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STATES OF JERSEY
NOTIFICATION OF THE CONCLUSION OF THE BILATERAL AGREEMENT FOR THE PROMOTION AND PROTECTION OF INVESTMENTS BETWEEN THE GOVERNMENT OF JERSEY AND THE GOVERNMENT OF THE UNITED ARAB EMIRATES
Presented to the States on 20th January 2023
by the Minister for External Relations and Financial Services
STATES GREFFE
2023 R.6
REPORT
Introduction
This Report is presented to the States Assembly to notify Members of the conclusion of the Bilateral Agreement for the Promotion and Protection of Investments between the Government of Jersey and the Government of the United Arab Emirates, commonly referred to as "the Jersey-UAE Bilateral Investment Treaty" and described herein as "the Jersey-UAE BIT" or simply "the treaty".
The Report contains:
- Background to Bilateral Investment Treaties ......................................................... 3
- Government of Jersey policy on Bilateral Investment Treaties.............................. 4
- The negotiation of the Jersey-UAE BIT ................................................................. 6
- Key provisions of the Jersey-UAE BIT .................................................................. 7
- Procedure for the entry into force of the Jersey-UAE BIT ..................................... 8
- Financial and resource implications ..................................................................... 10
The final text of the signed Jersey-UAE BIT is attached as Appendix 1 to this Report.
MINISTER FOR EXTERNAL RELATIONS AND FINANCIAL SERVICES 20 January 2023
- Background to Bilateral Investment Treaties
A Bilateral Investment Treaty is a binding international agreement, between two jurisdictions, which is designed to protect, promote and liberalise cross-border investment. These agreements are limited in nature and do not cover broader trade issues, such as tariffs or regulatory alignment, which in general are instead governed by Free Trade Agreements or similar such treaties.
Bilateral Investment Treaties – or Investment Promotion and Protection Agreements as they can also be referred to – have existed for over six decades. The first such agreement was signed between West Germany and Pakistan in 1959. By the 1990s and early 2000s, they had become an integral part of the international investment strategy of almost every major economy, being seen as a pre-requisite to protect growing financial flows between capital-exporting and capital-importing jurisdictions.
As of 31 December 2022, 2850 Bilateral Investment Treaties have been signed globally with China (125), Germany (120) and Turkey (117) the countries with the largest individual networks. The agreements have proven particularly popular with jurisdictions that maintain successful centres for trade-in-services; the UK, Switzerland and the United Arab Emirates each boast 100+ treaties, whilst Luxembourg (83), Qatar (62), and Mauritius (42) can also promote themselves through their sizeable networks.
For balance, it should be noted that some jurisdictions such as New Zealand (4) and Iceland (8) have looked to other methods – such as the inclusion of investment provisions within their Free Trade Agreements – instead of the widespread pursuit of Bilateral Investment Treaties.
Jurisdictions entering into Bilateral Investment Treaties agree to adhere to a set of specific standards that establish the terms and conditions for the qualifying investors of one jurisdiction to make investments into the other jurisdiction.
If an investor believes that the other jurisdiction (which hosts their investment) has not abided by these terms and conditions, the investor can, through the treaty, exercise a powerful right of action via the agreed independent arbitration mechanism. This protection is a key feature of Bilateral Investment Treaties and serves as an alternative to using local courts in the host jurisdiction in order to resolve the dispute.
Bilateral Investment Treaties can contribute to facilitating cross-border investment in several ways. By committing both jurisdictions to the principles of Fair and Equitable Treatment' and Most Favoured Nation', these agreements can help ensure that qualifying foreign investors can enjoy at least the same benefits and concessions as would investors of the host jurisdiction itself, or indeed the investors of any other country who are operating in that jurisdiction.
Bilateral Investment Treaties also seek to liberalise the environment for investment between the two jurisdictions, including obligations to allow foreign investors to transfer their investments and returns out of the host jurisdiction freely and without delay.
