You are currently browsing the monthly archive for July 2012.

Recently, Cambodia has been a hub of international activity with its hosting of the 2012 ASEAN Summit.  This got us thinking about international trade and investment, and we wanted to dive into Bilateral Investment Treaties (BIT).  BITs are agreements between countries that are designed to encourage investment.  It is an agreement under international law that covers how investments are treated in one country made by investors of the other country.  BITs are only entered into by states, not investors, but an investor can enforce her rights directly under the BIT.  A business considering committing assets overseas could be worried about being treated unfairly or disadvantaged in a dispute if it must be at the mercy of a foreign court system.  A BIT aims to allay these kinds of fears.

As the world has gotten smaller and more connected, international investment has grown accordingly.  After WWII, there was no clear framework outlining the rights and responsibilities of investors or host countries.  European countries began negotiating investment treaties with developing countries one by one, and soon industrialized countries were entering into investment agreements with each other.  Now, BITs seem to cover the globe.  Use has exploded in the past few decades.  There are currently 2,400 BIT agreements around the world, while in 1988 there were only 300.  Cambodia has signed over 20 agreements, but not all of them have become binding.  Currently, there are 11 agreements that are enforceable[1]:

  1. China
  2. Croatia
  3. Czech Republic
  4. France
  5. Germany
  6. Japan
  7. South Korea
  8. Netherlands
  9. Singapore
  10. Switzerland
  11. Thailand

BITs, although done individually between countries, are very, very similar around the world.  Generally, four issues are addressed by any BIT:

  1. Conditions for the admission of foreign investors to the host state
  2. Standards of treatment of foreign investors
  3. Protection against expropriation
  4. Methods for resolving investment disputes [2]

While all four issues are important, dispute resolution has gotten the most attention.  The treaties only cover disputes that involve one of the countries to the treaty.  A dispute between the countries is usually handled differently in the treaty than a dispute between an investor and one of the countries.  When it comes to investors, a BIT crucially makes a binding arbitration process available.  In Cambodia’s treaties, there is almost always a six month waiting period from when the dispute begins until the investor can bring the matter to arbitration.  The treaties can differ in how arbitration is conducted and what forums are available.  The International Center for Settlement of Investment Disputes (ICSID), an arm of the World Bank, and the UN Commission on International Trade Law handle many BIT disputes. However, a dispute involving Cambodia might be more likely resolved at the Singapore International Arbitration Center.    Resolving a dispute can still be expensive, because the investor needs to not only obtain council, but also cover half of the costs from the arbitrators.


[2] George M. von Mehren et al., Navigating Through Investor-State Arbitrations: An Overview of Bilateral Investment Treaty Claims, Disp. Resol. J., Feb.-Apr. 2004, at 69, 70.

The Phnom Penh Post has been diligently reporting on the dispute taking place between garment workers and factories.  A central issue of the dispute is the use of Fixed Duration Contracts (FDCs) versus Unspecified Duration Contracts (UDCs).  The garment industry is hugely important for Cambodia: it represents about 15% of GDP and comprises the vast majority of exports.  The workers are almost all women (estimates are about 90%), of which a healthy portion come from rural areas seeking a better life around Phnom Penh.   Many of the workers complain that short-term FDCs leave them in a precarious situation, without the long-term security afforded by UDCs.

FDCs and UDCs mainly differ in their requirements and consequences of termination.  If an employer wants to get rid of an FDC employee, he can simply decide not to renew her contract, which can last from only a few months to a maximum of two years.  While under a UDC, the employer needs a valid reason.  FDCs, generally, require the employer to give less notice in the event of actual termination if they decide not to use the non-renewal tactic. The following charts, from our Guide to the Cambodian Labor Law, summarize the relevant legal requirements:

About

The work of a handful of attorneys at BNG Legal, this blog's mission is to keep the world up-to-date on legal issues in the Kingdom of Cambodia.

Questions and feedback can be emailed directly to us at info@bnglegal.com.

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 231 other followers