The Italian-Turkish BIT

Bilateral investment treaties (BIT) are international agreements providing the terms, conditions and protections for private investment by individuals and entities of a contracting State (the home State) in the other Contracting State (the host State).

The proliferation of BITs at the turn of the 20^th century has transformed the international investment environment, as they represent a crucial element of globalization.

As far as it is known, approximately 3,000 BITs were signed, and more than 2,000 are in force.

Italy is a party to 102 BITs (and 77 treaties with investment provisions, including the EU treaties).  Turkiye is a party to 132 BITs (and 22 treaties with investment provisions).

On 22 March 1995, Italy and Turkiye signed their BIT, which entered into force on 2 March 2004.  Its English text is available here.

Available data shows that Italian investments in Turkey amount to USD 3,374,000,000, spreading across various sectors (food, clothing, chemicals, electric and electronic supplies, machinery, furniture, iron-steel and vehicle industries) (source here).  Turkish investments in Italy only amount to USD 75,000,000.  On the other hand, Italian entities have been investing in Turkiye since the 1960s.  In fact, as of September 2020, Turkish companies with Italian partners, and Italian companies with a presence in Turkiye, number more than a thousand.

While according to ICSID’s database, only a case was brought under the Italian-Turkish BIT (Enel S.p.A. v. the Republic of Turkiye, Case No.  ARB/21/61, still pending), the above situation makes it possible that more cases will arise.

This is the reason why this short commentary was written: to provide Italian investors in Turkiye (as well as Turkish investors in Italy) with a concise description of their rights and protections under the said BIT.

To do so, the methodology of UNCTAD’s IIA Mapping Project will be mainly used.

As said, the Italian-Turkish BIT was signed in 1995, almost thirty years ago.  Therefore, its preamble does not refer to sustainable development or social or environmental aspects. 

In addition, the BIT’s preamble does not mention the host State’s regulatory prerogatives, such as “right to regulate”, “regulatory autonomy”, “policy space”, “right to introduce new regulations”, “flexibility to safeguard public welfare”, and similar statements that sometimes are indicated.

Article 1 contains the definition of “investment”.  An asset-based definition was agreed upon, and an open-ended list of assets was included.  This is the broadest definition (in contrast to an enterprise-based definition), theoretically including, in some cases, even ordinary commercial transactions.  Indeed, “credit for sums of money and interest payment arising under loan agreements or any right for obligations, performances or services having an economic value connected with an investment” is mentioned, as well as “any right of a financial nature accruing by law or by contract”.

The sole limitation concerns that the protected investments have to be made “in conformity with the laws and regulations of” the host State.

It is worth noting that BIT’s protection applies to any investment made after or even before the BIT’s entry into force.

Article 1 also defines the “investor”: a natural person or a juridical person who effected is effecting or even intends to effect an investment.  The definition of “investor” does not include permanent residents of the home State.  On the other hand, it does not exclude dual nationals: a relevant point, considering the citizenship by investment law enacted in Turkiye.

Concerning legal entities, the BIT does not provide any further requirements (such as substantial economic activity in the home State or with respect to ownership and/or control).

Moreover, the BIT does not include a denial of benefit clause, i.e. a provision allowing the host State to deny treaty protection to an otherwise covered investment (e.g., in case the investor’s beneficial owner is national to a State against which the host State enacted economic and/or trade restrictions).  Another point of great interest, for instance, in the light of sanctions enacted by the EU (but not by Turkiye) against specific Russian individuals and entities following the Russian annexation of Crimea and the recent invasion of Ukraine.

The treaty’s protection does not exclude taxation matters, subsidies and grants, government procurement, or other subject matters (such as investments in cultural activities, services supplied in the exercise of governmental authority, etc.).

Article 2, para. 2, states the principle that “Both Contracting Parties shall at all times ensure fair and equitable treatment of the investments of investors of the other Contracting Party”.  This clause (sometimes referred to as a “FET clause”) does not qualify the host State’s obligation by reference to international law nor by including an indicative or exhaustive list of more specific elements (e.g., denial of justice and flagrant violations of due process; manifestly arbitrary treatment; evident discrimination; manifestly abusive treatment involving continuous, unjustified coercion or harassment; infringement of legitimate expectations). 

On the other hand, the BIT expressly forbids unjustified or discriminatory measures.  Nonetheless, it does not set forth a specific obligation to accord full protection and security to investors and investments.

Article 2, para. 3, facilitates the entry and sojourn of the home State nationals in the host State territory for purposes related to a covered investment.

Article 2, para. 4, contains the host State’s obligation to make public all laws, regulations, administrative practices and procedures concerning investments.

Article 3 lays down the principle of national treatment and contains the most favoured nation clause.  The host State shall grant foreign investors a treatment not worse than that of its nationals (or of the national of a third party, as the case might be).  It is worth noting that the above only applies to the post-establishment phase of the investment, while it does not apply to economic integration agreements.  In other words, for instance, Turkish investors under the BIT do not enjoy the treatment of EU nationals in Italy, as this treatment is outlined in the EU treaties (i.e., in economic integration agreements).

Article 4 concerns protection from strife (war or other forms of armed conflicts, State of emergency, revolt, insurrection, riot or other similar events) on a national treatment / most favoured nation basis.  On the other hand, no absolute right to compensation is set forth (such a right usually is granted in situations where the losses were caused by the forces or authorities of the host State).

Article 5 sets forth the protection from expropriation.  It also covers indirect expropriation, although it does not provide a definition thereof.  No cases (such as general regulatory measures) are carved out from the notion of expropriation.

Article 6 provides free transfer of funds relating to the investment, only subject to compliance with fiscal obligations.  The BIT does not provide for specific exceptions (such as those sometimes established to protect creditors in case of insolvency).

Article 7 contains the subrogation clause, whereby if the home State covers the losses suffered by an investor in the host State, it acquires the investor’s right to bring a claim and may exercise it to the same extent as the investor.

Disputes resolution mechanisms are covered by Articles 8 and 9.  While Article 9 concerns the disputes between the contracting States, Article 8 refers to disputes between investors and the host State.  It covers any dispute concerning the investment, provides for the possible fora (domestic Courts of the host State, ICSID, UNCITRAL, and possible other fora agreed on), and contains the host State’s consent to ICSID arbitration.

Articles 10 provides for the non-derogation clause: if another international treaty, to which the Contracting States are parties, or national legislation of the host State, provides for more favourable treatment of investors/investments, that other treaty (or national legislation) shall prevail in the relevant part over the provisions of the BIT.

Article 11 concerns the entry into force of the BIT, which happened, as said, on 2 March 2004.

With respect to its duration, under Article 12 the BIT remains in force for ten years and is tacitly renewed for five years.  Currently, it is in the second renewal period expiring on 1 March 2024.  Each contracting State may prevent the renewal by giving written notice a year before the expiry date (i.e., by 1 March 2023).  In the case of non-renewal, under a sunset clause, investors are granted the BIT’s protection for five years after the BIT’s expiry for investments made before that expiry.