Importantly, Bilateral Investment Treaties are designed to provide these additional protections and benefits to foreign investors whilst preserving without doubt the host jurisdictions' right to regulate and manage their domestic economies. The agreements generally stipulate that the benefits of the agreement can be denied to foreign investors in certain circumstances (such as in accordance with sanctions regimes), whilst they also seek to avoid placing onerous new commitments upon industry or regulators.
Application of Bilateral Investment Treaties in Jersey
There are three routes by which the provisions in Bilateral Investment Treaties (or equivalent agreements) can apply to Jersey.
Firstly, Jersey may have extended to it one of the UK's own treaties with another country. This is undertaken at Jersey's request and is enabled through an Exchange of Letters between the UK and the other signatory party. At present, Jersey has agreed to the extension of 37 of the UK's Bilateral Investment Treaties.1
Secondly, Jersey may choose to participate in a qualifying UK Free Trade Agreement (FTA) with a third country (or countries), which contains equivalent investor protections. Such provisions would be included in the services chapters of a Free Trade Agreement and, based on Jersey's involvement in the UK's post-Brexit FTAs thus far, remains therefore untested in practice at this stage. This option is most likely to be beneficial in a situation where the UK has concluded an FTA with a partner jurisdiction(s) with whom Jersey has not had the existing UK Bilateral Investment Treaty extended, and where it is considered very challenging for Jersey to negotiate its own bilateral treaty with the jurisdiction(s).
Thirdly, Jersey may negotiate its own Bilateral Investment Treaty with a third country subject to receiving the UK's prior permission (formally known as Entrustment'). This is the scenario in the case of the Jersey-UAE BIT, which would be Jersey's first such agreement, and it therefore represents an important moment in the development of the island's distinct international personality. Thus far, Jersey has also secured from the UK the permission to negotiate its own Bilateral Investment Treaties with Ghana and Rwanda, and will be seeking further agreements based on political and commercial priorities.
- Government of Jersey policy on Bilateral Investment Treaties
The Common Policy for External Relations, as approved by the Council of Ministers on 15th November 2022 and presented to the States Assembly on 22nd November 2022,
states that one of the core principles of the Government's international engagement will be to:
1 The 37 extended UK BITs were agreed with the following jurisdictions: Antigua & Barbuda, Bangladesh, Belize, Bolivia, Cameroon, Dominica, Grenada, Guyana, Honduras, Hungary, Indonesia, Jamaica, Jordan, Kazakhstan, the Republic of Korea, Latvia, Lesotho, Malaysia, Malta, Mauritius, Mongolia, Nepal, Pakistan, Panama, Papua New Guinea, Philippines, Romania, Senegal, Singapore, St Lucia, Swaziland, Thailand, Trinidad & Tobago, Tunisia, Turkmenistan, Uzbekistan and Yemen
"Serve Jersey's best economic interests by promoting a strong, diversified and internationally-connected economy, safeguarding its competitive position as a platform for global business and promoting growth through trade and investment" (p3).
In this context, the Common Policy also recognises the importance of developing the Island's relationships with priority partners overseas through the expansion of its treaty network:
"Acknowledging [] that Jersey also has the right under individual entrustments to negotiate and conclude Bilateral Agreements for the Promotion and Protection of Investments" (p2)
"[] Jersey will work to develop its own bilateral partnerships outside the United Kingdom and European Union, including through the negotiation and conclusion of its own international agreements under entrustment" (p7)
Over many years, the Government of Jersey has through the Ministry of External Relations implemented a strategy to establish treaty partnerships with key international partners, including through the Global Relations strategy.
Alongside Double Taxation Agreements, which create tax certainty for businesses and individuals, the pursuit of Bilateral Investment Treaties forms a key pillar of this work to enhance opportunities for trade and investment into, from, and through Jersey.
It is hoped that developing Jersey's network of Bilateral Investment Treaties can serve to:
- Protect outbound investments made by Jersey investors;
- Encourage direct investment into Jersey from a range of global sources;
- Highlight Jersey's connectivity as a legitimate treaty partner; and
- Reduce the risk of Jersey losing business to other trade-in-services centres.
