches A foreign investor may open trade representation offices and branches in Iraq; such offices and branches shall be registered with the Iraqi Registrar of Companies. Section 6: Areas of foreign investment 1) Foreign investment may take place with respect to all economic sectors in Iraq, except that foreign direct and indirect ownership of the natural

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resources sector involving primary extraction and initial processing remains prohibited. In addition, this Order does not apply to banks and insurance companies. 2) Foreign investment may take place in all parts or Iraq. 3) A foreign investor shall be prohibited from engaging in retail sales, unless at least 30 days prior to engaging in such retail sales such foreign investor deposits $ 100,000 in a non-interest-bearing account in a properly licensed Iraqi bank located in Iraq pursuant to procedures to be promulgated by the Ministry of Trade. Once a deposit is made pursuant to its procedures, the Ministry of Trade shall issue documentation to the foreign investor reflecting the authorization to engage in such retail sales. Such deposit must be maintained during the entire time that the foreign investor is engaged in retail sales; provided however, it shall be returned upon the request of the foreign investor at the completion of the retail sales activity. Section 7: Implementing foreign investment 1) A foreign investor may implement foreign investment using, among other things, freely convertible currencies or Iraqi legal tender, in the following forms: a) establishing a wholly foreign-owned business entity in Iraq, including as a subsidiary of a foreign investor; b) establishing a business entity jointly with an Iraqi investor; c) establishing a branch office, as set forth in Section 5 herein; and d) directly acquiring an investment. 2) A foreign investor shall be authorized to: a) possess, use and dispose of its investments; b) manage or participate in managing a business entity; c) transfer its rights and obligations to other persons in accordance with the law; d) transfer abroad without delay all funds associated with its foreign investment, including:


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i) shares or profits and dividends; ii) proceeds from the sale or other disposition of its foreign investment or a portion thereof; iii) interest, royalty payments, management fees, other fees and payments made under a contract; and iv) other transfers approved by the Ministry of Trade; e) exercise any other authority conferred upon it by law. 3) The Finance Minister and the Minister of Planning may jointly issue regulations to assist in the implementation of this Order. Section 8: Use of real property 1) After the date of this Order, unless otherwise permitted by law, a foreign investor or a business entity with any level of foreign investor participation may not under any circumstances purchase the rights of disposal and usufruct of private real property. 2) The duration of any license to use property shall be determined by the duration of operations related to the foreign investment. The initial term of a license shall not exceed 40 years, but may be renewed for further such periods. Licenses may be reviewed by the internationally recognized, representative government established by the people of Iraq upon its assumption of the responsibilities of the CPA. 3) If a business entity that is owned or controlled by a foreign investor or foreign investors is dissolved before the expiration of the license or lease, then the license or lease shall be terminated at the time of such dissolution. Section 9: Insurance A foreign investor shall be permitted to obtain insurance coverage for all aspects of its operation from any foreign or Iraqi source deemed appropriate by the foreign investor.

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Section 10: Dispute settlement Disputes between a foreign investor and an Iraqi investor pertaining to investment in Iraq, or between a foreign investor and an Iraqi legal or natural person, shall be resolved in accordance with the dispute resolution provisions contained in any applicable written agreement governing the relationship between the parties. The parties may elect in any agreement to utilize the arbitration mechanisms outlined in Iraqi law. Section 11: Dissolution of entities 1) Within 14 days from the date of adopting a resolution or other instrument terminating the operations of business entity that is owned or controlled by a foreign investor or foreign investors, the business entity with foreign investment shall submit the resolution or other instrument to the Iraqi Registrar of Companies. 2) Upon termination of operations and dissolution of the business entity with any level of foreign investment, any such foreign investor shall, consistent with Section 7 of this Order, have the right to transfer profits from the sale or liquidation to any foreign location, or as provided in a written agreement between the foreign investor and an Iraqi investor, provided that all amounts owed by such business entity to the government of Iraq and all Iraqi creditors have been paid in advance of the transfer. Section 12: Tax treatment The Administrator may issue further orders to address the tax treatment of income derived from a foreign investment that is reinvested in a business entity in Iraq. Section 13: Treatment of investors No legal text that impedes the operation of this Order shall hold and all investors, foreign and Iraqi, shall be treated equally under the law, except as otherwise specifically provided in this Order.


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Section 14: International agreements Where an international agreement to which Iraqi is a party provides for more favorable terms with respect to foreign investors undertaking investment activities in Iraq, the more favorable terms under the international agreement shall apply. Section 15: Evasion Violations of Sections 6(3) and 8(1) of this Order may serve as a basis for suspension or cancellation of the rights of a foreign investor in Iraq that arise under this Order. Section 16: Entry into force This Order shall enter into force on the date of signature. L. Paul Bremer, Administrator Coalition Provisional Authority CPA/ORD/19 September 2003/39

Appendix 4 ICSID Convention: Convention on the Settlement of Investment Disputes between States and Nationals of Other States Preamble The Contracting States Considering the need for international cooperation for economic development, and the role of private international investment therein; Bearing in mind the possibility that from time to time disputes may arise in connection with such investment between Contracting States and nationals of other Contracting States; Recognizing that while such disputes would usually be subject to national legal processes, international methods of settlement may be appropriate in certain cases; Attaching particular importance to the availability of facilities for international conciliation or arbitration to which Contracting States and nationals of other Contracting States may submit such disputes if they so desire; Desiring to establish such facilities under the auspices of the International Bank for Reconstruction and Development; Recognizing that mutual consent by the parties to submit such disputes to conciliation or to arbitration through such facilities constitutes a binding agreement witch requires in particular that due consideration be given to any recommendation of conciliators, and that any arbitral award be complied with; and Declaring that no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration; Have agreed as follows:

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Chapter I: International Centre for Settlement of Investment Disputes Section 1: Establishment and organization Article 1 (1) There is hereby established the International Centre for Settlement of Investment Disputes (hereinafter called the Centre). (2) The purpose of the Centre shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in a accordance with the provisions of this Convention. Article 2 The seat of the Centre shall be at the principal office of the International Bank of Reconstruction and Development (hereinafter called the Bank). The seat may be moved to another place by decision of the Administrative Council adopted by a majority of two-thirds of its members. Article 3 The Centre shall have an Administrative Council and a Secretariat and shall maintain a Panel of Conciliators and a Panel of Arbitrators. Section 2: The Administrative Council Article 4 (1) The Administrative Council shall be composed of one representative of each Contracting State. An alternate may act as representative in case of his principal’s absence from a meeting or inability to act. (2) In the absence of a contrary designation, each governor and alternate governor of the Bank appointed by a Contracting State shall be ex officio its representative and its alternate respectively. Article 5 The President of the Bank shall be ex officio Chairman of the Administrative Council (hereinafter called the Chairman), but shall have no

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vote. During his absence or inability to act and during any vacancy in the office of President of the Bank, the person for the time being acting as President shall act as Chairman of the Administrative Council. Article 6 (1) Without prejudice to the powers and functions vested in it by other provisions of this Convention, the Administrative Council shall: (a) adopt the administrative and financial regulations of the Centre; (b) adopt the rules of procedure for the institution of conciliation and arbitration proceedings; (c) adopt the rules of procedure for conciliation and arbitration proceedings (hereinafter called the Conciliation Rules and the Arbitration Rules); (d) approve arrangements with the Bank for the use of the Bank’s administrative facilities and services; (e) determine the conditions of service of the Secretary-General and of any Deputy Secretary-General; (f ) adopt the annual budget of revenues and expenditures of the Centre; (g) approve the annual report on the operation of the Centre. The decisions referred to in sub-paragraphs (a), (b), (c) and (f ) above shall be adopted by a majority of two-thirds of the members of the Administrative Council. (2) The Administrative Council may appoint such committees as it considers necessary. (3) The Administrative Council shall also exercise such other powers and perform such other functions as it shall determine to be necessary for the implementation of the provisions of this Convention. Article 7 (1) The Administrative Council shall hold an annual meeting and such other meetings as may be determined by the Council, or convened by the Chairman, or convened by the Secretary-General at the request of not less than five members of the Council.

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(2) Each member of the Administrative Council shall have one vote and, except as otherwise herein provided, all matters before the Council shall be decided by a majority of the votes cast. (3) A quorum for any meeting of the Administrative Council shall be a majority of its members. (4) The Administrative Council may establish, by a majority of twothirds of its members, a procedure whereby the Chairman may seek a vote of the Council without convening a meeting of the Council. The vote shall be considered valid only if the majority of the members of the Council cast their votes within the time limit fixed by the said procedure. Article 8 Members of the Administrative Council and the Chairman shall serve without remuneration from the Centre. Section 3: The Secretariat Article 9 The Secretariat shall consist of a Secretary-General, one or more Deputy Secretaries-General and staff. Article 10 (1) The Secretary-General and any Deputy Secretary-General shall be elected by the Administrative Council by a majority of two-thirds of its members upon the nomination of the Chairman for a term of service not exceeding six years and shall be eligible for re-election. After consulting the members of the Administrative Council, the Chairman shall propose one or more candidates for each such office. (2) The offices of Secretary-General and Deputy Secretary-General shall be incompatible with the exercise of any political function. Neither the Secretary-General nor any Deputy Secretary-General may hold any other employment or engage in any other occupation except with the approval of the Administrative Council. (3) During the Secretary-General’s absence or inability to act, and during any vacancy of the office of Secretary-General, the Deputy Secretary-General shall act as Secretary-General. If there shall be

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more than one Deputy Secretary-General, the Administrative Council shall determine in advance the order in which they shall act as Secretary-General. Article 11 The Secretary-General shall be the legal representative and the principal officer of the Centre and shall be responsible for its administration, including the appointment of staff, in accordance with the provisions of this Convention and the rules adopted by the Administrative Council. He shall perform the function of registrar and shall have the power to authenticate arbitral awards rendered pursuant to this Convention, and to certify copies thereof. Section 4: The Panels Article 12 The Panel of Conciliators and the Panel of Arbitrators shall each consist of qualified persons, designated as hereinafter provided, who are willing to serve thereon. Article 13 (1) Each Contracting State may designate to each Panel four persons who may but need not be its nationals. (2) The Chairman may designate ten persons to each Panel. The persons so designated to a Panel shall each have a different nationality. Article 14 (1) Persons designated to serve on the Panels shall be persons of high moral character and recognized competence in the field of law, commerce, industry or finance, who may be relied upon to exercise independent judgment. Competence in the field of law shall be of particular importance in the case of persons on the Panel of Arbitrators. (2) The Chairman, in designating persons to serve on the Panels, shall in addition pay due regard to the importance of assuring representation on Panels of the principal legal systems of the world and of the main forms of economic activity.

