Major directions in the establishment and development of investment law in Kazakhstan

Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010

Author: Dautbayeva Dinara , Kazakh-American Free University, Kazakhstan

Today it is quite an authentic fact that one of the most important directions of the governmental policy in the sphere of economic development is attracting national and foreign investment. It is an overall observation that the Republic of Kazakhstan has developed and is strengthening the complex of economic, legal and organizational measures aimed at protecting national and foreign investments. This complex of measures is designed as a set of rules and norms according to which there is an opportunity for creating favorable conditions for mutual investments.

Investment resources are always limited and that is why they should be spent purposefully, which is becoming especially important in conditions of the economic crisis. Due to this fact purposeful spending is one of the significant factors of stabilization and a consequent rise of economy. Investment policy, being an instrument of overcoming negative economic circumstances, should play an important role in economy management and help to solve problems with financial flows in accordance with the state interests under current social and economic conditions.

The state determines investment policy because it is allotted with political authority and is capable of implementing its will in normative legal documents, regulating investment flows. The state influence on this process is quite necessary; the state should be capable of protecting its interests, which represent the destiny of the whole nation [1, p. 15].

To determine general patterns and tendencies of investment law of our country it is necessary to examine the history of its emergence and development as a separate legislation branch.

Legal investment regulations exist on both international and domestic levels. Investments can be classified according to different principles into direct and indirect investments (portfolio investments, i.e. those which do not presuppose direct participation in company management), property and non-property investments, state and private investments (depending on a source of investment). International experience shows that model agreements have recently gained popularity; these are the agreements that regulate specifics of the state in relation to foreign investment regulations.

Effective development of investment became possible only in the mid of the 80s of the 20th century. The countrywide developing perestroika affected foreign economic activity. The 1986 resolution of SPCU Central Committee Politbureau permitting establishment of joint ventures made it possible for the state economy to accept foreign investments. This decision was connected with two resolutions of CPSU Central Committee and USSR Council of Ministers # 991 and #992 as of August 19, 1986 “About the measures to improve foreign economic relations” and “About the measures to improve economic and scientific and technical collaboration with socialist countries”. These documents determined the transition to realizing reforms in the sphere of foreign economic activity and forming a national system of investment legislation [2, p.29].

Adopted on December 10th, 1990 by the Supreme Council of the USSR the law “Fundamentals of legislation of investment activity in the USSR”, stated that agreement should become a principal document, regulating relations between two entities of investment activity. Kazakhstan like other republics of the Soviet Union adopted foreign investment and investment activity laws. The USSR law “About foreign investments” as of July 5th, 1991 provided the republics with the right to use their own legislation in case it doesn’t contradict current USSR constitution and legislation. During that period Kazakhstan made the first investment agreement, the parties of which were the Soviet Union and the American corporation Chevron [2, p. 30].

At the same time, soviet investment legislation didn’t last long; it was the time when the Soviet Union started to fall apart and new independent states started to appear. This period, though it was quite short, played a definite, or probably the most decisive, role in development of national investment legislation of the former soviet republics in general and that of Kazakhstan in particular. It was the time that determined the fundamentals of current investment activity.

In the Republic of Kazakhstan like in other former socialist countries the formation of national system of investment legislation became possible only during the period of their development as independent states and transition to market economy.

The first stage is the stage of formation of investment law, initially as a law about foreign investments. This process was initiated with the adoption of the Law of the Kazakh Soviet Socialist republic “About foreign investments in Kazakh SSR” as of December 7th, 1990, which was aimed effective attraction of foreign investments, advanced technology and managerial experience provided that there would be certain guarantees for foreign capital [3, p.473]. The purpose of the law was to create an open type economy in the republic and was to assist the fast transfer of the country to generally accept in the world methods of management. At the same time, this legislative act had severe drawbacks in investment relations regulation because it didn’t consider all peculiarities of the development of the Republic of Kazakhstan in conditions of market economy and didn’t reflect the interests of Kazakhstan people in conditions of gaining independence. But its adoption had certain positive moments: first of all, it was the first document, that legally consolidated existing investment relations in the republic; secondly, during a four-year period this legislative act determined the order of attracting investments into the economy of Kazakhstan which had an overall stimulating effect on foreign investment inflow; thirdly, it was the first time that the foreign capital had certain guarantees for its operation activities, unlike the legal acts of the 20s, according to which the Soviet state allowed foreign investments but didn’t take the responsibility to protect and safeguard it. Inclusion of the article devoted to foreign investments guarantees increased the interest of potential investors and influenced their activity.

