Sept workshop: Protection of Investment Bill

Report to clients 15 Sept. Two more posts to follow…

Initial discussions on Investment Bill…

In a parliamentary Trade and Industry Committee workshop, two professors of law at South AfricanCOMMITTEES_large universities stated that the Promotion and Protection of Investment Bill (as it was then called) seemed to be little about promotion of investment but more about local protection.

Nevertheless, both felt that localised jurisdiction was the more appropriate way to settle issues under arbitration conditions in the South African context; was in line with SADC modelling and introduced the elements of national interest and “fairness”, which they said international arbitration often precluded.

Both added that some of the vague wording and definitions had to be tightened up upon if the Bill was to be a useful tool in encouraging developmental investment and that, in purely legal terms, their view was that the Bill would pass constitutional muster.

Legal minds

joan fubbsMs. Joanna Fubbs, chairperson of the committee, had invited a number of legal and trade entities to share opinion on the new Bill under relaxed workshop discussion rules and on the invite list was Prof. Riekie Wandrag of University of Western Cape and Prof. Jonathan Klaaren of Wits University.

Department of Trade and Industry (DTI) also made a presentation by Ms. Xolelwa Mlumbi-Peter, who was to be leading DTI’s briefing of Parliament on the PPI Bill in the coming days.

 International views

An international guest to report on the PPI Bill was a United Nations Conference on Trade and Development (Unctad) representative, James Zhan, who noted that the proposals contained in the Bill seemed to be following the new trend, particularly in developing countries.

It was now becoming standard practice, he said, not to have traditional bilateral trade treaties (BITs) butzahn rather an agreement that favoured economic development in the host country and subject to the laws of that country.

Unctad led most of the discussions during the debate and stated that any such legislation as proposed by the PPI Bill could “fill an important gap in the developmental role of a country and help with economic development.”

The trend in many countries such as South Africa, Mr Zhan said, was to move away from BITs which tended to be a legacy from the past. However, he added that this was not the whole story. What was put in its place, such a Bill as proposed, had to be part of a whole regulatory framework that encouraged development strategies as well as investment. One could not be without the other.

 Part of a state policy perhaps

D Macpherson DAWhen asked by DA member, Dean Macpherson, if he was aware that the PPI Bill was part of a whole number of Bills that were part of the South African government’s present land and state expropriation policy, such as the Expropriation Bill and a draft Land Holdings Bill, Mr Zahn said he was not asked to talk on these further Bills or discuss any state policy nor was he asked to study the wording of the Bill before them in detail.

His brief, he said, was merely to comment on the Bill as this was a workshop and on the basis of what was happening elsewhere in the world and the role of Unctad. Each government had its own policies and laws and it was not Unctad’s role to get involved in specific national issues.

On issues of arbitration on BITs resulting from disagreements with host countries, he said globally there were over 3,500 treaties of some sort in operation in 160 countries on trade at any one time and, on average, a new treaty is signed every week including mega regional BITs.   He said “few countries were satisfied with the current international trade regime” and it was fast changing.

 Where the argument comes

He said most arbitration matters or points of disagreement arose over waste collection, treatment and disposal (3%); transportation and storage (3%); the manufacture of food products (4%); real estate (4%); telecommunications (6%); construction (8%); financial services and insurance issues (9%); mining and gas (16%); supply of electricity (19%); and other varied issues (28%).

65% of arbitration cases were decided in favour of the businesses involved and 35% in favour of the state involved.    Zahn said that “the world was going through a period of reflection on trade agreements” and whilst companies in the major trading nations in some cases might prefer BITs, most of them were coming to terms with the fact that many smaller nations, especially those with poor communities, were asking for national priorities to be included in packages.

History of up and down

In terms of foreign direct investment (FDI), South Africa was amongst the world’s top recipients but South Africa’s graph of incoming funds since 1994 was “lumpy” he said, “sometimes up and sometimes down due to the fact that most projects in South Africa were very large infrastructure projects and only occurred now and then”.

FDI graphAs far as FDI was concerned, the UK was by far the largest supplier of FDI in South Africa (48%), with the Netherlands coming in at 16%; the US at 6%; Germany at 5%; and China at 4%.  Financial destinations provide 40% of FDI applications in SA; mining, quarrying and petroleum at 28%; and manufacturing at 17%.   Transport, storage and communications was at 10% and gas, water and electricity, at this stage, almost 0%.  The reason for the odd groupings was not given.