Given the scale and breadth of outbound investment from Jersey, it is pivotal for the Island's investor community to be well-protected against risks such as warfare, corruption, expropriation or capital controls. Through investor-state and state-state dispute settlement procedures, Bilateral Investment Treaties provide strong protections from which Jersey investors, by default, do not otherwise benefit.
Bilateral Investment Treaties support foreign direct investment into Jersey, thereby supporting the domestic jobs and growth agenda, by improving the Island's attractiveness as a recipient of capital from a wider set of global sources. By providing certainty of treatment to qualifying foreign investors, the agreements are often considered a pre-requisite for major and long-term international investment in capital- intensive sectors such as infrastructure, housing, and renewable energy.
More generally, Bilateral Investment Treaties can offer wider advantages to support the Island's global reach and connectivity. One such example is Jersey's growing relationship with Ghana – a partnership which began with Ghana's approach to Jersey
to negotiate a Bilateral Investment Treaty (where discussions have progressed well) – and which has now deepened and diversified to include negotiations over a Double Taxation Agreement.
Lastly, Jersey's pursuit of Bilateral Investment Treaties can also reduce the risk of the Island missing out on investment opportunities – inbound and outbound – due to other global trade-in-services centres utilising the promotional benefits of their larger treaty networks. Global legal firms and intermediaries have confirmed that Bilateral Investment Treaties are an important component of client decisions when seeking to mitigate risk through treaty protections.
- The negotiation of the Jersey-UAE BIT
To guide its negotiations, the Government of Jersey has a modern and robust model treaty, which was developed in tandem with the UK Government and expert legal advice. The model acts as the basis for negotiations with treaty partners and it draws heavily on provisions in the EU-Canada Trade Agreement (CETA) of 2016, which is considered a best in class.
The United Arab Emirates (UAE) originally requested a Bilateral Investment Treaty with Jersey at the time of the negotiation of the Jersey-UAE Double Taxation Agreement, signed in 2016. The Government of Jersey was supportive of this request, given that Jersey and the UAE maintain a mature relationship encompassing political dialogue, regulatory cooperation, and importantly a high degree of commercial activity driven by strong people-to-people and business links.
Jersey Finance has its largest overseas office in Dubai, reflecting the UAE's regional primacy across a range of key commercial sectors, while dozens of Island firms have a physical presence in either Abu Dhabi or Dubai – greater than the rest of the Gulf region combined. This existing network can provide an ideal platform for Jersey to promote its Bilateral Investment Treaty with the UAE and facilitate increased commercial opportunities in one of Jersey's most active overseas markets.
In addition to offering protections to outbound Jersey investment, it is hoped that the conclusion of the treaty may help to drive foreign direct investment into Jersey from the UAE, which is pursuing an ambitious programme of international capital allocation through its five sovereign wealth funds that are, collectively, custodian of over $1.4 trillion of global assets. The presence of an existing treaty relationship between Jersey and the UAE, following the conclusion of the Double Taxation Agreement in 2016, provides an added incentive to conclude the Bilateral Investment Treaty in order to promote and liberalise investment opportunities between the two jurisdictions.
In 2018 the Government of Jersey received permission, formally referred to as a Letter of Entrustment, from the UK Government to commence negotiations with the UAE. Good progress through 2019 was followed by the disruptive impact of the Covid-19 pandemic in early 2020, after which negotiations were paused. Negotiations resumed in January 2021 and a final text was agreed, following approval by Jersey Law Officers and the UK Government, in October 2021.
The treaty was signed in Dubai, UAE, on 9th November 2021 by the then-Minister for External Relations and Financial Services alongside the UAE's Minister of State for Financial Affairs, His Excellency Mohammed bin Hadi Al Hussaini.
