Arbitration Tribunal: For the Effective Protection of Business from Government
Today, in disputes with entrepreneurs, the Government represents both a disputing party and at the same time an arbiter. This circumstance induces Kyrgyz entrepreneurs to look for methods beyond the legal frameworks to resolve their disputes. Experts conclude that there is a necessity to delegate the functions of dispute resolution between Government and business to the International Arbitration Tribunal.
Esenbek Urmanov, specially for the IPP
The optimal model for the relationship between state authority and business has been always an object of quest in capitalist countries, since the economic welfare of the population, survival of the country, and realization of ambitious objectives set before leaders depend exactly on this model.
In Kyrgyzstan, this issue is topical and relevant as never before. The experience of excessive intervention by state agencies and their representatives in the activities of entrepreneurs through tax, custom legislation, licensing, etc., distorts entrepreneurial activities and makes the country’s business climate unfavorable for investors. In fact, it is hard to find a case throughout the years of independence when the investments were attracted with the consideration of national interests. State officials are interested in the prosperity of certain sectors, which is why Kyrgyzstan’s economy engenders favoritism, corruption, ordered bankruptcy, and repartition of ownership. As a result, the growth of investments and the economy are hindered overall. Business prefers neighboring Kazakhstan.
Lately, there have been attempts to improve the form of relationships between state structures and representatives of the private sector. Currently, representatives of business associations and state structures are discussing the Tax Code, which in its current version meets neither the interests of entrepreneurs, nor economic realities. The Ministry of Economics and Finance, together with representatives of business associations, is starting to develop a new law on investment. Customs inspection is attracting businessmen to its Public Council for the improvement of legislation. The Office of the General Prosecutor is introducing a draft of the decree on the creation of a standard list on the audit of business structures by state bodies for the President’s consideration.
However, these measures are not able to solve the problems of our business climate completely. In order to improve the current situation and to find the optimal model of relationships between state authority and business, it is first necessary to ask: how are the rights of businessmen protected. In Kyrgyzstan, it is unsafe and risky to have a business, which has been proved by a number of examples in which the Government has illegally interfered in business activities and created an unfavorable image of the country:
| Recall of a license from the company “Kyrgyz Air”
In July 2003, the Department of Civil Aviation recalled a license from the air-company “Kyrgyz Air” for civic air service on the Bishkek-Moscow-Bishkek route. According to a statement by the air-company’s management, the Department of Civil Aviation did not have reasons for the withdrawal of the license. Moreover, the state department violated the procedure of revocation of the license. During the negotiations, the parties did not solve the conflict, which led to the end of the air-company’s activities. In that year, the founders of the company immediately filed a claim to the International Arbitration Tribunal in London against state agency of Kyrgyz Republic – the Department of Civil Aviation (Government of the KR) – in the amount of several million USD (the sum cannot be disclosed now for several reasons) on the basis of investments expropriation by the Government of the KR. Currently, the arbitration proceeding is still in progress, causing enormous expenses and damages. In November 2004, the air company “Kyrgyz Air” was declared bankrupt, and is now in the process of liquidation. |
| Detention of meat importers at the custom’s office
In February of this year, a big consignment of chicken meat was illegally detained. The reason for the detainment was refusal by custom inspectors to register the arrived load. The chicken meat was produced in Brazil and the U.S.A, where the pesthole of bird flu was absent. The meat products had gone through several examinations, and the Department of Veterinary Affairs had stated that the products were safe to use. Nonetheless, the importers, whose load was in the custom’s office, experienced heavy losses because of the forced stoppage. |
| Cutting off the NTS channel’s regional broadcasting
On May 1, 2006 the channel NTS, which has earned a reputation as a professional and objective mass media source, was deprived from regional broadcasting. On NTS frequencies, the ElTV channel, which was established on the basis of Osh-3000 channel last year, started broadcasting. Without going deeply into the underlying political reasons, it should be said that NTS has lost its orders from clients, advertisers and part of its audience. |
In many cases, entrepreneurs do not publicize these kinds of facts and do not appeal to state courts on economic affairs, because they do not believe in the possibility of just resolution of disputes or do not want to waste their time on prolonged dispute investigations. There are three instances in state courts during dispute investigation: the first court, the court of appeal and the supervision court, which overall take more than one year, which is of course unacceptable to the entrepreneurs. It is much more profitable for businessmen to pay off state officials or satisfy the claims of the state agency. Obviously, this practice does not promote business development in the country.
