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

In the immediate post-apartheid era ( ), 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). 2 Background

SA BITs Review All this prompted SA BITs Review 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. 3

SA BITs Review 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. 4

SA BITs Review 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. 5

SA Review 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. 6

Cabinet Decision July 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. 7

Cabinet Decision: 5 Core Elements (1) Develop New Investment Act to codify and clarify typical BIT- provisions 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). 8

Current Work SA participates actively in international dialogue on investment treaty-making in UNCTAD, OECD. Investment protection taken up in BRICS dialogue. Termination process underway: Belgo-Lux BIT notified last year; process dictated by legal specificities for termination. Protection remains for 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. 9

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. 10

THANK YOU QUESTIONS? 11