Policies Towards Foreign Direct Investment

The Macri government actively seeks foreign direct investment. To improve the investment climate, the Macri administration has enacted reforms to simplify bureaucratic procedures in an effort to provide more transparency, reduce costs, diminish economic distortions by adopting good regulatory practices, and increase capital market efficiencies. Since 2016, Argentina has expanded economic and commercial cooperation with key partners including Chile, Brazil, Japan, South Korea, Spain, Canada, and the United States, and deepened its engagement in international fora such as the G-20, WTO, and OECD.

Over the past year, Argentina issued new regulations in the gas and energy, communications, technology, and aviation industries to improve competition and provide incentives aimed to attract investment in those sectors. Argentina seeks tenders for investment in wireless infrastructure, oil and gas, lithium mines, renewable energy, and other areas. However, many of the public-private partnership projects for public infrastructure planned for 2018 had to be delayed or canceled due to Argentina’s broader macroeconomic difficulties and ongoing corruption investigations into public works projects.

Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.

Argentina has a national Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, Argentine laws and regulations, and services to help Argentine companies establish a presence abroad. The agency also provides matchmaking services and organizes roadshows and trade delegations. The agency’s web portal provides detailed information on available services (http://www.produccion.gob.ar/agencia). Many of the 24 provinces also have their own provincial investment and trade promotion offices.

The Macri administration welcomes dialogue with investors. Argentine officials regularly host roundtable discussions with visiting business delegations and meet with local and foreign business chambers. During official visits over the past year to the United States, China, India, Vietnam, and Europe, among others, Argentine delegations often met with host country business leaders.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.

Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.

Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Macri administration issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from 25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.

Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.

Other Investment Policy Reviews

Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.

Business Facilitation

Since entering into office in December 2015, the Macri administration has enacted reforms to normalize financial and commercial transactions and facilitate business creation and cross-border trade. These reforms include eliminating capital controls, reducing some export taxes and import restrictions, reducing business administrative processes, decreasing tax burdens, increasing businesses’ access to financing, and streamlining customs controls.

In October 2016, the Ministry of Production issued Decree 1079/2016, easing bureaucratic hurdles for foreign trade and creating a Single Window for Foreign Trade (“VUCE” for its Spanish acronym). The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The number of products subjected to non-automatic licenses has been modified several times, resulting in a net decrease since the beginning of the SIMI system.

The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplifacada) online within 24 hours of registration. Detailed information on how to register a SAS is available at: https://www.argentina.gob.ar/crear-una-sociedad-por-acciones-simplificada-sas . As of April 2019, the online business registration process is only available for companies located in Buenos Aires. The government is working on expanding the SAS to other provinces. Further information can be found at http://www.produccion.gob.ar/todo-sobre-la-ley-de-emprendedores/.

Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.

A company must register its name with the Office of Corporations (IGJ, or Inspeccion General de Justicia). The IGJ website describes the registration process and some portions can be completed online (http://www.jus.gob.ar/igj/tramites/guia-de-tramites/inscripcion-en-el-registro-publico-de-comercio.aspx ). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.

Details on how to register a company can be found at the Ministry of Production and Labor’s website: https://www.argentina.gob.ar/produccion/crear-una-empresa . Instructions on how to obtain a tax identification code can be found at: https://www.argentina.gob.ar/obtener-el-cuit .

The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Directorate of Labor, within the Ministry of Production and Labor.

In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. The goal of the MOU is to provide small businesses with tools to improve their productivity and increase their growth. Under the MOU, in June 2017, Argentina set up the first SBDC pilot in the province of Neuquen.

The Ministry of Production and Labor offers a wide range of attendance-based courses and online training for businesses. The full training menu can be viewed at: https://www.argentina.gob.ar/produccion/capacitacion 

Outward Investment

Argentina does not have a governmental agency to promote Argentine investors to invest abroad nor does it have any restrictions for a domestic investor investing overseas.

Transparency of the Regulatory System

The Macri administration has taken measures to improve government transparency. President Macri created the Ministry of Modernization, tasked with conducting quantitative and qualitative studies of government procedures and finding solutions to streamline bureaucratic processes and improve transparency. In September 2018, the Ministry of Modernization was downgraded into a Secretariat due to a budget-oriented streamlining of the Cabinet.

In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.

Continuing its efforts to improve transparency, in November 2017, the Treasury Ministry launched a new website to communicate how the government spends public funds in a user-friendly format. Subsections of this website are targeted toward policymakers, such as a new page to monitor budget performance (http://www.aaip.gob.ar/hacienda/sechacienda/metasfiscales ), as well as improving citizens’ understanding of the budget, e.g. the new citizen’s budget “Presupuesto Ciudadano” website (https://www.minhacienda.gob.ar/onp/presupuesto_ciudadano/). This program is part of the broader Macri administration initiative led by the Secretariat of Modernization to build a transparent, active, and innovative state that includes data and information from every area of the public administration. The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.

During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. (The link to the regulation is at http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .)

Argentine government efforts to improve transparency were recognized internationally. In its December 2017 Article IV consultation, the International Monetary Fund (IMF) Executive Board noted that “Argentina’s government made important progress in restoring integrity and transparency in public sector operations,” and agreed with the staff appraisal that commended the government for the progress made in the systemic transformation of the Argentine economy, including efforts to rebuild institutions and restore integrity, transparency, and efficiency in government.

On January 10, 2018, the government issued Decree 27 with the aim of curbing bureaucracy and simplifying administrative proceedings to promote the dynamic and effective functioning of public administration. Broadly, the decree seeks to eliminate regulatory barriers and reduce bureaucratic burdens, expedite and simplify processes in the public domain, and deploy existing technological tools to better focus on transparency.

In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.

Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States share best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.

Legislation can be drafted and proposed by any citizen and is subject to Congressional and Executive approval before being passed into law. Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations.

Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.

Since 2016, the Office of the President and various ministries has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Federal Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and limit severely the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.

Some ministries and agencies have developed their own processes for public consultation, such as publishing the draft on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings. In 2016 the Ministry of Justice and Human Rights launched the digital platform Justicia2020 (https://www.justicia2020.gob.ar/ ), to foster public involvement in the Judiciary reform process projected by 2020. Once the draft of a bill is introduced into the Argentine Congress, the full text of the bill and its status can be viewed online at the Chamber of Deputies website (http://www.diputados.gov.ar/), and that of the Senate (http://www.senado.gov.ar/ ).

All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice. Interested stakeholders can pursue judicial review of regulatory decisions.

Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.

International Regulatory Considerations

Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociacion Latinoamericana de Integracion) since 1980.

Argentina has been a member of the WTO since 1995 and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina has sought to deepen its engagement with the OECD and submitted itself to an OECD regulatory policy review in March 2018, which was released in Mach 2019. Argentina participates in all 23 OECD committees and seeks an accession invitation before the end of 2019.

Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Panamerican Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).

Legal System and Judicial Independence

According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there have been instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that Argentine governments have used the judicial system to pressure the private sector. A 2017 working group review of Argentina’s application to join the OECD noted the politicization of the General Prosecutor’s Office created a lack of prosecutorial independence. The OECD working group said the executive branch, prior to the Macri government, had pressured judges through threatened or actual disciplinary proceedings. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.  

The Macri administration has publicly expressed its intent to improve transparency and rule of law in the judicial system, and the Justice Minister announced in March 2016 the “Justice 2020” initiative to reform the judiciary.

Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.  

Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.

Laws and Regulations on Foreign Direct Investment

According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gov.ar). There is no official regulation or other interference in the court that could affect foreign investors.

All foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law No. 19,550) and the rules issued by the commercial regulatory agencies. Decree 27/2018 amended Law 19,550 to simplify bureaucratic procedures. Full text of the decree can be found at (http://servicios.infoleg.gob.ar/infolegInternet/anexos/305000-309999/305736/norma.htm ). All other laws and norms concerning commercial entities are established in the Argentina Civil and Commercial Code, which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/235000-239999/235975/norma.htm 

Further information about Argentina’s investment policies can be found at the following websites:

• Ministry of Production and Labor (http://www.produccion.gob.ar/ )
• Treasury Ministry (https://www.argentina.gob.ar/hacienda )
• The Central Bank of the Argentine Republic (http://www.bcra.gov.ar/ )
• The National Securities Exchange Commission (http://www.cnv.gob.ar/ )
• The National Investment and Trade Promotion Agency (http://www.inversionycomercio.org.ar/ )
• Investors can download Argentina’s investor guide through this link: (https://drive.google.com/file/d/0B-086VB27JBjN0x0NmM4Y09GODA/view )

Competition and Anti-Trust Laws

The National Commission for the Defense of Competition and the Secretariat of Commerce, both within the Ministry of Production and Labor, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of the Competition Law (Law 27,442). The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 .

Expropriation and Compensation

Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.

Argentina has a history of expropriations under previous administrations, the most recent of which occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.

In May 2012, the Fernandez de Kirchner administration nationalized the oil and gas company Repsol-YPF. Although most of the litigation was settled in 2016, a small percentage of stocks owned by an American hedge fund remain in litigation in U.S. courts.

Dispute Settlement

ICSID Convention and New York Convention

Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.

There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration. In practice, the Macri administration has shown a willingness to negotiate settlements to valid arbitration awards.

In March 2012, the United States suspended Argentina’s designation as a Generalized System of Preferences (GSP) beneficiary developing country because it had not acted in good faith in enforcing arbitration awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens. Effective January 1, 2018, the United States ended Argentina’s suspension from the GSP program.  Following Congressional reauthorization of the program, as of April 22, 2018, Argentina’s access was restored for GSP duty-free treatment for over 3,000 Argentine products.

Investor-State Dispute Settlement

The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.

In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has four pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx# .

Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.

Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.

Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).

Panamá Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).

Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution (ADR) mechanisms can be stipulated in contracts. Argentina also has ADR mechanisms available such as the Center for Mediation and Arbitrage (CEMARC) of the Argentine Chamber of Trade. More information can be found at: http://www.intracen.org/Centro-de-Mediacion-y-Arbitraje-Comercial-de-la-Camara-Argentina-de-Comercio—CEMARC–/#sthash.RagZdv0l.dpuf .

Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.

No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.

Bankruptcy Regulations

Argentina’s bankruptcy law was codified in 1995 in Law 24,522. The full text can be found at: http://www.infoleg.gov.ar/infolegInternet/anexos/25000-29999/25379/texact.htm . Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.

Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA and the National Center of Debtors (Central de Deudores) compile and publish this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.

The World Bank’s 2018 Doing Business Report ranked Argentina 101 among 189 countries for the effectiveness of its insolvency law. This is a jump of 15 places from its ranking of 116 in 2017. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.

Policies Towards Foreign Direct Investment

Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth.  Other than certain required review and approval procedures for certain types of foreign investment described below, there are no laws that discriminate against foreign investors.

A number of investment promotion agencies operate in Australia.  The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national “gateway” agency to support investment into Australia.  Austrade provides coordinated government assistance to promote, attract and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas.  Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Boston, Chicago, Houston, New York, San Francisco, and Washington, DC.  In addition, state investment promotion agencies also support international investment at the state level and in key sectors.

Limits on Foreign Control and Right to Private Ownership and Establishment

Within Australia, foreign and domestic private entities may establish and own business enterprises, and may engage in all forms of remunerative activity in accordance with national legislative and regulatory practices.  See Section 4: Legal Regime – Laws and Regulations on Foreign Direct Investment below for information on Australia’s investment screening mechanism for inbound foreign investment.

Other than the screening process described in Section 4, there are few limits or restrictions on foreign investment in Australia.  Foreign purchases of agricultural land greater than AUD15 million (USD11 million) is subject to screening. This threshold applies to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. However, the agricultural land screening threshold does not affect investments made under the Australia-United States Free Trade Agreement (AUSFTA).  The current threshold remains AUD 1.154 billion (USD808 million) for U.S. non-government investors. Investments made by U.S. non-government investors are subject to inclusion on the foreign ownership register of agricultural land and to Australian Tax Office (ATO) information gathering activities on new foreign investment.

Other Investment Policy Reviews

Australia has not conducted an investment policy review in the last three years through either the OECD or UNCTAD system.  The last WTO review of Australia’s trade policies and practices took place in April 2015, and can be found at https://www.wto.org/english/tratop_e/tpr_e/tp412_e.htm  .  Australia is not scheduled for a WTO trade policy review in 2019.

The Australian Trade Commission compiles an annual “Why Australia Benchmark Report” that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location and Business.  The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report  .

Business Facilitation

Business registration in Australia is relatively straightforward and is facilitated through a number of Government websites.  The Commonwealth Department of Industry, Innovation and Science’s business.gov.au web site provides an online resource and is intended as a “whole-of-government” service providing essential information on planning, starting, and growing a business.  Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets and financial services regulator, the ASIC website provides information and guides on starting and managing a business or company.

In registering a business, individuals and entities are required to register as a company with ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration.  According to the World Bank “Starting a Business” indicator, registering a business in Australia takes 2.5 days, and Australia ranks 7th globally on this indicator.

Outward Investment

Australia generally looks positively towards outward investment as a ways to grow its economy.  There are no restrictions on domestic investors. Austrade, the Export Finance and Insurance Corporation (Efic), and various other government agencies offer assistance to Australian businesses looking to invest abroad, and some sector-specific export and investment programs exist.

Transparency of the Regulatory System

The Australian Government utilizes transparent policies and effective laws to foster national competition and is consultative in its policy making process.  The government generally allows for public comment of draft legislation and publishes legislation once it enters into force.

Regulations drafted by Australian Government agencies must be accompanied by a Regulation Impact Statement when submitted to the final decision maker (which may be the Cabinet, a Minister, or another decision maker appointed by legislation.)  All Regulation Impact Statements must first be approved by the Office of Best Practice Regulation (OBPR) which sits within the Department of Prime Minister and Cabinet, prior to being provided to the relevant decision maker. They are required to demonstrate the need for regulation, the alternative options available (including non-regulatory options), feedback from stakeholders, and a full cost-benefit analysis.  Regulations are subsequently required to be reviewed periodically. All Regulation Impact Statements, second reading speeches, explanatory memoranda, and associated legislation are made publicly available on Government websites. Australia’s state and territory governments have similar processes when making new regulations.

The Australian Government has tended to prefer self-regulatory options where industry can demonstrate that the size of the risks are manageable and that there are mechanisms for industry to agree on, and comply with, self-regulatory options that will resolve the identified problem.  This manifests in various ways across industries, including voluntary codes of conduct and similar agreements between industry players.

The Australian Government has recognized the impost of regulations and has undertaken a range of initiatives to reduce red tape.  This has included specific red tape reduction targets for government agencies, and various deregulatory groups within government agencies.

Australian accounting, legal, and regulatory procedures are transparent and consistent with international standards.  Accounting standards are formulated by the Australian Accounting Standards Board (AASB), an Australian Government agency under the Australian Securities and Investments Commission Act 2001.  Under that Act, the statutory functions of the AASB are to develop a conceptual framework for the purpose of evaluating proposed standards; make accounting standards under section 334 of the Corporations Act 2001, and advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy.  The Australian Government conducts regular reviews of proposed measures and legislative changes and holds public hearings into such matters.

Australian government financing arrangements are transparent and well governed.  Legislation governing the type of financial arrangements the government and its agencies may enter into is publicly available and adhered to.  Updates on the Government’s financial position are regularly posted on the Department of Finance and the Treasury websites. Issuance of government debt is managed by the Australian Office of Financial Management, which holds regular tenders for the sale of government debt and the outcomes of these tenders are publicly available.  The Australian government also publishes and adheres to strict procurement guidelines. Australia completed negotiations to join the WTO Agreement on Government Procurement in February 2019.

International Regulatory Considerations

Australia is a member of the WTO and the Asia-Pacific Economic Cooperation (APEC), and became the first Association of Southeast Nations (ASEAN) Dialogue Partner in 1974.  While not a regional economic block, Australia’s free trade agreement with New Zealand provides for a high level of integration between the two economies with the ultimate goal of a single economic market.

Australia is a signatory to the WTO Trade Facilitation Agreement (TFA) and performs at, or close to, the frontier for all eleven OECD Trade Facilitation Indicators.  For the eight indicators where it is not located at the frontier, it has significantly improved on six between 2015 and 2017. While no new legislation has been required to progress Australia’s implementation of the TFA, Australia has created a National Committee on Trade Facilitation to oversee development of new trade facilitation initiatives.  Two important initiatives to date have been the creation of an Authorized Economic Operator scheme to allow approved companies to streamline imports through Australian Customs, and the creation of a “single window” portal for traders seeking information on importation and permit requirements.

Legal System and Judicial Independence

The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary.  Strong safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. Property and contractual rights are enforced through the Australian court system, which is based on English Common Law.

Laws and Regulations on Foreign Direct Investment

Information regarding investing in Australia can be found in Austrade’s “Guide to Investing” at http://www.austrade.gov.au/International/Invest/Investor-guide  .  The guide is designed to help international investors and businesses navigate investing and operating in Australia.  It is an online guide to the regulations, considerations and assistance relevant to investing in, establishing and running a business in Australia, with direct links to relevant regulators and government agencies that relate to Australian Government regulation and available assistance.

Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy.  The Foreign Investment Review Board (FIRB), a division of Australia’s Treasury, is a non-statutory body established to advise the Treasurer and the Commonwealth Government on Australia’s foreign investment policy and its administration.  The FIRB screens potential foreign investments in Australia above threshold values, and based on advice from the FIRB, the Treasurer may deny or place conditions on the approval of particular investments above that threshold on national interest grounds.  Following a number of recent investments made by foreign companies in key sectors of Australia’s economy, the laws and regulations governing foreign direct investment have been subject to a wide ranging and ongoing review.

The Australian Government has a “national interest” consideration in reviewing foreign investment applications.  Further information on foreign investment screening, including screening thresholds for certain sectors and countries, can be found at the FIRB’s website: https://firb.gov.au/  .  Under the AUSFTA agreement, all U.S. greenfield investments are exempt from FIRB screening. U.S. investors require prior approval if acquiring a substantial interest in a primary production business valued above AUD 1.154 billion (USD808 million).

Australia has recently taken steps to increase the analysis of national security implications of foreign investment in certain sectors.  In January 2017, the Government established the Critical Infrastructure Centre (CIC) to better manage the risks to Australia’s critical infrastructure assets.  A key role of the CIC is to advise the FIRB on risks associated with foreign investment in infrastructure assets, particularly telecommunications, electricity, water, and port assets.  While the CIC’s role in the foreign investment process signals the Government’s focus on these assets, its role is limited to providing advice to the Government and the approval framework itself was not changed when the CIC was established.   Further changes to investments in electricity assets and agricultural land were announced in early 2018. Under these changes, electricity infrastructure is formally viewed as “critical infrastructure”, and foreign purchases will face additional scrutiny and conditions, while agricultural land is now required to be “marketed widely” to Australian buyers before being sold to a foreign buyer.

