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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues by
the Vale Columbia Center on Sustainable International Investment
No. 109 November 25, 2013
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Shawn Lim ([log in to unmask])
*Lessons from South Africa's BITs review*
by
Xavier Carim*
Proponents tend to argue that bilateral investment treaties (BITs)
encourage investment and strengthen the rule of law particularly in
jurisdictions where court systems are weak or biased against foreigners.
This premise is contested. First, studies on BITs and FDI suggest the
relationship is, at best, ambiguous and that BITs are neither necessary nor
sufficient to attract FDI.[1] Indeed, South Africa receives FDI from
investors in countries with whom it has no BIT and often little or no FDI
from others where a BIT was in place.
Second, one may legitimately ask whether the rule of law is adequately
upheld in the investor-state dispute settlement (ISDS) system or in the
BITs that underpin it. BITs, particularly early generation treaties,
contain provisions that are imprecise and when subjected to international
arbitration, leave wide scope for inconsistent and unpredictable outcomes.
There is also growing awareness of deficiencies in ISDS, including with
respect to its *ad hoc *nature, its fragmentation and a perceived lack of
transparency and legitimacy. The problems appear deep-seated as
jurisprudence in this area continues to diverge and, in the absence of an
appellate process, often falls short of meeting the standards of legal
correctness and consistency.[2] Imprecise treaty provisions, inconsistent
arbitration awards, combined with a growing number of investor claims that
are challenging a widening ambit of government public policy measures, are
cause for growing concern.[3]
In 2010 the South African government concluded a three-year review of its
BITs. The review assessed the role of foreign investment in South Africa,
the levels of protection afforded to investment, and the risks and benefits
of BITs. Overall, the review confirmed the observations above, and
suggested that the current system open the door for narrow commercial
interests to subject matters of vital national interest to unpredictable
international arbitration that may constitute direct challenges to
legitimate, constitutional and democratic policy-making.[4]
The review observed that FDI has been central to South Africa's economic
development. Today, foreign firms are present in all sectors of the economy
and FDI continues to grow. South Africa ranks amongst the most open
jurisdictions in the world and it provides investment protection through
domestic law that is consistent with the highest international standards.
Horizontal protection established in the constitution and legislation is
complemented by sectoral regimes that cover, among other things, finance
and banking, communications and mining. Foreign investors are treated in
the same way as domestic investors are, and all have equal access to
administrative justice. South Africa's legal framework provides that
property may be expropriated only in accordance with the law of general
application and for a public purpose. Expropriation is subject to
compensation, the time and manner of which must be just and equitable, and
must reflect an equitable balance between the public interest and the
interests of those affected.
Taking all this into account, the South African Cabinet assessed the
country's BITs and decided in July 2010 that South Africa would: refrain
from entering into BITs unless there are compelling political or economic
reasons to do so; terminate existing BITs and offer partners the
possibility to re-negotiate BITs on the basis of a new model; develop a new
Foreign Investment Act that is aligned with the constitution and clarifies
typical BIT provisions under South African law; and establish an Investment
Ministerial Committee to oversee this work.
A new Investment Bill was presented for public comment in November
2013.[5]The Bill does not introduce any new restrictions on investment
but
clarifies the non-discriminatory protections offered to all investors from
all countries. It confirms that South Africa remains open to FDI, providing
effective protection while preserving the sovereign right of the government
to pursue legitimate public policy objectives in line with constitutional
requirements. While the process of terminating early generation BITs has
been initiated in consultation with partners, South Africa has not ruled
out the possibility of entering into new agreements if there are compelling
reasons to do so. This will be subject to a decision by the
Inter-Ministerial Committee, and treaties will need to be consistent with
the new model that has been adopted at the regional level in Southern
Africa.[6]
South Africa envisions a legal and policy framework for investment that
learns from the lessons of the past and is better attuned to the challenges
of sustainable development and inclusive growth. Equitable relationships
between investors and government, based on respect for human rights, the
rule of law and due process, and security of tenure and property rights,
will continue to be pursued within the framework established by the
constitution. The South African government's approach offers one route to
addressing growing concerns with outdated BITs.