The question arises: how to resolve the disputes which emerge between businessmen and the Government? It is possible to give several recommendations and outline the consequences of the implementation of each recommendation.
It would be logical to follow the general recommendations which are given by almost all interested parties. In particular, it is necessary to improve the skills of state specialists, increase the transparency of their activities, optimize tax and custom legislation, the order of licensing, etc., improve the functions of the court system through opposition to corrupt judges, and rule out the dependency of the judicial branch on the executive and legislative branches of power.
The above listed measures were declared a long time ago, but no real results have been felt. Unfortunately, any programs for business development and protection by state agencies are sabotaged by state bodies that are not interested in changing the essence and character of their work. Radical reformation of state agencies and the court system require a lot of time, efforts and resources.
International arbitration tribunal
In this case, the option of delegating authorities on dispute resolution between businessmen and the state agencies of KR to the International Arbitration Tribunal (IAT) under the Trade-Industry chamber of the KR (TIC of the KR) is quite attractive. This measure, approved on the legislative level, has provided efficiency and objectivity during the consideration of economic disputes between businessmen and state agency.
| Arbitration Tribunal
The arbitration tribunal, according to Kyrgyz legislation, is an individual arbiter or board of arbiters which resolves disputes that occur as a result of civil relations, in which the sources of accepted decisions are the agreements of the disputing parties, business culture and norms, as well as current practices in considering disputes of a similar category.
The main advantages of the investigation procedures of an arbitration tribunal are:
- Protection principles regarding the concrete interests of disputants on property, including the possibility to choose an arbiter;
- Contestation of the disputing parties;
- Speed and economy of trial proceedings;
- Absence of the publicity found in lawsuits;
- Convenience for the disputing sides regarding the time and place of dispute resolution.
By the initiatives of the conflicting parties, the arbitration tribunal provides a wide range of choices on arbiters (the judges of the arbitration tribunal) from a list of independent and qualified experts.
In September 2002, the International Arbitration Tribunal under the Trade-Industry Chamber of the KR, which is standing arbitration, was officially registered in the Kyrgyz Republic. At the present time, the list of arbiters on the International Arbitration Tribunal includes 112 experts from 15 countries of Europe, North America, and Asia, including 53 international arbiters from England, Sweden, Russia, Kazakhstan, U.S.A., France, Ukraine, Uzbekistan, Netherlands, Byelorussia, Turkey, India, Romania and Croatia. The list of arbiters includes not only lawyers, but also experts in economics, finance, and business. Decisions of the arbitration tribunal come into force after their pronunciation, and are not subject to appeal. |
Firstly, delegating the above described powers to the arbitration tribunal changes the state approach to business regulation and the discipline of state officials radically, by punishing them for irresponsible and illegal activities.
Secondly, the rights of national businessmen will be equalized with the rights of foreign companies by the legislature. At present, only foreign investors have the right to appeal to the arbitration tribunal, according to the law of the KR “On investments” (Article 18, part 2, paragraph “b”).
Moreover, this measure meets the economic interests of Kyrgyzstan, since state agencies would be able secure their positions when bankrupt and improper foreign companies threaten to file a claim to International Arbitration Tribunal in London. This measure excludes the expenditures for state personnel related to dispute resolution proceedings abroad, and positively influences the international image of Kyrgyzstan. Hence, the delegation of warrants to the International arbitration tribunal under the TIC of the KR would partially bring the Kyrgyz economy into conformity with the theoretical requirements and practices of a liberal market economy.
It is necessary to proceed from the fact that disputes between businessmen and state agencies arise in any case, despite the quality of developed or practiced legislative norms. Today, disputes are examined in state courts on economic affairs. In such disputes, the Government represents not only a disputing party on one side, but also an arbiter on the other side, which is fundamentally wrong. Delegation of the authorities on dispute resolution between private entrepreneurs and the Government to the IAT under the TIC of the KR would allow quick and efficient solutions on such issues as the protection of the rights and investments of businessmen without financial and time costs.
Esenbek Urmanov, advisor to the director of the Public Fund “Bishkek Think Tank Projects”