Through Federal Decree (48) of 11th April 2022, the UAE confirmed that it had completed its domestic procedures for the ratification of the treaty, which will enter force upon the completion of equivalent procedures in Jersey.
- Key provisions of the Jersey-UAE BIT
The Jersey-UAE BIT aligns with international best practice and can be recognised as a modern, future-proof agreement that closely follows the Jersey model treaty. As with every such treaty, the chief purpose of the agreement is to establish the terms and conditions for private investment by nationals and companies of one jurisdiction in the other.
The format of the treaty is consistent with global standards, opening with preambular language which reaffirms the shared objectives of both parties, followed by articles covering the legal boundaries of the treaty through definitions (Article 1) and the treatment that investors of Jersey or the UAE can expect in the other jurisdiction (broadly Articles 2-9).
The treaty not only obligates Jersey and the UAE to provide these protections to investors of other party, but also creates a powerful private right of action for investors – collectively known as Investor-State Dispute Settlement' or ISDS' mechanisms (Article 14) – which can be brought against the host government if it fails to meet those obligations. The treaty's dispute settlement procedures can be considered best in class because they provide investors with recourse to a verified menu' of arbitration routes including the UN Commission on International Trade Law and the London Centre for International Arbitration.
Given the established regulatory environments governing investment in both Jersey and the UAE, and the broadly similar, liberalised economic models pursued by both jurisdictions, it is unlikely that such action will be brought and it is hoped that the treaty will never be required for this purpose. However, the Jersey-UAE BIT nonetheless provides a safety net' for investors against a range of feasible threats or actions, including State-led expropriation, capital controls, unilateral judicial action or the impact of wider political events such as coups, warfare or corruption.
In addition to establishing arbitration mechanisms and guiding the rules that govern them, the treaty provides favourable treatment to Jersey investments into the UAE, and vice versa. By committing host jurisdictions to treat qualifying foreign investors no less favourably than it would their own investors, the Jersey-UAE BIT removes potential barriers to investment, including foreign direct investment into Jersey by the UAE as part of the Government's efforts to secure long-term growth and employment opportunities on the Island.
Whilst being investor-friendly, the agreement also preserves Jersey's competencies across key policy areas. For example, all matters relating to taxation, the operation of
trusts, and any provisions contained within or deriving from the Control of Housing and Work (Jersey) Law 2012 are explicated excluded from scope. The treaty also clearly states that Jersey maintains the right to deny the benefits of the treaty in circumstances to otherwise qualifying UAE investors, for instance in line with Jersey's sanctions regime.
As an instrument to promote bilateral investment, the treaty reconfirms both parties' commitment to sustainable economic development, including support for labour rights and environmental protections.
The Jersey-UAE BIT does not impose any new regulatory or technical burdens on industry, who have been consulted during the development of the Government of Jersey's approach to Bilateral Investment Treaties. The treaty does not require any new domestic legislation to enter into force in Jersey – as explained below.
- Procedure for the entry into force of the Jersey-UAE BIT
Context
The Jersey-UAE BIT was signed by the Minister for External Relations and Financial Services on 9th November 2021, in accordance with the provisions of Regulation 3 of the States of Jersey (Minister for External Relations and Financial Services) (Jersey) Regulations 2013 with respect to Article 18(3)(b) of the States of Jersey Law 2005, and in line with the Common Policy for External Relations.
Unlike the domestic procedures required for other international agreements, such as Double Taxation Agreements, it is not necessary for an Order to be made enabling the entry into force of a Bilateral Investment Treaty in Jersey. This is because Bilateral Investment Treaties, while binding under international law, do not require new legislation to support their implementation in Jersey. Instead, Bilateral Investment Treaties represent a set of commitments – akin to a contract – between the respective governments to promote and protect foreign direct investment in the signature jurisdictions; commitments which can be upheld through the dispute resolution mechanisms contained within the treaty in the event of an alleged breach.
As such, it is globally commonplace for Bilateral Investment Treaties, or equivalent agreements, to be ratified through a negative consent procedure, such as in the United Kingdom, Australia and Canada.
