Download Update on the Review of Bilateral Investment Treaties in South

Update on the Review of
Bilateral Investment Treaties
in South Africa
Prepared for the
Parliamentary Portfolio Committee on Trade and Industry
Presented by
Xavier Carim, Deputy Director General:
International Trade and Economic Development (ITED)
Department of Trade and Industry
15 February 2013
Background
• In the immediate post-apartheid era (1994-1998), South Africa
concluded 15 BITs mainly with European countries.
• Other BITs negotiated subsequently, but most not ratified.
• Good faith attempt to assure investors that investments would
be secure under new democratic government.
• BITs also signal South Africa’s re-entry to international
community after years of isolation.
• Soon aware of challenges posed by investment treaties (OECD
MAI, WTO, spike in legal challenges following 2001 global
financial crisis).
• Two challenges to SA (Swiss in 2004 and Italian in 2006).
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SA BITs Review 2007-2010
All this prompted SA BITs Review 2007-2010. Key findings:
• FDI can make positive contribution to development.
• FDI implies long-term investment in productive activities with
improved access to modern technology, managerial and
organizational practices, skills and international markets.
• Benefits to host countries are, however, not automatic.
• Requires regulations that balance effective protection of
investment with measures that ensure FDI supports national
development, establishes beneficial linkages to national
economy, augments domestic financial resources, fosters
enterprise development, and enhances the technology, skill
and knowledge base of the economy.
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SA BITs Review 2007-2010
• Investment protection reviews have occurred in Australia,
Brazil, Canada, Norway, USA, and Sweden.
• Shared concerns with first generation BITs as related to
ambiguity/unpredictable interpretations of many provisions.
• Definition of investor/investment; national treatment; most
favoured nation; expropriation (direct/indirect); fair and
equitable treatment; compensation; transfer of funds.
• Investor-state dispute settlement/arbitration is contentious.
• Fragmented system; no common standards; inconsistent
interpretations by panels; unpredictable.
• Bypass domestic court system.
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SA BITs Review 2007-2010
• Considerable re-writing of BITs (US, Canada); Australia now
excludes investor-state dispute provisions; Brazil refuses to
enter into BITs; re-think now underway in EU and India.
• New generation BITs aim to reduce risks inherent in earlier
agreements through more precise drafting of provisions.
• New approach places inclusive growth and sustainable
development at the center of efforts to attract and benefit from
investment.
• New approach secures right of governments to regulate in the
public interest (eg. environment, public health).
• Also locates investment protection within broader human rights
framework.
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SA Review 2007-2010
• No clear relationship between BITs and increased FDI inflows
(World Bank and UNCTAD confirm).
• South Africa receives no FDI from many countries with whom
we have a BIT, and receives FDI from countries with which we
have no BITs (USA, India).
• First generation BITs contain provisions that are inconsistent
with SA Constitution and law.
• SA is comparatively open to FDI across sectors, and we
continue to receive new inflows of FDI;
• SA meets high international standards of protection (OECD
standards and WTO obligations).
• Key Recommendation: Strengthen/clarify domestic investor
protection, bring BITs in line with international developments.
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Cabinet Decision
• July 2010 - Cabinet decision that work to modernise and
strengthen South Africa’s investment protection legal
framework be initiated.
• Cabinet recognised relationship between BITs and FDI is
ambiguous, and that BITs pose risks and constrains
Government’s ability regulate in the public interest.
• Update BITs and ensure alignment with national legislation,
the Constitution, and developments in international
investment treaty-making.
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Cabinet Decision: 5 Core Elements
(1) Develop New Investment Act to codify and clarify typical BITprovisions into domestic law, and strengthen investor protection;
(2) Terminate first generation BITs and offer partners possibility
to renegotiate;
(3) Refrain from entering into BITs in future, unless compelling
economic and political reasons;
(4) Develop new Model BIT as basis for (re-)negotiation; and
(5) Establish an Inter-Ministerial Committee (IMC) to oversee
process (DTI, NT, DIRCO, EDD, DAFF).
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Current Work
• SA participates actively in international dialogue
investment treaty-making in UNCTAD, OECD.
• Investment protection taken up in BRICS dialogue.
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• Termination process underway: Belgo-Lux BIT notified last
year; process dictated by legal specificities for termination.
• Protection remains for 10-15 years.
• Ongoing engagement with EU and Members.
• Development of New Model BIT as well as alternate
investment protection instruments to be presented to next
IMC.
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Current Work
• Key elements of Draft Foreign Investment Act:
- Update, modernise and strengthen investor protection in SA;
- Incorporate BITs-type provision into national legislation
ensuring consistency with Constitution and law;
- Remain open to FDI;
- Provide security and protection to all investors;
- Appropriate balance between rights/obligations of investors and
government; and
- Preserve right to regulate in the public interest.
• Ready to submit draft to next IMC meeting.
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THANK YOU
QUESTIONS?
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