------------------------------
* Xavier Carim ([log in to unmask]) is Deputy Director General of the
Department of Trade and Industry for the Republic of South Africa. The
author is grateful to Andre Gouws, Robert Hunter and Sanya Smith for their
helpful peer reviews. *The views expressed by the author of this
Perspective do not necessarily reflect the opinions of Columbia University
or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579)
is a peer-reviewed series.*
[1] Mary Hallward-Dreimeier, "Do bilateral investment treaties attract
FDI? Only a bit... and they could bite," in Karl Sauvant and Lisa Sachs,
eds., *The Effect of Treaties on Foreign Direct Investment* (New York: OUP,
2009).
[2] UNCTAD, *World Investment Report 2012* (New York/Geneva: United
Nations, 2012); UNCTAD, "Recent developments in investor-state dispute
settlement", *IIA Issues Note*, No. 1 (May 2013).
[3] *Ibid*.
[4] South Africa Department of Trade and Industry, Bilateral Investment
Treaty Policy Framework Review (2009),
http://www.pmg.org.za/policy-documents/2009/06/25/bilateral-investment-treaty-policy-framework-review<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=6a8a60af7e&e=5eb397be70>
*.*
[5] For a copy of the draft Bill, *see *
http://www.tralac.org/files/2013/11/Promotion-and-protection-of-investment-bill-2013-Invitation-for-public-comment.pdf
.
[6] *See *Southern African Development Community, Investment Portal,
http://investment.sadc.int<http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=889eacb855&e=5eb397be70>
.
*The material in this Perspective may be reprinted if accompanied by
the following acknowledgment: "Xavier Carim, 'Lessons from South Africa's
BITs review,' Columbia FDI Perspectives, No. 109, November 25, 2013.
Reprinted with permission from the Vale Columbia Center on Sustainable
International Investment (www.vcc.columbia.edu
<http://www.vcc.columbia.edu>)." A copy should kindly be sent to the Vale
Columbia Center at [log in to unmask] <[log in to unmask]>.*
For further information, including information regarding submission
to the *Perspectives*, please contact: Vale Columbia Center on Sustainable
International Investment, Shawn Lim, [log in to unmask] or
[log in to unmask]
The Vale Columbia Center on Sustainable International Investment (VCC), led
by Lisa Sachs, is a joint center of Columbia Law School and the Earth
Institute at Columbia University. It is the only applied research center
and forum dedicated to the study, practice and discussion of sustainable
international investment, through interdisciplinary research, advisory
projects, multi-stakeholder dialogue, educational programs, and the
development of resources and tools.
*Most recent Columbia FDI Perspectives*
· No. 108, John Gaffney and Janani Sarvanantham, "Achieving
sustainable development objectives in international investment: Could
future IIAs impose sustainable development-related obligations on
investors?," November 13, 2013.
· No. 107, Nikia Clarke, "Go out and manufacture: Policy support
for Chinese FDI in Africa," October 28, 2013.
· No. 106, Karl P. Sauvant, "Three challenges for China's outward
FDI policy," October 14, 2013.
· No. 105, Marino Baldi, "Are trade-law inspired investment rules
desirable?," September 30, 2013.
· No. 104, James Bond, "Downstream processing in developing
countries: Opportunity or mirage?," September 16, 2013.
*All previous FDI Perspectives are available at
http://www.vcc.columbia.edu/content/fdi-perspectives
<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=c2127b59f9&e=5eb397be70>.*
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Vale Columbia Center on Sustainable International Investment
Columbia Law School - Earth Institute
Columbia University
435 West 116th Street, Rm. JGH 645
New York, NY 10027
Ph: (212) 854-0689
Fax: (212) 854-7946
Please visit our website -
http://www.vcc.columbia.edu<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=ae42e4ed71&e=5eb397be70>
The Yearbook on International Investment Law and Policy 2011-2012 was
released by Oxford University Press in January 2013. For details please see
www.vcc.columbia.edu/books<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=7f4baa79f9&e=5eb397be70>
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The following ebooks are available free of charge from the same website:
FDI Perspectives: Issues in International Investment, Inward and Outward
FDI Country Profiles, MNEs from Emerging Markets: New Players in the World
FDI Market.
*Copyright (c) 2013 Vale Columbia Center on Sustainable
International Investment (VCC), All rights reserved.*
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