Investment protection between Serbia and major economies: United States

Introduction to the Series

Foreign investments play an important role in Serbia’s economic policy. With 53 signed bilateral investment treaties (“BITs“), only few of which are not in force, Serbia has a notable network of international investment protection instruments for an economy of comparable size. However, investment protection regimes applicable between Serbia and various countries are quite diverse and largely unsophisticated, involving a number of old generation BITs with more or less restrictive terms. Moreover, relations with some bigger economies lack any applicable international investment protections.

Over the next several weeks, we will be reviewing investment protection frameworks applicable between Serbia and several major world economies, specifically the US, China, Russia, Germany, Italy, and France. Our analysis will address investment flows, applicable investment protection regimes, as well as applicable regimes for the recognition and enforcement of judicial and arbitral decisions.

We open the series on investment protection between Serbia and major economies with the analysis of the framework applicable to US investments in Serbia, following the recent ratification of the investment incentive agreement.

United States
Investment Flows

Statistics concerning investment flows between the US and Serbia vary depending on the source. The Development Agency of Serbia, the governmental body in charge of support for direct investments, reports that the US ranks fourth country of origin of foreign investments in Serbia, with a 6.1% market share, in terms of the number of projects, but second, with a 10.2% market share, in terms of the value of projects. The International Monetary Fund, on the other hand, does not rank the US among the top 5 investment partners of Serbia.

Investment Protection Regime

The US and Serbia do not have a BIT in the proper sense. However, on 21 January 2021, the two countries signed a new “investment incentive agreement”, replacing the 2001 agreement on the same matter signed by the US and the Federal Republic of Yugoslavia (text available here). The agreement was ratified by Serbia on 29 April 2021 and it entered into force on 6 May 2021. The agreement does not offer investment protections but regulates the operation of the US International Development Finance Corporation (“DFC“) in Serbia. DFC is a US governmental body and operates as a development bank, providing finances, guarantees, insurance etc. to investments abroad. The agreement essentially grants privileges to DFC in Serbia, such as exemption from local regulations, jurisdiction, and taxes.

The agreement recognizes the sovereign nature of DFC’s operations, and accordingly provides for an inter-state dispute resolution mechanism only. Specifically, if a dispute cannot be resolved by negotiations, a party can resort to arbitration, provided that 90 days have passed since the notification of the dispute to the other party. The arbitral tribunal will apply the UNCITRAL Arbitration Rules, unless different rules are agreed upon by the parties, and the ICSID Secretary-General will act as the appointing authority, in the case the parties fail to appoint arbitrators.

Notably, the dispute resolution mechanism does not cover the exercise of diplomatic protection by one of the parties, except in respect of DFC. This means that investors themselves cannot benefit from the dispute settlement mechanism.

In the absence of an investment protection treaty, the US investors in Serbia can rely on the Serbian Investment Act. The act provides usual investment protections (full protection and security, the protection against expropriation, national treatment, transfer of funds), however the act does not offer access to arbitration for the settlement of investor-state disputes.

Recognition and Enforcement of Judicial and Arbitral Decisions

Recognition and enforcement of judicial decisions between Serbia and the US is somewhat difficult considering that there is no treaty between these states on the issue. US judgments can be recognized and enforced in Serbia in accordance with the general procedure for recognition and enforcement of foreign judgments. Recognition can be denied if basic due process rights of the defendant were not respected, if Serbian courts/organs have exclusive jurisdiction over the matter, if there is a final judgment in Serbia on the matter, or if the judgment violates Serbian public order.

Crucially, Serbian law also requires reciprocity in the matter of recognition of the relevant type of foreign judgments (commercial judgments in this case). Reciprocity can be factual, i.e. it is not necessary that there is a treaty on judgment recognition matters between Serbia and the home country of the judgment. Reciprocity is presumed until rebutted by the party opposing the recognition. However, issues arise in several respects. First, although the law sets a plainly strong presumption in favour of reciprocity, Serbian courts in practice shift the burden of proof that reciprocity exists on the applicant as soon as the respondent alleges that reciprocity does not exist. Second, in the case of doubt, the Ministry of Justice gives an opinion regarding the existence of reciprocity, which is problematic considering that this administrative body is not equipped to either gather or adequately interpret relevant foreign law. Third, regarding the US specifically, Serbian courts have held that the existence of reciprocity should be examined in respect of each US state. Therefore, there is no general answer to the question whether US court decisions are recognizable and enforceable in Serbia and the answer depends on the local origin of a specific decision and the existence of factual reciprocity in respect of that particular US state.

Recognition and enforcement of arbitral decisions are much easier, given that both the US and Serbia are parties to the New York Convention. The grounds for non-recognition of foreign arbitral awards enumerated in the Serbian Arbitration Act mirror those from the New York Convention. Both states reserve the application of the convention to commercial disputes only.


US investors in Serbia do not benefit from usual and straightforward international investment protections, which is notable given that the amount of US investments in Serbia is significant. Although some useful tools do exist, such as domestic protections and an inter-state scheme on investment incentives, they fall short of addressing individual investor concerns, most importantly direct access to an international forum for the settlement of investor-state disputes.

In two weeks from now, our focus will be on China.


Photo by Shubham Dhage on Unsplash