The ‘Arbitration Centre’ of Attraction: How Are Arab Countries Catching up?

Most Arab governments have carried out numerous legislative, institutional and procedural reforms and further improvements in their infrastructure to prepare their environment to attract foreign investment, across several axes, which can contribute to improving the investment climate in Arab countries.

“ Foreign Direct Investment (FDI) inflows to the countries of the region jumped during the period 2006-2011 to about $438.5 billion, with an annual average of $73.1 billion, almost seven times the total inflows received during the same period in 1999-2004, amounting to about $67.2 billion. With an average annual rate of $11.2 billion, it then deteriorated”, shares Dr Azab Alaziz Alhashemi, who plays a leading role in the field of international arbitration.

The role of arbitration and modern dispute settlement mechanisms has an impact on attracting investment to Arab countries. Given the prevailing belief that the judiciary in developing countries does not enjoy a sufficient degree of independence from political power, and in the absence of specialized national tribunals that are not experienced in investment cases and its complex areas, arbitration has become the only convincing and unique means of settling disputes.

“With the emergence of arbitration in the Arab world, however, most Arab and non-Arab investors have abandoned arbitration before Arab arbitration centres, and have even set aside Arab arbitration laws and turned away from Arab arbitrators and turned to international arbitration centres and laws other than the laws of their Arab countries”, expands Dr Alaziz.

How does investment reflect the judiciary setting in a jurisdiction?

The investment reflects itself in the judiciary setting as international arbitration has become the only convincing way from the foreign investor’s point of view, to settle disputes with the countries he/she is investing in due to the following reasons:

1. The prosperity of modern economic life, especially in the commercial transactions field whether it is in or out of the contract.
2. It allows many arbitration advantages, such as respecting the will of the parties, their conflicts, speed of resolution, confidentiality, and finally, simplicity.
3. It achieves the desired goals in the commercial or economic transactions field.
4. It finds an alternative or equal in power to the judiciary branch state.

If we quantify the turnover investor’s capital, we will find that these investments will be at much higher profits than the capital invested originally in the Arab countries.

Foreign investment flow to the region increased significantly to approximately $438.5 billion from 2006-2011. What are the reasons for this increase?

Foreign direct investment (FDI) is estimated to be $ 438.5 billion in the Arab countries, however, the foreign investments are in limited fields and do not include all sectors directly related to economic development. Most of these investments are distributed among service consuming sectors such as: oil, security, and tourism. Investing in the region helps the foreign investor to decrease the costs of production. The investors also gain some free of charge services in exchange for their investment such as gas, petrochemicals, and herbals which are useful in the pharmaceutical industry.

If we quantify the turnover investor’s capital, we will find that these investments will be at much higher profits than the capital invested originally in the Arab countries.

By investing in foreign lands, foreign investors avoid taxation and administrative fees that they would otherwise pay if investing in their own countries. However, financial corruption that occurs due to poor decision making resulting from the upper class distributing the wealth coming out of the FDI, has a direct effect on the poverty rate in these countries.

All of the points discussed above helps to constitute an economic and investment power in the countries of the world and provide added value to these foreign countries.

Why is the Arab business world an attractive investment force?

The investment nature and the volume of the business alone cannot determine the approximate capital invested abroad by the Arabs. However, as per the Arab Guarantee Corporation, the invested capital is between 800 and 1000 billion dollars while the Arab Economic Unity Council estimates the investment to be 2400 billion.

In addition, the Arab culture, in general, lacks the transparency of sharing accurate information. Most reporting sources of these investments are indirect such as stocks, bonds markets and global exchange. Most of the Arab investments abroad are private investments, which are owned by individuals. Very few public investments are owned by the government. For example, the Gulf government has been trying to invest in the returns of oil and gas in foreign capital markets. These funds are distributed between direct investments varied in real estate, lands, commercial companies, tourism projects, etc.

All of the points discussed above helps to constitute an economic and investment power in the countries of the world and provide added value to these foreign countries.

Technological development requires some changes in the law of arbitration.

Is the current legislation compatible with the judiciary development?