Thus, this period is the first stage of market relations development in the Republic of Kazakhstan and the initial stage of development of a new legislative system of independent sovereign state in genera and national system of investment law in particular.

The second stage in development of investment law started with the adoption of the Republic of Kazakhstan law “About foreign investments” as of December 27th, 1994, which cancelled the previous aw about foreign investments in Kazakh Soviet Republic. The new law determined major legal and economic fundamentals of attracting foreign investments into economy of Kazakhstan, strengthened state guarantees to foreign investments and established organizational and legal forms of their existence and procedure of settlement of disputes with the foreign investors involved.

The peculiar feature of the second stage in investment law development is the fact that most of the acts and laws adopted those days were of temporary character. At the same time, this period marked the creation of legal basis for the current legislation which regulates market relations in the Republic of Kazakhstan.

The adoption of the Republic of Kazakhstan law “About state support of direct investments” on February 28th, 1997 signaled the beginning of the third stage of investment law development and improvement. The law is quite important because with its adoption, first, there started the formation of special direct investment legislation of the Republic of Kazakhstan; second, investment law moved to another quality stage of its development. There were three major directions:

- domestic investments were finally put on a par with foreign investments (previously this regulation, though included into investment activity law, was not used in practice due to its declarative character);

- the law legally vested the necessity of state support to foreign investments made in priority spheres of economy;

- there were determined the priority spheres of economy to attract intensively foreign investments in order to boost economic growth and increase effectiveness of the state economy.

Before adoption of direct investment law the legislation, first of all, served the interests of foreign investors and created extremely favorable conditions for them, which violated not only the interests of domestic investors but those of the state, since it was attracting foreign investments by any means, which in the final analysis turned absolutely inefficient and of no advantage for the republic, as foreign investments were mostly made into subsoil usage, which was of little importance for the state economy development and resulted only in increased expansion of subsoil by foreign investors. Also we should not forget that foreign investors are attracted not by subsoil per se, but by minerals deposits located on the territory of the republic. We should also remember that minerals differ from other natural resources by being limited in quantity and by being nonrenewable. This does not mean that we should reject participation of foreign investors in subsoil usage, but we should consider first of a national investors if a other conditions and parameters are equal.

Direct investment law signaled the emergence of new investment policy in the Republic of Kazakhstan, aimed at elimination of privileges and advantages given to foreign investors.

Thus, the main peculiarity of the third stage of investment aw development in the Republic of Kazakhstan consisted in adopting a block of special investment laws: direct investment law, foreign investment law and stocks investment law. At the same time there was adopted the law on state investments (including direct state investments, state borrowings and national debt and others).

Consequently the period between late 1990s and early 2000s marked the significant development of investment law in Kazakhstan legislation. This historical for Kazakhstan period was characterized by activization of policy in the sphere of external economic relations, which is undoubtedly one of the conditions that assure economic growth and by increased role of the state in investment policy implementation.

National economy treats the external factor not only as the possibility to take a certain place in the world economy but also as an opportunity to influence the development of different branches of industry, that is why the problem of increasing effectiveness of using external economic resources and improvement of external economic relations has always been and remains the focal point of attention of the state [4, p. 95].

On January 8th, 2003 the Republic of Kazakhstan adopted the investment aw, the main advantage of which was consolidation of norms regulating the investment relations and establishment of general legal order for foreign and domestic investments. At the same time some peculiarities of foreign investment legal regulations and direct investments were preserved. As positive consequences we can mention providing guarantees for foreign investors operating in the Republic of Kazakhstan. In particular legal protection of investors on the territory of the Republic of Kazakhstan (absolute and unconditional protection of rights and interests of the investors by the law and other legal acts of the Republic of Kazakhstan and also by international treaties ratified by Kazakhstan; right to compensation of losses occurring as a result of adoption of inappropriate act of a state body and also as a result of activity (inactivity) of executives of those state bodies in accordance with the civil legislation); guarantees for using income; investors’ rights guarantees in case of nationalization or requisition [5].

