Turkey’s Investment Destination Central Asia: The Case of Uzbekistan
Ilgın Burçay DURAN
I. Introduction
Central Asia is broadly defined as the region to the east of the Caspian Sea incorporating Kyrgyzstan, Uzbekistan, Tajikistan, Kazakhstan, and Turkmenistan. Over the past decade, an increase in foreign investments to the Central Asia has been observed and it became an increasingly attractive destination for foreign investors. However, the Central Asia still did not fulfil its potential to be an investment destination. The researchers attribute the inability of the Central Asia to realize its potential for several reasons such as market accessibility. Before 2010, the essential constraints to market accessibility in the region were accepted to be divided into two main categories, namely international transport and logistics services.1 Nevertheless, the current needs of the Central Asian economy are still typically driven by the demands of global supply chains which serve to tighten linkages between goods, services and foreign investment.2
The Central Asian governments tried to solve these problems through political cooperation. The improved political cooperation between the Central Asian States in the past few years has opened additional opportunities for foreign investors. However, foreign investments in the Central Asia remains below expectations due to the lack of transparency and stability of the domestic regulatory environment. Issues such as the needs to strengthen good governance, stability, and the proper application of the right to access to a fair and impartial tribunal are substantial barriers preventing foreign investors from investing in the Central Asia. At this point, arbitration plays an important role and makes countries with questionable judicial systems, such as Central Asia, preferable by foreign investors.
Arbitration is a dispute resolution method basically very similar to the procedure in the State courts. Its key difference from court procedure is that arbitration is a private dispute resolution method based on the parties’ mutual agreement.3 As a reflection of the importance given to the will of the parties, the parties have a vast control over procedural issues.
Investment arbitration is a salient development in resolving investor-State disputes. Investment arbitration institutes are the preferred option for the settlement of investment disputes between the host state and the foreign investor and offer various advantage for the both state and investor. Legal security is an important element for investors to take into consideration before making a decision to invest in regions such as Central Asia. Investment arbitration helps the improvement of the host State’s investment climate as well.4
As stated above, both investment and commercial arbitration can only take place if both parties have agreed to it. The requirement of a consent agreement is a general characteristic of arbitration. Arbitrators’ power of decision always derives from the parties’ mutual agreement. This consent may be given once a dispute has arisen, however, advance consent is a more common and guaranteed method. Today, bilateral investment treaties (“BITs”) constitute to the most important instrument for the international protection of foreign investment. Most investment arbitrations are formed based on the consent given in the BITs.5 The BITs generally contain a provision envisaging arbitration. States which are parties to a BIT give consent to arbitrate in this way.
The 1990s saw a rapid increase in the number of BITs all over the world, and, by the end of the decade, the universe of these treaties looked dramatically different from those of previous decades. The number of treaties quintupled during the decade, rising from 385 at the end of the 1980s to 1,857 at the end of the 1990s.6
The Republic of Turkey is also a party to a significant number of BITs. So far, it has signed BITs with 98 countries, and 76 of them are currently in force.7 As a result of which the Central Asia governments such as Kazakhstan, Uzbekistan and Turkmenistan gained their independence after the collapse of the Union of Soviet Socialist Republics (the “USSR” or the “СССР”) on 26 December 1991, the commercial relations and investments between Turkey and the Central Asian States have gained speed. In parallel, Turkey has signed BITs with the Central Asia countries in series:8
Turkey follows a dynamic schedule to conclude new BITs and revise the old BITs in line with the developments in investment area. Accordingly, in September and October 2017, during a visit to Turkey by Uzbekistan’s Deputy Prime Minister, several meetings were conducted with the aim of enabling cooperation and exploring the investment potential between Uzbekistan and Turkey. On 25 October 2017, a new BIT was signed between the parties. The draft law regarding the approval of the ratification of the new Turkey-Uzbekistan BIT was submitted to the Grand National Assembly of Turkey on 3 May 2018. Finally, it was approved on 1 April 2020 and published in the official gazette on 2 April 2020. This article seeks to examine economic relations between Turkey and Uzbekistan and new Uzbekistan BIT’s differences from the old BIT.