There have been very few instances of foreign investment applications being rejected by the Treasurer.  Of the 11,855 applications considered between July 1, 2017 and June 30, 2018 (the 2018 Australian financial year), only two were rejected. [Note: Both related to residential real estate investment.  End note.] In November 2018, the Treasurer rejected the buyout of APA, a major gas pipeline owner in Australia, by the Hong Kong-based CKI Group, citing concerns that the purchase would create “undue concentration of foreign ownership by a single company group in our most significant gas transmission business.”  Analysis justifying rejections is typically not published.

Competition and Anti-Trust Laws

The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 and a range of additional legislation, promotes competition, fair trading and regulates national infrastructure for the benefit of all Australians.  The ACCC plays a key role in assessing mergers to determine whether they will lead to a substantial lessening of competition in any market. ACCC also engages in consumer protection enforcement and has recently been given expanded responsibilities to monitor digital industries and the “sharing economy.”

Expropriation and Compensation

Private property can be expropriated for public purposes in accordance with Australia’s constitution and established principles of international law.  Property owners are entitled to compensation based on “just terms” for expropriated property. There is little history of expropriation in Australia.

Dispute Settlement

ICSID Convention and New York Convention

Australia is a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  The International Arbitration Act 1974 governs international arbitration and the enforcement of awards.

Investor-State Dispute Settlement

Investor-State Dispute Settlement (ISDS) is included in seven of Australia’s nine FTAs and 18 of its 21 BITs.  AUSFTA establishes a dispute settlement mechanism for investment disputes arising under the Agreement. However, AUSFTA does not contain an investor-state dispute settlement (ISDS) mechanism that would allow individual investors to bring a case against the Australian government.  Regardless of the presence or absence of ISDS mechanisms, there is no history of extrajudicial action against foreign investors in Australia.

International Commercial Arbitration and Foreign Courts

Australia has an established legal and court system for the conduct or supervision of litigation and arbitration, as well as alternate dispute resolutions.  Australia is a leader in the development and provision of non-court dispute resolution mechanisms. It is a signatory to all the major international dispute resolution conventions and has organizations that provide international dispute resolution processes.

Bankruptcy Regulations

Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 and operates in all of Australia’s States and Territories.  Only individuals can be made bankrupt, not businesses or companies. Where there is a partnership or person trading under a business name, it is the individual or individuals who make up that firm that are made bankrupt.  Companies cannot become bankrupt under the Bankruptcy Act though similar provisions (called “administration and winding up”) exist under the Corporations Act 2001. Bankruptcy is not a criminal offense in Australia.

Creditor rights are established under the Bankruptcy Act 1966, the Corporations Act 2001, and the more recent Insolvency Law Reform Act 2016.  The latter legislation commenced in two tranches over 2017 and aims to increase the efficiency of insolvency administrations, improve communications between parties, increase the corporate regulator’s oversight of the insolvency market, and “improve overall consumer confidence in the professionalism and competence of insolvency practitioners.”  Under the combined legislation, creditors have the right to: request information during the administration process; give direction to a liquidator or trustee; appoint a liquidator to review the current appointee’s remuneration; and remove a liquidator and appoint a replacement.

Policies Towards Foreign Direct Investment

The Austrian government welcomes foreign direct investment, particularly when such investments have the potential to create new jobs, support advanced technology fields, promote capital-intensive industries, and enhance links to research and development.

There are no specific legal, practical or market access restrictions on foreign investment.  American investors have not complained of discriminatory laws against foreign investors. Corporate taxes are relatively low (25 percent flat tax), and the government plans to reduce them further in a tax reform to be implemented by 2022. U.S. citizens and investors have reported that it is difficult to establish and maintain banking services since the U.S.-Austria Foreign Account Tax Compliance Act (FATCA) Agreement went into force in 2014, as some Austrian banks have been reluctant to take on this reporting burden.

Potential investors should also factor in Austria’s lengthy environmental impact assessments in their investment decision-making.  The requirement that over 50 percent of energy providers must be publicly-owned creates a potential additional burden for investments in the energy sector.  Strict liability and co-existence regulations in the agriculture sector restrict research and virtually outlaw the cultivation, marketing, or distribution of biotechnology crops.

Austria’s national investment promotion company, the Austrian Business Agency (ABA), is the first point of contact for foreign companies aiming to establish their own business in Austria.  It provides comprehensive information about Austria as a business location, identifies suitable sites for greenfield investments, and consults in setting up a company. ABA provides its services free of charge.

Austrian agencies do not press investors to keep investments in the country, but the Federal Economic Chamber (WKO), and the American Chamber of Commerce in Austria (Amcham) carry out annual polls among their members to measure their satisfaction with the business climate, thus providing early warning to the government of problems investors have identified.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no principal limitation on establishing and owning a business in Austria. A local managing director must be appointed to any newly-started enterprise.  For non-EU citizens to establish and own a business, the Austrian Foreigner’s Law mandates a residence permit that includes the right to run a business. Many Austrian trades are regulated, and the right to run a business in many trades sectors is only granted when certain preconditions are met, such as certificates of competence, and recognition of foreign education.  There are no limitations on ownership of private businesses. Austria maintains an investment screening process for takeovers of 25 percent or more in the sectors of national security and public services such as energy and water supply, telecommunications, and education services, where the Austrian government retains the right of approval. The screening process has been rarely used since its introduction in 2012, but could pose a de facto barrier, particularly in the energy sector. In April 2019, the EU Regulation on establishing a framework for the screening of foreign direct investments into the Union entered into force.  It creates a cooperation mechanism through which EU countries and the EU Commission will exchange information and raise concerns related to specific investments which could potentially threaten the security of EU countries.

Other Investment Policy Reviews

Not applicable.

Business Facilitation

While the World Bank ranks Austria as the 26th best country in 2019 with regard to “ease of doing business” (www.doingbusiness.org), starting a business takes time and requires many procedural steps (Austria ranked 118 in this category in 2019).

In order to register a new company, or open a subsidiary in Austria, a company must first be listed on the Austrian Companies’ Register at a local court.  The next step is to seek confirmation of registration from the Austrian Federal Economic Chamber (WKO) establishing that the company is really a new business.  The investor must then notarize the “declaration of establishment,” deposit a minimum capital requirement with an Austrian bank, register with the tax office, register with the district trade authority, register employees for social security, and register with the municipality where the business will be located.  Finally, membership in the WKO is mandatory for all businesses in Austria.

For companies with sole proprietorship, it is possible under certain conditions to use an online registration process via government websites in German to either found or register a company: https://www.usp.gv.at/Portal.Node/usp/public/content/gruendung/egruendung/269403.html  or www.gisa.gv.at/online-gewerbeanmeldung . It is advisable to seek information from ABA or the WKO before applying to register a firm.

The website of the ABA contains further details and contact information, and is intended to serve as a first point of contact for foreign investors in Austria: https://investinaustria.at/en/starting-business/ .

According to the World Bank, the average time to set up a company in Austria is 21 days, well above the EU average of 12.5 days.

Outward Investment

The Austrian government encourages outward investment.  There is no special focus on specific countries, but the United States is seen as an attractive target country given the U.S. position as the second biggest market for Austrian exports.  Advantage Austria, the “Austrian Foreign Trade Service” is a special section of the WKO that promotes Austrian exports and also supports Austrian companies establishing an overseas presence. Advantage Austria operates six offices in the United States in Washington, DC, New York, Chicago, Atlanta, Los Angeles, and San Francisco.  The Ministry for Digital and Economic Affairs and the WKO run a joint program called “Go International,” providing services to Austrian companies that are considering investing for the first time in foreign countries. The program provides grants in form of contributions to “market access costs,” and also provides “soft subsidies,” such as counselling, legal advice, and marketing support.

Transparency of the Regulatory System

Austria’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Federal ministries generally publish draft laws and regulations, including investment laws, for public comment prior to their adoption by Austria’s cabinet and/or Parliament.  Relevant stakeholders such as the “Social Partners” (Economic Chamber, Agricultural Chamber, Labor Chamber, and Trade Union Association), the Industrial Association, and research institutions are invited to provide comments and suggestions for improvement, which may be taken into account before adoption of laws.  However, over the past year, the government has increasingly moved towards excluding outside parties from its decision-making process by either ignoring suggestions provided, or by making the time period for commenting unreasonably short. Austria’s nine provinces can also adopt laws relevant to investments; their review processes are generally less extensive, but local laws are less important for investments than federal laws.  The judicial system is independent from the executive branch, thus helping ensure the government follows administrative processes.

Draft legislation by ministries (“Ministerialentwürfe”) and resulting government draft laws and parliamentary initiatives (“Regierungsvorlagen und Gesetzesinitiativen”) can be accessed through the website of the Austrian Parliament:  https://www.parlament.gv.at/PAKT/  (all in German).  The parliament also publishes a history of all law-making processes. All final Austrian laws can be accessed through a government data base, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx 

The government has simplified the process for issuing business licenses and permits.  It can take up to three months to receive a business permit but the business may commence operations as soon as all the relevant documentation has been submitted and verified.

Austrian regulations governing accounting provide U.S. investors with internationally standardized financial information.  In line with EU regulations, listed companies must prepare their consolidated financial statements according to the International Financial Reporting Standards (IAS/IFRS) system.

International Regulatory Considerations

Austria is a member of the EU.  As such, its laws must comply with EU legislation and the country is therefore subject to European Court of Justice (ECJ) jurisdiction.  Austria is a member of the WTO and largely follows WTO requirements. Austria has ratified the Trade Facilitation Agreement (TFA), but has not taken specific actions to implement it.

Legal System and Judicial Independence

The Austrian legal system is based on Roman law.  The constitution establishes a hierarchy, according to which each legislative act (law, regulation, decision, and fines) must have its legal basis in a higher legislative instrument.  The full text of each legislative act is available online for reference. All final Austrian laws can be accessed through a government data base, partly in English: https://www.ris.bka.gv.at/defaultEn.aspx .

Commercial matters fall within the competence of ordinary regional courts except in Vienna, which has a specialized Commercial Court.  The Commercial Court also has nationwide competence for trademark, design, model, and patent matters. There is no special treatment of foreign investors and the executive does not interfere in judicial matters.

The system provides an effective means for protecting property and contractual rights of nationals and foreigners.  Sensitive cases must be reported to the Minister of Justice, which can issue instructions for addressing them. Austria’s civil courts enforce property and contractual rights and do not discriminate against foreign investors. Austria allows for court decisions to be appealed, first to a Regional Court and in the last instance, to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

There is no discrimination against foreign investors, but businesses are required to follow numerous local regulations.  Although there is no requirement for participation by Austrian citizens in ownership or management of a foreign firm, at least one manager must meet Austrian residency and other legal requirements.  Expatriates are allowed to deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned income.

The “Law to Support Investments in Municipalities” (published in the Federal Law Gazette, 74/2017, available online in German only on the federal legal information system www.ris.bka.gv.at ), allows federal funding of up to 25 percent of the total investment amount of a project to “modernize” a municipality.

Austria has restrictions on investments into industries that could affect national security, critical infrastructure or public services.  The government has to approve any foreign acquisition of a 25 percent or higher stake in any of these industries.

Competition and Anti-Trust Laws

Austria’s Anti-Trust Act (ATA) is in line with European Union anti-trust regulations, which take precedence over national regulations in cases concerning Austria and other EU member states.  The Austrian Anti-Trust Act prohibits cartels, anticompetitive practices, and the abuse of a dominant market position. The independent Federal Competition Authority (FCA) and the Federal Antitrust Prosecutor (FAP) are responsible for administering anti-trust laws.  The FCA can conduct investigations and request information from firms. The FAP is subject to instructions issued by the Justice Ministry and can bring actions before Austria’s Cartel Court. Additionally, the Commission on Competition may issue expert opinions on competition policy and give recommendations on notified mergers.  The most recent amendment to the ATA was in May, 2017. This amendment facilitated enforcing private damage claims, strengthened merger control, and enabled appeals against verdicts from the Cartel Court.

Companies must inform the FCA of mergers and acquisitions (M&A).  Special M&A regulations apply to media enterprises, such as a lower threshold above which the ATA applies, and the requirement that media diversity must be maintained.  A cartel court is competent to rule on referrals from the FCA or the FCP. For violations of anti-trust regulations, the cartel court can impose fines of up to the equivalent of 10 percent of a company’s annual worldwide sales.  The independent energy regulator E-Control separately examines antitrust concerns in the energy sector, but must also submit cases to the cartel court.

Austria’s Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange.  The law protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30 percent or more in direct or indirect control of a company’s voting shares) must offer to buy out smaller shareholders at a defined fair market price.  The law also includes provisions for shareholders who passively obtain a controlling stake in a company. The law prohibits defensive action to frustrate bids. The Shareholder Exclusion Act allows a primary shareholder with at least 90 percent of capital stock to force out minority shareholders.  An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws.

Expropriation and Compensation

According to the European Convention of Human Rights (applicable in Austria) and the Austrian Civil Code, property ownership is guaranteed in Austria.  Expropriation of private property in Austria is rare and may be undertaken by federal or provincial government authorities only on the basis of special legal authorization “in the public interest” in such instances as land use planning, and infrastructure project preparations.  The government can initiate such a procedure only in the absence of any other alternatives for satisfying the public interest; when the action is exclusively in the public interest; and when the owner receives just compensation. In 2017-18, the government expropriated Hitler’s birth house in order to prevent it from becoming a place of pilgrimage for neo-Nazis, paying the former owner €1.5 million (USD 1.8 million) in compensation. The expropriation process is non-discriminatory toward foreigners, including U.S. firms.  There is no indication that further expropriations will take place in the foreseeable future.

Dispute Settlement

ICSID Convention and New York Convention

Austria is a member of both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, meaning local courts must enforce foreign arbitration awards in Austria. There is no specific domestic legislation in this regard, but local courts must enforce arbitration decisions where the affected companies have their business locations.

Investor-State Dispute Settlement

Austria is a member of the UN Commission on International Trade Law (UNCITRAL). Its arbitration law largely conforms to the UNCITRAL model law. The main divergence is that an award may only be set aside if the arbitral procedure is not in accordance with Austrian public policy.

Austria does not have a BIT or FTA with the United States. There is no special domestic arbitration body.

In 2015, the Austrian government was sued, for the first time ever, by the offshore parent company of the Austrian Meinl Bank, Far East.  The case was brought before the ICSID in New York because of alleged damages arising from domestic prosecution in Austria; the ICSID dismissed the case in November 2017.

International Commercial Arbitration and Foreign Courts

The Vienna International Arbitral Center of the Austrian Federal Economic Chamber acts as Austria’s main arbitration institution.  Legislation is modeled after the UNCITRAL model law (see above). The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) overrides most of Austria’s domestic provisions, where applicable, and Austrian courts are consistent in applying it.

Bankruptcy Regulations

The Austrian Insolvency Act contains provisions for business reorganization and bankruptcy proceedings.  Reorganization requires a restructuring plan and the debtor to be able to cover costs or advance some of the costs up to a maximum of €4,000 (USD 4,520).  The plan must offer creditors at least 20 percent of what is owed, payable within two years of the date the debtor’s obligation is determined. The plan must be approved by a majority of all creditors and a majority of creditors holding at least 50 percent of all claims.  Bankruptcy proceedings take place in court and are opened upon application of the debtor or a creditor; the court appoints a receiver for winding down the business and distributes proceeds to the creditors. Bankruptcy is not criminalized, provided the affected person performed all his documentation and reporting obligations in accordance with the law.

Austria’s major commercial association for the protection of creditors in cases of bankruptcy is the “KSV 1870 Group”,www.ksv.at , which also carries out credit assessments of all companies located in Austria. Other European-wide credit bureaus, particularly “CRIF” and “Bisnode”, also monitor the Austrian market.

Policies Towards Foreign Direct Investment

Bangladesh actively seeks foreign investment, particularly in the agribusiness, garment and textiles, leather and leather goods, light manufacturing, energy, information and communications technology (ICT), and infrastructure sectors.  It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment.  The BIDA Act of 2016 approved the merger of the now disbanded Board of Investment and the Privatization Committee. BIDA performs the following functions:

• Provides pre-investment counseling services
• Registers and approves of private industrial projects
• Issues approval of branch/liaison/representative offices
• Issues work permits for foreign nationals
• Issues approval of royalty remittances, technical know-how and technical assistance fees
• Facilitates import of capital machinery and raw materials
• Issues approvals for foreign loans and supplier credits

BIDA’s newly designed website has aggregated information regarding Bangladesh investment policies and ease of doing business indicators: http://bida.gov.bd/  .  

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs).  BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) throughout the country over the next several years.  The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).  

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled.  Regulations in the area of telecommunication infrastructure currently include provisions for 60 percent foreign ownership (70 percent for tower sharing).

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

1. Fishing in the deep sea
2. Bank/financial institution in the private sector
3. Insurance company in the private sector
4. Generation, supply and distribution of power in the private sector
5. Exploration, extraction and supply of natural gas/oil
6. Exploration, extraction and supply of coal
7. Exploration, extraction and supply of other mineral resources
8. Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail,     economic zone, inland container depot/container freight station)
9. Crude oil refinery (recycling/refining of lube oil used as fuel)
10. Medium and large industry using natural gas/condescend and other minerals as raw material
11. Telecommunication service (mobile/cellular and land phone)
12. Satellite channels
13. Cargo/passenger aviation
14. Sea-bound ship transport
15. Sea-port/deep seaport
16. VOIP/IP telephone
17. Industries using heavy minerals accumulated from sea beach

While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive.  In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.

In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing, and approving FDI in Bangladesh.  BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed.  Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue.  According to the World Bank, business registration in Bangladesh takes 19.5 days on average with nine distinct steps: http://www.doingbusiness.org/data/exploreeconomies/bangladesh/   .  

BIDA’s resources on Ease of Doing Business, Investment Opportunity, Potential Sectors, and Doing Business in Bangladesh are also available at:  

• http://bida.gov.bd/?page_id=2532  
• http://bida.gov.bd/?page_id=2532  
• http://bida.gov.bd/?page_id=2313  
• http://bida.gov.bd/?page_id=1384  

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight.  BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health.  The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name.  For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than USD 1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD) and can be found at: http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=444&Sitemap_x0020_Taxonomy=Investment percent20Policy percent20Reviews percent20(IPR);#20;#UNCTAD percent20Home  .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at:  https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm  .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh” which was published by the Ministry of Commerce in September 2014.  Current Bangladesh government export and import policies are available at: http://www.mincom.gov.bd/site/page/30991fcb-8dfc-4154-a58b-09bb86f60601/Policy  .