So, adoption of the Republic of Kazakhstan law “About investments” as of January 8th, 2003 was quite logical. There was a necessity to have an integrated investment law, which would consolidate in itself al special acts regulating investment relations and referring to different legislation branches prior to its adoption. Starting with the moment of adoption of Direct investments state support law it was clear that the first step towards legal equalizing of foreign and domestic investors had been made.

The fourth stage in investment aw development can be characterized in the following way – it was the stage of establishment of investment law as a separate legislation branch with all inherent features and characteristics.

At the same time this period can be given a different characteristic – the period of equal opportunities for foreign and domestic investors. We should not forget though that sustainable development could not be achieved without optimal combination of state interests and those of foreign and domestic investments – the primary importance should be given to mutually beneficial investments. Without appropriate legal support of foreign and domestic investment it will be very difficult to maintain existing investments and attract new investments into the economy of the country (and foreign investments in the first place).

Around the investment law there grouped other legal acts the branch belongingness of which had not been determined, which resulted in a final shaping of investment law as a separate branch of the Republic of Kazakhstan legislation.

Analysis of the system of law resources in the Republic of Kazakhstan after adoption of the current constitution leads as to the following conclusions:

- legal system of contemporary Kazakhstan is most close to European continental legal system. We have the same legal resources as the states of continental Europe. Under these conditions it is hardly possible to change the legal system radically according to the model of the USA or the UK legal system, including the introduction of case law;

- globalization of world processes places before the states the necessity of integration to solve global problems of humanity, that is why appeals “to go our own way” are not promising. We have to live not in a “special global system”, but in unity and cooperation with other world countries;

- Kazakhstan legal system should orientate itself on the legal standards adopted by leading world countries, European countries in particular, at the same time we should take into consideration accumulated prior experience, traditions and customs of Kazakhstan;

- orientation for the market economy, developed civil society and heading for establishment of law-governed state place a greater importance on normative agreement as a legal source. The same happens in European continental legal system.

International normative agreements in the law sphere are paid a special attention in the Republic of Kazakhstan. This is explained by the fact that a normative agreement regulates mostly international legal relations, and the theory of international agreements originated in the time of Spinoza and Grotius whilst the theory of internal normative agreement is evolving right now, and it is connected with the establishment of the civil society, law-regulated state and market relations development.

Today one of the major sauces of investment law are international agreements. At that most of them are bilateral agreements about encouragement and mutual protection of capital investments. Only two acts have universal meaning: Convention about regulation of investment disputes between the states and between the citizens of other states (Washington, March 18th, 1965) and Convention about the establishment of investment guarantees multilateral agency (Seoul, October 11th, 1985), which were ratified by the Republic of Kazakhstan. Washington convention established an international procedure of investment disputes settlements between the state on the one part and a individual and/or a legal entity of the other state on the other part through establishment of International Centre for Settlement of Investment Disputes (ICSID). ICSID goal is to provide mechanisms for conciliation and arbitration in reference eto investment disputes.

The main goal of Multilateral investment guarantee agency (MIGA) established by Seoul convention is to stimulate investment flows among the countries – MIGA members and especially investment flows into the economy of developing countries, complementing the activity of the World Bank, International Financial Corporation and other international organizations of financial development. To realize this MIGA provides guarantees including joint and recurring non-commercial risks insurance concerning foreign investments made on the territory of the developing countries. Non-commercial risks covered by Seoul convention include currency transactions, expropriation or similar activity, agreement violations, war and civil disturbances.

Thus, Washington and Seoul conventions concern only two particular issues: investment disputes settlement and foreign investors insurance and consequently cannot provide an overall settlement of international investment relations.

Within the frame of international legal regulations settlements on a regional level are realized in accordance with the following agreements – CIS agreement “About collaboration in the sphere of investment activity” as of December 23rd, 1993. Among bilateral agreements, which are a more flexible instrument of investment relations regulation, it is worth mentioning an agreement about mutual encouragement and protection of foreign capital investments. The main goal of such agreements is in providing equally favorable conditions for capital investments, establishment of possibilities for unimpeded withdrawal of a part of an income and non-commercial risks guarantees.

International legal investment protection is more effective for attracting investments than having similar guarantees fixed in national legislation. But, nonetheless, another constituent part of foreign investments regulations is a national legal part.

