29 Jul 2022
Despite the COVID-19 pandemic's effects, which have had a negative impact on trade, investment, and global economies, Foreign Direct Investment (FDI) into the United Arab Emirates increased by 4% in 2021 compared to 2020, reaching USD 20.7 billion. The total amount of FDI influx grew and now stands at roughly USD 171.6 billion. Furthermore, to protect and promote investments, the UAE has inked over 106 agreements with its trading partners.
Although foreign investment is increasing, local investors are still given preference in the UAE's regulatory and legal system over foreign ones. In the UAE, investors receive no special treatment on a national level, and foreign ownership of stocks and real estate is still prohibited. Decree-Law Number 19 on FDI, which the UAE published in September 2018, accords licensed foreign investment companies the same treatment as national enterprises, within the bounds set forth by the applicable laws.
Governing Laws To The Fdi UAE
According to Article 6 of Federal Decree-Law Number 19 of 2018, the Economy Ministry will form and chair the FDI Committee. Under the direction of the Cabinet, the FDI Committee will be in charge of suggesting FDI policies for the UAE, including but not limited to: making additions to the Restricted List, creating a list of economic sectors and activities (the Positive List) where higher levels of foreign investment will be permitted (i.e., greater than 49 percent share ownership), and approving foreign investment projects to carry out activities that are not included in the Positive List on the advice of the relevant licensing Government entities. The Federal Decree-Law Number 19 of 2018 Article 7, is possibly the most important part of the FDI Law since it attempts to strike a balance between the desire to promote FDI into the UAE and the need to avoid harming national interests and domestic businesses. It's interesting to note that the FDI Law doesn't give the FDI Committee explicit authority to remove activities from the Negative List. Instead, Federal Decree-Law Number 19 of 2018 Article 6's Paragraph 2(B), provides that the FDI Committee may add to the Negative List. Additionally, each of the seven Emirates will need to give careful thought to how they would really apply the FDI Law. In particular, the impact on long-established economic free zones across the UAE where 100 per cent foreign ownership is already permitted and companies already existing under the 49 per cent / 51 per cent shareholding structure that wish to restructure (many of which are governed by customary side agreements) and fall under the new FDI Law.
International Centre For Settlement Of Investment Disputes (Icsid) And Bilateral Treaties (Bit’s)
The UAE joined the World Trade Organization in April 1996 after signing the General Agreement on Tariffs and Trade in 1994 as a contracting party. The UAE aims to attract AED 550 billion worth of FDI into the country by 2030. The UAE has seen one of the major increases in FDI’s with inflow generating into the country which grew 3-9 percent in 2021 to AED 76 billion. The UAE received FDI in a variety of fields, including traditional and alternative energy, oil and gas, the financial sector, insurance, real estate, industry and agriculture. In the upcoming future, various other economic sectors such as the digital economy, technology, innovation, artificial intelligence, medical technologies, robotics, self-driven cars, and virtual reality also attracted FDI. The amount of FDI that left the UAE in 2021 was close to AED 82.6 billion, an increase of 19.1 per cent annually. The UAE's investments in overseas markets increased by almost AED 830.5 billion by the end of 2021, an increase of 11.1 per cent over the same period in 2020, as a result of its 789 per cent growth over the previous ten years. Investments are the driving force behind the economic expansion and human development making them a successful strategy for boosting wealth in the national economy and the human society. A nation's economic growth depends on foreign direct investment (FDI), which is a requirement to draw investors and develop and strengthen the economy and the calibre of human resources. For individuals, it presents an opportunity to grow their business portfolio, accesses new markets, and take advantage of favourable working conditions. FDI offers nations a special chance to build their economies. Technology advancement, economic transfer, and the creation of jobs are only a few benefits of FDI. Therefore, it should come as no surprise that emerging nations in particular are motivated to draw in FDI’s. There are a lot of factors that need to be considered, primarily from the perspective of the investor, before FDI can be taken into consideration. It is crucial to protect their investment, particularly through legal means. The number of bilateral treaties between economically underdeveloped countries and countries that import capital is rising everywhere in the world. This is partly because Bilateral Treaties (BIT’s) are viewed as means of boosting the flow of capital to developing countries through FDI, technology transfer, and human recourses. It was vital to develop a mechanism that would pay attention to and ease any potential disagreements given to the growing number of treaties between nations. As a result, starting in the 1980s, governments that exported capital were eager to put into place BITs that offered an arbitration mechanism between the investor and the host state. Additionally, the BIT frequently provides the International Centre for Settlement of Investment Disputes (ICSID) as an alternative dispute settlement mechanism. The objective of BITs has pushed for a relationship between the host state and investors, including transparency in authority decision-making, the impartiality of courts, effective remedies being made available for international investment law a solid foundation, few disagreements, and generally.
An important and much-welcomed milestone, the FDI Law and Positive List should attract more FDI into the UAE, assist diversify the local economy, spur growth in a variety of industry sectors, and further establish the UAE's position as a major international commercial hub for FDI. On the other hand, FDI can occasionally be extremely risky or economically unviable due to the fact that it may be capital-intensive from the investor's standpoint and FDI investors can occasionally have the power to favour one country's currency over another.
