ICSID Rigetta la richiesta della Società israeliana contro l’Uzbekistan

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ITALIA – Roma. 07/02/14. Riceviamo e pubblichiamo una nota dell’Ambasciata dell’Uzbekistan, in lingua inglese, in merito al rigetto da parte di ICSID sulla richiesta della Società israeliana Metal-Tech Ltd, contro l’Uzbekistan. 

La società israeliana si è rivolta al Centro Internazionale per la risoluzione delle controversie relative agli investimenti (ICSID), con sede a Washington, DC per dirimere la questione con lo stato uzbeko. La società israeliana ha tentato una causa contro l’Uzbekistan perché a detta dei vertici dell’azienda israeliana aveva presumibilmente violato i suoi obblighi in termini di tutela degli investimenti esteri in virtù dell’accordo tra il governo dello Stato di Israele e il governo della Repubblica di Uzbekistan per la promozione e la protezione reciproca degli investimenti firmato nel 1994. Accusa rimandata al mittente dall’organismo statunitense. Confermando dunque la regolarità e il rispetto di tali accordi da parte dell’Uzbekistan in materia di tutela degli investimenti esteri.

La cooperazione tra Metal-Tech Ltd e UzKTJM, che si è conclusa in udienza, è iniziata quando Metal- Tech Ltd lavorava in collaborazione con Almalyk Miniere e metallurgia Combina e l’uzbeka UzKTJM, insieme le società, hanno dato vita a Uzmetal tecnologia Joint Venture per la trasformazione dei prodotti di molibdeno. Tuttavia, nel corso di impegno cooperativo della società israeliana non ha avviato alcun tecnologie nella UzKTJM. Da qui la causa. In particolare la joint venture non ha rispettato gli accordi nella parte della vendita. Dopo aver perso la causa in Uzbekistan, l’azienda israeliana è ricorsa all’ICSID. Ma il Centro Internazionale per la risoluzione delle controversie relative agli investimenti che ha tenuto la sua audizione a Washington, DC ha stabilito che l’esame delle domande della società israeliana di cade nella giurisdizione del tribunale e ha respinto tutte le sue richieste.

 

ICSID Dismisses Claim of Israeli Company against Uzbekistan

The International Centre for Settlement of Investment Disputes (ICSID) based in Washington, D.C. considered a claim filed by Metal-Tech Ltd, an Israeli company, against Uzbekistan.

The said claim has read that Uzbekistan had allegedly breached its obligations in terms of protecting foreign investments under the Agreement between the Government of the State of Israel and the Government of the Republic of Uzbekistan for the Promotion and Reciprocal Protection of Investments signed in 1994.

The cooperation which has ended in a court hearing started in 2000 when Metal-Tech Ltd jointly with Almalyk Mining and Metallurgy Combine and Uzbek Refractory and Resistant Metals Integrated Plant (“UzKTJM”) founded the Uzmetal Technology Joint Venture on processing of molybdenum products.

On the basis of laws of the Republic of Uzbekistan “On Foreign Investments” and “On Guarantees and Measures of Protection of Foreign Investors”, as well as a number of decrees of President of the Republic of Uzbekistan and the country’s government, Metal-Tech Ltd received the appropriate preferences. In their turn, the Israeli businessmen assumed investment commitments, including introduction of the new molybdenum products manufacturing methods.

However, in the course of cooperative engagement the Israeli company didn’t introduce any technologies into the UzKTJM and didn’t deliver necessary raw molybdenum to the Uzbek plant which has led to the nonfulfilment of production manufacturing targets. Due to the negligent approach of the company’s foreign founders towards their obligations, the blatant violations of the Uzbek legislation have been made in the spheres of currency, customs and fiscal regulations.  

Particularly, the joint venture didn’t accomplish mandatory selling of currency proceeds and it has overpriced the customs value of imported goods. Besides, the prices to Uzmetal Technology Joint Venture products have been understated in comparison with the ones on the world market to these products. Due to the low prices to exported products, the Uzmetal Technology Joint Venture received approximately 4 billion and 680 millions soums less during its work. Moreover, due to understated prices for exported goods by the joint venture, taxes and other compulsory payments over 3 billion soums were unpaid to the state budget.