Business Facilitation

The Government has had limited success reducing the time required to establish a company.  BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose.  In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes.  Expected streamlined services from BIDA include: company registration, name clearance issuance, tax certificate and taxpayer’s identification number (TIN), value added tax (VAT) registration, visa recommendation letter issuance, work permit issuance, foreign borrowing request approval, and environment clearance.  BIDA started its online one-stop service (OSS) on a trial basis in January 2018. Businesses are currently getting 15 types of services online. BIDA aims to automate 150 processes from 34 government agencies once the OSS becomes fully operational.

Companies can register their business at the Office of the Registrar of Joint Stock Companies and Firms:  www.roc.gov.bd  .  However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.  

In addition, BIDA has branch/liaison office registration information on its website at: http://bida.gov.bd/  .  

Other agencies with which a company must typically register are as follows:

• City Corporation – Trade License
• National Board of Revenue – Tax & VAT Registration
• Chief Inspector of Shops and Establishments – Employment of workers notification.

The company registration process now takes around 15 workdays to complete.  The process to open a branch or liaison office is approximately one month. The process for a trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.  

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947.  As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises.  Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

Transparency of the Regulatory System

Since 1989, the government has gradually moved to decrease regulatory obstruction of private business.  The Bangladeshi chambers of commerce have called for a greater voice for the private sector in government decisions and for privatization, but at the same time, many support protectionism and subsidies for their own industries.  The result is that policy and regulations in Bangladesh are often not clear, consistent, or publicized. Registration and regulatory processes are alleged to be frequently used as rent-seeking opportunities. The major rule-making and regulatory authority exist at the national level—under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s office (PMO).  The PMO is actively engaged in controlling policies, as well as foreign investment in government-controlled projects. 

The Bangladesh Investment Development Authority (BIDA)—a merger of the Board of Investment (BOI) and the Privatization Commission (PC)—was formed in accordance with the Bangladesh Investment Development Authority Bill 2016 passed by Parliament on July 25, 2016.  The bill established BIDA as the lead private investment promotion and facilitation agency in Bangladesh. The move came amid complaints about redundancies in the BOI’s and the PC’s overlapping mandates and concerns that the PC had not made sufficient progress. BIDA hopes to become a “one-stop shop” for investors and a “true” investment promotion authority rather than simply follow the referral service-orientation of BOI.  Currently, BIDA is not yet a one-stop shop and companies must still seek approvals from relevant line ministries

Bangladesh has achieved incremental progress in using information technology to improve the transparency and efficiency of some government services and to develop independent agencies to regulate the energy and telecommunication sectors.  Some investors cited government laws, regulations, and implementation as impediments to investment.  The government has historically limited opportunities for the private sector to comment on proposed regulations.  In 2009, Bangladesh adopted the Right to Information Act that provides for multilevel stakeholders consultation through workshops or media outreach.  Although the consultation process exists, it is still weak and subject to further improvement.

Ministries do not generally publish and release draft proposals to the public.  However, several government organizations, including the Bangladesh Bank (central bank), BIDA, the Ministry of Commerce, and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community.  In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.

Regulatory agencies generally do not solicit comments on proposed regulations from the general public; however, when a consultation occurs, comments may be received through public media consultation, feedback on websites (e.g., in the past, the Bangladesh Bank received comments on monetary policy), focus group discussions, or workshops with relevant stakeholders.  There is no government body tasked with soliciting and receiving comments, but the Bangladesh Government Press of the Ministry of Information is entrusted with the authority of disseminating government information to the public. The law does not require regulatory agencies to report on the results of consultations and, in practice, regulators do not generally report the results.  Widespread use of social media in Bangladesh has created an additional platform for public input into developing regulations and government officials appear to be sensitive to this form of messaging.

The government printing office, The Bangladesh Government Press (http://www.dpp.gov.bd/bgpress/  ), publishes the weekly “Bangladesh Gazette” every Thursday.  The gazette provides official notice of government actions, including the issuance of government rules and regulations and the transfer and promotion of government employees.  Laws can also be accessed at http://bdlaws.minlaw.gov.bd/  .

Bangladesh passed the Financial Reporting Act of 2015 which created the Financial Reporting Council (FRC) in 2016 in an aim to establish transparency and accountability in the accounting and auditing of financial institutions.  However, the FRC is not fully functional as the regulations that will govern the accountings, earning reports, and disclosure of companies have not yet been formulated. Accounting practices and quality varies widely in Bangladesh.  Internationally known and recognized firms have begun establishing local offices in Bangladesh and the presence of these firms is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting reports.  Regulatory agencies also do not conduct impact assessment of proposed regulations; hence, regulations are often not reviewed on the basis of data-driven assessments. National budget documents are not prepared according to internationally accepted standards.

International Regulatory Considerations

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) aims to integrate regional regulatory systems between Bangladesh, India, Burma, Sri Lanka, Thailand, Nepal, and Bhutan.  However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.

Local law is based on the English common law system but most fall short of international standards. The country’s regulatory system remains weak and many of the laws and regulations are not enforced and standards are not maintained.

Bangladesh has been a member of the World Trade Organization (WTO) since January 1995.  The WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards, and conformity assessment information to the WTO Member community.  Bangladesh Standards and Testing Institute (BSTI) has been working as the National Enquiry Point for the WTO-TBT Agreement since 2002. There is an internal committee on WTO affairs in BSTI and it participates in the notification activities to WTO through the Ministry of Commerce and the Ministry of Industries.

Focal Points and Methods of Contact are:  

General Contact:

Email: ictcell.bsti@gmail.com
Tel: +880-2-8870275

Email address for WTO-TBT National Enquiry Point: bsti_pub@bangla.net

Focal Points for WTO:

• Md. Muazzem Hossain, Director General, BSTI, Dhaka; Email: dg@bsti.gov.bd, Tel: +880-2-8870275
• Mr. Shajjatul Bari, Deputy Director, Standards Wing, BSTI, Dhaka; Email: dstd@bsti.gov.bd, Tel: +880-2-8870278, Cell: +8801672790239
• Mr. Md. Munir Chowdhury, Director General, WTO Cell, Ministry of Commerce; Email: dg.wto@mincom.gov.bd, Tel: +880-2-9545383, Cell: +88 0171 1591060
• Focal Points for Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT) and Trade-Related Aspects of Intellectual Property Rights (TRIPS):
• Mr. Md. Hafizur Rahman, Director, WTO Cell, Ministry of Commerce: Email: director1.wto@mincom.gov.bd, Tel: +880-2-9552105, Cell: +88 0171 1861056
• Mr. Md. Hamidur Rahman Khan, Director, WTO Cell, Ministry of Commerce-
• Email: director2.wto@mincom.gov.bd, Tel: +880-2-9549195, Cell: +88 01711372093

Link to BSTI: http://www.bsti.gov.bd/  

Legal System and Judicial Independence

Bangladesh is a common law based jurisdiction.  Many of the basic laws of Bangladesh, such as the penal code, civil and criminal procedural codes, contract law, and company law are influenced by English common laws.  However, family laws, such as laws relating to marriage, dissolution of marriage, and inheritance are based on religious scripts and therefore differ between religious communities.  The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature.  Such subordinate legislation is known as rules or regulations and is also enforceable by the court. As a common law system, statutes are typically short and set out basic rights and responsibilities that are then elaborated on by the courts in their application and interpretation. The Judiciary of Bangladesh acts through (1) The Superior Judiciary having appellate, revision, and original jurisdiction and (2) Sub-Ordinate Judiciary having original jurisdiction.

Since 1971, Bangladesh’s legal system has been updated in the areas of company, banking, bankruptcy, and money loan court laws and other commercial laws.  An important impediment to investment in Bangladesh is a weak and slow legal system in which the enforceability of contracts is uncertain.  The judicial system does not provide for interest to be charged in tort judgments, which means delays in proceedings carry no penalties.  Bangladesh does not have a separate court or division of a court dedicated solely to hearing commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts.

Some notable commercial laws include:

• The Contract Act, 1872 (Act No. IX of 1930)
• The Sale of Goods Act, 1930 (Act No. III of 1930)
• The Partnership Act, 1932 (Act No. IX of 1932)
• The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881)
• The Bankruptcy Act, 1997 (Act No. X of 1997)
• The Arbitration Act, 2001 (Act No. I of 2001).

The judicial system of Bangladesh has never been completely independent from the interference of the executive branch of the government.  In a significant milestone, the government in 2007 separated the country’s judiciary from the executive but the executive retains strong influence over the judiciary through control of judicial appointments.  Other pillars of the justice system, including the police, courts, and legal profession, are also closely aligned with the executive branch.  In lower courts, corruption is widely perceived as a serious problem.  Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.

Bangladesh scored a 3.33 in the World Bank’s 2017 Judicial Independence Index on a 1-7 band score with 7 being the best ranking.  That was up from 2016 when it scored a 2.38.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy Act of 2005, the Industrial Policy Act of 2010, and the Bangladesh Economic Zones Act 2010.  The Industrial Policy Act of 2016 was approved by the Cabinet Committee on Industrial Purchase on February 24, 2016 and replaces the Industrial Policy of 2010.

The Industrial Policy Act of 2016 offers incentives for “green” (environmental), high-tech, or “transformative” industries.  Foreign investors who invest USD 1 million or transfer USD 2 million to a recognized financial institution can apply for Bangladeshi citizenship.  The Government of Bangladesh will provide financial and policy support for high-priority industries (those that create large-scale employment and earn substantial export revenue) and creative industries (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming).  Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT), software, pharmaceuticals, leather and leather products, and jute and jute goods.

In 2017, BIDA submitted proposed legislation for a One-Stop Service Act (OSS), which was approved by the Parliament in February 2018, to attract further foreign direct investment to Bangladesh.  In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas.

BIDA has a “one-stop” website that provides relevant laws, rules, procedure, and reporting requirements for investors at: http://www.bida.gov.bd/  .   Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for business, potential sectors, and how to do business in Bangladesh.  The website also has an eService Portal for Investors which provides services like visa recommendations for foreign investors, approval/extension of work permits for expatriates, approval of foreign borrowing, and approval/renewal of branch/liaison and representative offices.  However, the effectiveness of these online services is questionable.

Competition and Anti-Trust Laws

The GOB formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce.  The Bangladesh Parliament then passed the Competition Act in June 2012. However, the BCC has experienced operational delays and it has not received sufficient resources to fully operate.  Currently, the WTO Cell of the Ministry of Commerce handles most competition-related issues.

In January 2016, the two parent companies of Malaysia-based Robi and India-based Airtel signed a formal deal to merge their operations in Bangladesh, completing the country’s first telecommunications merger.  The deal, valued at USD 12.5 million, is to date Bangladesh’s largest corporate merger. The merger raised anti-competition concerns but it was completed in November 2016 after the Bangladesh Telecommunication Regulatory Commission (BTRC) and Prime Minister Sheikh Hasina gave final approvals.  

Expropriation and Compensation

Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, the GOB has not nationalized or expropriated property from foreign investors.  In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute, and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands.  During the last 20 years, the government has since taken steps to privatize many of these industries and the private sector has developed into a main driver of the country’s sustained economic growth.

Dispute Settlement

ICSID Convention and New York Convention

Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards.  Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.

Investor-State Dispute Settlement

Bangladeshi law allows contracts to refer investor-state dispute settlement to third country fora for resolution.  The U.S.-Bangladesh Bilateral Investment Treaty also stipulates that parties may, upon the initiative of either of them and as a part of their consultation and negotiation, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the Rules of the “Additional Facility (“Facility”) of the International Centre for the Settlement of Investment Disputes (“Centre”).”  If the dispute cannot be resolved through consultation and negotiation, then the dispute shall be submitted for settlement in accordance with the applicable dispute-settlement procedures upon which they have previously agreed. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.

International Commercial Arbitration and Foreign Courts

Bangladeshi law allows contracts to refer dispute settlement to third country fora for resolution.  The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution in Bangladesh.  The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration in Bangladesh.  Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.

In practice, enforcement of arbitration results is applied unevenly and the GOB has challenged ICSID rulings, especially those that involve rulings against the GOB.  The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute.  Anecdotal information indicates average resolution time can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.

Bangladesh is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and recognizes the enforcement of international arbitration awards.  Domestic arbitration is under the authority of the district judge court bench and foreign arbitration is under the authority of the relevant high court bench.

The ability of the Bangladeshi judicial system to enforce its own awards is weak.  Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the GOB’s ability to resolve investment disputes at a lower level is mixed.  The GOB does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency and the involved parties often resolve the disputes privately rather than seek government intervention.  

The practice of alternative dispute resolution (ADR) in Bangladesh has many challenges, including lack of funds, lack of lawyer cooperation, and lack of good faith.  Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.

As in many countries, Bangladesh has adopted a “conflicts of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh.  This single criterion allows Bangladesh courts broad discretion in choosing whether to enforce foreign judgments with significant effects on matrimonial, adoption, corporate, and property disputes.  Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs), whose leadership is nominated by the ruling government party, maintain strong ties with the government.  Thus domestic courts strongly tend to favor SOEs and local companies in investment disputes.

Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution.  BIAC is an independent arbitration center established by prominent local business leaders in April 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth.  The council committee is headed by the President of International Chamber of Commerce—Bangladesh (ICCB) and includes the presidents of other prominent chambers such as like Dhaka Chamber of Commerce and Industry (DCCI) and Metropolitan Chamber of Commerce and Industry (MCCI).  The center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh (AmCham) can sometimes help to resolve transaction disputes.

Bankruptcy Regulations

Many laws affecting investment in Bangladesh are old and outdated.  Bankruptcy laws, which apply mainly to individual insolvency, are sometimes not used in business cases because of the series of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies.  A Bankruptcy Act was enacted in 1997 but has been ineffective in addressing these issues. An amendment to the Bank Companies Act of 1991 was enacted in 2013. Some bankruptcy cases fall under the Money Loan Court Act which has more stringent and timely procedures.

Policies Towards Foreign Direct Investment

Belgium has traditionally maintained an open economy that is highly dependent on international trade.  Since WWII, foreign investment has played a vital role in the Belgian economy, providing technology and employment.  It is a key economic policy of the government to make Belgium a more attractive destination to foreign investment. Though the federal government regulates important elements of foreign direct investment such as salaries and labor conditions, it is primarily the responsibility of the regions to attract FDI.  Flanders Investment and Trade (FIT), Wallonia Foreign Trade and Investment Agency (AWEX), and Brussels Invest and Export are the three investment promotion agencies who seek to attract FDI to Flanders, Wallonia and the Brussels Capital Region, respectively.

The regional investment promotion agencies have focused their industrial strategy on key sectors including aerospace and defense; agribusiness, automotive and ground transportation; architecture and engineering; chemicals, petrochemicals, plastics and composites; environmental technologies; food processing and packaging; health technologies; information and communication; and services.

Foreign corporations account for about one-third of the top 3,000 corporations in Belgium.  According to Graydon, a Belgian company specializing in commercial and marketing information, there are currently more than one million companies registered in Belgium. The federal government and the regions do not have specific policies that prioritize investment retention or maintain an ongoing dialogue with investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign ownership or control in Belgium.  There are no distinctions between Belgian and foreign companies when establishing or owning a business or setting up a remunerative activity.

Other Investment Policy Reviews

Over the past 3 years, the country has not been the subject of third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In order to set up a business in Belgium, one must:

1. Deposit at least 20 percent of the initial capital with a Belgian credit institution and obtain a standard certification confirming that the amount is held in a blocked capital account;
2. Deposit a financial plan with a notary, sign the deed of incorporation and the by-laws in the presence of a notary, who authenticates the documents and registers the deed of incorporation.  The authentication act must be drawn up in either French, Dutch or German (Belgium’s three official languages);
3. Register with one of the Registers of legal entities, VAT and social security at a centralized company docket and obtain a company number.

In most cases, the business registration process can be completed within one week.

https://www.business.belgium.be/en/managing_your_business/setting_up_your_business  

http://procedures.business.belgium.be/en/procedures-iframe/?_ga=2.174982369.210217559.1555582522-1537979373.1536327711  

Based on the number of employees, the projected annual turnover and the shareholder class, a company will qualify as a small or medium-sized enterprise (SME) according to the meaning of the Promotion of Independent Enterprise Act of February 10, 1998.  For a small or medium-sized enterprise, registration will only be possible once a certificate of competence has been obtained. The person in charge of the daily management of the company must prove his or her knowledge of business management, with diplomas and/or practical experience. In the Global Enterprise Register, Belgium currently scores 7 out of 10 for ease of setting up a limited liability company.

Business facilitation agencies provide for equitable treatment of women and underrepresented minorities in the economy.

The three Belgian regions each have their own investment promotion agency, whose services are available to all foreign investors.

Outward Investment

The Belgian governments do not promote outward investment as such.  There are also no restrictions to certain countries or sectors, other than those where Belgium applies UN resolutions.

Transparency of the Regulatory System

The Belgian government has adopted a generally transparent competition policy.  The government has implemented tax, labor, health, safety, and other laws and policies to avoid distortions or impediments to the efficient mobilization and allocation of investment, comparable to those in other EU member states.  Draft bills are never made available for public comment, but have to go through an independent court for vetting and consistency. Nevertheless, foreign and domestic investors in some sectors face stringent regulations designed to protect small- and medium-sized enterprises.  Many companies in Belgium also try to limit their number of employees to 49, the threshold above which certain employee committees must be set up, such as for safety and trade union interests.

Recognizing the need to streamline administrative procedures in many areas, in 2015 the federal government set up a special task force to simplify official procedures.  It also agreed to streamline laws regarding the telecommunications sector into one comprehensive volume after new entrants in this sector had complained about a lack of transparency.  Additionally the government beefed up its Competition Policy Authority with a number of academic experts and additional resources. Traditionally, scientific studies or quantitative analysis conducted on the impact of regulations are made publicly available for comment. However, not all public comments received by regulators are made public.

Accounting standards are regulated by the Belgian law of January 30, 2001, and balance sheet and profit and loss statements are identical with international accounting norms. Cash flow positions and reporting changes in non-borrowed capital formation are not required.  However, contrary to IAS/IFRS standards, Belgian accounting rules do require an extensive annual policy report.

Belgium publishes all its relevant legislation and administrative guidelines in an official Gazette, called Le Moniteur Belge (www.moniteur.be  ). The American Chamber of Commerce has called attention to the adverse impact of cumbersome procedures and unnecessary red tape on foreign investors, although foreign companies do not appear to be impacted more than Belgian firms.