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Article 15 (1) Panel members shall serve for renewable periods of six years. (2) In case of death or resignation of a member of a Panel, the authority which designated the member shall have the right to designate another person to serve for the remainder of that member’s term. (3) Panel members shall continue in office until their successors have been designated. Article 16 (1) A person may serve on both Panels. (2) If a person shall have been designated to serve on the same Panel by more than one Contracting State, or by one or more Contracting States and the Chairman, he shall be deemed to have been designated by the authority which first designated him or, if one such authority is the State of which he is a national, by that State. (3) All designations shall be notified to the Secretary-General and shall take effect from the date on which the notification is received. Section 5: Financing the Centre Article 17 If the expenditure of the Centre cannot be met out of charges for the use of its facilities, or out of other receipts, the excess shall be borne by Contracting States which are members of the Bank in proportion to their respective subscriptions to the capital stock of the Bank, and by Contracting States which are not members of the Bank in accordance with rules adopted by the Administrative Council. Section 6: Status, immunities and privileges Article 18 The Centre shall have full international legal personality. The legal capacity of the Centre shall include the capacity: (a) to contract; (b) to acquire and dispose of movable and immovable property; (c) to institute legal proceedings.

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Article 19 To enable the Centre to fulfill its functions, it shall enjoy in the territories of each Contracting State the immunities and privileges set forth in this Section. Article 20 The Centre, its property and assets shall enjoy immunity from all legal process, except when the Centre waives this immunity. Article 21 The Chairman, the members of the Administrative Council, persons acting as conciliators or arbitrators or members of a Committee appointed pursuant to paragraph (3) of Article 52, and the officers and employees of the Secretariat (a) shall enjoy immunity from legal process with respect to acts performed by them in the exercise of their functions, except when the Centre waives this immunity; (b) not being local nationals, shall enjoy the same immunities from immigration restrictions, alien registration requirements and national service obligations, the same facilities as regards exchange restrictions and the same treatment in respect of travelling facilities as are accorded by Contracting States to the representatives, officials and employees of comparable rank of other Contracting States. Article 22 The provisions of Article 21 shall apply to persons appearing in proceedings under this Convention as parties, agents, counsel, advocates, witnesses or experts, provided, however, that subparagraph (b) thereof shall apply only in connection with their travel to and from, and their stay at, the place where the proceedings are held.

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Article 23 (1) The archives of the Centre shall be inviolable, wherever they may be. (2) With regard to its official communications, the Centre shall be accorded by each Contracting State treatment not less favourable than that accorded to other international organizations. Article 24 (1) The Centre, its assets, property and income, and its operations and transactions authorized by this Convention shall be exempt from all taxation and customs duties. The Centre shall also be exempt from liability for the collection of payment of any taxes or customs duties. (2) Except in the case of local nationals, no tax shall be levied on or in respect of expense allowances paid by the Centre to the Chairman or members of the Administrative Council, or on or in respect of salaries, expense allowances or other emoluments paid by the Centre to officials or employees of the Secretariat. (3) No tax shall be levied on or in respect of fees or expense allowances received by persons acting as conciliators, or arbitrators, or members of a Committee appointed pursuant to paragraph (3) of Article 52, in proceedings under this Convention, if the sole jurisdictional basis for such tax is the location of the Centre or the place where such proceedings are conducted or the place where such fees or allowances are paid. Chapter II: Jurisdiction of the Centre Article 25 (1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally. (2) “National of another Contracting State” means:

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(a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention. (3) Consent by a constituent subdivision or agency of a Contracting State shall require the approval of that State unless that State notifies the Centre that no such approval is required. (4) Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary-General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1). Article 26 Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.

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Article 27 (1) No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute. (2) Diplomatic protection, for the purposes of paragraph (1) shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute. Chapter III: Conciliation Section 1: Request for conciliation Article 28 (1) Any Contracting State or any national of a Contracting State wishing to institute conciliation proceedings shall address a request to that effect in writing to the Secretary-General who shall send a copy of the request to the other party. (2) The request shall contain information concerning the issues in dispute, the identity of the parties and their consent to conciliation in accordance with the rules of procedure for the institution of conciliation and arbitration proceedings. (3) The Secretary-General shall register the request unless he finds, on the basis of the information contained in the request that the dispute is manifestly outside the jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal to register. Section 2: Constitution of the Conciliation Commission Article 29 (1) The Conciliation Commission (hereinafter called the Commission) shall be constituted as soon as possible after registration of a request pursuant to Article 28.

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(2) (a) The Commission shall consist of a sole conciliator or any uneven number of conciliators appointed as the parties shall agree. (b) Where the parties do not agree upon the number of conciliators and the method of their appointment, the Commission shall consist of three conciliators, one conciliator appointed by each party and the third, who shall be the president of the Commission, appointed by agreement of the parties. Article 30 If the Commission shall not have been constituted within 90 days after notice of registration of the request has been dispatched by the Secretary-General in accordance with paragraph (3) of Article 28, or such other period as the parties may agree, the Chairman shall, at the request of either party and after consulting both parties as far as possible, appoint the conciliator or conciliators not yet appointed. Article 31 (1) Conciliators may be appointed from outside the Panel of Conciliators, except in the case of appointments by the Chairman pursuant to Article 30. (2) Conciliators appointed from outside the Panel of Conciliators shall possess the qualities stated in paragraph (1) of Article 14. Section 3: Conciliation proceedings Article 32 (1) The Commission shall be the judge of its own competence. (2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Commission, shall be considered by the Commission which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.