Zahn said Unctad saw this Bill as a natural bridge to the country’s own developmental strategies and it was in general was in line with Unctad’s core principles. When asked by Opposition MPs if the wording regarding “the public interest” and vagaries of allowing the Minister to decide if an investor may use international arbitration methods on disagreements worried him at all, Chairperson Joanna Fubbs stepped in and said that the meeting was a workshop, not a clause by clause debate on the Bill.

 Findings often obscure

However, Zahn did say that he could only opinionate in broad terms and state what the rest of the world was doing in general terms. The point was that arbitration under BITs was a different issue to the state to state relationships envisaged by the Bill before the workshop but he noted that many international arbitration findings in favour of the investing company were on obscure technical points and had little to do with the investment itself and the country in which the investment was made.

He understood, however, that whilst the Bill might not be coming at a good time from the point of global economic factors, “it was a good Bill generally in broad principle and it was a good time to set up new structures”.

Gives policy space

 Jonathan klaarenProf. Jonathan Klaaren of Wits University said in broad terms BITs probably do not affect a leaning towards good developmental investment but do not hurt inward flows of capital. Thus he felt that DTI, by giving protection for inward and outward SA investments and retaining “policy space for a legal and policy framework attuned to sustainable development”, allowed South Africa to do some of “the agenda setting”.

He agreed with the recent Policy Review on trade treaties which stated that BITs tended to open the door to narrow commercial interests and that matters of national interest became subject to unpredictable international arbitration outcomes if they went wrong. “This may lead to a result that may constitute a direct challenge to legitimate, constitutional and democratic policy making”, he said.

In his view, procedural “fairness” contained in a domestic jurisdiction approach was superior to the arguments often given in favour of “fairness” at international level. He said the “fairness” was guaranteed with a robust judicial system such as existed in South Africa whereas in the international environment of arbitration, quite often “fairness” was not reached because of obscure legal issues. The national interest of a country was therefore made irrelevant because of a technical point at law.

He noted that issues of economic development could not be addressed outside of borders but human rights issues such as land grabs in Zimbabwe were coming into the matter and involved the SA Law Society at the moment who were deciding upon such issues. At the moment the SADC Arbitration Tribunal was only state to state, so matters raised in this workshop fell away.

The future with SADC

reikie wandragProf. Rieikie Wandrag of the Faculty of Law, UCW, gave a detailed comparison with existing SADC investment protocols and hoped-for changes being negotiated. She also drew comparisons with the East Africa COMESA trading bloc.

She said the Bill was generally in line with the regional perspective in SADC and Africa generally and that the PPI Bill attempted to address most of the concerns currently being expressed in many developmental regions. Prof. Wandrag undertook a comparison of expropriation wording; the use of the expression “in like circumstances” in each region, which was usually the contentious area in any such Bill; and how each region dealt with the area of “fair and just compensation”.

DTI’s view

DTI’s Xolelwa Mlumbi-Peter complained that arbitration panels produced inconsistent interpretations even on similar matters and undermined in their view the predictability of investment law.   She said that with international arbitration, DTI had noted that matters were shrouded in secrecy; rulings were not published because of confidential rules and which affected governments; whilst matters were not generally conducted on a “proper state-to-state basis”.

 Social imperatives to be included

She said the trend was now to have state-to-state international investment agreements, where implications for countries was involved and arbitration issues could not avoid local courts or the laws of the country where the investment took place. Broader social and public imperatives would have to be considered when considering investment because, DTII said, it had to be understood that South Africa was engaged in a process of socio-economic transformation.

The agenda in South Africa was set by the NDP, New Growth Plan and IPAPs in addition to the local laws of the land, Mlumbi-Peter said, and the implementation of this “ambitious development agenda required the development of new policies and regulations whilst ensuring that South Africa remained open to foreign investment and trade”.

The workshop concluded with the chairperson pointing out that the idea had been to “set the scene” for parliamentarians on the forthcoming hearings and the reasons for introducing such a Bill.
Other articles in this category or as background
Promotion and Protection of Investment Bill re-tabled
Promotion and Protection of Investment Bill opens up major row – ParlyReportSA
Protection of Personal Information Bill almost concluded

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