There is no doubt that the recent constitutional amendments in some Arab countries became essential entry points to reform the judicial system, with the approval of the judiciary body as an independent authority equal to the legislative and executive branches.

The effect will be great if the constitutional provisions affirming the independence of the judiciary are activated in a manner that guarantees to achieve constitutional principles in the judicial and litigation realities with their direct impact.  There are Arab countries that do not comply with the current and constitutional legislations with the development of the judiciary branch, especially the executive laws for arbitration, due to the presence of a clear gap between the two sides.

Do you think development and advancement are necessary here?

Technological development requires some changes in the law of arbitration.

Some countries previously adopted independent law of arbitration, such as: Egypt, Qatar, Kuwait, Bahrain, and previously Iraq. Other countries chose to organise it within the procedural law framework such as: Kuwait, Libya, Lebanon, Morocco, Syria, and Qatar.

The effectiveness of arbitration whether it is ordinary or judicial depends on the rules of clarity of the roles governing it, which pays off in terms of ruling and implementation. However, if the rules are vague, the arbitration will not be effective and will not achieve its intended goals.

The need for new cultures and societal norms appears as the new reality we live in today which is represented in the business and investment sector, as well as the conflicts and legal problems which may accompany this vital facility and requires adjudication in these disputes.

The Arab investor’s confidence in the investment potential of Arab economies is still low; why is this the case?

The investment is considered an essential pillar of development. In addition to productive capacity, it constitutes a wealth increase which has an impact on satisfying needs, providing services while achieving legal and judicial security, as well as having a positive effect on the investor whether he/she is a national or foreigner.

Despite the encouragement, initiatives specified in legislation and regulations, the Arab investor will continue to lack confidence unless there is verification with regards to the existence of an independent and effective judiciary which would translate the texts. The existence of such a judiciary body was not available in the Arab countries for various reasons, which contributes to the lack of confidence of the Arab investor.

What are Arab arbitration laws ineffective in spreading the arbitration culture?

The need for new cultures and societal norms appears as the new reality we live in today which is represented in the business and investment sector, as well as the conflicts and legal problems which may accompany this vital facility and requires adjudication in these disputes.

For this, the international arbitration concept emerged and was in alignment with the judiciary branch to solve the disputes which arise between the litigants in this trial, in order to spread the arbitration culture in the Arab countries. These vital issues bring to light that we live in a changing world and a region in which local and regional conflicts and rivalries happen regularly. Therefore, we have to consider all these variables. Considering these variables requires highlighting the international arbitration concept as a basic principle in settlement disputes facing us at the local and international levels, and the legal means which protects the interests of all.

The most important reason for most Arab and non-Arab investors to abandon arbitration is that the local courts’ procedures will be included by state immunity principle, as well as the investor’s lack of familiarity with the local courts’ procedures, and the fear of no procedures to accommodate investment disputes.

The international arbitration concept has become increasingly important as a preferred and effective means for resolving various disputes. This is due to its advantages, speed and effectiveness in resolving disputes, maintaining confidentiality, as well as achieving justice and maintenance.

This vital matter calls us to build strong relations with international organisations to continue coordination efforts to spread the arbitration culture to Arab countries and to build the arbitrators’ capacity in a manner that qualifies them to engage in all disputes that occur inside and outside the country. The international arbitration culture spreading in the Arab countries should be considered a higher priority among all the state institutions in order to go forward with the scientific progress witnessed by all societies and countries.

Meanwhile, many arbitration laws are ineffective in Arab countries, despite their importance to settlement disputes, especially arbitration laws linked to the executive mechanism aspects of arbitration decision making and its applications.

What are the reasons why Arab and non-Arab investors abandon arbitration?

The most important reason for most Arab and non-Arab investors to abandon arbitration is that the local courts’ procedures will be included by state immunity principle, as well as the investor’s lack of familiarity with the local courts’ procedures, and the fear of no procedures to accommodate investment disputes.

Furthermore, there is no customary international law obligating any country to accept the resort to arbitration located outside its territory. Essentially, the foreign arbitrator settles disputes with foreign investors and the foreign investor’s resort to arbitration and international jurisdiction is still an exceptional matter in contemporary international law.