International Regulatory Considerations

Belgium is a founding member of the EU, whose directives are enforced.  On May 25, 2018 Belgium implemented the General Data Protection Regulation (GDPR) (EU) 2016/679, an EU regulation on data protection and privacy for all individuals within the European Union.

Through the European Union, Belgium is a member of the WTO, and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Belgium’s (civil) legal system is independent of the government and is a means for resolving commercial disputes or protecting property rights.  Belgium has a wide-ranging codified law system since 1830. There are specialized commercial courts which apply the existing commercial and contractual laws. As in many countries, the Belgian courts labor under a growing caseload, and backlogs cause delays. There are several levels of appeal.

Laws and Regulations on Foreign Direct Investment

Payments and transfers within Belgium and with foreign countries require no prior authorization. Transactions may be executed in euros as well as in other currencies.

Belgium has no debt-to-equity requirements.  Dividends may be remitted freely except in cases in which distribution would reduce net assets to less than paid-up capital.  No further withholding tax or other tax is due on repatriation of the original investment or on the profits of a branch, either during active operations or upon the closing of the branch.

Since there are three different regional Investment Authorities, the links to their respective websites are given below.

• Flanders: www.flandersinvestmentandtrade.com
• Wallonia; www.awex.be
• Brussels: www.investinbrussels.com  

Competition and Anti-Trust Laws

The contact address for competition-related concerns:

Federal Competition Authority
City Atrium, 6th floor
Vooruitgangsstraat 50
1210 Brussels
tel: +32 2 277 5272
fax: +32 2 277 5323
email: info@bma-abc.be
Website: www.bma-abc.be

Expropriation and Compensation

There are no outstanding expropriation or nationalization cases in Belgium with U.S. investors. There is no pattern of discrimination against foreign investment in Belgium.

When the Belgian government uses its eminent domain powers to acquire property compulsorily for a public purpose, adequate compensation is paid to the property owners. Recourse to the courts is available if necessary.  The only expropriations that occurred during the last decade were related to infrastructure projects such as port expansion, roads, and railroads.

Dispute Settlement

ICSID Convention and New York Convention

Belgium is a member of the International Center for the Settlement of Investment Disputes (ICSID) and regularly includes provision for ICSID arbitration in investment agreements.

Investor-State Dispute Settlement

The government accepts binding international arbitration of disputes between foreign investors and the state. There have been no investment disputes involving a U.S. person within the past 10 years.  Local courts are expected to enforce foreign arbitral awards issued against the government. To date, there has been no evidence of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

1. Alternative Dispute Resolution is not mandatory by law and is therefore not commonly used in disputes, except for matters where the determination by an expert is sought, whether appointed by the parties in agreement or in accordance with a contractual clause or appointed by the court in the context of dispute resolution.
2. Belgium has no domestic arbitration bodies.
3. Local courts recognize and enforce foreign arbitral awards. Judgments of foreign courts are recognized and enforceable under the local courts.
4. There are no reports or complaints targeting Court proceedings involving SOEs or alleged favoritism for them.

Bankruptcy Regulations

Belgian bankruptcy law is governed by the Bankruptcy Act of 1997 and is under the jurisdiction of the commercial courts.  The commercial court appoints a judge-auditor to preside over the bankruptcy proceeding and whose primary task is to supervise the management and liquidation of the bankrupt estate, in particular with respect to the claims of the employees.  Belgian bankruptcy law recognizes several classes of preferred or secured creditors. A person who has been declared bankrupt may subsequently start a new business unless the person is found guilty of certain criminal offences that are directly related to the bankruptcy.  The Business Continuity Act of 2009 provides the possibility for companies in financial difficulty to enter into a judicial reorganization. These proceedings are to some extent similar to Chapter 11 as the aim is to facilitate business recovery. In the World Bank’s Doing Business Report, Belgium ranks number 8 (out of 198) for the ease of resolving insolvency.

Policies Towards Foreign Direct Investment

Brazil was the world’s fourth largest destination for Foreign Direct Investment (FDI) in 2017, with inflows of USD 62.7 billion, according to UNCTAD.  The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth.  GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, insurance, and air transport sectors.  

The Brazilian Trade and Investment Promotion Agency (APEX) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil.  APEX is not a one-stop-shop for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues.  Their services are free of charge. The website for APEX is: http://www.apexbrasil.com.br/en  .

Limits on Foreign Control and Right to Private Ownership and Establishment

A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (e.g. tax incentives, preference for winning bids) for companies using only local capital.  However, constitutional law restricts foreign investment in the healthcare (Law 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), insurance (Law 11371/2006), and air transport sectors (Law 13319/2016).  

Screening of FDI

Foreigners investing in Brazil must electronically register their investment with the BCB within 30 days of the inflow of resources to Brazil.  In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI).  Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).  

To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company.  The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil. Santander is the only major wholly foreign-owned retail bank remaining in Brazil.  Brazil’s anti-trust authorities (CADE) approved Itau bank’s purchase of Citibank’s Brazilian retail banking operation in August 2017. In June 2016, CADE approved Bradesco bank’s purchase of HSBC’s Brazilian retail banking operation.  

Currently, foreign ownership of airlines is limited to 20 percent.  Congressman Carlos Cadoca (PCdoB-PE) presented a bill to Brazilian Congress in August of 2015 to allow for 100 percent foreign ownership of Brazilian airlines (PL 2724/2015).  The bill was approved by the lower house, and since March 2019, it is pending a Senate vote. In 2011, the United States and Brazil signed an Air Transport Agreement as a step towards an Open Skies relationship that would eliminate numerical limits on passenger and cargo flights between the two countries.  Brazil’s lower house approved the agreement in December 2017, and the Senate ratified it in March 2018. The Open Skies agreement has now entered into force.

In July 2015, under National Council on Private Insurance (CNSP) Resolution 325, the Brazilian government announced a significant relaxation of some restrictions on foreign insurers’ participation in the Brazilian market, and in December 2017, the government eliminated restrictions on risk transfer operations involving companies under the same financial group.  The new rules revoked the requirement to purchase a minimum percentage of reinsurance and eliminated a limitation or threshold for intra-group cession of reinsurance to companies headquartered abroad that are part of the same economic group. Rules on preferential offers to local reinsurers, which are set to decrease in increments from 40 percent in 2016 to 15 percent in 2020, remain unchanged.  Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintaining a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.

In September 2011, Law 12485/2011 removed a 49 percent limit on foreign ownership of cable TV companies, and allowed telecom companies to offer television packages with their service.  Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package have to be Brazilian.  

The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners.  Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district.  Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border.  The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which would lift the limits on foreign ownership of agricultural land,

has been awaiting a vote in the Brazilian Congress since 2015.

Brazil is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but became an observer in October 2017.  By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms.  U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms to participate in Brazil’s public sector procurement to help these firms win government tenders.  Foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Under trade bloc Mercosul’s Government Procurement Protocol, member nations Brazil, Argentina, Paraguay, and Uruguay are entitled to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers.  However, only Argentina has ratified the protocol, and per the Brazilian Ministry of Economy website, this protocol has been in revision since 2010, so it has not yet entered into force.

Other Investment Policy Reviews

The Organization for Economic Co-operation and Development’s (OECD) 2018 Brazil Economic Survey of Brazil highlights Brazil as a leading global economy.  However, it notes that high commodity prices and labor force growth will no longer be able to sustain Brazil’s economic growth without deep structural reforms.  While praising the Temer government for its reform plans, the OECD urged Brazil to pass all needed reforms to realize their full benefit. The OECD cautions about low investment rates in Brazil, and cites a World Economic Forum survey that ranks Brazil 116 out of 138 countries on infrastructure as an area in which Brazil must improve to maintain competitiveness.  

The OECD’s March 15, 2019 Enlarged Investment Committee Report BRAZIL: Position Under the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations noted several areas in which Brazil needs to improve.  These observations include, but are not limited to: restrictions to FDI requiring investors to incorporate or acquire residency in order to invest; lack of generalized screening or approval mechanisms for new investments in Brazil; sectoral restrictions on foreign ownership in media, private security and surveillance, air transport, mining, telecommunication services; and, restrictions for non-residents to own Brazilian flag vessels.  The report did highlight several areas of improvement and the GoB’s pledge to ameliorate several ongoing irritants as well.

The IMF’s 2018 Country Report No. 18/253 on Brazil highlights that a mild recovery supported by accommodative monetary and fiscal policies is currently underway.  But the economy is underperforming relative to its potential, public debt is high and increasing, and, more importantly, medium-term growth prospects remain uninspiring, absent further reforms.  The IMF advises that against the backdrop of tightening global financial conditions, placing Brazil on a path of strong, balanced, and durable growth requires a committed pursuit of fiscal consolidation, ambitious structural reforms, and a strengthening of the financial sector architecture.  The WTO’s 2017 Trade Policy Review of Brazil notes the country’s open stance towards foreign investment, but also points to the many sector-specific limitations (see above). All three reports highlight the uncertainty regarding reform plans as the most significant political risk to the economy.  These reports are located at the following links:

http://www.oecd.org/brazil/economic-survey-brazil.htm  ,

https://www.oecd.org/daf/inv/investment-policy/Code-capital-movements-EN.pdf ,

https://www.imf.org/~/media/Files/Publications/CR/2017/cr17216.ashx  , and https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm  .

Business Facilitation

A company must register with the National Revenue Service (Receita) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ).  Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment. The agency’s services are available to all investors, foreign and domestic.  Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation.  Brazil’s business registration website can be found at http://receita.economia.gov.br/orientacao/tributaria/cadastros/cadastro-nacional-de-pessoas-juridicas-cnpj  .  

Outward Investment

Brazil does not restrict domestic investors from investing abroad, and APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa  .  Apex-Brasil frequently highlights the United States as an excellent destination for outbound investment.  Apex-Brasil and SelectUSA (the U.S. government’s investment promotion office at the U.S. Department of Commerce) signed a memorandum of cooperation to promote bilateral investment in February 2014.

Transparency of the Regulatory System

In the 2019 World Bank Doing Business report, Brazil ranked 109th out of 190 countries in terms of overall ease of doing business in 2018, an improvement of 16 positions compared to the 2018 report.  According to the World Bank, it takes approximately 20.5 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount to time it takes to open a small or medium enterprise (SME) to five days through its RedeSimples Program.  Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment.  

The 2019 World Bank study noted that the annual administrative burden for a medium-size business to comply with Brazilian tax codes is an average of 1,958 hours versus 160.7 hours in OECD high-income economies.  The total tax rate for a medium-sized business in Rio de Janeiro is 69 percent of profits, compared to the average of 40.1 percent in the OECD high-income economies. Business managers often complain of not being able to understand complex, and sometimes contradictory, tax regulations, despite their housing large local tax and accounting departments in their companies.  

Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms.  However, some investors complain that in certain instances the value-added tax collected by individual states (ICMS) favors locally-based companies that export their goods.  Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products.  

Of Brazil’s ten federal regulatory agencies, the most prominent include:

• ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices;
• ANATEL, the country’s telecommunications agency, which handles telecommunications, and licensing and assigning of radio spectrum bandwidth;
• ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production, including for offshore pre-salt oil and natural gas;
• ANAC, Brazil’s civil aviation agency;
• IBAMA, Brazil’s environmental licensing and enforcement agency; and
• ANEEL, Brazil’s electric energy regulator that regulates Brazil’s power electricity sector and oversees auctions for electricity transmission, generation, and distribution contracts.

In addition to these federal regulatory agencies, Brazil has at least 27 state-level regulatory agencies and 17 municipal-level regulatory agencies.  

The Office of the Presidency’s Program for the Strengthening of Institutional Capacity for Management in Regulation (PRO-REG) has introduced a broad program for improving Brazil’s regulatory framework.  PRO-REG and the U.S. White House Office of Information and Regulatory Affairs (OIRA) are collaborating to exchange best practices in developing high quality regulations that mandate the least burdensome approach to address policy implementation.  

Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis.  The Senate has approved a bill on Governance and Accountability for Federal Regulatory Agencies (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber) that is pending Senate Transparency and Governance Committee approval after the Lower House proposed changes to the text in December 2018.  Among other provisions, the bill would make RIAs mandatory for regulations that affect “the general interest.” PRO-REG is drafting enabling legislation to implement this provision. While the legislation is pending, PRO-REG has been working with regulators to voluntarily make RIAs part of their internal procedures, with some success.  

The Chamber of Deputies, Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation.  Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB instituted a Transparency Portal, a website with data on funds transferred to and from the federal, state and city governments, as well as to and from foreign countries.  It also includes information on civil servant salaries.

In 2018, the Department of State found Brazil to have met its minimum fiscal transparency requirements in its annual Fiscal Transparency Report.  The Open Budget Index ranked Brazil on par with the United States in terms of budget transparency in its most recent (2017) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation.  Brazil’s budget documents are publically available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.

International Regulatory Considerations

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay – and routinely implements Mercosul common regulations, but still adheres to Brazilian regulations.

Brazil is a member of the WTO, and the government regularly notifies draft technical regulations, such as agricultural potential barriers, to the WTO Committee on Technical Barriers to Trade (TBT).  

Legal System and Judicial Independence

Brazil has a civil legal system structured around courts at the state and federal level.  Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy.  The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement judgments for the judgments to be considered valid in Brazil.  Among other considerations, the foreign judgement must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code, enacted in 2002, regulates commercial disputes, although commercial cases involving maritime law follow an older, largely superseded Commercial Code.  Federal judges hear most disputes in which one of the parties is the Brazilian State, and also rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil.

The judicial system is generally independent.  The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues.  State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process.  The judicial system is backlogged, however, and disputes or trials of any sort frequently require years to arrive at a final resolution, including all available appeals.  Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues.  

Laws and Regulations on Foreign Direct Investment

Foreigners investing in Brazil must electronically register their investment with the BCB within 30 days of the inflow of resources to Brazil.  Investors must register investments involving royalties and technology transfer with Brazil’s patent office, the National Institute of Industrial Property (INPI).  Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).  

Brazil does not offer a “one-stop-shop” for international investors.  There have been plans to do so for several years, but nothing has been officially created to facilitate foreign investment in Brazil.  The BCB website offers some useful information, but is not a catchall for those seeking guidance on necessary procedures and requirements.  The BCB’s website in English is: https://www.bcb.gov.br/en#!/home .

Competition and Anti-Trust Laws

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of mergers and acquisitions.  Law 12529 from 2011 established CADE in an effort to modernize Brazil’s antitrust review process and to combine the antitrust functions of the Ministry of Justice and the Ministry of Finance into CADE. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal regime that had the government review mergers after the fact.  In October 2012, CADE performed Brazil’s first pre-merger review.

In 2018, CADE conducted 74 formal investigations of cases that allegedly challenged the promotion of the free market.  It also approved 390 merger and/or acquisition requests and rejected an additional 14 requests.

Expropriation and Compensation

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that live in Brazil.  The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects.  In cases of eminent domain, the government compensates owners in cash.

There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests.  Brazilian courts have decided some claims regarding state-level land expropriations in U.S. citizens’ favor. However, as states have filed appeals to these decisions, the compensation process can be lengthy and have uncertain outcomes.  

Dispute Settlement

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards.  Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID).  Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022.

Investor-State Dispute Settlement

Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside the national territory.  The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law.  A 2001 Brazilian Federal Supreme Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ Court ratification of arbitration decisions, does not violate the Federal Constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”

Contract disputes in Brazil can be lengthy and complex.  Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law.  Federal judges hear most disputes in which one of the parties is the State, and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil.  Five regional federal courts hear appeals of federal judges’ decisions. The 2019 World Bank Doing Business report found that on average it takes 12.5 procedures and 731 days to litigate a breach of contract.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention).  Law 9307/1996 provides advanced legislation on arbitration, and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/ ), but it does not include ISDS mechanisms.  (See sections on bilateral investment agreements and responsible business conduct.)

Bankruptcy Regulations

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations.  In 2005, bankruptcy legislation (Law 11101) went into effect creating a system modeled on Chapter 11 of the U.S. bankruptcy code. Critics of Law 11101 argue it grants equity holders too much power in the restructuring process to detriment of debtholders.  Brazil is drafting an update to the bankruptcy law aimed at increasing creditor rights, but it has not yet been presented in Congress. The World Bank’s 2019 Doing Business Report ranks Brazil 77th out of 190 countries for ease of “resolving insolvency.”

As mentioned above, Cambodia has an open and liberal foreign investment regime and actively courts FDI. The primary law governing investment is the 1994 Law on Investment. The government permits 100 percent foreign ownership of companies in most sectors. In a few sectors, such as cigarette manufacturing, movie production, rice milling, gemstone mining and processing, publishing and printing, radio and television, wood and stone carving production, and silk weaving, foreign investment is subject to local equity participation or prior authorization from authorities. There is little or no official discrimination against foreign investors either at the time of initial investment or after investment. Some foreign businesses, however, have reported that they are at disadvantaged vis-a-vis Cambodian or other foreign rivals that engage in acts of corruption or tax evasion or take advantage of Cambodia’s poor regulatory enforcement.

The Council for the Development of Cambodia’s (CDC) is the lead investment promotion agency in Cambodia and is the principal government agency responsible for providing incentives to stimulate investment. Investors are required to submit an investment proposal to either the CDC or the Provincial-Municipal Investment Sub-committee to obtain a Qualified Investment Project (QIP) status depending on capital level and location of the investment question. This agency also facilitates public-private consultation mechanism that is considered to improve investment climate in Cambodia.  The forum acts as a platform for the private sector to raise concerns for the government to solve. More information about investment and investment incentives in Cambodia may be found on the website at: www.cambodiainvestment.gov.kh  .

To facilitate foreign investment, Cambodia has created special economic zones (SEZs). These zones provide companies with ready access to land, infrastructure, and services to facilitate the set-up and operation of businesses. Services provided include utilities, tax services, customs facilitation, and other administrative services designed to support import-export processes. Projects within the SEZs are also offered with incentives such as tax holidays; zero rate value-added tax; and import duty exemption for raw materials, machinery and equipment. The primary authority responsible for SEZs is the Cambodia Special Economic Zone Board (CSEZB).  The largest of these SEZs is located in Sihanoukville and hosts primarily Chinese companies.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are few limitations on foreign control and ownership in Cambodia. Foreign investors may own 100 percent of their investment projects except in the sectors mentioned above. According to Cambodia’s 2003 Amended Law on Investment and related sub-decrees, there are no limitations based on shareholder nationality or discrimination against foreign investors, except in relation to investments in real property or state-owned enterprises. Both the Law on Investment and the Amended Law on Investment state that the majority of interest in land, however, must be held by one or more Cambodian citizens. Pursuant to the Law on Public Enterprise, the Cambodian government must directly or indirectly hold more than 51 percent of the capital or the right to vote in state-owned enterprises. In addition, the Cambodian Bar has periodically taken actions to restrict or impede the work of foreign lawyers or foreign law firms.