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Article 33 Any conciliation proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Conciliation Rules in effect on the date on which the parties consented to conciliation. If any question of procedure arises which is not covered by this Section or the Conciliation Rules or any rules agreed by the parties, the Commission shall decide the question. Article 34 (1) It shall be the duty of the Commission to clarify the issues in dispute between the parties and to endeavour to bring about agreement between them upon mutually acceptable terms. To that end, the Commission may at any state of the proceedings and from time to time recommend terms of settlement to the parties. The parties shall cooperate in good faith with the Commission in order to enable the Commission to carry out its functions, and shall give their most serious consideration to it recommendations. (2) If the parties reach agreement, the Commission shall draw up a report noting the issues in dispute and recording that the parties have reached agreement. If, at any stage of the proceedings, it appears to the Commission that there is no likelihood of agreement between the parties, it shall close the proceedings and shall draw up a report noting the submission of the dispute and recording the failure of the parties to reach agreement. If one party fails to appear or participate in the proceedings, the Commission shall close the proceedings and shall draw up a report noting that party’s failure to appear or participate. Article 35 Except as the parties to the dispute shall otherwise agree, neither party to a conciliation proceeding shall be entitled in any other proceeding whether before arbitrators or in a court of law or otherwise, to invoke or rely on any views expressed or statements or admissions or offers of settlement made by the other party in the conciliation proceedings, or the report or any recommendations made by the Commission.

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Chapter IV: Arbitral Tribunal Section 1: Request for arbitration Article 36 (1) Any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall address a request to that effect in writing to the Secretary-General who shall send a copy of the request to the other party. (2) The request shall contain information concerning the issues in dispute, the identity of the parties and their consent to arbitration in accordance with the rules of procedure for the institution of conciliation and arbitration proceedings. (3) The Secretary-General shall register the request unless he finds, on the basis of the information contained in the request that the dispute is manifestly outside the jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal to register. Section 2: Constitution of the Tribunal Article 37 (1) The Arbitral Tribunal (hereinafter called the Tribunal) shall be constituted as soon as possible after registration of a request pursuant to Article 36. (2) (a) The Tribunal shall consist of a sole arbitrator or any uneven number of arbitrators appointed as the parties shall agree. (b) Where the parties do not agree upon the number of arbitrators and the method of their appointment, the Tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third, who shall be the president of the Tribunal, appointed by agreement of the parties. Article 38 If the Tribunal shall not have been constituted within 90 days after notice of registration of the request has been dispatched by the SecretaryGeneral in accordance with paragraph (3) of Article 36, or such other

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period as the parties may agree, the Chairman shall, at the request of either party and after consulting both parties as far as possible, appoint the arbitrator or arbitrators not yet appointed. Arbitrators appointed by the Chairman pursuant to this Article shall not be nationals of the Contracting State party to the dispute or of the Contracting State whose national is a party to the dispute. Article 39 The majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute; provided, however, that the foregoing provisions of this Article shall not apply if the sole arbitrator or each individual member of the Tribunal has been appointed by agreement of the parties. Article 40 (1) Arbitrators may be appointed from outside the Panel of Arbitrators, except in the case of appointments by the Chairman pursuant to Article 38. (2) Arbitrators appointed from outside the Panel of Arbitrators shall possess the qualities stated in paragraph (1) of Article 14. Section 3: Powers and functions of the Tribunal Article 41 (1) The Tribunal shall be the judge of its own competence. (2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute. Article 42 (1) The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such

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agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable. (2) The Tribunal may not bring in a finding of non liquet on the ground of silence or obscurity of the law. (3) The provisions of paragraphs (1) and (2) shall not prejudice the power of the Tribunal to decide a dispute ex aequo et bono if the parties so agree. Article 43 Except as the parties otherwise agree, the Tribunal may, if it deems it necessary at any stage of the proceedings, (a) call upon the parties to produce documents or other evidence, and (b) visit the scene connected with the dispute, and conduct such inquiries there as it may deem appropriate. Article 44 Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question. Article 45 (1) Failure of a party to appear or to present his case shall not be deemed an admission of the other party’s assertions. (2) If a party fails to appear or to present his case at any stage of the proceedings the other party may request the Tribunal to deal with the questions submitted to it and to render an award. Before rendering an award, the Tribunal shall notify, and grant a period of grace to, the party failing to appear or to present its case, unless it is satisfied that that party does not intend to do so.

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Article 46 Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre. Article 47 Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of the either party. Section 4: The award Article 48 (1) The Tribunal shall decide questions by a majority of the votes of all its members. (2) The award of the Tribunal shall be in writing and shall be signed by the members of the Tribunal who voted for it. (3) The award shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based. (4) Any member of the Tribunal may attach his individual opinion to the award, whether he dissents from the majority or not, or a statement of his dissent. (5) The Centre shall not publish the award without the consent of the parties. Article 49 (1) The Secretary-General shall promptly dispatch certified copies of the award to the parties. The award shall be deemed to have been rendered on the date on which the certified copies were dispatched. (2) The Tribunal upon the request of a party made within 45 days after the date on which the award was rendered may after notice to the other party decide any question which it had omitted to

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decide in the award, and shall rectify any clerical, arithmetical or similar error in the award. Its decision shall become part of the award and shall be notified to the parties in the same manner as the award. The periods of time provided for under paragraph (2) of Article 51 and paragraph (2) of Article 52 shall run from the date on which the decision was rendered. Section 5: Interpretation, revision and annulment of the award Article 50 (1) If any dispute shall arise between the parties as to the meaning or scope of an award, either party may request interpretation of the award by an application in writing addressed to the SecretaryGeneral. (2) The request shall, if possible, be submitted to the Tribunal which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with Section 2 of this Chapter. The Tribunal may, if it considers that the circumstances so require, stay enforcement of the award pending it s decision. Article 51 (1) Either party may request revision of the award by an application in writing addressed to the Secretary-General on the ground of discovery of some fact of such a nature as decisively to affect the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the applicant and that the applicant’s ignorance of that fact was not due to negligence. (2) The application shall be made within 90 days after the discovery of such fact and in any event within three years after the date on which the award was rendered. (3) The request shall, if possible, be submitted to the Tribunal which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with Section 2 of this Chapter. (4) The Tribunal may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant

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request a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Tribunal rules on such request. Article 52 (1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds; (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. (2) The application shall be made within 120 days after the date on which the award was rendered except that when annulment is requested on the ground of corruption such application shall be made within 120 days after discovery of the corruption and in any event within three years after the date on which the award was rendered. (3) On receipt of the request the Chairman shall forthwith appoint from the Panel of Arbitrators an ad hoc Committee of three persons. None of the members of the Committee shall have been a member of the Tribunal which rendered the award, shall be of the same nationality as any such member, shall be a national of the State party to the dispute or of the State whose national is a party to the dispute, shall have been designated to the Panel of Arbitrators by either of those States, or shall have acted as a conciliator in the same dispute. The Committee shall have the authority to annul the award or any part thereof on any of the grounds set forth in paragraph (1).

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(4) The provisions of Article 41–45, 48, 49, 53 and 54, and of Chapters VI and VII shall apply mutatis mutandis to proceedings before the Committee. (5) The Committee may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Committee rules on such request. (6) If the award is annulled the dispute shall, at the request of either party, be submitted to a new Tribunal constituted in accordance with Section 2 of this Chapter. Section 6: Recognition and enforcement of the award Article 53 (1) The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. (2) For the purposes of this Section, “award” shall include any decision interpreting, revising or annulling such award pursuant to Articles 50, 51 or 52. Article 54 (1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. (2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose

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a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation. (3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. Article 55 Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution. Chapter V: Replacement and disqualification of conciliators and arbitrators Article 56 (1) After a Commission or a Tribunal has been constituted and proceedings have begun, its composition shall remain unchanged; provided, however, that if a conciliator or an arbitrator should die, become incapacitated, or resign, the resulting vacancy shall be filled in accordance with the provisions of Section 2 of Chapter III or Section 2 of Chapter IV. (2) A member of a Commission or Tribunal shall continue to serve in that capacity notwithstanding that he shall have ceased to be a member of the Panel. (3) If a conciliator or arbitrator appointed by a party shall have resigned without the consent of the Commission or Tribunal of which he was a member, the Chairman shall appoint a person from the appropriate Panel to fill the resulting vacancy. Article 57 A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14. A party to

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arbitration proceedings may, in addition, propose the disqualification of an arbitrator on the ground that he was ineligible for appointment to the Tribunal under Section 2 of Chapter IV. Article 58 The decision on any proposal to disqualify a conciliator or arbitrator shall be taken by the other members of the Commission or Tribunal as the case may be, provided that where those members are equally divided, or in the case of a proposal to disqualify a sole conciliator or arbitrator, or a majority of the conciliators or arbitrators, the Chairman shall take that decision. If it is decided that the proposal is wellfounded the conciliator or arbitrator to whom the decision relates shall be replaced in accordance with the provisions of Section 2 of Chapter III or Section 2 of Chapter IV. Chapter VI: Cost of proceedings Article 59 The charges payable by the parties for the use of the facilities of the Centre shall be determined by the Secretary-General in accordance with the regulations adopted by the Administrative Council. Article 60 (1) Each Commission and each Tribunal shall determine the fees and expenses of its members within limits established from time to time by the Administrative Council and after consultation with the Secretary-General. (2) Nothing in paragraph (1) of this Article shall preclude the parties from agreeing in advance with the Commission or Tribunal concerned upon the fees and expenses of it members. Article 61 (1) In the case of conciliation proceedings the fees and expenses of members of the Commission as well as the charges for the use of the facilities of the Centre, shall be borne equally by the parties.

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Each party shall bear any other expenses it incurs in connection with the proceedings. (2) In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise agree, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award. Chapter VII: Place of proceedings Article 62 Conciliation and arbitration proceedings shall be held at the seat of the Centre except as hereinafter provided. Article 63 Conciliation and arbitration proceedings may be held, if the parties so agree, (a) at the seat of the Permanent Court of Arbitration or of any other appropriate institution, whether private or public, with which the Center may make arrangements for that purpose; or (b) at any other place approved by the Commission or Tribunal after consultation with the Secretary-General. Chapter VIII: Disputes between Contracting States Article 64 Any dispute arising between Contracting States concerning the interpretation or application of this Convention which is not settled by negotiation shall be referred to the International Court of Justice by the application of any party to such dispute, unless the States concerned agree to another method of settlement.

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Chapter IX: Amendment Article 65 Any Contracting State may propose amendment of this Convention. The text of a proposed amendment shall be communicated to the Secretary-General not less than 90 days prior to the meeting of the Administrative Council at which such amendment is to be considered and shall forthwith be transmitted by him to all the members of the Administrative Council. Article 66 (1) If the Administrative Council shall so decide by a majority of twothirds of its members, the proposed amendment shall be circulated to all Contracting States for ratification, acceptance or approval. Each amendment shall enter into force 30 days after dispatch by the depositary of this Convention of a notification to Contracting States that all Contracting States have ratified, accepted or approved the amendment. (2) No amendment shall affect the rights and obligations under this Convention of any Contracting State or of any of its constituent subdivisions or agencies, or of any national of such State arising out of consent to the jurisdiction of the Centre given before the date of entry into force of the amendment. Chapter X: Final provisions Article 67 This Convention shall be open for signature on behalf of States members of the Bank. It shall also be open for signature on behalf of any other State which is a party to the Statute of the International Court of Justice and which the Administrative Council, by a vote of two-thirds of its members, shall have invited to sign the Convention.