The legislator’s interference with legislation, laws, regulations and judicial mechanisms is important in settling disputes between dealers in the international trade field.

We find that most oil agreements contain an explicit text accepting the host country to deal with settlement disputes through arbitration courts that are held abroad.  Furthermore, arbitration is the only available and effective means for settlement disputes arising from energy contracts.

A negotiation process must occur between producing countries and companies involved in drilling, exploration, processing, manufacturing, refining and export operations. These countries must start with ensuring their energy contract formulations are accurate. This is to ensure a fair balance between the contract parties. This is followed by ensuring the arbitrators are qualified to resolve any contract disputes.

What are the effects of the above and what can be done to change that?

The Arab countries are in a global situation which defines speedy transformations governed by the laws of economic globalisation, severe competition controls, as well as the differences in emergence between countries that possess capital and technical expertise and others that lack one or both of these elements.

The legislator’s interference with legislation, laws, regulations and judicial mechanisms is important in settling disputes between dealers in the international trade field.

The dispute settlement systems, such as negotiations, conciliation and mediation also play an important role in ending disputes before resorting to arbitration. Until desired goals are achieved, the arbitration agreement must be carefully crafted and certain procedural steps should be followed from the beginning of the dispute, until holding of the preliminary arbitration procedures session. The arbitration agreement should not be resorted to initially.

However, some reported that alternative dispute settlement systems, such as the new global system, have been beneficial in ensuring the exclusion of the ordinary judiciary from the disputes in which they are aside. This forum deals with means of arbitration and explaining the use mechanisms, learning about effective negotiation skills to organise contractual relationships and conclude successful contracts that are implemented without entering into disputes during the implementation process.

Hence, we are in urgent need to spread the arbitration culture and prepare competent Arab arbitrators to have technical skills and international arbitration capabilities.

The Arab League has been concerned with commercial arbitration and this interest was embodied in the conclusion of many agreements, including the agreement to implement the signed provisions in 1952, such as the arbitration provisions and the Arab Investment Guarantee Agreement in 1970 which stipulated arbitration as a means of settlement disputes. This is in addition to an Investment Distributions Agreement between host countries for Arab investments and other Arab countries in 1974, which called for arbitration as a means of dispute settlement.

Finally, Amman Arab Agreement for Commercial Arbitration in 1987, which is considered the most important Arab agreement in the commercial arbitration field, called for the establishment of a unified Arab Center for Arbitration Dispute Resolution with its headquarters in Rabat, but it has not yet been initiated.

Despite the efforts by the Arab countries in the arbitration legislation field to find legal tools to organise international commercial arbitration to establish many Arab arbitration centres, as well as joining the most important international agreements for arbitration, we have not yet reached the quality and professionalism in this field. There is also a clear disparity between the Arab countries in familiarity with vocabulary and mechanisms associated with the arbitration legislation field. Hence, we are in urgent need to spread the arbitration culture and prepare competent Arab arbitrators to have technical skills and international arbitration capabilities.

 

Dr Azab Alaziz Alhashimi

www.azabalhashemi.com

info@azabalhashemi.com

Azab Alaziz Alhashimi has more than 13 years of experience in international commercial arbitration, investor-state arbitration, and international arbitration.
He completed his university studies as an engineer specialising in information security protection. He obtained his doctorate in this specialisation in 2010 and has pursued his career in international arbitration in several countries.
He has served as an arbitrator of disputes on all continents, following UNCITRAL rules, the International Criminal Court, and the Permanent Court of Arbitration in The Hague.
He has received high and exceptional qualities in international arbitration for his essential role in spreading the culture of mediation in several countries. He has also won significant awards and trained an elite of intellectuals, lawyers, academics, ministers and leaders. He has received the title of International Arbitrator” International Advisory Body in the Kingdom of Norway.
Dr Alaziz plays a leading role in the field of international arbitration and investment and has a significant impact on the construction of his investments And those of his partners.
He has built more than 60 companies in various disciplines for a wide range of investors in the United Arab Emirates and Great Britain. He has a thorough knowledge of the understanding and practice of International law and only operates in the legal context.