The agreement of seven CIS countries on free trade in services and investments is being prepared for ratification

The approval of the agreement on free trade in services and investments in the CIS will provide access to investors from the countries that signed the document to the markets of Uzbekistan and Tajikistan by providing them with national treatment, follows from the bill on ratification of the agreement prepared by the Ministry of Economy. The agreement also establishes guarantees for the protection of capital investments and the free transfer abroad of payments related to investments, and in the event of disputes, the investor will be able to apply to international arbitration. In the last two years, the number of such cases involving Russian investors, however, has sharply decreased.

The Ministry of Economy has prepared a draft law on the ratification of an agreement on free trade in services and investments in seven CIS countries (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan). The document was signed in June 2023 at a meeting of the Council of Heads of Government of the CIS and complements the agreement on duty-free trade in goods in force since 2011. The benefits from it are the formation of a preferential regime in relations with Tajikistan and Uzbekistan, with which, among other things, it was possible to agree on uniform rules for regulating the establishment of companies in all sectors of the economy. This is much broader than the obligations within the WTO; they traditionally concern only the service sectors, the Ministry of Economy explained (at the same time, Uzbekistan has not previously accepted them, not being a member of the WTO). Tajikistan will also allow companies to enter the markets of notary services and the services of payment system operators.

According to the agreement, if new restrictions or prohibitions are introduced in the future for foreign investors, they will not apply to investors from the Russian Federation. Exceptions are defined only for a number of the most sensitive industries – mining in Tajikistan and nuclear energy, mining of precious metals and stones, production of machinery and equipment for general and special purposes, electrical machines and instruments and transport equipment in Uzbekistan. A unified investment protection standard is also being introduced. It prohibits the seizure of property, allowing it only if a number of conditions are met – the absence of discrimination and violations of legal procedures, and adequate compensation must be paid for any damage to the investor in connection with the seizure. The agreement also enshrines guarantees for the free transfer abroad of payments related to investments, the Ministry of Economy adds. To protect their interests, the investor will be able to apply to international arbitration. But disputes involving Kazakhstan, according to the clause, must be considered by the court of the Astana International Financial Center.

For services, the effect of the agreement will not be immediate: with the exception of Russia, the participants are not their active suppliers, notes Maxim Medvedkov, adviser to the Center for Expertise on WTO Issues. The main difference between the new agreement and similar ones is that it provides investors from participating countries with a national access regime, rather than a maximum-favored nation regime (it provides for non-discrimination against other foreign companies). The agreement also stipulates a list of industries, whereas usually it is determined by national legislation and, accordingly, may change, explains Mr. Medvedkov. The choice of court is determined by the parties to the dispute (in the last two years, the number of such proceedings involving investors from the Russian Federation has sharply decreased), but the business climate of the country is more important, since investors go to earn money and not go to court, the expert adds.

Igor Bostanika, head of the civil law and litigation practice at Redl and Partners, believes that the agreement will be more focused on protecting Russian investments in Uzbekistan and Tajikistan (they are not covered by regulation within the EAEU). To resolve disputes between an investor and the state by agreement, investors can apply to an arbitration court in any of the participating countries, to a permanent international arbitration body (in particular, the ICAC at the Chamber of Commerce and Industry), ad hoc arbitration, or to the court of the Astana International Financial Center.

Tatiana Edovina