CityPress - - Business - DEWALD VAN RENS­BURG de­wald­vrens­burg@city­press.co.za see box).

he depart­ment of trade and in­dus­try (the dti) is forg­ing ahead with a plan to an­nul agree­ments from the 1990s that, in the­ory, give for­eign com­pa­nies mas­sive lever­age over South Africa’s eco­nomic poli­cies.

A new ver­sion of the di­vi­sive Pro­mo­tion and Pro­tec­tion of In­vest­ment Bill was fi­nally tabled in Par­lia­ment last week.

It makes clear that South Africa in­tends to mostly opt out of the con­tro­ver­sial and frag­mented global sys­tem of in­ter­na­tional in­vestor-state ar­bi­tra­tion that al­lows com­pa­nies to sue gov­ern­ments for com­pen­sa­tion in spe­cial in­de­pen­dent tri­bunals if their in­vest­ments are harmed.

The bill is meant to stan­dard­ise and re­place the var­i­ous bi­lat­eral in­vest­ment treaties that South Africa hastily signed at the dawn of democ­racy – seem­ingly with­out ap­pre­ci­at­ing how they would clash with the pil­lars of gov­ern­ment pol­icy in sub­se­quent years (

Af­ter a re­view of these be­tween 2007 and 2010, the dti has started to uni­lat­er­ally de­nounce these treaties.

That re­view co­in­cided with the first pub­licly known se­ri­ous at­tempt by for­eign in­vestors to ac­tu­ally use a bi­lat­eral in­vest­ment treaty against South Africa – a $350 mil­lion (R4.4 bil­lion at to­day’s ex­change rate) claim against the le­gal re­quire­ment that min­ing rights hold­ers have a 26% BEE part­ner.

The claimants were Ital­ian and Swiss in­vestors in a gran­ite min­ing op­er­a­tion. The Ital­ians were ul­ti­mately cut an un­usual deal ex­empt­ing them from the 26% black own­er­ship re­quire­ment.

In­stead, they had to es­tab­lish a 5% em­ployee share scheme – and “ben­e­fi­ci­ate” 21% of their prod­uct in South Africa.

The In­ter­na­tional Cen­tre for Set­tle­ment of In­vest­ment Dis­putes, a World Bank fo­rum for ar­bi­tra­tion, did award le­gal costs in favour of South Africa, but only at a frac­tion of the le­gal bill racked up fend­ing off the Ital­ians.

It is pos­si­ble that other such dis­putes have arisen, but were not made public.

The first known bi­lat­eral in­vest­ment treaty-re­lated claim against South Africa was in 2001-2003 by an uniden­ti­fied Swiss owner of a game farm who sued for losses af­ter the prop­erty was al­legedly de­stroyed by theft and van­dal­ism – and later sub­ject to a land claim.

While it has never been made public, in 2008, in­vest­ment treaty re­searcher Luke Eric Peter­son un­cov­ered that an award was made in favour of the Swiss in­vestor in 2003.

The ma­jor change in the in­vest­ment bill is that for­eign in­vestors will no longer have re­course to in­ter­na­tional ar­bi­tra­tion, like the kind used by the Ital­ian gran­ite pro­duc­ers and the Swiss landowner.

In­stead the gov­ern­ment “may con­sent to in­ter­na­tional ar­bi­tra­tion ... sub­ject to the ex­haus­tion of do­mes­tic reme­dies”.

Even if the state does con­sent to ar­bi­tra­tion, it will only do so with the in­vestor’s home gov­ern­ment, which is called state-state ar­bi­tra­tion.

That sig­nif­i­cantly raises the thresh­old be­cause the ag­grieved in­vestors will need to have back­ing from their gov­ern­ments.

It is im­me­di­ately clear from the in­vest­ment bill how many key poli­cies the gov­ern­ment feels the need to ex­pressly de­fend against the pos­si­bil­ity of chal­lenges from abroad.

The list of gov­ern­ment ac­tions that will not be per­mit­ted to be­come an in­vest­ment dis­pute has grown to in­clude “any law or other mea­sure ... to pro­mote the achieve­ment of equal­ity in South Africa or de­signed to pro­tect or ad­vance per­sons ... his­tor­i­cally dis­ad­van­taged by un­fair dis­crim­i­na­tion”.

This is the free pass for em­pow­er­ment that was sorely lack­ing in many bi­lat­eral in­vest­ment treaties signed in the 1990s.

Some of South Africa’s stand­ing bi­lat­eral in­vest­ment treaties have this clause, in­clud­ing – im­por­tantly – one with the UK where many of the JSE’s prom­i­nent multi­na­tion­als are based.

Sig­nif­i­cantly, none of the six treaties that the dti has so far de­nounced makes any men­tion of em­pow­er­ment, equal­ity or re­dress, which may ex­plain the haste with which they, and not oth­ers, were scrapped.

BEE ap­plied to a for­eign in­vest­ment nec­es­sar­ily of­fends a generic “na­tional treat­ment” clause be­cause black South Africans are con­se­quently na­tion­als who are treated dif­fer­ently.

Another new ad­di­tion to the bill that is sure to raise eye­brows is that it will also pro­tect “do­mes­tic laws de­signed to reg­u­late for­eign own­er­ship in re­spect of a spec­i­fied sec­tor”.

This could be taken to re­fer to BEE own­er­ship tar­gets in gen­eral, but could also cover things like the con­tro­ver­sial Pri­vate Se­cu­rity In­dus­try Reg­u­la­tion Amend­ment Bill, which would limit for­eign own­er­ship of se­cu­rity com­pa­nies to 49%.

That bill, which has faced fierce re­sis­tance from the four ma­jor for­eign-se­cu­rity con­glom­er­ates ac­tive in the coun­try, has seem­ingly been on ice since 2013.

The ex­is­tence of South Africa’s bi­lat­eral in­vest­ment treaties is of­ten used to ex­plain why the coun­try aban­doned a pre­vi­ous pol­icy po­si­tion from 2001 – that se­cu­rity com­pa­nies should be 100% lo­cally owned.

The bill is sure to go through a tough par­lia­men­tary process with op­po­si­tion par­ties this week crit­i­cis­ing the level of pro­tec­tion given to in­vestors – and for­eign busi­ness cham­bers are likely to par­tic­i­pate in public hear­ings in full strength.

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