Moreover, ICSID announced on 22 March 2022 that they entered into an agreement on general arrangements with Abu Dhabi Global Market (ADGM). This agreement was based on Article 63 of the ICSID convention, stating that the ICSID hearings would be held at the ICSID’s truly worldwide presence and services. The agreement also promotes knowledge exchange concerning arbitration, conciliation, mediation, and other dispute resolution techniques between ICSID and the ADGM. Due to a number of bilateral and multilateral agreements the UAE has made over the past three decades, investments made by the UAE citizens and companies, including sovereign wealth funds, are protected under international law. The UAE is a contracting party to the ICSID convention and has signed 40 bilateral investment treaties with various developing and developed countries. Out of which 29 are currently in force. The UAE has entered into BITs with Middle Eastern and African states, European states, Asian States and Eastern European states. FDI and economic development are closely related. This is partly because FDI provides access to resources like share capital, technological advancement, and economic resources. Therefore, it should come as no surprise that FDI represents a larger monetary transfer than many other kinds of bilateral and multilateral public development. Thus, the FDI Decree is a key step toward the freedom and modernization of the UAE foreign investment scene, according to preliminary findings, foreign investment into the UAE will undoubtedly increase under the new administration.
The UAE has the right to nominate up to four individuals for the ICSID Panel of Arbitrators, whose members are chosen from the top tiers of the global legal community, as a signatory to the ICSID Convention. ICSID announced on March 21, 2022, that the revisions to the rules governing ICSID's procedure had been agreed by all of its Member States and would take effect on July 1, 2022. The changes are designed to simplify ICSID's processes in order to increase accessibility, increase convenience and transparency of the dispute resolution process.
Case Law
In the case of Hussein Nuaman Soufraki and The United Arab Emirates Case number ARB/02/7, where Claims resulting from the respondent's cancellation of a concession agreement between the investor and the Dubai Department of Ports and Customs for the purpose of building, running, and administering the Port of Al Hamriyah and its surroundings. To conclude, the claimant has not done his job of proving his case. He has not persuaded the Tribunal that, between March 1993 and April 1994, he established and kept his abode in Italy. It was held that Mr. Soufraki might have easily regained Italian nationality by making a timely application if he had received the right advice at the time. It additionally recognizes that there would be no issue with jurisdiction right now if Mr. Soufraki had entered into a contract with the United Arab Emirates through a corporate vehicle that was incorporated in Italy rather than doing so in his individual capacity. However, the Tribunal is limited to using the facts as they stand and as it has determined them to be. This Tribunal lacks jurisdiction to hear this dispute because, as determined by the Tribunal, the Claimant was not an Italian national under Italian law at the two pertinent times, namely on 16 May 2002 (the date the parties consented to ICSID arbitration) and on 18 June 2002 (the date the Claimant's Request for Arbitration was registered with ICSID).
Trade Agreements
Moreover, the UAE-India Comprehensive Economic Partnership Agreement (UAE-India CEPA) is India’s first bilateral trade agreement in the Middle East and North Africa. It is also the UAE’s first bilateral trade agreement. Over USD 60 billion in bilateral trade is anticipated for the current fiscal year. With over 14 per cent of the UAE’s total international non-oil exports, India is now one of the top trade partners for non-oil export. Additionally, UAE also signed an agreement to bolster bilateral trade between UAE and Turkey. The protocol states that the two nations will promote annual exchange visits between representatives of the media and communication industries in order to better understand one another's current economic, political, cultural, and social lives and to share opinions on communication-related activities. The second bilateral trade agreement between the UAE and Israel, the UAE-Israel CEPA, provides both parties with previously unheard-of economic advantages by reducing or eliminating tariffs on more than 96% of tariff lines and 99% of the value of trade, improving market access for exporters, luring new investment, and opening up opportunities in crucial sectors like energy, the environment, and digital trade. The agreement will also boost service industries like hotels, finance, distribution, and construction and give small and medium enterprises in both nations a platform to grow worldwide. Within five years, the UAE-Israel CEPA is anticipated to increase bilateral commerce to USD 10 billion US and boost the UAE's GDP by USD 1.9 billion US. By 2030, it is anticipated that total UAE exports will rise by 0.5 per cent. Furthermore, in order to increase their bilateral economic cooperation in trade, energy, infrastructure, petroleum, and other crucial sectors, Pakistan and the United Arab Emirates decided to do so in May 2022. The two sides had also agreed to expand their economic cooperation, particularly in vital areas like trade, energy, infrastructure, and petroleum, according to the statement for the implementation of the top-level trade and investment decisions.
Conclusion
Trade investment and the global economy’s FDI have had a great impact over the past two decades and the current ongoing Pandemic has brought a drastic negative impact on it. There are few BITs entered before and after the Pandemic, which has led to the growth in investment and economic growth subsequently. The amendments to the ICSID in relation to the investment disputes are very comprehensive to the BIT and the tribunal has various resolution mythologies that have been incorporated. If there are any legal queries get in touch with a capital market lawyer in Dubai.