The claim filed by Uzbek founders to the commercial court with a request to exact the share of dividends owed to them, unpaid as a result of illicit actions by the Israeli company was met. Unhappy with such a ruling, the Metal-Tech Ltd has brought a claim against the Republic of Uzbekistan at the ICSID.

The International Centre for Settlement of Investment Disputes which held its hearing in Washington, D.C. had ruled that the examination of the Israeli company’s claims didn’t fall with the jurisdiction of the tribunal and dismissed all of its claims.

There is a hope that this negative example of investment cooperation will not appear again and dishonesty of foreign partners will not discredit Uzbekistan’s business reputation as a country seeking to attract foreign investments for further growth of national economy by modernization, technical and technological retooling of production. 

Uzbekistan is committed to observing foreign investor rights and legitimate interests, granting privileges and preferences to them. However, it will not accept the gross violations of contract obligations on business partnership.

International Investment Dispute Resolved in Favor of Uzbekistan

It is a common knowledge that foreign investments allow to attract modern technologies and create new jobs contributing to the growth of national economy. Unfortunately, no country is insured against joining the market of unfair investors who improperly affect the economic cooperation among states. 

In the world practice, as a rule, the foreign investors are divided into two types. The first are the entrepreneurs who respect their business partners and the government, in which they invest, and have long-term plans for their projects and are interested in their further development. Yet, the second type includes businessmen who stand ready for maximum profits to engage in rough violations of legislation. 

The practice shows that the action of such unfair foreign investors cannot remain for a long time without being adequately addressed by a recipient state. The case under arbitration at the International Centre for Settlement of Investment Disputes (ICSID) on the claim of Metal-Tech Ltd (Israel) against the Republic of Uzbekistan can stand as one of the clearest examples of such state of affairs.

The Israeli company has operated in the Uzbek market since 2000 creating an Uzmetal Technology Joint Venture jointly with the Almalyk Mining and Metallurgical Combine and Uzbek Refractory and Resistant Metals Integrated Plant (UzKTJM). The authorized fund of the company which has specialized in processing and manufacturing the molybdenum products was formed by the parties on a parity basis. 

Taking into account the investment commitments made by the Metal-Tech Ltd in the technical feasibility study, the state gave the appropriate privileges to the joint venture. 

However, using various corruption schemes the company has not complied with a number of basic tasks assigned to it by the constituent documents of the Uzmetal Technology. Thus, despite the initial agreement the joint venture led by representatives of the Israeli company didn’t implement any technology at the UzKTJM, and didn’t provide plant with necessary amount of molybdenum raw and didn’t realize the set plans in terms of production targets. 

Such manifestations of negligence by the Uzmetal Technology led to blatant violations of currency, customs and tax legislation of the Republic of Uzbekistan. The company didn’t implement the mandatory sale of foreign currency earnings, has unreasonably overstated the customs value of imported goods, as well as has understated the price of their products as compared to the prices for the same products in the world markets. It should be noted that the understatement of the export prices alone has led to uncollected taxes to the state budget of more than 3 billion soums and other obligatory payments. For the same reason, the period of its activity the joint venture received about 4 billion 680 million soums less. 

As a result, the founder from the Uzbek side has filed a claim with commercial court to request to recover the due share of dividends which it had received less due to illegal actions of foreign partners. After these claims have been met the Metal-Tech Ltd had brought an unjustified suit against Uzbekistan at the ICSID. The claim has read that the state had violated a number of its obligations to protect foreign investment in line with the Agreement between the Government of the State of Israel and the Government of the Republic of Uzbekistan for the Promotion and Reciprocal Protection of Investments signed on July 4, 1994 in Tashkent. 