It should also be noted that there is good precedent in Jersey for negative consent procedures that include a cooling off' period before an Executive function is discharged. One example can be found in the Standing Orders of the States of Jersey, and specifically SO No.168 governing the procedure for land transactions. For identified transactions, there is a requirement for the Minister for Infrastructure to present reports to the Assembly and to allow a determined period before any contracts can be agreed. Another example relates to the States of Jersey (Appointment Procedures) (Jersey) Law 2018, whereby notice must be provided to the Assembly, and a period of time allowed afterwards, before certain appointments can take effect.
The Law Officers' Department has advised that the confirmed process for the conclusion and entry into force of Bilateral Investment Treaties in Jersey, outlined below, is therefore consistent and proportionate. External Relations has also engaged comprehensively with the States Greffe, the Privileges and Procedures Committee, and the Economic and International Affairs Scrutiny Panel to assist the facilitation of the new procedure within States business.
The procedure for entry into force
The procedure stipulates that, following the signing of a Bilateral Investment Treaty, the Council of Ministers is presented with the treaty and is asked to agree to the empowered Minister completing the necessary steps, including the presentation of a Report to the States Assembly, to enable the entry into force of the treaty. In parallel, the original treaty text is provided to the States Greffe for transmission to the archival record.
Subject to the approval of the Council of Ministers, briefings on the treaty are offered to the relevant Scrutiny Panel and subsequently to all Members of the States Assembly. The entry into force of the Bilateral Investment Treaty is then executed through two Ministerial Decisions and accompanying Reports.
The first Ministerial Decision presents to the States Assembly the treaty as signed and as approved by the Council of Ministers. The first Decision notifies the States Assembly of the conclusion of the treaty and initiates a 14-working-day period during which States Members may raise views on it.
At the end of the above period – provided no issues have arisen that the empowered Minister determines should prevent the Bilateral Investment Treaty's entry into force – Jersey's procedure enabling the entry into force of the treaty is complete. The empowered Minister then writes to the other signatory party to confirm this.
If Jersey is the first of the two jurisdictions to complete its domestic procedures, the treaty's entry into force can only occur once the other signatory party has provided written notification to Jersey that it has completed its own domestic procedures. If Jersey is the second of the two jurisdictions to complete its domestic procedures, the treaty enters into force upon the confirmation by the other signatory party that it has received written communication from the empowered Jersey Minister that Jersey has completed its domestic procedures.
Once the treaty is in force, a second Ministerial Decision is signed confirming the date of entry into force. Finally, copies of the treaty are separately uploaded to the Government of Jersey's online treaty database and conveyed to the UN treaty database.
In relation to the Jersey-UAE BIT, the Decision to which this Report is appended constitutes the first Decision of the above procedure, and follows the completion of the relevant previous stages of the procedure for the treaty. On 20th December 2022 the Council of Ministers agreed to the Minister for External Relations and Financial Services completing the necessary steps to enable the entry into force of the Jersey-UAE BIT.
Briefings on the treaty were provided to the Economic and International Affairs Scrutiny Panel on 13th January 2023 – which followed briefings with the Panel prior to the signature of the treaty in November 2021 – and to all available States Members on 20th
January 2023.
This Decision initiates a 14-working-day period during which Members can raise views on the conclusion and entry into force of the Jersey-UAE BIT. The period will end at 17.00 (GMT) on Thursday 9th February 2023.
Given that the UAE has already completed its domestic procedures to enable the entry into force of the treaty, as confirmed in UAE Federal Decree (48) of 11th April 2022, and subject to the resolution of any issue raised as described above, the Jersey-UAE BIT will enter into force shortly after the conclusion of the 14-working-day period upon the exchange of the relevant Ministerial correspondence.
- Financial and resource implications
There are no implications expected for the financial and other resources of the States arising from the conclusion of the treaty.
Appendix 1 – The Jersey-UAE Bilateral Investment Treaty