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Foreign investment in the UAE is an integral part of the rapid economic development being achieved in the area. The UAE has taken steps which demonstrate its commitment to attracting and encouraging foreign investment in the region, including ratifying amendments to the Federal Arbitration law (currently awaiting enactment) and announcing a proposed new arbitral regime in the Dubai International Financial Centre. The UAE is also entering into negotiations with other nations in relation to new bilateral investment treaties (BITs). Most recently, the UAE has entered into BIT negotiations with the United Kingdom .

There has been worldwide exponential growth over the last 50 years in the number of international investment treaties entered into between nations. This, coupled with the increase since the early 1990s in the use of investor-state arbitration, indicates that multinational corporations are increasingly prepared to utilise the international investment treaty regime to resolve disputes with states in relation to governmental conduct affecting foreign investment.

The United Nations Conference on Trade and Development lists the United Arab Emirates as a signatory to 31 Bilateral Investment Agreements (BITs) with different nations¹. These treaties provide legal protection to foreign investors of signatory states in accordance with the terms of each treaty.

Protections Provided under BITs

BITs aim to encourage and promote investment between states by providing a level of legal protection to investments that are made by nationals of one state in the other signatory state. Prior to the advent of BITs, the only solution for an aggrieved foreign investor was to formally request its own government to negotiate, through diplomatic channels, a resolution to the dispute with the state in which the investments were held.

In contrast, most BITs provide for a dispute between the investor and the host state to be resolved by way of international arbitration. Many BITs refer disputes to international arbitration administered by the International Centre for Settlement of Investment Disputes (ICSID) or to ad hoc arbitral tribunals to be established in accordance with the provisions of the particular BIT or under the UNCITRAL rules (unless the parties agree to other arbitration rules).

Although there is no standard-form BIT, some typical aspects of investment treaties which operate to provide a high level of investment protection for multinational corporations include:

1. A general requirement that foreign investors are not to be discriminated against and that the standard of treatment for foreign investments is to be fair and equitable.

2. Provision of compensation when a government expropriates foreign investments.

3. Provisions protecting foreign investors from being treated less favourably than nationals.

4. Provisions allowing the transfer of capital and any returns or profit out of the state.

5. Direct recourse by foreign investors to arbitration (i.e., no requirement to exhaust local remedies before commencing arbitration).

6. Broad powers for arbitrators in investor-state arbitration to review governmental conduct when it affects foreign investment.

7. Recognition that arbitral awards rendered are binding on the state, subject to only limited forms of review, and that enforcement of the award can be achieved directly in a wide number of countries (including the UAE being a signatory state) under the New York Convention 1958.

Criteria for Protection

The criteria that an investor must meet in order to be granted protection under a BIT will also depend on the relevant BIT. Most BITs will contain a reasonably broad definition of a qualifiying investor, generally being a national (individual or company) of one of the states that is a party to the BIT. Commonly an "investment" will be defined under a BIT as "any kind of asset" that is owned or controlled by the investor (whether directly or indirectly) and can include, inter alia, property, shares, stocks, deposits, intellectual property rights, and business concessions.

It should be kept in mind that some BITs are restricted in application. For example, a BIT may require that, prior to protection being afforded to a foreign investor, the investor must show that its shareholding in the company is a majority or that the company conducts considerable business in the state.

Investor Considerations

Prior to entry into an investment contract, it is advisable for a foreign investor to consider the following:

1) Whether investor protection is available (and the scope of the protection) under a BIT between the investor's own state and the state where the investment is being made.

2) Whether the deal can be structured to reflect the features of an investment as defined in the relevant BIT in order to ensure that jurisdiction over a dispute is accepted (including explicitly stating that the transaction constitutes an investment and explicitly stating the investor's nationality).

3) Whether to incorporate other investor protection measures into the contract, in case the protection afforded under the BIT is limited or there is uncertainty as to its application to the transaction.

Conclusion

The UAE's willingness to enter into new BITs and measures which have been taken recently to develop an efficient international arbitration regime promote the UAE as an environment for foreign direct investment. Foreign investors should take comfort from these developments, which indicate that foreign investment in the region will continue to be encouraged.

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^{1 These nations include Algeria, Austria, Belarus, Belgium and Luxembourg, China, Czech Republic, Egypt, Finland, France, Germany, Italy, Republic of Korea, Kuwait, Lebanon, Malaysia, Morocco, Mozambique, Pakistan, Poland, Romania, Sudan, Sweden, Syrian Arab Republic, Tajikistan, Tunisia, Turkey, Turkmenistan, United Kingdom, and Yemen.}