How Investors Can Protect Assets in BRICS Countries: Legal Mechanisms and Risks
Lack of Unified Regulation
The BRICS bloc lacks a unified system for protecting foreign investments. Instead, member states rely on Bilateral Investment Treaties (BITs), which provide standard protection mechanisms but with country-specific variations. For instance, not all treaties allow disputes to be referred to international arbitration, and some only cover investments made during a specified period.
As of 2024, there are 18 active BITs between BRICS nations, with six more awaiting ratification. China has signed the most agreements, followed by the UAE and Russia. Notably, half of the existing treaties date back to the 1990s and offer broader investor protections.
Evolution of Investment Agreements
BITs can be categorized into two generations:
- 1990s Agreements – Provided investors with extensive guarantees, including the right to arbitration for any disputes.
- Modern Treaties (post-2014) – Impose stricter conditions, such as omitting fair treatment clauses or narrowing the scope of arbitrable disputes.
This shift reflects a global trend where states seek greater regulatory autonomy. For investors, however, it means increased reliance on host countries’ domestic laws and courts.
Key Investment Protection Criteria
To qualify for BIT protections, investors must meet several criteria:
- Investment Date – Some treaties (e.g., Russia’s, Egypt’s) only cover investments made after the agreement took effect.
- Investment Type – Most BITs impose no restrictions, though exceptions exist (e.g., Brazil, India).
- Investor Status – Protection is limited to entities or individuals registered in a treaty member state. Locally incorporated firms with foreign ownership typically cannot claim benefits.
Core guarantees include compensation for losses, protection against expropriation, free transfer of payments, and equal treatment with domestic investors.
Dispute Resolution: Arbitration vs. National Courts
Most BITs permit disputes to be resolved through international arbitration (ICSID, Stockholm Arbitration, etc.), which benefits investors because:
- Arbitral awards are easier to enforce (under the 1958 New York Convention).
- Arbitrators are perceived as more independent from political influence.
However, some older treaties restrict arbitration to compensation disputes, leaving other BIT violations to national courts. Additionally, certain agreements (e.g., China-Egypt and China-South Africa) bar arbitration if the investor has already filed suit locally.
Prospects: The BRICS+ Arbitration Mechanism (BRICSAM)
In 2024, BRICS proposed BRICSAM—a unified arbitration framework for commercial disputes among member states. However, the initiative remains under discussion, and implementation could take years. Meanwhile, investors are advised to:
- Thoroughly review BIT terms between their home country and the host state.
- Consider political risk insurance.
- Note that investments may remain protected for 5–20 years even after a treaty’s termination.
Conclusion
Investment protection in BRICS remains a complex, fragmented system. Investors must navigate both individual BIT nuances and the broader trend toward stricter regulation. While mechanisms like BRICSAM could reshape the landscape in coming years, BITs and international arbitration remain the primary tools for safeguarding assets.