However, the investments of the Israeli company were made in violation of the legislation of Uzbekistan and the business of the Metal-Tech Ltd has initially been corrupt. In this regard, the ICSID arbitration tribunal came to a fair conclusion and has ruled that the dispute in the framework of the aforementioned Agreement didn’t come within its jurisdiction and rejected the claims of the Israeli businessmen. This has once again confirmed the rightness of the decisions made by the state authorities of Uzbekistan.

One can surely say that all necessary institutional and legislative conditions have been created in Uzbekistan to attract and further develop the activities of foreign investors. Along with, the state guarantees benefits and protection only to those investors who respect and observe its laws. 

Israeli company’s claim against Uzbekistan has been dismissed

Currently economy of Uzbekistan has become an integral part of global economic system. Its export potential has been increasing consistently with supply structure successively evolving from raw orientation to manufacturing cutting edge finished products with high added value. In the meantime, it is obvious that integration to the world economy and winning confidence of foreign investors is impossible without creating favorable legislative conditions.

To this effect Uzbekistan accomplished an enormous work to create an attractive investment climate, as well as broad system of legal safeguards and privileges for foreign investors, comprehensive system for encouraging the functioning of enterprises with foreign investments.

Investment legislation of the Republic of Uzbekistan, which includes main fundamentals of international law, is one of the most progressive legal systems in CIS countries. Decree of President of the Republic of Uzbekistan “On additional measures aimed at stimulation of foreign direct investments attraction” dated April 10, 2012, has become an important step in creating the most favorable investment climate, encouraging attraction of foreign investments for the implementation of projects on modernization, technical and technological renewal of production, as well as elimination of bureaucratic barriers and obstacles in working with foreign investors and prevent unlawful interference by government and regulatory authorities in the activities of enterprises with foreign investment.

Meanwhile, it is regrettable that Uzbekistan, like any other country, is not secured from those who conduct unfair business and ignore the current legislation to sake in the maximum profit. Naturally, their illegal actions cannot remain unnoticed. While discrediting reputation of the country on international arena, such businesses negatively affect the cooperation between states.

One of the clearest examples of this is the case under arbitration at the International Centre for Settlement of Investment Disputes (ICSID) in Washington (USA) on the claim of Metal-Tech Ltd against the Republic of Uzbekistan.

The history of this issue is as follows. With the purpose of establishing molybdenum processing industrial plant and introduction of modern technology, in 2000, an Israeli company Metal-Tech Ltd in conjunction with the Almalyk Mining and Metallurgical Combine and Uzbek Refractory and Resistant Metals Integrated Plant (UzKTJM) established Uzmetal Technology Joint Venture.

However, after a short time it became apparent that the company Metal-Tech Ltd has no long-term plans to develop its business in Uzbekistan and is not interested in its expansion, but pursues a selfish purpose of accessing easy money by illegal means through various corruption schemes.

In particular, Metal-Tech Ltd failed to comply with a number of basic tasks assigned to it by the constituent documents Uzmetal Technology: did not implement any new technology, did not provide the necessary amount of molybdenum raw materials and did not realize the tasks on relevant production. In addition, the company’s actions have led to blatant violations of currency, customs and tax legislation of the Republic of Uzbekistan. As a result, the state treasury has not received more than 3 billion sums in the form of taxes and other obligatory payments.

The founder of a joint venture from the Uzbek side appealed to the Commercial Court with a request to recover the due dividend shares. It can be recalled that the amount of the shortfall of Uzmetal Technology approximately totaled 4 billion 680 million sums.

Israeli entrepreneurs disagreed with the decision of the court in favor of the Uzbek side brought an unfounded suit against the Republic of Uzbekistan in the International Centre for Settlement of Investment Disputes. The Arbitration Court of ICSID, having considered the claim, came to a fair conclusion that the dispute is not within its jurisdiction and refused to satisfy all the requirements of the company Metal-Tech Ltd.

In rendering a verdict noticed that Israeli company’s investments were implemented in violation of the legislation of Uzbekistan and its business initially carried a corrupt nature.