Other Investment Policy Reviews

In compliance with World Trade Organization (WTO) requirements, Cambodia conducted its first review of trade policies and practices in November 2011. The second review was conducted on November 21-23, 2017. Cambodia’s full trade policy review report can be found on the WTO website: https://www.wto.org/english/tratop_e/tpr_e/tp464_e.htm  . Cambodia also conducted an Organization for Economic Co-operation and Development investment policy review in 2017.

In response to the WTO trade policy review recommendations, Cambodia completed the following reforms:

• Elimination of the Certificate of Origin requirement for exports to countries where a certificate is not required;
• Implementation of online business registration;
• Adoption of a competitive hiring process for Ministry of Commerce staff;
• Implementation of risk evaluation measures for the Cambodia Import-Export Inspection and Fraud Repression Directorate General (CamControl) and creation of a CamControl risk management unit;
• Enactment of the Law on Public Procurement;
• Enactment of three judicial system laws: the Law on Court Structures, the Law on the Duties and Discipline of Judges and Prosecutors, and the Law on the Organization and Functioning of the Supreme Council of Magistracy;
• Creation of the Commercial Court as a specialized Court of First Instance;
• The creation of a credit bureau;
• Establishment of a Telecom Regulator of Cambodia (TRC); in 2012, the Ministry of Posts and Telecommunication transferred its regulatory role to the TRC;
• Enactment of the Law on Telecommunications in December 2015; and
• Enactment of the Law on Animal Health and Production in February 2016.

Areas of ongoing or planned reforms include a law on Special Economic Zones, amending the Standards Law, and enacting laws on competition, cyber security, food safety, and e-commerce.

Business Facilitation

All businesses are required to register with the Ministry of Commerce (MoC) and the General Department of Taxation (GDT). In January 2016, the Ministry of Commerce launched an online business registration portal that allows all existing and new businesses to register their companies at www.businessregistration.moc.gov.kh  . The link also provides sources of information for various types of business registration documents. Depending on the types of business activities, new businesses are also required to register with other relevant ministries. In addition to registering with the MoC and the GDT, for example, travel agencies must register with the Ministry of Tourism, and private universities must register with the Ministry of Education, Youth and Sport. The GDT also established their E-tax registration that can be found at owp.tax.gov.kh:50005/epaymentowpweb  . The World Bank’s 2019 Ease of Doing Business Report ranks Cambodia 138 of 190 countries globally for the ease of starting a business. The report notes that it includes nine separate procedures and can take up to three months to complete all business, tax, and employment registration processes.

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. The website of the Council for the Development of Cambodia (CDC) provides a list of laws, rules, procedures and regulations, which could be useful for foreign investors. CDC’s website is found here: www.cambodiainvestment.gov.kh  .

Outward Investment

There are no restrictions on domestic citizens investing abroad. A number of local companies have already invested in neighboring countries, particularly Laos and Myanmar, in various sectors including banking, IT services, legal and consulting services, and the entertainment industry.

Transparency of the Regulatory System

Numerous issues related to the general lack of transparency in the regulatory regime arise from the lack of legislation and limited capacity of key institutions, further exacerbated by weakness of the court system.  Investors often complain that the decisions of Cambodian regulatory agencies are inconsistent, arbitrary, or motivated by corruption. For example, in May 2016 in what was perceived as a populist move, the government set caps on retail fuel prices, with little consultation with petroleum companies.  Following this development, in April 2017, the National Bank of Cambodia introduced the interest rate cap on loans provided by the microfinance industry with no consultation with the relevant stakeholders at all. Some investors have expressed concern over draft cyber legislation that has not been subject to stakeholder consultations.   

Cambodian ministries and regulatory agencies are not legally obligated to publish the text of proposed regulations before their enactment.  Draft regulations are only selectively available for public consultation with relevant non-governmental organizations (NGOs), private sector or other parties before their enactment.  Approved or passed laws are available on websites of some line Ministries but are not always up to date. The Council of Jurists, the government body reviewing law and regulation, publishes a list of updated laws and regulations on its website at www.coj.gov.kh  .

Under Prakas (sub-decree) 643 of the Ministry of Economy and Finance, enterprises must submit their annual financial statements to be audited by an independent auditor registered with the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA) provided those enterprises meet two of the following three criteria: (1) annual turnover above KHR 3 billion (approximately USD 750,000); (2) total assets above KHR 2 billion (approximately USD 500,000); and (3) more than 100 employees. QIPs registered with the CDC are also obligated to submit their annual financial statement to be audited by an independent auditor registered with the KICPAA.

International Regulatory Considerations

As a member of the ASEAN since 1999, Cambodia is required to comply with certain rules and regulations with regard to free trade agreements with the 10 ASEAN member states. These include tariff-free importation of information and communication technology (ICT) equipment, harmonizing custom coding, harmonizing the medical device market, as well as compliance with tax regulations on multi-activity businesses, among others.

As a member of the WTO, Cambodia has been drafting new laws and amending existing laws and regulations to comply with WTO rules. Relevant laws and regulations are notified to the WTO legal committee after their adoption. A list of Cambodian legal updates in compliance with the WTO is described in the above section regarding Investment Policy Reviews.

Legal System and Judicial Independence

The Cambodian legal system is primarily based on French civil law. Under the 1993 Constitution, the King is the head of state and the elected Prime Minister is the head of government. Legislative power is vested in a bicameral parliament, while the judiciary makes up the third branch of government. Contractual enforcement is governed by Decree Number 38 D Referring to Contract and Other Liabilities. More information on this decree can be found at www.cambodiainvestment.gov.kh/decree-38-referring-to-contract-and-other-liabilities_881028-2.html  .

Although the Cambodian Constitution calls for an independent judiciary, most investors are generally reluctant to use the Cambodian judicial system because the courts are perceived as unreliable and susceptible to external political influence or bribery. Both local and foreign businesses report problems with inconsistent judicial rulings, corruption, and difficulty enforcing judgments. For these reasons, most commercial disputes are currently resolved through negotiations facilitated by the Ministry of Commerce, the Council for the Development of Cambodia, the Cambodian Chamber of Commerce, or other institutions.

Cambodia adopted a Commercial Arbitration Law in 2006. In 2010, the government provided for the establishment of the National Commercial Arbitration Center (NCAC), the country’s first alternative dispute resolution mechanism, to enable companies to resolve commercial disputes more quickly and inexpensively than through the court system. The NCAC was officially launched in March 2013, but has limited capacity.

Laws and Regulations on Foreign Direct Investment

Cambodia’s 1994 Law on Investment created an investment licensing system to regulate the approval process for foreign direct investment and provide incentives to potential investors. In March 2003, the government simplified licensing and increased transparency and predictability by enacting the Law on the Amendment to the Law on Investment (Amended Law on Investment). Sub-decree No. 111 on the Implementation of the Law on the Amendment to the Law on Investment, issued in September 2005, lays out detailed procedures for registering a QIP, which is entitled to certain taxation incentives, with the CDC and provincial/municipal investment subcommittees.

Information about investment and investment incentives in Cambodia may be found on the CDC’s website: www.cambodiainvestment.gov.kh  .

Competition and Anti-Trust Laws

The government has announced plans to draft a competition law but the law has yet to be enacted. A competition department was established under the Directorate General of CamControl in 2016. The department aims to work on drafting laws and regulations on competition, study, and coordinate with various relevant agencies on local and international competition. The draft law is now reportedly being considered in a technical working group at the Council of Ministers and Council of Jurists.

Expropriation and Compensation

Land rights are a contentious issue in Cambodia, complicated by the fact that most property holders do not have legal documentation of their ownership because of official policies and social upheaval during Khmer Rouge era in the 1970s. Numerous cases have been reported of influential individuals or groups acquiring land titles or concessions through political and/or financial connections and then using force to displace communities to make way for commercial enterprises.

In late 2009, the National Assembly approved the Law on Expropriation, which sets broad guidelines on land-taking procedures for public interest purposes. It defines public interest activities to include construction, rehabilitation, preservation, or expansion of infrastructure projects, and development of buildings for national defense and civil security. These provisions include construction of border crossing posts, facilities for research and exploitation of natural resources, and oil pipeline and gas networks. Property can also be expropriated for natural disasters and emergencies, as determined by the government. Legal procedures regarding compensation and appeals are expected to be established in a forthcoming sub-decree, which is under internal discussion within the technical team of the Ministry of Economy and Finance.

The government has shown willingness to use tax issues for political purposes.  For instance, in 2017, a U.S.-owned independent newspaper had its bank account frozen purportedly for failure to pay taxes. It is believed that, while the company may have had some tax liability, the action taken by Cambodia’s General Department of Taxation, notably an inflated tax assessment, was politically motivated and intended to halt operations. These actions took place at the same time the government took steps to reduce the role of press and independent media in the country as part of a wider anti-democratic crackdown.

Dispute Settlement

ICSID Convention and New York Convention

Cambodia has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention – also known as the Washington Convention) since 2005. Cambodia is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) since 1960.

Investor-State Dispute Settlement

International arbitration is available for Cambodian commercial disputes. In March 2014, the Supreme Court of Cambodia upheld the decision of the Cambodian Court of Appeal, which had ruled in favor of the recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board of Seoul, South Korea. Cambodia became a member of the World Bank’s International Center for Settlement of Investment Disputes in January 2005.

In 2009, the International Center approved a U.S. investor’s request for arbitration in a case against the Cambodian government, and in 2013, the tribunal rendered an award in favor of Cambodia.

International Commercial Arbitration and Foreign Courts

Commercial disputes can also be resolved through the National Commercial Arbitration Center (NCAC), Cambodia’s first alternative dispute resolution mechanism, which was officially launched in March 2013.  Arbitral awards issued by foreign arbitrations are admissible in the Cambodian court system. An example can be drawn from its recognition and enforcement of arbitral award issued by the Korean Commercial Arbitration Board in 2014. 

Bankruptcy Regulations

Cambodia’s 2007 Law on Insolvency was intended to provide collective, orderly, and fair satisfaction of creditor claims from debtor properties and, where appropriate, the rehabilitation of the debtor’s business. The Law on Insolvency applies to the assets of all business people and legal entities in Cambodia. The World Bank’s 2018 Doing Business Report ranks Cambodia 79 out of 190 in terms of the “ease of resolving insolvency.”

In 2012, Credit Bureau Cambodia (CBC) was established in an effort to create a more transparent credit market in the country. CBC’s main role is to provide credit scores to banks and financial institutions and to improve access to credit information.

Canada and the United States (U.S.) have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2017, the U.S. had a stock of USD391 billion of foreign direct investment (FDI) in Canada.  U.S. FDI stock in Canada represents 49 percent of Canada’s total investment. Canada’s FDI stock in the U.S. totaled USD523 billion.

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes.  NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds.  The Canadian government has blocked investments on only a few occasions.

Canada, the United States, and Mexico completed negotiations for a modernized and rebalanced NAFTA agreement on September 30, 2018.  The new United States-Mexico-Canada Agreement (USMCA) was signed by all three countries November 30, 2018 and will come into force after the completion of the domestic ratification processes by each individual member of the agreement.  The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Table 1

Transparency of the Regulatory System

The transparency of Canada’s regulatory system is similar to that of the U.S. The legal, regulatory, and accounting systems, including those related to debt obligations, are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons.

Canada and the U.S. announced the creation of the Canada-U.S. Regulatory Cooperation Council (RCC) on February 4, 2011. This regulatory cooperation does not encompass all regulatory activities within all agencies. Rather, the RCC focuses on areas where benefits can be realized by regulated parties, consumers, and/or regulators without sacrificing outcomes such as protecting public health, safety and the environment. The initial RCC Joint Action Plan set out 29 initiatives where Canada and the U.S. sought greater regulatory alignment.  A Memorandum of Understanding between the Treasury Board of Canada and the U.S. Office of Information and Regulatory Affairs, signed on June 4, 2018, reaffirmed the RCC as a vehicle for regulatory cooperation.

The World Bank published in-depth information on regulatory transparency for 185 economies. For information on Canada, see http://rulemaking.worldbank.org/data/explorecountries/canada#cer_transparency  .

International Regulatory Considerations

Canada is not part of a regional economic block and does not incorporate regional standards into its economic system. Canada and the U.S. work together through the RCC to develop like standards and streamline product certification on both sides of the border. Canada, with the U.S. and Mexico, is a member of the NAFTA.  The CETA agreement also contains a chapter on regulatory cooperation that commits both sides to strengthen regulatory cooperation and facilitate discussions between regulatory authorities in the EU and Canada. The Comprehensive and Progressive Partnership for Trans-Pacific Partnership contains a chapter on regulatory coherence that aims to encourage members of the agreement to adopt widely accepted good regulatory practices, such as reviewing the effectiveness of existing regulatory practices and providing public notice of future regulatory measures.

Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.

Legal System and Judicial Independence

Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Canada has both a federal parliament which makes laws for all of Canada and a legislature in each of the provinces and territories that deals with laws in their areas. When Parliament or a provincial or territorial legislature passes a statute, it takes the place of common law or precedents dealing with the same subject. The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions. This includes organizing and maintaining the civil and criminal provincial courts and civil procedures in those courts.

Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.

Parliament and provincial and territorial legislatures give government organizations the authority to make specific regulations. As of June 1, 2009, all consolidated Acts and regulations on the Justice Laws Website (http://laws-lois.justice.gc.ca/eng/  ) are “official,” meaning they can be used for evidentiary purposes.

Laws and Regulations on FDI

Foreign investment policy in Canada has been guided by the Investment Canada Act (ICA) since 1985. The ICA liberalized policy on foreign investment by recognizing that investment is central to economic growth and key to technological advancement. The ICA provides for review of large acquisitions by non-Canadians and imposes a requirement that these investments be of “net benefit” to Canada.  The ICA also contains provisions that permit the government to conduct a national security review of virtually any investment or acquisition. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only to notify the Canadian government of their investments.

U.S. FDI in Canada is subject to provisions of the ICA, the WTO, and the NAFTA. Chapter 11 of the NAFTA ensures that regulation of U.S. investors in Canada and Canadian investors in the U.S. results in treatment no different than that extended to domestic investors within each country, i.e., “national treatment.” Both governments are free to regulate the ongoing operation of business enterprises in their respective jurisdictions provided that the governments accord national treatment to both U.S. and Canadian investors.

Competition and Anti-Trust Laws

The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada’s antitrust legislation.

Expropriation and Compensation

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose, and the obligation to pay compensation. The federal government has not nationalized any foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed, after reaching agreement with the former owners.

Dispute Settlement

ICSID Convention and New York Convention

Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on May 12, 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.

Investor-State Dispute Settlement

Canada accepts binding arbitration of investment disputes to which it is a party only when it has specifically agreed to do so through a bilateral or multilateral agreement, such as a Foreign Investment Protection Agreement. The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between NAFTA persons and NAFTA member governments. The NAFTA encourages parties to settle disputes through consultation or negotiation. It also establishes special arbitration procedures for investment disputes separate from the NAFTA’s general dispute settlement provisions. Under the NAFTA, a narrow range of disputes dealing with government monopolies and expropriation between an investor from a NAFTA country and a NAFTA government may be settled, at the investor’s option, by binding international arbitration. An investor who seeks binding arbitration in a dispute with a NAFTA party gives up his right to seek redress through the court system of the NAFTA party, except for proceedings seeking nonmonetary damages. Canada does not have a history of extrajudicial action against foreign investors.

A list of current NAFTA Chapter 11 Arbitrations is below:

• Clayton/Bilcon v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/clayton.aspx?lang=eng  
• Lone Pine Resources Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/lone.aspx?lang=eng  
• Mobil Investments Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/mobil2.aspx?lang=eng  
• Resolute Forest Products Inc. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/resolute.aspx?lang=eng  
• Tennant Energy, LLC. v. Government of Canada: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/tennant.aspx?lang=eng  
• Westmoreland Coal Company v. Government of Canada: https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/westmoreland.aspx?lang=eng  

International Commercial Arbitration and Foreign Courts

Provinces primarily regulate arbitration within Canada. With the exception of Quebec, each province has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, requiring witnesses to attend and give evidence and produce documents and other evidence to the arbitral tribunal.

Bankruptcy Regulations

Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and is not criminalized. Creditors must deliver claims to the trustee and the trustee must examine every proof of claim. The trustee may disallow, in whole or in part, any claim of right to a priority under the BIA or security. Generally, the test of proving the claim before the trustee in bankruptcy is very low and a claim is proved unless it is too “remote and speculative.” Provision is also made for dealing with cross-border insolvencies and the recognition of foreign proceedings. Canada is ranked number 13 for ease of “resolving insolvency” by the World Bank. Credit bureaus in Canada include Equifax Canada and TransUnion Canada.

Policies Towards Foreign Direct Investment

China continues to be one of the largest recipients of global FDI due to a relatively high economic growth rate, growing middle class, and an expanding consumer base that demands diverse, high quality products.  FDI has historically played an essential role in China’s economic development. In recent years, due to stagnant FDI growth and gaps in China’s domestic technology and labor capabilities, Chinese government officials have prioritized promoting relatively friendly FDI policies promising market access expansion and national treatment for foreign enterprises through general improvements to the business environment. They also have made efforts to strengthen China’s legal and regulatory framework to enhance broader market-based competition.  Despite these efforts, the on-the-ground reality for foreign investors in China is that the operating environment still remains closed to many foreign investments across a wide range of industries.

In 2018, China issued the nationwide negative list that opened up a few new sectors to foreign investment and promised future improvements to the investment climate, such as leveling the playing field and providing equal treatment to foreign enterprises.  However, despite these reforms, FDI to China has remained relatively stagnant in the past few years. According to MOFCOM, total FDI flows to China slightly increased from about USD126 billion in 2017 to just over USD135 billion in 2018, signaling that modest market openings have been insufficient to generate significant foreign investor interest in the market.  Rather, foreign investors have continued to perceive that the playing field is tilted towards domestic companies. Foreign investors have continued to express frustration that China, despite continued promises of providing national treatment for foreign investors, has continued to selectively apply administrative approvals and licenses and broadly employ industrial policies to protect domestic firms through subsidies, preferential financing, and selective legal and regulatory enforcement.  They also have continued to express frustration over China’s weak protection and enforcement of IPR; corruption; discriminatory and non-transparent anti-monopoly enforcement that forces foreign companies to license technology at below-market prices; excessive cybersecurity and personal data-related requirements; increased emphasis on requirements to include CCP cells in foreign enterprises; and an unreliable legal system lacking in both transparency and rule of law.