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Article 68 (1) This Convention shall be subject to ratification, acceptance or approval by the signatory States in accordance with their respective constitutional procedures. (2) This Convention shall enter into force 30 days after the date of deposit of the twentieth instrument of ratification, acceptance or approval. It shall enter into force for each State which subsequently deposits its instrument of ratification, acceptance or approval 30 days after the date of such deposit. Article 69 Each Contracting State shall take such legislative or other measures as may be necessary for making the provisions of this Convention effective in its territories. Article 70 This Convention shall apply to all territories for whose international relations a Contracting State is responsible, except those which are excluded by such State by written notice to the depositary of this Convention either at the time of ratification, acceptance or approval or subsequently. Article 71 Any Contracting State may denounce this Convention by written notice to the depositary of this Convention. The denunciation shall take effect six months after receipt of such notice. Article 72 Notice by a Contracting State pursuant to Articles 70 or 71 shall not affect the rights or obligations under this Convention of that State or of any of its constituent subdivisions or agencies or of any national of that State arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depositary.

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Article 73 Instruments of ratification, acceptance or approval of this Convention and of amendments thereto shall be deposited with the Bank which shall act as the depositary of this Convention. The depositary shall transmit certified copies of this Convention to States members of the Bank and to any other State invited to sign the Convention. Article 74 The depositary shall register this Convention with the Secretariat of the United Nations in accordance with Article 102 of the Charter of the United Nations and the Regulations thereunder adopted by the General Assembly. Article 75 The depositary shall notify all signatory States of the following: (a) signatures in accordance with Article 67; (b) deposits of instruments of ratification, acceptance and approval in accordance with Article 73; (c) the date on which this Convention enters into force in accordance with Article 68; (d) exclusions from territorial application pursuant to Article 70; (e) the date on which any amendment of this Convention enters into force in accordance with Article 66; and (f ) denunciations in accordance with Article 71. DONE at Washington, in the English, French and Spanish languages, all three texts being equally authentic, in a single copy which shall remain deposited in the archives of the International Bank for Reconstruction and Development, which has indicated by its signature below its agreement to fulfill the functions with which it is charged under this Convention.

Appendix 5 Arbitration Rules, Iraqi Law of Civil Procedure 1969 1. Article 251. It is permissible to agree on arbitration in a particular dispute, as well as in all disputes, arising from the implementation of a particular contract. 2. Article 252. Arbitration agreement has to be in writing. The parties may agree on arbitration during court proceedings. If the arbitration agreement has been established for the court, or if the court approves the parties’ agreement during the proceedings, the court shall adjourn the case until the arbitration award is rendered. 3. Article 253. If the parties to a dispute have agreed to settle it through arbitration, they cannot institute proceedings before a court of law before the exhaustion of the arbitration process. 4. Article 254. Arbitration cannot take place except in cases where compromise is permissible. It is open only to those who have the legal capacity to dispose of their rights. It is permissible for spouses to arbitrate according to the law of personal status and the rules of Islamic Sharia. 5. Article 255. A member of the judiciary cannot be an arbitrator unless the Judicial Council authorises him. He must not be a minor, under arrest, deprived of his civil rights, or declared bankrupt who has not been rehabilitated. 6. Article 256. 1. In the absence of agreement between the parties on the appointment of arbitrators, or in case one or more of the arbitrators declined to take part in the arbitration, or has been removed, or there has been an impediment for him to carry out his function, and in the absence of agreement between the parties on this issue, any party to the dispute may submit a written request to the competent court

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requesting it to appoint the arbitrator, or arbitrators, after notifying the other parties and getting their reaction. 2. The decision of the court concerning the appointment of an arbitrator, or arbitrators, is final and is not subject to appeal. However, the court’s refusal to appoint arbitrators is subject to appeal in accordance with measures mentioned in Article 216 of the Law. 7. Article 257. The number of arbitrators must be uneven, except in case of arbitration between spouses. 8. Article 258. If the parties to the dispute allow arbitrators to reach a compromise, the compromise reached will be valid. 9. Article 259. The acceptance of an arbitrator to act in that capacity must be in writing, unless the arbitrator has been appointed by the court. Acceptance may be done by the arbitrator’s signature on the arbitration agreement. Arbitration does not end with the death of one of the parties. 10. Article 260. The arbitrator cannot abandon the arbitration after his acceptance to act in that capacity, without a valid excuse. The arbitrator cannot be removed except by the agreement of the parties. 11. Article 261. 1. Objection against an arbitrator can be made on the same bases as those against a judge, and can only be made for reasons which became known after the appointment of the arbitrator. 2. The objection must be submitted to the court, which was originally competent to deal with the dispute, and the court’s decision on the matter is subject to appeal, in conformity with Article 216 of this Law. 12. Article 262. 1. If arbitration is to be carried out in a specified time, it becomes invalid if the specified time is exceeded, unless the parties agree to extend the time-limit. 2. If no time is specified for the rendering of the arbitration award, the arbitrators must give their award within six months from their acceptance to arbitrate. 3. In case of death of one of the parties, or the removal of the arbitrator, or in case of request to disallow him to sit, the timelimit for the rendering of the arbitration award shall be extended to the period needed to remove the impediment.