Fair decision of the Arbitration Court in favor of Uzbekistan confirmed the correctness of the decisions taken by the government bodies of the country and once again proved the groundlessness of the foreign partner claims.

Undoubtedly the foreign businessmen, working in the promising market of Uzbekistan or planning in the future to carry out their operations here, make the right conclusions for themselves from this example.

In Uzbekistan conscientious entrepreneurs, who build their business on legal basis, were encouraged at all times and it will be continued. However there is no place in the country for adventurer companies like Metal-Tech Ltd.

The Arbitration Court issued a fair decision in favor of Uzbekistan

Integration of a young state into the international community, its entry to the world market is a complicated process that takes many years of tireless, patient, responsive and vigilant work. Finding “place under the sun” may be succeed only after careful and intent analysis of trade, economic, financial, investment and political environment, where one wants to realize its potential, acquiring the knowledge and practice of its activity, compiling contractual law documents with a juridical person and an individual in competent and accurate way. And only having accumulated certain experience in specific area one can enjoy full rights. Otherwise, all efforts are in vain.

During the years of independence Uzbekistan has been all to establish and improve its legislative basis in all vital areas, created a solid legal framework for establishing, strengthening and developing bilateral and multilateral cooperation with international relation’s subjects.

The country has transformed beyond recognition. This fact is admitted by residents as well as foreign guests who visit Uzbekistan on regular basis. Foreign companies and representative offices also have deployed wide work on realization of industrial, financial, investment, constructional, commercial, pharmaceutical, educational projects in the country. The government attaches priority importance to mobilizing foreign capital and widening favorable platform for economic partners. With this purpose the country has created all necessary conditions for ensuring a productive and effective work, corresponding to mutual interests. The current investment climate is guaranteed by the resolutions of the Head of State and the Government, as well as the laws “On Foreign Investments” and “On Guarantees and Measures of Protection of Foreign Investors”.

More than a dozen large and small foreign companies have worked and still working in the territory of Uzbekistan. Most of them have proven themselves as reliable partners. But there were those who came to Uzbekistan looking for “easy money” and blinded with illusions of superiority, omnipotence, permissiveness, impunity and quick profit. In pursuit of such a mirage was Israeli company Metal-Tech Ltd.

In 2000 the company established Uzmetal Technology Joint Venture in Uzbekistan. As full-fledged business partners from the Uzbek side were Almalyk Mining and Metallurgy Combine (AGMK) and Uzbek Refractory and Resistant Metals Integrated Plant (UzKTJM). Under the agreement, Metal-Tech Ltd had to supply and set up the modern technology of recycling molybdenum middlings and related product manufacturing, which were important to the economy.

However during its presence in Uzbekistan the company has not fulfilled obligations, although it had significant preferences. At the same time Israeli businesses committed gross violations of currency, customs and tax legislation of the Republic of Uzbekistan.

In particular, the customs of equipment was willingly overstated value, the company did not put up for the mandatory sale supplied its foreign currency earnings and production realization was not at prices corresponding with its interests. They were understated in comparison to the prices on world stock markets. The result of the last operation of the company has cost the state 3 billion soums in the form of taxes and other compulsory payments, and Uzmetall Technology JV treasury has missed more than 4 billion 600 million soums.

In order to compensate the damage the Uzbek side has brought the case to the Commercial Court, which satisfied the claim.

But Metal-Tech Ltd, hoping to somehow save its face, directed the claim to the Arbitration Court of the International Centre for Settlement of Investment Disputes (ICSID) (Washington, DC,), under the pretext that the Uzbek side had allegedly refused to fulfill its obligations in accordance with the Agreement between the Government of the State of Israel and the Government of the Republic of Uzbekistan for the Promotion and Reciprocal Protection of Investments signed on July 4, 1994 in Tashkent.

But to the great disappointment of the Israeli side, ICSID decided to refuse the case brought by Metal-Tech Ltd, and the satisfaction of its requirements. Thus, the decision has been further and uncompromising clarity on the fairness actions of representatives of Uzbekistan.