Amended bill still takes SA out of step with rest of world

AFTER a 20-month gestation, the Department of Trade and Industry has finally made good on its promise to revise the Promotion and Protection of Investment Bill, which was originally published for public comment late in 2013.

Unfortunately, the bill introduced to Parliament by Trade and Industry Minister Rob Davies last week does little to assuage the original criticism of the legislation. This is particularly so in the bill’s domestication of international investment protection at a time when the trend, globally, is the internationalisation of such protection. It follows, of course, the 2012-13 termination of SA’s bilateral investment treaties with members of the European Union (EU), a trend that has not so far extended to South America, China, Russia or the rest of Africa.

While the bill recognises in its preamble that investment plays a key role in job creation and that the state is committed to an “open and transparent” investment environment, this must be balanced against the government’s right to “regulate in the public interest” as well as the need to advance the interests of historically disadvantaged South Africans.

To this end, the bill adopts a parsimonious approach to what constitutes a “dispute” as well as an “investment”. Bizarrely the former will be triggered only if both parties agree there is one or if the minister “prescribes” this. Likewise, an investment will be protected under the bill only if it is a “lawful enterprise” constituted under South African law that commits “resources of economic value over a reasonable period of time”. On its face, the bill would exclude a concession contract from its purview, as well as all portfolio investments.

While the bill’s stated purpose is to promote and protect investment, protection extends only to the “national treatment and security” of an investment. This is significant as it means that while it is meant in part to replace SA’s bilateral investment treaties with the EU, the bill contains few of the protections one would typically find in a bilateral investment treaty. In particular, it contains no promise of prompt full market value compensation in the event of the expropriation of a foreign investor’s investment. Likewise, it contains no guarantee of “fair and equitable” treatment for such investors, a fundamental principle of international investment law.

This key principle protects investors from manifest arbitrariness in government decision-making; denial of justice and disregard of due process; targeted discrimination of investments on manifestly wrongful grounds; and abusive treatment through duress or coercion; and it protects their legitimate expectations arising from the state’s specific representations or measures inducing investment, balanced against its right to regulate in the public interest.

To the extent that the bill does contain international investment law protections, it does so in an attenuated manner. While providing that foreign investors must not be treated “less favourably” than domestic investors, this is subject to national legislation (much of which may give preference to domestic investors) and a sweeping definition of what constitutes “like circumstances” for such investors, which again does not follow international law criteria. In addition, it contains a number of exclusions for black economic empowerment, cultural heritage as well as “domestic laws designed to regulate foreign ownership”. This is presumably aimed at insulating indigenisation legislation from legal challenge.

The bill also ostensibly provides security for foreign investors’ investments at a level that may “generally be provided to domestic investors”, but “subject to available resources and capacity”. Again, this does not remotely approximate the international investment law standard of “full protection and security”.

The state’s “right to regulate” is a central theme of the bill. It permits any organ of state (including state-owned enterprises) to “take measures” to achieve a limitless range of goals, with such vague examples as “upholding the rights guaranteed in the Constitution” and, unsurprisingly, “fostering economic development, industrialisation and beneficiation”. It provides that the state may adopt (unspecified) “measures that are necessary” for the protection of SA’s “security interests including financial stability”. As a matter of constitutional law, this is impermissibly vague as no guidance is given for the exercise of these powers.

Consonant with its domestication of international investment protection, the bill requires all investment disputes to be subject to adjudication in SA’s courts. Unlike the position under SA’s remaining bilateral investment treaties, the bill prohibits investor-state dispute resolution through international arbitration. As a concession to the chorus of complaints about this originally, the bill now “permits” state-state arbitration, provided the government consents to this and the investor has exhausted all its domestic remedies. The concession appears otiose, as this has always been permitted under domestic and international law.

As investors, foreign and domestic, already enjoy constitutional protection from the uncompensated expropriation or arbitrary deprivation of their property, one has to ask what the bill’s purpose is. In a sense, its explanatory memorandum answers this by stating its purpose is to provide “adequate and equal protection” to foreign and domestic investors. That, of course, is where the bill fundamentally misapprehends the purpose and reach of international investment law, and takes SA back to the customary international law era of (state-state) diplomatic protection. International investment law has moved away from this, internationalising the relationship between foreign investors and host states under investor-state dispute settlement.

Even if one were to overlook this, the bill also appears to constitute a repudiation of a regional investment treaty to which SA is a party. The Southern African Development Community Protocol on Finance and Investment 2006 was ratified by Parliament in June 2008 and entered into force on April 16 2010. Under this protocol member states, including SA, must create “favourable conditions” for investments through a “predictable investment climate”. Unlike the bill, investments may not be nationalised or expropriated except for a public purpose against full market value compensation, while investors must be accorded “fair and equitable treatment” (based on the best treatment available in any other member state). Investors have full recourse to international arbitration against a host state after the exhaustion of domestic remedies.

The bill’s approach to the promotion and protection of investments reminds one of Through the Looking Glass: “When I use a word,” Humpty Dumpty said in a rather scornful tone, “it means just what I choose it to mean, neither more nor less.” “The question is,” said Alice “whether you can make words mean different things.” “The question is,” said Humpty Dumpty, “which is to be the master; that’s all.”

The bill also appears to constitute a repudiation of a regional investment treaty to which SA is a party

Leon is a partner at Webber Wentzel.