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13. Article 263. If the arbitrators were unable to settle the dispute within the specific period stated in the arbitration agreement, or within the period specified by law, or they were unable to submit their report, because of force majeure, each party to the dispute may request the competent court to extend that period, or to settle the dispute itself, or to appoint other arbitrators to settle the dispute, as the case may be. 14. Article 264. If a request for the appointment of arbitrators is made to the court which is competent to deal with the dispute, this request does not imply in itself the approval of the decision of the parties or giving judgment on the substance of the decision, unless it is expressly requested in the statement of claim. In that case, the court will appoint the arbitrators and will consider the case adjourned until the arbitration award is rendered. 15. Article 265. 1. The arbitrators must follow the procedures laid down in the Law of Civil Procedure, unless the arbitration agreement or a subsequent agreement exempts them expressly from that, or provides for certain procedures to be followed by the arbitrators. 2. If the arbitrators are authorised by the parties to reach a compromise, then they shall not be bound to follow the rules of court, nor the rules of law, except those rules relating to public order. 16. Article 266. The arbitrators shall settle the dispute on the basis of the arbitration agreement, or its terms, and other documents, as well as what the parties submit to them. It is possible to settle the dispute on the basis of requests and documents submitted by one of the parties, if the other party does not submit his defence within the specified time-limit. 17. Article 267. The arbitrators shall jointly carry out the investigations, and each one of them shall sign the minutes, unless they have designated one of them to carry out certain measures and have indicated that on the minutes. 18. Article 268. If during the arbitration proceedings a matter is raised, which falls outside the jurisdiction of the arbitrators, of if it is claimed that a particular document is false, or certain criminal measures were taken due to the falsity of the document, or another criminal act, the arbitrators shall stop the arbitration proceedings, and shall decide to

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refer the parties to the competent court. In this case, the time-limit for the rendering of the arbitration award shall be suspended until a final judgment is given on the matter. 19. Article 269. The arbitrators must refer to the court, which is originally competent to deal with the dispute, in order for that court to decide the issues of judicial representation needed for settlement of the dispute, or if there was a need to take measures arising from the absence of witnesses, or if the witnesses abstain from answering questions put to them by the arbitrators. 20. Article 270. 1. The arbitrators shall take their decision by unanimity or by a majority, after deliberation between all of them, and in accordance with this Law. The arbitration award must be written in the same was as a judgment by a court of law. 2. The award must include, in particular, a summary of the arbitration agreement, the statements of the parties and their evidence, the reasons on which the award is based, the place and date of the award, and the signature of the arbitrators. 21. Article 271. “After the arbitrators have rendered their award, as indicated above, they have to give a copy thereof to each party to the dispute, and shall deliver the award and the original arbitration agreement to the relevant competent court, within three days from the date of issue of the award, and a receipt for delivery shall be signed by the clerk of the court.” 22. Article 272. 1. The arbitration award shall not be implemented by the enforcement offices, whether the arbitrators were appointed by the court or by the agreement of the parties, unless the competent court endorses it, after the payment of the normal fees. 2. The arbitration award shall be implemented only vis-à-vis the parties against which the award was rendered, and only with respect to the subject-matter of the arbitration.” 23. Article 273. The parties to the dispute may, when the arbitration award is submitted to the relevant competent court, plead its invalidity. However, the court can, on its own initiative, annul the award in the following situations:

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1. If the award was issued without written evidence or on the basis of an invalid agreement, or if the award was outside the scope of the arbitration agreement. 2. If the award violated one of the rules of public order or morality or any of the rules of arbitration contained in this Law. 3. If one of the reasons, which may justify a re-trial, [according to this Law] is realised. 4. If there was a material error in the award, or in the procedures which may impair the validity of the awards. 24. Article 274. The competent court has the power to approve, or annul the arbitration award, in part or in whole. In case of annulment of the award in part or in whole, the court may refer the case to the arbitrators to remedy the defect of the award, or it may itself decide the dispute, if the case is suitable for such settlement. 25. Article 275. If the court decides to deal, itself, with the dispute, in conformity with the preceding Article, its decision cannot be challenged, but it shall be subject to appeal in conformity with the methods provided by law. 26. Article 276. The expenses of arbitrators shall be defined by the parties in the arbitration agreement or in a subsequent agreement, otherwise the court competent to deal with the dispute shall determine their fees, in an independent decision, which can be subject to appeal, in conformity with Articles 153 and 216 of this Law.

Index Administrative Court 42, 43, 126 Jurisdiction 42–43, 126 right of appeal to 41, 42, 126 Albanian law 29–30 Al-Maliki Nouri xix Almusataha 32, 77, 78 Al-Shabibi Sinan 3, 4 Applicable law Iraqi law 129–135, 137–138, 158 disputes between Iraqi authorities and investors 133 employment contracts 130–132 foreign law 135–138 contracts between foreigners 137 employment contracts of non-Iraqis 135 Arbitration definition 138 under Iraqi law 139–143 under international schemes 143–156 Arab Council for Settlement of Investment Disputes 147, 154–156 ICSID 144, 147, 151–154, 167 ICC 144, 147, 148–150, 167 PCA 147–148 Arbitrators appointment 139, 142–143, 145–148, 153, 155 number of 142, 145, 146, 148–149, 153 Arbitration Centres Cairo Centre for Arbitration 146, 150 ICSID 146, 147, 151–154 Kuala Lumpur 146

Bishop Doak 1, 91, 140 Brazilian law 96 Bremer Paul 4 Burmese law 87 Cheng Bin 92 Coalition Provisional Authority (CPA) 4 Abolition of 4–5 Order no. 39 5, 12, 18, 19, 25–26, 31, 33, 75, 78, 80, 83, 100, 123, 138 Codex Alimentarius Commission 110 Collier John 94, 132, 138, 139, 149, 157 Crawford James 1, 91, 140 Dispute definition 131 investment disputes 140 Economist The 15, 115 El Sheikh Fath El Rahman 2, 11, 64–65, 71, 79, 82, 88, 91, 96, 148, 154, 156, 157 Egyptian law 96 Expropriation definition 90 guarantee against (see under guarantees to investors) FAO 110 Federal Investment Law incentives (see under incentives to investors) guarantees (see under guarantees to investors)