China seeks to support inbound FDI through the MOFCOM “Invest in China” website (www.fdi.gov.cn  ).  MOFCOM publishes on this site laws and regulations, economic statistics, investment projects, news articles, and other relevant information about investing in China.  In addition, each province has a provincial-level investment promotion agency that operates under the guidance of local-level commerce departments.

• American Chamber of Commerce China 2019 American Business in China White Paper: https://www.amchamchina.org/policy-advocacy/white-paper/  
• American Chamber of Commerce China 2019 Business Climate Survey: https://www.amchamchina.org/policy-advocacy/business-climate-survey/  
• U.S.-China Business Council’s 2018 China Business Environment Member Survey: https://www.uschina.org/reports/uscbc-2018-member-survey  
• EU Chamber’s 2018 Business Confidence Survey: http://www.europeanchamber.com.cn/en/publications-business-confidence-survey  .
• MOFCOM’s Investment Promotion Website: http://www.fdi.gov.cn/1800000121_10000161_8.html  

Limits on Foreign Control and Right to Private Ownership and Establishment

In June 2018, the Chinese government issued the nationwide negative list for foreign investment that replaced the Foreign Investment Catalogue.  The negative list identifies industries and economic sectors restricted or prohibited to foreign investment. Unlike the previous catalogue that used a “positive list” approach for foreign investment, the negative list removed “encouraged” investment categories and restructured the document to group restrictions and prohibitions by industry and economic sector.  Foreign investors wanting to invest in industries not on the negative list are no longer required to obtain pre-approval from MOFCOM and only need to register their investment.

The 2018 foreign investment negative list made minor modifications to some industries, reducing the number of restrictions and prohibitions from 63 to 48 sectors.  Changes included: some openings in automobile manufacturing and financial services; removal of restrictions on seed production (except for wheat and corn) and wholesale merchandizing of rice, wheat, and corn; removal of Chinese control requirements for power grids, building rail trunk lines, and operating passenger rail services; removal of joint venture requirements for rare earth processing and international shipping; removal of control requirements for international shipping agencies and surveying firms; and removal of the prohibition on internet cafés.  While market openings are always welcomed by U.S. businesses, many foreign investors remain underwhelmed and disappointed by Chinese government’s lack of ambition and refusal to provide more significant liberalization. Foreign investors continue to point out these openings should have happened years ago and now have occurred mainly in industries that domestic Chinese companies already dominate.

The Chinese language version of the 2018 Nationwide Negative List: http://www.ndrc.gov.cn/zcfb/zcfbl/201806/W020180628640822720353.pdf .

Ownership Restrictions

The foreign investment negative list restricts investments in certain industries by requiring foreign companies enter into joint ventures with a Chinese partner, imposing control requirements to ensure control is maintained by a Chinese national, and applying specific equity caps.  Below are just a few examples of these investment restrictions:

Examples of foreign investments that require an equity joint venture or cooperative joint venture for foreign investment include:

• Exploration and development of oil and natural gas;
• Printing publications;
• Foreign invested automobile companies are limited to two or fewer JVs for the same type of vehicle;
• Market research;
• Preschool, general high school, and higher education institutes (which are also required to be led by a Chinese partner);
• General Aviation;
• Companies for forestry, agriculture, and fisheries;
• Establishment of medical institutions; and
• Commercial and passenger vehicle manufacturing.

Examples of foreign investments requiring Chinese control include:

• Selective breeding and seed production for new varieties of wheat and corn;
• Construction and operation of nuclear power plants;
• The construction and operation of the city gas, heat, and water supply and drainage pipe networks in cities with a population of more than 500,000;
• Water transport companies (domestic);
• Domestic shipping agencies;
• General aviation companies;
• The construction and operation of civilian airports;
• The establishment and operation of cinemas;
• Basic telecommunication services;
• Radio and television listenership and viewership market research; and
• Performance agencies.

Examples of foreign investment equity caps include:

• 50 percent in automobile manufacturing (except special and new energy vehicles);
• 50 percent in value-added telecom services (excepting e-commerce);
• 51 percent in life insurance firms;
• 51 percent in securities companies;
• 51 percent futures companies;
• 51 percent in security investment fund management companies; and
• 50 percent in manufacturing of commercial and passenger vehicles.

Investment restrictions that require Chinese control or force a U.S. company to form a joint venture partnership with a Chinese counterpart are often used as a pretext to compel foreign investors to transfer technology against the threat of forfeiting the opportunity to participate in China’s market.  Foreign companies have reported these dictates and decisions often are not made in writing but rather behind closed doors and are thus difficult to attribute as official Chinese government policy. Establishing a foreign investment requires passing through an extensive and non-transparent approval process to gain licensing and other necessary approvals, which gives broad discretion to Chinese authorities to impose deal-specific conditions beyond written legal requirements in a blatant effort to support industrial policy goals that bolster the technological capabilities of local competitors.  Foreign investors are also often deterred from publicly raising instances of technology coercion for fear of retaliation by the Chinese government.

Other Investment Policy Reviews

Organization for Economic Cooperation and Development (OECD)

China is not a member of the OECD.  The OECD Council decided to establish a country program of dialogue and co-operation with China in October 1995.  The most recent OECD Investment Policy Review for China was completed in 2008 and a new review is currently underway.

OECD 2008 report: http://www.oecd.org/daf/inv/investment-policy/oecdinvestmentpolicyreviews-china2008encouragingresponsiblebusinessconduct.htm  .

In 2013, the OECD published a working paper entitled “China Investment Policy: An Update,” which provided updates on China’s investment policy since the publication of the 2008 Investment Policy Review.

• OECD 2013 Update: http://www.oecd.org/china/WP-2013_1.pdf 
• OECD Regulatory Restrictiveness Survey: http://www.oecd.org/investment/fdiindex.htm  

World Trade Organization (WTO)

China became a member of the WTO in 2001.  WTO membership boosted China’s economic growth and advanced its legal and governmental reforms.  The sixth and most recent WTO Investment Trade Review for China was completed in 2018. The report highlighted that China continues to be one of the largest destinations for FDI with inflows mainly in manufacturing, real-estate, leasing and business services, and wholesale and retail trade.  The report noted changes to China’s foreign investment regime that now relies on the nationwide negative list and also noted that pilot FTZs use a less restrictive negative list as a testbed for reform and opening.

• WTO Investment Trade Review for China: https://www.wto.org/english/tratop_e/tpr_e/tp475_e.htm  
• International Monetary Fund (IMF) information on China: http://www.imf.org/external/country/Chn/  
• FDI Statistics from MOFCOM: http://www.fdi.gov.cn/1800000121_10000177_8.html  

Business Facilitation

China made progress in the World Bank’s Ease of Doing Business Survey by moving from 78th in 2017 up to 46th place in 2018 out of 190 economies.  This was accomplished through regulatory reforms that helped streamline some business processes including improvements related to cross-border trading, setting up electricity, electronic tax payments, and land registration.  This ranking, while highlighting business registration improvements that benefit both domestic and foreign companies, does not account for major challenges U.S. businesses face in China like IPR protection and forced technology transfer.

• World Bank Ease of Doing Business: http://www.doingbusiness.org/rankings  
• World Bank Investing Across Borders: http://iab.worldbank.org/data/exploreeconomies/china  

The Government Enterprise Registration (GER), an initiative of the United Nations Conference on Trade and Development (UNCTAD), gave China a low score of 1.5 out of 10 on its website for registering and obtaining a business license.  In previous years, the State Administration for Industry and Commerce (SAIC) was responsible for business license approval. In March 2018, the Chinese government announced a major restructuring of government agencies and created the State Administration for Market Regulation (SAMR) that is now responsible for business registration processes.  According to GER, SAMR’s Chinese website lacks even basic information, such as what registrations are required and how they are to be conducted.

• UNCTAD GER: https://ger.co/  
• SAMR Business Registration Information: http://www.saic.gov.cn/  

The State Council, which is China’s chief administrative authority, in recent years has reduced red tape by eliminating hundreds of administrative licenses and delegating administrative approval power across a range of sectors.  The number of investment projects subject to central government approval has reportedly dropped significantly. The State Council also has set up a website in English, which is more user-friendly than SAMR’s website, to help foreign investors looking to do business in China.

The State Council Information on Doing Business in China: http://english.gov.cn/services/doingbusiness  

The Department of Foreign Investment Administration within MOFCOM is responsible for foreign investment promotion in China, including promotion activities, coordinating with investment promotion agencies at the provincial and municipal levels, engaging with international economic organizations and business associations, and conducting research related to FDI into China.  MOFCOM also maintains the “Invest in China” website.

MOFCOM “Invest in China” Information: http://www.fdi.gov.cn/1800000121_10000041_8.html  

Despite recent efforts by the Chinese government to streamline business registration procedures, foreign companies still complain about the challenges they face when setting up a business.  In addition, U.S. companies complain they are treated differently from domestic companies when setting up an investment, which is an added market access barrier for U.S. companies. Numerous companies offer consulting, legal, and accounting services for establishing wholly foreign-owned enterprises, partnership enterprises, joint ventures, and representative offices in China.  The differences among these corporate entities are significant, and investors should review their options carefully with an experienced advisor before choosing a particular Chinese corporate entity or investment vehicle.

Outward Investment

Since 2001, China has initiated a “going-out” investment policy that has evolved over the past two decades.  At first, the Chinese government mainly encouraged SOEs to go abroad and acquire primarily energy investments to facilitate greater market access for Chinese exports in certain foreign markets.  As Chinese investors gained experience, and as China’s economy grew and diversified, China’s investments also have diversified with both state and private enterprise investments in all industries and economic sectors.  While China’s outbound investment levels in 2018 were significantly less than the record-setting investments levels in 2016, China was still one of the largest global outbound investors in the world. According to MOFCOM outbound investment data, 2018 total outbound direct investment (ODI) increased less than one percent compared to 2017 figures.  There was a significant drop in Chinese outbound investment to the United States and other North American countries that traditionally have accounted for a significant portion of China’s ODI. In some European countries, especially the United Kingdom, ODI generally increased. In One Belt, One Road (OBOR) countries, there has been a general increase in investment activity; however, OBOR investment deals were generally relatively small dollar amounts and constituted only a small percentage of overall Chinese ODI.

In August 2017, in reaction to concerns about capital outflows and exchange rate volatility, the Chinese government issued guidance to curb what it deemed to be “irrational” outbound investments and created “encouraged,” “restricted,” and “prohibited” outbound investment categories to guide Chinese investors.  The guidelines restricted Chinese outbound investment in sectors like property, hotels, cinemas, entertainment, sports teams, and “financial investments that create funds that are not tied to specific investment projects.” The guidance encouraged outbound investment in sectors that supported Chinese industrial policy, such as Strategic Emerging Industries (SEI) and MIC 2025, by acquiring advanced manufacturing and high-technology assets.  MIC 2025’s main aim is to transform China into an innovation-based economy that can better compete against – and eventually outperform – advanced economies in 10 key high-tech sectors, including: new energy vehicles, next-generation IT, biotechnology, new materials, aerospace, oceans engineering and ships, railway, robotics, power equipment, and agriculture machinery. Chinese firms in MIC 2025 industries often receive preferential treatment in the form of preferred financing, subsidies, and access to an opaque network of investors to promote and provide incentives for outbound investment in key sectors.  The outbound investment guidance also encourages investments that promote China’s OBOR development strategy, which seeks to create connectivity and cooperation agreements between China and countries along the Chinese-designated “Silk Road Economic Belt and the 21st-century Maritime Silk Road” through an expansion of infrastructure investment, construction materials, real estate, power grids, etc.

Transparency of the Regulatory System

In assessing China’s regulatory governance effectiveness, the World Bank Global Indicators of Regulatory Governance gave China a composite score of 1.75 out 5 points.  The World Bank attributed China’s relatively low score to the futility of foreign companies appealing administrative authorities’ decisions, given partial courts; not having laws and regulations in one accessible place that is updated regularly; the lack of impact assessments conducted prior to issuing new laws; and other concerns about public comments and transparency.

World Bank Rule Making Information: http://rulemaking.worldbank.org/en/data/explorecountries/china  

In various business climate surveys, U.S. businesses operating in China consistently cite arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China.  These challenges stem from a complex legal and regulatory system that provides government regulators and authorities broad discretion to selectively enforce regulations, rules, and other guidelines in an inconsistent and impartial manner, often to the detriment of foreign investor interests.  Moreover, regulators are often allowed to hinder fair competition by allowing authorities to ignore Chinese legal transgressors while at the same time strictly enforcing regulations selectively against foreign companies.

Another compounding problem is that Chinese government agencies rely on rules and enforcement guidelines that often are not published or even part of the formal legal and regulatory system.  “Normative Documents” (opinions, circulars, notices, etc.), or quasi-legal measures used to address situations where there is no explicit law or administrative regulation, are often not made available for public comment or even published, yet are binding in practice upon parties active in the Chinese market.  As a result, foreign investors are often confronted with a regulatory system rife with inconsistencies that hinders business confidence and generates confusion for U.S. businesses operating in China.

One of China’s WTO accession commitments was to establish an official journal dedicated to the publication of laws, regulations, and other measures pertaining to or affecting trade in goods, services, Trade Related Aspects of Intellectual Property Rights (TRIPS), or the control of foreign exchange.  The State Council’s Legislative Affairs Office (SCLAO) issued two regulations instructing Chinese agencies to comply with this WTO obligation and also issued Interim Measures on Public Comment Solicitation of Laws and Regulations and the Circular on Public Comment Solicitation of Department Rules, which required government agencies to post draft regulations and departmental rules on the official SCLAO website for a 30-day public comment period.  Despite the fact this requirement has been mandated by Chinese law and was part of the China’s WTO accession commitments, Chinese ministries under the State Council continue to post only some draft administrative regulations and departmental rules on the SCLAO website.  When drafts are posted for public comment, the comment period often is less than the required 30 days.

China’s proposed draft regulations are often drafted without using scientific studies or quantitative analysis to assess the regulation’s impact.  When Chinese officials claim an assessment was made, the methodology of the study and the results are not made available to the public. When draft regulations are available for public comment, it is unclear what impact third-party comments have on the final regulation.  Many U.S. stakeholders have complained of the futility of the public comment process in China, often concluding that the lack of transparency in regulation drafting is purposeful and driven primarily by industrial policy goals and other anti-competitive factors that are often inconsistent with market-based principles.  In addition, foreign parties are often restricted from full participation in Chinese standardization activities, potentially providing Chinese competitors opportunity to develop standards inconsistent with international norms and detrimental to foreign investor interests.

In China’s state-dominated economic system, it is impossible to assess the motivating factors behind state action.  The relationships are often blurred between the CCP, the Chinese government, Chinese business (state and private owned), and other Chinese stakeholders that make up the domestic economy.  Foreign invested enterprises perceive that China prioritizes political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors, fairness, and overall rule of law.  These blurred lines are on full display in some industries that have Chinese Self-Regulatory Organizations (SROs) that make licensing decisions. For instance, a Chinese financial institution who is a direct competitor to a foreign enterprise applying for a license may be a voting member of the governing SRO and can either influence other SRO members or even directly adjudicate the application of the foreign license.  To protect market share and competitive position, this company likely has an incentive to disapprove the license application, further hindering fair competition in the industry or economic sector.

For accounting standards, Chinese companies use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China.  Companies listed overseas (including in Hong Kong) may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.

International Regulatory Considerations

China has been a member of the WTO since 2001.  As part of its accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade (TBT Committee) of all draft technical regulations.  Compliance with this WTO commitment is something Chinese officials have promised in previous dialogues with U.S. government officials. The United States remains concerned that China continues to issue draft technical regulations without proper notification to the TBT Committee

Legal System and Judicial Independence

The Chinese legal system is based on a civil law model that borrowed heavily from the legal systems of Germany and France but retains Chinese legal characteristics.  The rules governing commercial activities are found in various laws, regulations, and judicial interpretations, including China’s civil law, contract law, partnership enterprises law, security law, insurance law, enterprises bankruptcy law, labor law, and several interpretations and regulations issued by the Supreme People’s Court (SPC).  While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes. In 2014, China launched three intellectual property (IP) courts in Beijing, Guangzhou, and Shanghai. In October 2018, the National People’s Congress approved the establishment of an national-level appellate tribunal within the SPC to hear civil and administrative appeals of technically complex IP cases .

China’s Constitution and various laws provide contradictory statements about court independence and the right of judges to exercise adjudicative power free from interference by administrative organs, public organizations, and/or powerful individuals.  However in practice, courts are heavily influenced by Chinese regulators. Moreover, the Chinese Constitution established that the “leadership of the Communist Party” is supreme, which in practices makes judges susceptible to party pressure on commercial decisions impacting foreign investors.  This trend of central party influence in all areas, not just in the legal system, has only been strengthened by President Xi Jinping’s efforts to consolidate political power and promote the role of the party in all economic activities. Other reasons for judicial interference may include:

• Courts fall under the jurisdiction of local governments;
• Court budgets are appropriated by local administrative authorities;
• Judges in China have administrative ranks and are managed as administrative officials;
• The CCP is in charge of the appointment, dismissal, transfer, and promotion of administrative officials;
• China’s Constitution stipulates that local legislatures appoint and supervise the courts; and
• Corruption may also influence local court decisions.

While in limited cases U.S. companies have received favorable outcomes from China’s courts, the U.S. business community consistently reports that Chinese courts, particularly at lower levels, are susceptible to outside political influence (particularly from local governments), lack the sophistication and educational background needed to understand complex commercial disputes, and operate without transparency.  U.S. companies often avoid challenging administrative decisions or bringing commercial disputes before a local court because of perceptions that these efforts would be futile and for fear of future retaliation by government officials.

Reports of business disputes involving violence, death threats, hostage-taking, and travel bans involving Americans continue to be prevalent.  However, American citizens and foreigners in general do not appear to be more likely than Chinese nationals to be subject to this kind of coercive treatment.  Police are often reluctant to intervene in what they consider internal contract disputes.

Laws and Regulations on Foreign Direct Investment

The legal and regulatory framework in China controlling foreign direct investment activities is more restrictive and less transparent across-the-board compared to the investment frameworks of developed countries, including the United States.  China has made efforts to unify its foreign investment laws and clarify prohibited and restricted industries in the negative list.

On March 17, 2019 China’s National People’s Congress passed the Foreign Investment Law (FIL) that intends to replace existing foreign investment laws.  This law will go into effect on January 1, 2020 and will replace the previous foreign investment framework based on three foreign-invested entity laws: the China-Foreign Equity Joint Venture Enterprise Law, the China-Foreign Cooperative Joint Venture Enterprise Law, and the Foreign-Invested Enterprise (FIE) Law.  The FIL provides a five-year transition period for foreign enterprises established under previous foreign investment laws, after which all foreign enterprises will be subject to similar laws as domestic companies, like the company law, the enterprise law, etc.

