Bilateral Investment Treaty (BIT)

The number of Bilateral Investment Treaties (BIT) ratified by developing countries has significantly increased. BITs have actually had an important role in attracting the foreign direct investment (FDI) to signatory countries.

BIT is an agreement between two countries which includes the terms and conditions of private investment by individuals and legal entities of one state in another state.

BIT contains reciprocal obligations for both parties in order to promote and protect private investments of the signatories in each other territories. Most of the BITs include fair and equitable treatment, explain rights and protection of investors, treatment for damages or losses, free transfer of means and security for repatriation of the capital and dividends.

The competent authority in Iran for approving BITs is the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI) which is under supervision of Ministry of Economic Affairs and Finance. In this respect, Iran has signed 71 BIT agreements with most of the European countries such as Germany, France, Italy, Poland, Sweden, Asian countries as well as countries of the Middle East, North and South Africa, notwithstanding the current negotiations underway with a large number of countries in the globe. It shall be noted that 58 of the said BITs are currently enforced.

The most important and significant feature of BITs is investor’s authority to choose an alternative dispute resolution mechanism. In BITs of Iran with other countries, the possibility of referring to the arbitration[1] seat for settlement of dispute is also considered.

it shall be noted that referring to the arbitration is predicted in Iran’s BITs with other countries in 2 categories as follows:

– Disputes between an investor and the host government:

In case of dispute arisen between an investor and the host government,  Article19 of Foreign Investment Protection and Promotion Act of Iran “(FIPPA), cited that: “Any disputes between the government and foreign investors related to the investments subject of this Act which cannot be settled through negotiations, shall be examined by domestic courts of law, unless another mode of settlement of disputes has been agreed upon within a law on bilateral investment agreement with the government of the Foreign Investor.”

So, according to the above, each of the relevant parties are entitled to refer to the arbitration courts.

Choosing arbitration as a method of dispute settlements of foreign investor and the host government is predicted in Iran’s BITs with several countries such as Italy, Japan, Spain.

For instance, the relevant clause in the BIT with Germany is as below:

“… if the dispute cannot be settled, it shall at the request of either party in dispute, be submitted to the competent court of the host Contracting Party, or provided six months have elapsed since the date when it has been raised, to international arbitration…”

  • Dispute between BIT Signatories governments:


In the event of a disputes arisen between BIT signatories’ governments regarding commitments and obligations of the respective governments vis-à-vis in respect of the implementation and interpretation of the contracts, settlement of such disputes is also included in the BITs and signatories’ governments could agree and refer the dispute to the competent arbitration tribunal which mentioned in the relevant BIT.

For Instance, in the BIT between Iran and Germany the aforementioned clause has been predicted as follow:

“Disputes between the Contracting Parties concerning the interpretation or application of this Agreement should as far as possible be settled by the governments of the two Contracting Parties. If a dispute cannot thus be settled, it shall upon the request of either Contracting Party be submitted to an arbitration tribunal…”.

The relevant clause has also been cited in Iran’s BITs with, Italy, Turkey, Japan, China, Spain, Sweden, etc.

Based on the above, concluding BIT gives opportunity for attracting foreign investors into the developing countries. BIT helps investors to protect their investments against political and non-commercial risks and foreign investors could clearly recognize their right and benefits. Above all, BIT provides the possibility of referring to the arbitration for settlements of disputes instead of the courts which is one of the most prominent features of this type of contract.

We hope the prevailing circumstances imposed in our country would be changed and we would be in a position to attract foreign investments again after lifting the sanctions.

Respectfully coordinated by. Dr. Mahnaz Mehrinfar and Ms. Khatereh Shahbazi

[1] Regarding arbitration, Iran also accessed to the to the New York Convention on Recognition and Enforcement Foreign Arbitral awards of 10 June 1958 on April 18, 2001.