Articles and Opinions
What Israeli Investors Should Know About International Investment: Treaty Arbitration
The State of Israel has negotiated and entered into “Bilateral Investment Agreements” – binding international treaties – with a number of countries in which Israelis conduct business. Those treaties, or “BITs”, provide Israeli investors substantial protection and can greatly reduce the legal, political and financial risks to those precious investments.
Over the last decade, Israeli companies and individuals have invested a significant amount of their capital in the economies of countries in Eastern Europe, Central Asia, the Caucuses, Turkey, India, China and Southeast Asia. As they become major players in the world economy, these investors discover additional opportunities for growth and a higher profile for the ever-growing Israeli investment sector. However, with this new dynamic for growth and profits also come serious risks to those who invest millions of dollars in countries whose developing legal and political systems are unreliable, unpredictable, or destructive.
Fortunately, smart Israeli investors can plan ahead and reduce the risk to their investments by taking the time to understand the legal protections already available to them, courtesy of their own Government. In particular, the State of Israel has negotiated and entered into “Bilateral Investment Agreements” – binding international treaties – with a number of countries in which Israelis conduct business. Those treaties, or “BITs”, provide Israeli investors substantial protection and can greatly reduce the legal, political and financial risks to those precious investments.
However, such protections, while substantial, are not automatic. To appreciate how such protection operates, the investor and his/her advisors must understand the international investment treaty arbitration system that Israelis can employ if a host country harms or even expropriates their investments.
That unique arbitration system is at the cutting edge of international law and dispute resolution mechanisms. But it is quite different in both scope and effect than “traditional” commercial arbitration, which many businesses have relied on for years in their contracts, licenses and concessions. Indeed, the rules, venues and even language of these two systems are quite different.
Accordingly, Israelis who invest large amounts of capital outside Israel must understand how those investments can and should be protected. This article provides the basics to understand how the tools offered by international investment treaty arbitration can provide practical business solutions to Israeli-based investors. The article provides a summary of the foreign investment trends, and analyzes the “nuts and bolts” of international investment treaty arbitration pursuant to BITs, including:
- Investment treaty arbitration as an alternative to the domestic courts of the foreign state
- Specific terms and provisions of the BITs
- Distinguishing between investment treaty arbitration and traditional commercial arbitration
- Specific lists of BITS between Israel and other nations
- Venues for litigating investment treaty disputes
- Key issues arising in investment treaty disputes
- Potential costs and third-party funding for such disputes
- Some cases involving Israeli investors as examples
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*Mr. Newberger is a partner in the Washington, D.C. office of Crowell & Moring LLP, the international law firm. His practice involves handling disputes with governments, including international investment treaty arbitrations, and is described more fully at www.crowell.com. The author expresses his thanks to John Laird, a paralegal in the firm’s London Office, as well as Julia Cayre, a former solicitor in the firm’s London Office, for their assistance in the preparation of this article.