In addition to these foreign investment laws, multiple implementation guidelines and other administrative regulations issued by the State Council that are directly derived from the law also affect foreign investment.  Under the three current foreign investment laws, such implementation guidelines include:

• Implementation Regulations of the China-Foreign Equity Joint Venture Enterprises Law;
• Implementation Regulations of the China-Foreign Cooperative Joint Venture Enterprise Law;
• Implementation Regulations of the FIE Law;
• State Council Provisions on Encouraging Foreign Investment;
• Provisions on Guiding the Direction of Foreign Investment; and
• Administrative Provisions on Foreign Investment to Telecom Enterprises.

In addition to the three central-level laws mentioned above, there are also over 1,000 rules and regulatory documents related to foreign investment in China,  issued by government ministries, including:

• the Foreign Investment Negative List;
• Provisions on Mergers and Acquisition (M&A) of Domestic Enterprises by Foreign Investors;
• Administrative Provisions on Foreign Investment in Road Transportation Industry;
• Interim Provisions on Foreign Investment in Cinemas;
• Administrative Measures on Foreign Investment in Commercial Areas;
• Administrative Measures on Ratification of Foreign Invested Projects;
• Administrative Measures on Foreign Investment in Distribution Enterprises of Books, Newspapers, and Periodicals;
• Provision on the Establishment of Investment Companies by Foreign Investors; and
• Administrative Measures on Strategic Investment in Listed Companies by Foreign Investors.

The State Council has yet to provide a timeframe for new implementation guidelines for the Foreign Investment Law that will replace the implementation guidelines under the previous foreign investment system.  While the FIL reiterates existing Chinese commitments in regards to certain elements of the business environment, including IP protection for foreign-invested enterprises, details on implementation and the enforcement mechanisms available to foreign investors have yet to be provided.

In addition to central-level laws and implementation guidelines, local regulators and governments also enact their own regulations, rules, and guidelines that directly impact foreign investment in their geographical area.  Examples include the Wuhan Administration Regulation on Foreign-Invested Enterprises and Shanghai’s Municipal Administration Measures on Land Usage of Foreign-Invested Enterprises.

A Chinese language list of Chinese laws and regulations, at both the central and local levels: http://www.gov.cn/zhengce/  .

FDI Laws on Investment Approvals

Foreign investments in industries and economic sectors that are not explicitly restricted or prohibited on the foreign investment negative list are not subject to MOFCOM pre-approval, but notification is required on proposed foreign investments.  In practice, investing in an industry not on the negative list does not guarantee a foreign investor national treatment in establishing an foreign investment as investors must comply with other steps and approvals like receiving land rights, business licenses, and other necessary permits.  In some industries, such as telecommunications, foreign investors will also need to receive approval from regulators or relevant ministries like the Ministry of Industry and Information Technology (MIIT).

The Market Access Negative List issued December 2018 incorporated the previously issued State Council catalogue for investment projects called the Decision on Investment Regime Reform and the Catalogue of Investment Projects subject to Government Ratification (Ratification Catalogue).  Both foreign enterprises and domestic firms are subject to this negative list and both are required to receive government ratification of investment projects listed in the catalogue.  The Ratification Catalogue was first issued in 2004 and has since undergone various reiterations that have shortened the number of investment projects needed for ratification and removed previous requirements that made foreign investors file for record all investment activities.  The most recent version was last issued in 2016. Projects still needing ratification by NDRC and/or local DRCs include investments surpassing a specific dollar threshold, in industries experiencing overcapacity issues, or in industries that promote outdated technologies that may cause environmental hazards.  For foreign investments over USD300 million, NDRC must ratify the investment. For industries in specific sectors, the local Development and Reform Commission (DRC) is in charge of the ratification.

Ratification Catalogue: http://www.gov.cn/zhengce/content/2016-12/20/content_5150587.htm  

When a foreign investment needs ratification from the NDRC or a local DRC, that administrative body is in charge of assessing the project’s compliance with China’s laws and regulations; the proposed investment’s compliance with the foreign investment and market access negative lists and various industrial policy documents; its national security, environmental safety, and public interest implications; its use of resources and energy; and its economic development ramifications.  In some cases, NDRC also solicits the opinions of relevant Chinese industrial regulators and “consulting agencies,” which may include industry associations that represent Chinese domestic firms. This presents potential conflicts of interest that can disadvantage foreign investors seeking to receive project approval. The State Council may also weigh in on high-value projects in “restricted” sectors.

If a foreign investor has established an investment not on the foreign investment negative list and has received NDRC approval for the investment project if needed, the investor then can apply for a business license with a new ministry announced in March 2018, the State Administration for Market Regulation (SAMR).  Once a license is obtained, the investor registers with China’s tax and foreign exchange agencies. Greenfield investment projects must also seek approval from China’s Ministry of Ecology and Environment and the Ministry of Natural Resources. In several sectors, subsequent industry regulatory permits are required. The specific approvals process may vary from case to case, depending on the details of a particular investment proposal and local rules and practices.

For investments made via merger or acquisition with a Chinese domestic enterprise, an anti-monopoly review and national security review may be required by SAMR if there are competition concerns about the foreign transaction.  The anti-monopoly review is detailed in a later section of this report, on competition policy.

Article 12 of MOFCOM’s Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investment stipulates that parties are required to report a transaction to SAMR if:

• Foreign investors obtain actual control, via merger or acquisition, of a domestic enterprise in a key industry;
• The merger or acquisition affects or may affect “national economic security”; or
• The merger or acquisition would cause the transfer of actual control of a domestic enterprise with a famous trademark or a Chinese time-honored brand.

If SAMR determines the parties did not report a merger or acquisition that affects or could affect national economic security, it may, together with other government agencies, require the parties to terminate the transaction or adopt other measures to eliminate the impact on national economic security.  They may also assess fines.

In February 2011, China released the State Council Notice Regarding the Establishment of a Security Review Mechanism for Foreign Investors Acquiring Domestic Enterprises.  The notice established an interagency Joint Conference, led by NDRC and MOFCOM, with authority to block foreign M&As of domestic firms that it believes may impact national security.  The Joint Conference is instructed to consider not just national security, but also “national economic security” and “social order” when reviewing transactions. China has not disclosed any instances in which it invoked this formal review mechanism.  A national security review process for foreign investments was written into China’s new Foreign Investment Law, but with very few details on how the process would be implemented.

Chinese local commerce departments are responsible for flagging transactions that require a national security review when they review them in an early stage of China’s foreign investment approval process.  Some provincial and municipal departments of commerce have published online a Security Review Industry Table listing non-defense industries where transactions may trigger a national security review, but MOFCOM has declined to confirm whether these lists reflect official policy.  In addition, third parties such as other governmental agencies, industry associations, and companies in the same industry can seek MOFCOM’s review of transactions, which can pose conflicts of interest that disadvantage foreign investors.  Investors may also voluntarily file for a national security review.

U.S.  Chamber of Commerce report on Approval Process for Inbound Foreign Direct Investment: http://www.uschamber.com/sites/default/files/reports/020021_China_InvestmentPaper_hires.pdf .

Foreign Investment Law

On March 15, 2019 the National People’s Congress passed the Foreign Investment Law (FIL) that replaced all existing foreign investment laws, including the China-Foreign Joint Venture Law, the Contract Joint Venture Law, and the Wholly Foreign-Owned Enterprises Law.  The FIL is significantly shorter than the 2015 draft version issued for public comment and the text is vague and provides loopholes through which regulators could potentially discriminate against foreign investors. While the law made policy declarations on important issues to U.S. and other foreign investors (e.g.,  equal protection of intellectual property, prohibitions again certain kinds of forced technology transer, and greater market access,), specifics on implementation and enforcement were lacking.  The law goes into effect on January 1, 2020. Many high-level Chinese officials have stated that the implementation guidelines and other corresponding legal changes will be developed prior to the law going into effect.  The content of these guidelines and future corresponding changes to other laws to become consistent with the FIL will largely determine the impact it will have on the investment climate.

Free Trade Zone Foreign Investment Laws

China issued in 2015 the Interim Measures on the National Security Review of Foreign Investment in Free Trade Zones.  The definition of “national security” is broad, covering investments in military, national defense, agriculture, energy, infrastructure, transportation, culture, information technology products and services, key technology, and manufacturing.

In addition, MOFCOM issued the Administrative Measures for the Record-Filing of Foreign Investment in Free Trade Zones, outlining a more streamlined process that foreign investors need to follow to register investments in the FTZs.

Competition and Anti-Trust Laws

China uses a complex system of laws, regulations, and agency specific guidelines at both the central and provincial levels that impacts an economic sector’s makeup, sometimes as a monopoly, near-monopoly, or authorized oligopoly.  These measures are particularly common in resource-intensive sectors such as electricity and transportation, as well as in industries seeking unified national coverage like telecommunication and postal services. The measures also target sectors the government deems vital to national security and economic stability, including defense, energy, and banking.  Examples of such laws and regulations include the Law on Electricity (1996), Civil Aviation Law (1995), Regulations on Telecommunication (2000), Postal Law (amended in 2009), Railroad Law (1991), and Commercial Bank Law (amended in 2003), among others.

Anti-Monopoly Law

China’s Anti-Monopoly Law (AML) went into effect on August 1, 2008.  The National People Congress in March 2018 announced that AML enforcement authorities previously held by three government ministries would be consolidated into a new ministry called the State Administration for Market Regulation (SAMR).  This new agency would still be responsible for AML enforcement and cover issues like concentrations review (M&As), cartel agreements, abuse of dominant market position, and abuse of administrative powers. To fill in some of the gaps from the original AML and to address new commercial trends in China’s market, SAMR has started the process of issuing draft implementation guidelines to clarify enforcement on issues like merger penalties, implementation of abuse of market dominant position, etc.  By unifying antitrust enforcement under one agency, the Chinese government hopes to consolidate guidelines from the three previous agencies and provide greater clarity for businesses operating in China. Generally, the AML enforcement agencies have sought public comment on proposed measures and guidelines, although comment periods can be less than 30 days.

In addition to the AML, the State Council in June 2016 issued guidelines for the Fair Competition Review Mechanism that targets administrative monopolies created by government agents, primarily at the local level.  The mechanism not only requires government agencies to conduct a fair competition review prior to issuing new laws, regulations, and guidelines, to certify that proposed measures do not inhibit competition, but also requires government agencies to conduct a review of all existing rules, regulations, and guidelines, to eliminate existing laws and regulations that are competition inhibiting.  In October 2017, the State Council, State Council Legislative Affairs Office, Ministry of Finance, and three AML agencies issued implementation rules for the fair competition review system to strengthen review procedures, provide review criteria, enhance coordination among government entities, and improve overall competition-based supervision in new laws and regulations. While local government bodies have reported a completed review of over 100,000 different administrative documents, it is unclear what changes have been made and what impact it has had on actually improving the competitive landscape in China.

While procedural developments such as those outlined above are seen as generally positive, the actual enforcement of competition laws and regulations is uneven.  Inconsistent central and provincial enforcement of antitrust law often exacerbates local protectionism by restricting inter-provincial trade, limiting market access for certain imported products, using measures that raise production costs, and limiting opportunities for foreign investment.  Government authorities at all levels in China may also restrict competition to insulate favored firms from competition through various forms of regulations and industrial policies. While at times the ultimate benefactor of such policies is unclear, foreign companies have expressed concern that the central government’s use of AML enforcement is often selectively used to target foreign companies, becoming an extension of other industrial policies that favor SOEs and Chinese companies deemed potential “national champions.”

Since the AML went into effect, the number of M&A transactions reviewed each year by Chinese officials has continued to grow.  U.S. companies and other observers have expressed concerns that SAMR is required to consult with other Chinese agencies when reviewing a potential transaction and that other agencies can raise concerns that are often not related to competition to either block, delay, or force one or more of the parties to comply with a condition in order to receive approval.  There is also suspicion that Chinese regulators rarely approve “on condition” any transactions involving two Chinese companies, thus signaling an inherent AML bias against foreign enterprises.

Under NDRC’s previous enforcement of price-related monopolies, some procedural progress in AML enforcement was made, as they started to release aggregate data on investigations and publicize case decisions.  However, many U.S. companies complained that NDRC discouraged companies from having legal representation during informal discussions or even during formal investigations. In addition, the investigative process reportedly lacked basic transparency or specific best practice guidance on procedures like evidence gathering.  Observers continue to raise concern over the use of “dawn raids” that can be used at any time as a means of intimidation or to prop up a local Chinese company against a competing foreign company in an effort to push forward specific industrial policy goals. Observers also remain concerned that Chinese officials during an investigation will fail to protect commercial secrets and have access to secret and proprietary information that could be given to Chinese competitors.

In prior bilateral dialogues, China committed to strengthening IP protection and enforcement.  However, concerns remain on how China views the intersection of IP protection and antitrust. Previous AML guidelines issued by antitrust regulators for public comment disproportionately impacted foreign firms (generally IP rights holders) by requiring an IP rights holder to license technology at a “fair price” so as not to allow abuse of the company’s “dominant market position.”  Foreign companies have long complained that China’s enforcement of AML serves industrial policy goals of, among other things, forcing technology transfer to local competitors. In other more developed antitrust jurisdictions, companies are free to exclude competitors and set prices, and the right to do so is recognized as the foundation of the incentive to innovate.

Another consistent area of concern expressed by foreign companies deals with the degree to which the AML applies – or fails to apply – to SOEs and other government monopolies, which are permitted in some industries.  While SAMR has said AML enforcement applies to SOEs the same as domestic or foreign firms, the reality is that only a few minor punitive actions have been taken against provincial level SOEs. In addition, the AML explicitly protects the lawful operations of SOEs and government monopolies in industries deemed nationally important.  While SOEs have not been entirely immune from AML investigations, the number of investigations is not commensurate with the significant role SOEs play in China’s economy. The CCP’s proactive orchestration of mergers and consolidation of SOEs in industries like rail, marine shipping, metals, and other strategic sectors, which in most instances only further insulates SOEs from both private and foreign competition, signaling that enforcement against SOEs will likely remain limited despite potential negative impacts on consumer welfare.

Expropriation and Compensation

Chinese law prohibits nationalization of foreign-invested enterprises, except under “special circumstances.”  Chinese laws, such as the Foreign Investment Law, states there are circumstances for expropriation of foreign assets that may include national security or a public interest needs, such as large civil engineering projects.  However, the law does not specify circumstances that would lead to the nationalization of a foreign investment. Chinese law requires fair compensation for an expropriated foreign investment but does not provide details on the method or formula used to calculate the value of the foreign investment.  The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.

Dispute Settlement

ICSID Convention and New York Convention

China is a contracting state to the Convention on the Settlement of Investment Disputes (ICSID Convention) and has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).  The domestic legislation that provides for enforcement of foreign arbitral awards related to these two Conventions includes the Arbitration Law adopted in 1994, the Civil Procedure Law adopted in 1991 (later amended in 2012), the Law on Chinese-Foreign Equity Joint Ventures adopted in 1979 (amended most recently in 2001), and a number of other laws with similar provisions.  China’s Arbitration Law has embraced many of the fundamental principles of The United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration.

Investor-State Dispute Settlement

Chinese officials typically urge private parties to resolve commercial disputes through informal conciliation.  If formal mediation is necessary, Chinese parties and the authorities typically prefer arbitration to litigation.  Many contract disputes require arbitration by the Beijing-based China International Economic and Trade Arbitration Commission (CIETAC).  Established by the State Council in 1956 under the auspices of the China Council for the Promotion of International Trade (CCPIT), CIETAC is China’s most widely-utilized arbitral body in China for foreign-related disputes.  Some foreign parties have obtained favorable rulings from CIETAC, while others have questioned CIETAC’s fairness and effectiveness.

CIETAC also had four sub-commissions located in Shanghai, Shenzhen, Tianjin, and Chongqing.  CCPIT, under the authority of the State Council, issued new arbitration rules in 2012 that granted CIETAC headquarters greater authority to hear cases than the sub-commissions.  As a result, CIETAC Shanghai and CIETAC Shenzhen declared independence from the Beijing authority, issued new rules, and changed their names. This split led to CIETAC disqualifying the former Shanghai and Shenzhen affiliates from administering arbitration disputes, raising serious concerns among the U.S. business and legal communities over the validity of arbitration agreements arrived at under different arbitration procedures and the enforceability of arbitral awards issued by the sub-commissions.  In 2013, the Supreme People’s Court issued a notice clarifying that any lower court that hears a case arising out of the CIETAC split must report the case to the court before making a decision. However, this notice is brief and lacks detail like the timeframe for the lower court to refer and the timeframe for the Supreme People’s Court to issue an opinion.

Beside the central-level arbitration commission, there are also provincial and municipal arbitration commissions that have emerged as serious domestic competitors to CIETAC.  A foreign party may also seek arbitration in some instances from an offshore commission. Foreign companies often encounter challenges in enforcing arbitration decisions issued by Chinese and foreign arbitration bodies.  In these instances, foreign investors may appeal to higher courts.

The Chinese government and judicial bodies do not maintain a public record of investment disputes.  The Supreme People’s Court maintains an annual count of the number of cases involving foreigners but does not provide details about the cases, identify civil or commercial disputes, or note foreign investment disputes.  Rulings in some cases are open to the public.

International Commercial Arbitration and Foreign Courts

Articles 281 and 282 of China’s Civil Procedural Law governs the enforcement of judgments issued by foreign courts.  The law states that Chinese courts should consider factors like China’s treaty obligations, reciprocity principles, basic Chinese law, Chinese sovereignty, Chinese social and public interests, and national security before determining if the foreign court judgment should be recognized.  As a result of this broad criteria, there are few examples of Chinese courts recognizing and enforcing a foreign court judgment. China has bilateral agreements with 27 countries on the recognition and enforcement of foreign court judgments, but not with the United States.

Article 270 of China’s Civil Procedure Law also states that time limits in civil cases do not apply to cases involving foreign investment.  According to the 2012 CIETAC Arbitration Rules, in an ordinary procedure case, the arbitral tribunal shall render an arbitral award within six months (in foreign-related cases) from the date on which the arbitral tribunal is formed.  In a summary procedure case, the arbitral tribunal shall make an award within three months from the date on which the arbitral tribunal is formed.