In spite of development of investment law, there are unfortunately some drawbacks and gaps remaining. Thus, we cannot but mention the fact that there hasn’t been created an effective legal basis for realization of the Republic of Kazakhstan law “About investments” and international normative legal acts ratified by the country.

From the point of view of T. Sokolova “the significant unresolved issue is the creation of the set of normative legal acts and programs that reinsure foreign investments through decreasing juridical and political risks guarantees” [6, p. 41].

These kinds of problems, as we think, demonstrate to the investors the interest or the absence of interests of the state executive organs in attraction and protection of investments and consequently the investors. Currently assessment of state investment attractiveness is determined by the level of investment legislation development, while the key element in assessment is existence of legal acts describing preferences and guarantees of both legal and financial investors, who implement investment projects in priority sectors of economy.

We have to state the fact that general declamations are not enough since to generate an inflow of foreign investments it is necessary to have an integrated legal, economic and political stability.

Besides, there is a negative influence of the lack of integral state policy of attracting foreign investments, in particular on the legislation level there are no fixed priorities concerning branches and types of investments, there are no defined mechanisms of guarantees especially concerning types of property. [6, p.41].

Of no small importance is the factor of law enforcement practice, which currently negatively affects investment activity starting from false bankruptcy and ending with failure to implement judicial decisions and other juridical acts.

Analysis of major stages of investment law development showed that one of the problems is a wrong interpretation of law and its norms. Considering this we should share the point of view of Y. Abdrassulov according to which “the reason causing this fact is that law enforcement practice getting more complicated due to fast development of social political and economic relations in all states.” Emergence of new states on the world political map and significant changes in constitutional systems on the one hand and an active process of word and regional integration on the other hand determined the necessity of developing new approaches to interpretation and implementation of legal norms, in the basis of which there should lie absolutely different criteria of interpretation results truth considering priorities of human rights and freedoms, new methods and techniques of revealing the contents of legal norms. Law interpretation is one of the traditional problems of juridical science, since interpretation of legal norms is the process that occurs in any case when it is necessary to define the meaning of normative statutes. Interpretation of law results in juridical consequences not only in the sphere of law enforcement, but in law realization in general. Moreover, interpretation exceeds the frames of law reinforcement, since interpretation is important not only for law reinforcement but also for lawmaking, scientific and educational law analysis» [7, p.3].

Fundamental elements of Kazakhstan current legislation improvement should be as follows:

- adaptation and unification of Kazakhstan national legislation laws to the conditions of factual participation in international investment organizations, expansion of practice of bilateral and multilateral agreements on investment guarantees and mutual protection;

- reconsideration of the system and mechanism of state support for domestic and foreign investors, including the support during the whole period of the investment project realization;

- determination of opportunities for emergence latent risks which occur during investment projects insurance;

- detailed regulation of investment project business plans, its structural elements, standards, legal peculiarities of its realization as a fundamental stage of investment projecting;

- reconsideration of the procedure of investment disputes settlement, assertion of Kazakhstan to all international mechanisms of investment disputes settlement.

There is no doubt, however, that everything mentioned above is just a part of all important elements providing stability to Kazakhstan legal system in the sphere of investment activity.

REFERENCES

1. Котов В. Методология государственного управления инвестициями в системе рыночных отношений // «Маркетинг: взгляд, мнение, позиция», №4, 1997, с. 15.

2. Богуславский М.М., Смирнов П.С. Правовые вопросы реформы внешнеэкономической деятельности // «Советское государство и право», №6, 1987, с. 29-30.

3. Ведомости Верховного Совета Казахской ССР, 1990, №50, ст. 473.

4. Утегенова С.Т. Пути повышения эффективности внешнеэкономических связей Казахстана // «Вестник КазНу. Серия экономическая», №1 (35), 2003, с.95.

5. Закон Республики Казахстан от 8 января 2003 года №373 «Об инвестициях».

6. Соколова Т.В. Характеристика правового регулирования иностранных инвестиций в России // «Международное частное право», №3 (24), 2005, с. 41.

7. Абдрасулов Е.Б. Толкование норм права в истории правовой мысли: Учебное пособие. – Алматы, 2000. – С. 3.



Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010

  
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