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Guardian Council Rejects New Foreign Investment Law - International Law Office

International Law Office

Company & Commercial - Iran

Guardian Council Rejects New Foreign Investment Law

July 30 2001

On June 14 2001 the Guardian Council, Iran's upper legislative house, rejected a Majlis bill modifying Iran's 1956 Law on the Attraction and Protection of Foreign Investment, which would improve the investment climate in Iran, claiming that it gave foreign investors "unfair advantages". The Majlis (Parliament) had ratified the 26-article bill on May 16.

At present, the Majlis could agree to some of the suggestions and recommendations made by the Guardian Council and send it back to the council. If the Guardian Council rejects the bill again the matter will be submitted to the Expediency Council, a body that has the final say in case of conflict between the Majlis and the Guardian Council. A recent example of the role that the Expediency Council plays was its support for the Majlis version of a law which permitted the establishment of foreign banks and insurance companies in Iran's free trade zones, thus overruling the Guardian Council.

The Guardian Council rejected the new Law on the Attraction and Protection of Foreign Investment for the following reasons, among others:

  • Its provisions put too many of the country's resources at the disposal of foreign companies and governments;

  • It enables foreign domination of the Iranian economy;

  • It discriminates between Iranians residing abroad and those living in Iran by giving special privileges to the former;

  • It affords special rights to foreigners, to the detriment of Iranians;

  • It provides concessions to foreigners and is contrary to the principle of proper economic policies and independence;

  • It discriminates between foreign and Iranian investors; and

  • It grants vague and arbitrary powers to the Council of Ministers and certain ministers.

The Guardian Council decision has led many Majlis deputies to accuse the council of presenting an obstacle to economic reform that would attract much-needed investment and create jobs. The view is that the Guardian Council has not taken a technocratic view of the law and has based its decision on politics. Some Majlis deputies have also indicated that making the changes mandated by the Guardian Council would negate the purpose of the law and as such it is impossible to do this.

If the bill becomes law, as is expected, a number of improvements will be added to the 1956 version of the Law on the Attraction and Protection of Foreign Investment. Among the most attractive features of the new bill for foreign investors is the fact that it removes much of the concern about the risk of future changes to Iranian laws.

Specifically, the new bill states that any new law which is beneficial for foreign investors that are operating under the Law on the Attraction and Protection of Foreign Investment will be applied to them, while those which would be detrimental to them would not.

The bill determines that all foreign investors are private sector companies, even if the investor is a foreign state company. It stipulates that the government is not entitled to grant a monopoly to any foreign investors and that no foreign investments can be exposed to expropriation through nationalization.

According to the bill, a special committee that oversees foreign investment will study applications from foreign investors. This committee is to comprise the deputy minister of finance and economic affairs in charge of the Organization of Investment and Economic and Technical Assistance, the deputy governor of the Central Bank of Iran and deputies of other relevant ministries.

The minister of finance and economic affairs is to sign the licence to be issued to a foreign company by the special committee.

For further information on this topic please contact Behrooz Akhlaghi at International Law Office Dr Behrooz Akhlaghi and Associates by telephone (+98 21 873 21 38) or by fax (+98 21 873 41 29) or by e-mail (bakhlaghi@kanoon.net).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.

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