Bankruptcy Regulations

China’s Enterprise Bankruptcy Law took effect on June 1, 2007 and applies to all companies incorporated under Chinese laws and subject to Chinese regulations.  This includes private companies, public companies, SOEs, foreign invested enterprises (FIEs), and financial institutions.  China’s primary bankruptcy legislation generally is commensurate with developed countries’ bankruptcy laws and provides for reorganization or restructuring, rather than liquidation.  However, due to the lack of implementation guidelines and the limited number of previous cases that could provide legal precedent, the law has never been fully enforced.  Most corporate debt disputes are settled through negotiations led by local governments.  In addition, companies are disincentivized from pursing bankruptcy because of the potential for local government interference and fear of losing control over the bankruptcy outcome.  According to experts, Chinese courts not only lack the resources and capacity to handle bankruptcy cases, but bankruptcy administrators, clerks, and judges all lack relevant experience.

In the October 2016 State Council Guiding Opinion on Reducing Enterprises’ Leverage Ratio, bankruptcy was identified as a tool to manage China’s corporate debt problems.  This was consistent with increased government rhetoric throughout the year in support of bankruptcy.  For example, in June 2016, the Supreme People’s Court issued a notice to establish bankruptcy divisions at intermediate courts and to increase the number of judges and support staff to handle liquidation and bankruptcy issues.  On August 1, 2016, the court also launched a new bankruptcy and reorganization electronic information platform: http://pccz.court.gov.cn/pcajxxw/index/xxwsy  .

The number of bankruptcy cases has continued to grow rapidly since 2015.  According to a National People’s Congress (NPC) official, in 2018, 18,823 liquidation and bankruptcy cases were accepted by Chinese courts, an increase of over 95 percent from last year.  11,669 of those cases were closed, an increase of 86.5 percent from the year before.  The Supreme People’s Court (SPC) reported that in 2017, 9,542 bankruptcy cases were accepted by the Chinese courts, representing a 68.4 percent year-on-year increase from 2016, and 6,257 cases were closed, representing a 73.7 percent year-on-year increase from 2016. The SPC has continued to issue clarifications and new implementing measures to improve bankruptcy procedures.

Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, such as financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, excessive duration of administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate. 

The Agency for Investment and Competitiveness (AIK) — previously a stand-alone Croatian government agency providing investors with various services intended to help with implementation of investment projects — became part of the Ministry of Economy, Entrepreneurship and Crafts at the start of 2019.  The Ministry’s Directorate for Investment, Industry and Innovation has assumed the assistance role previously offered by AIK. For more information, see: investcroatia.gov.hr. The Strategic Investment Act helps investors streamline large projects by gathering all necessary information the investor needs to implement the project and then fast-tracking the necessary procedures for implementation of the project, including acquiring permits and help with location. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of national security-sensitive sectors:  inland waterways transport, maritime transport, rail transport, air ground-handling, freight-forwarding, publishing, education, and ski instruction. Apart from these, the only blocks to market access involve routine professional requirements (architect, auditor, engineer, lawyer, and veterinarian).  Over 90 percent of the banking sector is foreign-owned. 

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an investment climate review for Croatia in June 2019:

https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm

The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2018: http://www.doingbusiness.org/en/data/exploreeconomies/croatia

Business Facilitation

The Croatian e-government initiative “Hitro.hr” (www.hitro.hr  ) provides for 24-hour access to on-line business registration. Additionally, Hitro.hr offices are located in more than 60 Croatian cities and towns. In order to begin business activities, a company needs to register with the State Statistics Bureau to obtain a company identification number, then with a Notary Public, the Commercial Court, Tax Administration, and Health and Pension agencies.  This process can take from one to three days, depending on the efficiency of the local Commercial court, which processes the registration. Private sector participants have complained that the process can take as long as 60 days.  

In 2018, the Global Enterprise Agency rated Croatia’s business registration process 4 out of 10, while the World Bank Ease of Doing Business report ranks Croatia as 123 out of 190 countries.  The government has pledged to improve conditions for business registration. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

Outward Investment

Croatians have invested some USD 4 million in the United States.  Croatia has no restrictions on domestic investors who wish to invest abroad.

Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations.  All legislation is published both on-line and in in the National Gazette, available at: www.nn.hr.

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public debate. The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.  There are no informal regulatory processes, and investors should rely solely on government issued legislation to conduct business.

Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.  Publicly listed companies must adhere to these accounting standards by law.  

Croatian courts are responsible for ensuring that laws are enforced correctly.  If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court.  However, judicial remedies are frequently ineffective due to delays or political influence.  

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. The Enforcement Act was amended in August 2017 and has incorporated EU Parliament and Council provisions for making cross-border financial claims easily enforced in both business and private instances.  More information can be found at www.fina.hr  . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.  Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at: http://www.mfin.hr/en  . 

International Regulatory Considerations

Croatia, as an EU member, transpose all EU directives. Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally based legislation that overrides national legislation.  Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects. International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.  The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over all civil and criminal cases. It hears appeals from the County, High Commercial, and Administrative Courts. Regulations and enforcement actions are appealable and adjudicated in the national court system.

The Ministry of Justice continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  While these reforms are underway, significant challenges remain in relation to reforming the land registry, training court officers, providing adequate resources to meet the case load, and reducing the backlog and length of bankruptcy procedures. Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  On average, Croatian courts resolve roughly the same number of cases that they receive each year, but there is a significant backlog (of sometimes tens of thousands of cases) which carries over from year to year.   

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Ministry of Economy, Entrepreneurship, and Crafts Directorate for Investment, Industry, and Innovation (investcroatia.gov.hr) facilitates both foreign and domestic investment and is available to all interested investors for assistance. Their website offers relevant information on business and investment legislation and includes an investment guide.

According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders.  Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital.  (Note: This list is not exhaustive.)

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to SOEs constituted unlawful state aid. Information on authorities of the Agency and past rulings can be found at www.aztn.hr  . The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property under various economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects.  However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process.  Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.

Article III of the U.S.-Croatia BIT covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate and effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID).  Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.

Investor-State Dispute Settlement

The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution. 

The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment, but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at www.fina.hr. 

Article Ten of the U.S.-Croatia BIT sets forth several mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment. 

Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases regarding U.S. investor claims before Croatian courts. The cases are in regard to privatization within the real estate sector and have been pending for years.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. . The Chamber of Economy’s Mediation Center has been operating since 2002 – see http://www.hok-cba.hr/hr/center-za-mirenje-hoka  . 

The World Bank Ease of Doing Business 2016 report commended Croatia for making enforcing contracts easier by introducing an electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole.  

There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.  All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The World Bank Ease of Doing Business 2018 rating for Croatia in the category of resolving insolvency was 59 out of 190 countries.  Bankruptcy is not considered a criminal act. 

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure. 

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company.

Policies Towards Foreign Direct Investment

The Czech government actively seeks to attract foreign investment via policies that make the country an attractive destination for companies to locate, operate, and expand.  Act No. 72/2000 allows the Czech government to give investment incentives to investors who make new investments or expand their existing investments in the country. CzechInvest, the government investment promotion agency that operates under the Ministry of Industry and Trade, negotiates on behalf of the Czech government with foreign investors.  In addition, CzechInvest provides: assistance during implementation of investment projects, consulting services for foreign investors entering the Czech market, support for suppliers, and assistance for the development of innovative start-up firms. There are no laws or practices that discriminate against foreign investors.

The Czech Republic is a recipient of substantial foreign direct investment (FDI).  Total foreign investment in the Czech Republic (equity capital + reinvested earnings + other capital) equaled USD 156 billion at the end of 2017, compared to USD 121.9 billion in 2016.  The increased activity of foreign investors reflects the solid state of the Czech economy and recovery in Europe. Of these, CzechInvest negotiated 106 new investment projects by foreign investors in the Czech Republic in 2017, worth USD 2.9 billion.

As a medium-sized, open, export-driven economy, the Czech market is strongly dependent on foreign demand, especially from the EU.  In 2018, 84.1 percent of Czech exports went to fellow EU member states, with 65.5 percent of this volume shipped to the EU and 32.4 percent to Germany, the Czech Republic’s largest trading partner according to the Czech Statistical Office.  The global economic crisis pulled the Czech Republic into its longest historical recession and highlighted its sensitivity to economic developments in the EU. Since emerging from recession in 2013, the economy has enjoyed some of the highest GDP growth rates of the European Union.  GDP growth reached 4.4 percent in 2017 and 2.9 percent in 2018. Growth estimates are smaller for 2019 at 2.6 percent, given uncertainty surrounding Brexit and the possibility of increasing international trade tariffs. Some experts predict a hard Brexit could cost the Czech economy 1.1 percent of GDP and 40,000 jobs.

The Czech Republic has no plans to adopt the EUR and instead has taken a delayed approach to adopting the Eurozone’s common currency.  Economic difficulties in the Eurozone during the global downturn weakened public support for the country’s adoption of the EUR, as did the Greek crisis, and the current government opposes setting a target date for accession.

Some unfinished elements in the economic transition, such as the slow pace of legislative and judicial reforms, have posed obstacles to investment, competitiveness, and company restructuring.  The Czech government has harmonized its laws with EU legislation and the acquis communautaire.  This effort involved positive reforms of the judicial system, civil administration, financial markets regulation, intellectual property rights protection, and in many other areas important to investors.

While there have been many success stories involving American and other foreign investors, a handful have experienced problems, mainly in heavily regulated sectors of the economy, such as media.  The slow pace of the courts is often compounded by judges’ lack of familiarity with commercial or intellectual property law.

Both foreign and domestic businesses voice concerns about corruption.  Other long-term economic challenges include dealing with an aging population and diversifying the economy away from an over-reliance on manufacturing and shared services toward a more high-tech, services-based, knowledge economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign individuals or entities can operate a business under the same conditions as Czechs.  Some areas, such as banking, financial services, insurance, or defense equipment have certain limitations or registration requirements, and foreign entities need to register their permanent branches in the Czech Commercial Register.  Some professionals, such as architects, physicians, lawyers, auditors, and tax advisors, must register for membership in the appropriate professional chamber. In general, licensing and membership requirements apply equally to foreign and domestic professionals.

As of 2012, U.S. and other non-EU nationals can purchase real property, including agricultural land, in the Czech Republic without restrictions.  Czech legal entities, including 100 percent foreign-owned subsidiaries, may own real estate without any limitations. The right of foreign and domestic private entities to establish and own business enterprises is guaranteed by law.  Enterprises are permitted to engage in any legal activity with the previously noted limitations in sensitive sectors. Laws on auditing, accounting, and bankruptcy are in force, including the use of international accounting standards (IAS).

The government does not differentiate between foreign investors from different countries.

In response to the European Commission’s September 2017 investment screening proposal, the Czech Republic is currently in the process of drafting legislation to create a mechanism to screen foreign investments for national security concerns.  The legislation would require government review before foreign investments in sensitive sectors like defense and critical infrastructure. Investments in certain other sectors could also require review within five years of a transaction if new advancements in technology mean foreign ownership could pose a national security risk.

The U.S.-Czech Bilateral Investment Treaty contains specific guarantees of national treatment and Most Favored Nation treatment for U.S. investors in all areas of the economy other than insurance and real estate (see the section on the Bilateral Investment Treaty below).  U.S. investors are not disadvantaged or singled out by the Czech government.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews through a multilateral organization.

Business Facilitation

Individuals have a number of bureaucratic requirements to set up a business or operate as a freelancer or contractor.  The Ministry of Industry and Trade provides an electronic guide on obtaining a business license, presenting step-by-step assistance, including links to related legislation and statistical data, and specifying authorities with whom to work (such as business registration, tax administration, social security, and municipal authorities), available at: https://www.mpo.cz/en/business/licensed-trades/guide-to-licensed-trades/  .  The Ministry of Industry and Trade has also established regional information points to provide consultancy services related to doing business in the Czech Republic and EU.  A list of contact points is available at: http://www.businessinfo.cz/en/psc.html  .

The time required to start a business was 25 days in 2018, which is slightly above the world average of 20.1 days.  The Czech Republic’s Business Register is publicly accessible and provides details on business entities. An application for an entry into the Business Register can be submitted in a hard copy, via a direct entry by a public notary, or electronically, subject to meeting online registration criteria requirements.  The Business Register is publically available at: https://or.justice.cz/ias/ui/rejstrik  .  The Czech Republic’s Trade Register is an online information system that collects and provides information on entities facilitating small trade and craft-oriented business activities, as specifically determined by related legislation.  It is available online at: http://www.rzp.cz/eng/index.html  .

Outward Investment

The volume of outward investment is lower than incoming FDI.  According to the latest data from the Czech National Bank, outward Czech outward investments amounted only to USD 32.4 billion in 2017, compared to inward investments of USD 156 billion.  However, outward investment activity has increased 78 percent since 2014. According to the Export Guarantee and Insurance Corporation (EGAP), Czech companies increasingly invest abroad to get closer to their customers, save on transport costs, and shorten delivery times.  The Czech government does not incentivize outward investment. As part of EU sanctions, there is a total ban on EU investment in North Korea as of 2017.

Transparency of the Regulatory System

Tax, labor, environment, health and safety, and other laws generally do not distort or impede investment.  Policy frameworks are consistent with a market economy. Fair market competition is overseen by the Office for the Protection of Competition (UOHS) (http://www.uohs.cz/en/homepage.html  ).  UOHS is a central administrative body entirely independent in its decision-making practice.  The office is mandated to create conditions for support and protection of competition and to supervise public procurement and state aid.

All laws and regulations in the Czech Republic are published before they enter into force.  Opportunities for prior consultation on pending regulations exist, and all interested parties, including foreign entities, can participate.  A biannual governmental plan of legislative and non-legislative work is available online, along with information on draft laws and regulations (often only in the Czech language).  Business associations, consumer groups, and other non-governmental organizations, including the American Chamber of Commerce, can submit comments on laws and regulations. Laws on auditing, accounting, and bankruptcy are in force.  These laws include the use of international accounting standards (IAS) for consolidated corporate groups. According to the latest Open Budget Survey, the Czech Republic scores 61 out of 100 countries in terms of public financial transparency.  The Czech government provides the public with substantial budget information, and the legislature adequately oversees the planning and implementation of the budget cycle. However, the survey recommends that the government include comparisons between borrowing estimates and actual results in the Year-End Report.

International Regulatory Considerations

Membership in the EU requires the Czech Republic to adopt EU laws and regulations, including rulings by the European Court of Justice (ECJ).

Czechoslovakia (the predecessor to the Czech Republic) was a founding member of the GATT in 1947, and a member of the World Trade Organization (WTO).  Since the country’s entry into the EU in 2004, the European Commission – an independent body representing all EU members –oversees Czech interests in the WTO.

Legal System and Judicial Independence

The Czech Commercial Code and Civil Code are largely based on the German legal system, which follows a continental legal system where the principle areas of law and procedures are codified.  The commercial code details rules pertaining to legal entities and is analogous to corporate law in the United States. The civil code deals primarily with contractual relationships among parties.

The Czech Civil Code, Act. No. 89/2012 Coll. and the Act on Business Corporations, Act No. 90/2012 Coll. (Corporations Act) govern business and investment activities.  The Act on Business Corporations introduced substantial changes to Czech corporate law such as supervision over the performance of a company’s management team, decision-making process, and remuneration and damage liability.  Detailed provisions for mergers and time limits on decisions by the authorities on registration of companies are covered, as well as protection of creditors and minority shareholders.

The judiciary is independent, but decisions may vary from court to court.  The reason for diverse legislative approaches may well be the fact that the new civil code did not only rewrite the system, but also introduced new terminology.  Consequently, the two substantive laws, the Penal Code and the Civil Code, have been adopted without a new procedural law to explain how the laws should be applied, which would allow courts to proceed according to clearly outlined jurisdictional guidelines.  Regulations and enforcement actions are appealable and the judicial process is procedurally competent, fair, and reliable.

Laws and Regulations on Foreign Direct Investment

The Foreign Direct Investment agenda is governed by the Civil Code and by the Act on Business Corporations.

The Czech Ministry of Industry and Trade maintains a “doing business” website at http://www.businessinfo.cz/en/   which aids foreign companies in establishing and managing a foreign-owned business in the Czech Republic, including navigating the legal requirements, licensing, and operating in the EU market.

Competition and Anti-Trust Laws

The Office for the Protection of Competition (UOHS) is the central authority responsible for creating conditions that favor and protect competition.  UOHS also supervises public procurement and monitors state aid programs. UOHS is led by a chairperson who is appointed by the president of the Czech Republic for a six-year term.

Expropriation and Compensation

Government acquisition of property is done only for public purposes in a non-discriminatory manner and in full compliance with international law.  The process of tracing the history of property and land acquisition by potential investors can be complex and time-consuming, but it is necessary to ensure clear title.  Investors participating in privatization of state-owned companies are protected from restitution claims through a binding contract with the government.

Dispute Settlement

ICSID Convention and New York Convention

The Czech Republic is a signatory and contracting state to the Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID Convention).  It also has ratified the convention on the Recognition and Enforcement of Arbitral Awards (New York Convention of 1958), which obligates local courts to enforce a foreign arbitral award if it meets the legal criteria.

Investor-State Dispute Settlement

In 1993, the Czech Republic became a member state to the ICSID Convention.  The 1993 U.S.-Czech Bilateral Investment Treaty contains provisions regarding the settling of disputes through international arbitration.  In the past 10 years, 30 investment disputes have involved a foreign investor. Of these, 17 have been resolved, 16 where the court ruled in favor of the Czech Republic and one where the parties settled out of court.

International Commercial Arbitration and Foreign Courts

Mediation is an option in nearly every area of law including family law, commercial law, and criminal law.  Mediators can be contracted between the parties to the dispute and found through such sources as the Czech Mediators Association, the Czech Bar Association, or the Union for Arbitration and Mediation Procedures of the Czech Republic.  A number of other non-governmental organizations (NGOs) and entities work in the area of mediation. Directive 2008/52/EC allows those involved in a dispute to request that a written agreement arising from mediation be made enforceable.  The results of mediation may be taken into account by the public prosecutor and the court in their decision in a given case. The local courts recognize and enforce foreign arbitral awards issued against the government.

Bankruptcy Regulations

A significant amendment to the bankruptcy law came into force on June 1, 2017.  The amendment includes provisions prohibiting insolvency tourism, restriction of voting rights of the creditors from the debtor’s group, provisions against “bullying” insolvency petitions, and stricter rules for documenting the existence of a claim when filing a creditor’s insolvency petitions.  It also sets penalties for bankruptcy administrators of up to CZK5 million (USD 200,000) for serious administrative violations such as failure to state the address of the bankruptcy administrator where the administrator actually executes his activities. Moving up 10 spots from 2018, the Czech Republic ranked fifteenth in the 2019 edition of the World Bank’s Doing Business Report for ease of resolving insolvency.