246

Index

licensing under (see under licensing) objectives encouragement of investors 13–14 expansion of Iraqi exports 18–19 development of human resources 14–16 promotion of investment 9–10 protection of investors’ rights 16–18 transfer of technology 9–10 sectors not covered by banking 22, 23 gas extraction and production 22, 23–25 insurance 22, 23 oil extraction and production 22, 23–25 Good faith principle of 92 Guarantees to investors confidentiality of information 100–101 employment of non-Iraqis 85–87 entry, residence and exit of foreign investor’s non-Iraqi employees 88–89 equal treatment 99–100 non-expropriation of investment 89 (see also under expropriation) non-nationalisation 89 (see also under nationalization) repatriation of salaries 95–97 sale/re-export of machinery and equipment 97–98 Gulf Wars Iraq-Iran war 1980 3 invasion of Kuwait 1990 3, 4, 11 First Gulf War 1991 3 Incentives to investors opening bank accounts 80–81 dealing in shares and bonds 75–77 exemption from taxation and fees 66–73

insurance of investment 79–80 lease of land 77–79 ownership of land 74–75 (see also under land) repatriation of capital 63–66 Additional incentives under Iraqi law 67–68 under treaties 81–83 ICC 148 (see also under arbitration) ICJ 66, 92, 93, 145, 156–157 ICSID arbitration under 151–154 Headquarters 151 jurisdiction: consent 152 Indonesian Law 96 International Labour Organization (ILO) 112 International Monetary Fund (IMF) 1 Investment definition 26, 29–31 scope under Federal Investment Law 21–26 Investor incentives for (see under incentives for investors) guarantees for (see under guarantees for investors) obligations of 103 keeping special records of exempted materials 108–109 keeping progress of work in line with project schedule 112–114 maintenance of book-keeping 105–106 notification of project readiness 103–105 observance of public order 109–111 protection of the environment 109–110 respect for security 110 respect for Iraqi values 111

Index

respect for labour law 111–112 submission of economic and technical study 106–107 training of Iraqi employees 114–115 treatment of 99 sanctions against (see under sanctions) Iraq Administrative Law 42, 43 Central Bank 4 Central Bank Law 22 Civil Code 133, 141 civil law system 6 Commercial Code 141 Constitution Art. 13 162 Art. 26 6, 165 Art. 31 15 Art. 61 159 Art. 100 44 Art. 110 24, 25, 49, 83 Art. 114 49 Art. 115 24, 49 Art. 116 6 Art. 117 6, 55 Art. 119 55 Art. 138 6 Insurance Law 22 Investment Law (see under Federal Investment Law) Labour Law 132 Law of Civil Procedure 133, 134, 141–143 Jordanian Investment Law 105, 106, 121

43, 44, 70,

Kuala Lumpur (see under arbitration centers) Kurdistan Investment Law incentives to investors 66, 72, 75, 78, 80, 81, 83

247

licensing (see under licensing) objectives creation of suitable climate for investment 12 promotion of investment 14 protection of investor’s right 17 Land lease of (see under incentives to investor) ownership of 31–33, 74–75 League of Nations 2 Licensing conditions for grant of license grant of license 44–48 organs 39, 60–61 Governorate Investment Commission 42, 43 NIC 38–41, 48–49, 85, 86 Composition 49–50 Functions 51–55 Kurdistan Investment Board 55 Composition of 55–57 Functions 57–60 Procedure for application 37–40, 60 Lowe Vaughan 94, 132, 138, 139, 149, 157 Model clauses ICSID 146 U.K 30, 145–146 U.S.A. 30–31 Mourad Abd El-Ratah

3

Nationality dual nationality 66, 93, 144 genuine link 66 juridical persons 95 natural persons 94 National treatment 119 Nationalisation conditions for 90

248

Index

Optional Clause (see under ICJ) Oppenheim 90, 92, 94, 99

negotiations 134–135 under contract 134 under Iraqi law (see under applicable law) Sudanese law 34, 66, 71, 88 Syrian law 96

Pakistani law 87 Permanent Court of Arbitration (PCA) 147–148 Permanent Court of International Justice (PCIJ) 131, 140 Polluter-pays principle 109–110

Tanzanian law 29 Treaties Bilateral 30–31, 100 Most-favoured-nation clause FCN treaty (USA) 82 Tripp Charles 2–3

Qatari Foreign Investment Law 70, 71, 76, 121

Unilateral acts 92–99 United Arab Emirates’ Law 76 UN 4, 10, 12, 32, 34 General Assembly 91 Security Council 4, 165 UN Charter 4, 125, 138 UNCITRAL Arbitration Rules 146, 147 UNCTAD 3, 4, 99

definition 90 guarantee against under Federal Investment Law 89–95

35, 66,

Reisman Michael 1, 91, 140 Right of appeal (see under Administrative Court) Sanctions against investors liquidation of projects 119, 124–125 suspension of work 118, 119 withdrawal of license 117–120 Sands Phillippe 110 Saudi Arabian law 35, 76, 87 Schreuer Christoph 29, 30, 151, 152 Settlement of disputes arbitration (see under arbitration)

82

Vienna Convention on the Law of Treaties Art. 31 19–20 Walker David 110–111 World Bank 10, 11, 12, 33, 34 WHO 110

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