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Concession Agreements

Concession Agreements

What is a concession agreement?

A concession agreement is an agreement recording the details of a partnership between a private entity and a public entity, usually a corporation and a foreign government. In attempting to develop their countries, some governments simply can not afford the development on their own and they look to foreign aid and investment in order to develop their resources. One way of doing this is to look to private investment.

Who enters into a concession agreement?

Concession agreements usually involve three parties: (1) a government; (2) a private individual or corporation; and (3) a bank or other institution that is financing the private entity’s work. The private individual or corporation is often referred to as the “contractor” or “concessionaire.” The concessionaire is often a consortium of private companies that all have expertise in the area of development needed by the host country. Concession agreements differs from a private contract because a government is involved as a party. It differs from a treaty because a private individual or corporation is involved.

In the typical concession agreement, the concessionaire agrees to provide capital, skilled labor, and knowledge in order to develop a foreign country’s natural resources or a specific industry. In addition to the development of the country’s resources, another goal is mutual profit.

Laws and guidelines regarding concession agreements

In developing countries that use concession agreements, laws are often passed that set forth some guidelines for entering into such agreements. For example, the laws may establish the government’s authority to negotiate and enter the agreements and state which government agency has that authority.

International bodies concerning international trade also set forth guidelines on the form of concession agreements and the manner of their negotiation. The United Nations Commission on International Trade Law (UNCITRAL), as the main United Nations body dealing with international trade law, has contributed to the field of concession agreements. In addition, the Organization for Economic Cooperation and Development (OECD), which is a group of developed countries that are proponents of representative democracy and market economies, has developed guidance and laws regarding such agreements.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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