1. South Africa’s Promotion and Protection of Investment Bill (PPIB)
Presentation to the Parliamentary Portfolio Committee
on Trade and Industry
Xolelwa Mlumbi-Peter
16 September 2015

2. Context

3. Context
South Africa engaged in a process of socio-economic transformation.
The objectives of this agenda are set out in various policy instruments of Government as entailed in the National Development Plan, New Growth Path, National Industrial Policy Framework.
Implementation of this ambitious development agenda requires the development of new policies and regulations while ensuring SA remains open to foreign investment and trade.

4. Context
Foreign investors, once established in South Africa, benefit from legal protection of property rights as provided for in the Constitution.
The Bill emphasises compliance with domestic law and the role that Government has to play in achieving socio-economic objectives and does not interfere with any norms that may be relevant to investment e.g. labour legislation.
The Bill does not seek to change the application of the current tax regime.
Whilst the Bill applies generally to investment, other policies will address the more specific issues contained in the Bill, which policies are inclusive of the: the Expropriation Bill and the Property Valuation Act and the Infrastructure Development Act
Investors must comply with applicable national legislation, e.g. Companies Act regulates the formation, conduct of affairs, and liquidation of all companies and it makes no distinction between locally owned or foreign-owned companies, with certain exceptions. The Bill seeks to emulate this approach.
The Competition Act prohibits anti-competitive conduct, restrictive practices (e.g. price fixing, predatory pricing and collusive tendering) and "abuses" by "dominant" firms (firms with a market share of 35% or more). The Act also prescribes a procedure for certain mergers and acquisitions, and applies to economic activity having an effect on the country.

5. Context ………
The PPI Bill interacts with a broad range of legislative norms;
It applies as a general norm that is based on constitutional imperatives and further explained by line function or specific legislation;
The result is that the Bill may recall or emphasise relevant line function or applicable legislation without giving the final word on any matters so regulated in deference to such legislation;
The PPIB ensures that investment policy contributes to the broader development strategy of SA.

6. Context cont…….
Ensures that the Government has the policy space to pursue the development agenda in the public interest while maintaining a favourable investment climate.
Ensures the balance between the rights and obligations of States and investors.
Addresses the challenges associated with BITs.

7. Challenges with BITs

8. BITs
BITs and international investment agreements (IIAs) have become the dominant international vehicle through which investment is regulated with implications for countries.
It was necessary to assess the implications of entering into BITs and IIAs, the substantive shortcoming of provisions of current BITs and IIAs.
Most BITs allow individuals to sue states in arbitral fora - the result of this development is that investors can bypass domestic courts and go directly to international arbitral tribunals that adjudicate matters on narrow financial interest and not broader social and public imperatives.

9. BITs…
Currently, the investment system suffers from the following weaknesses:
- Inconsistent interpretations by arbitration panels even on similar matters - the potential for contrasting decisions on the same (or very similar) issues of fact or law undermine the predictability of investment law.
- Lack of transparency – investment arbitration cases are shrouded in secrecy and are conducted under confidential proceedings. Rulings are not published and affect not only governments but also other interested parties.

10. Promotion and Protection of Investment Bill (Process)
PPIB developed to mitigate against the risk presented by BITs, ensure development of legislation protecting all investment, ensure alignment with the Constitution.
PPIB was subject to a rigorous consultation process with Government and stakeholders, inclusive of an expansive public comment period and consultations at NEDLAC;
Cabinet endorsed the Bill on 24 June 2015;
OCSLA Justice certified the Bill on 16 July 2015 and it was introduced into Parliament at the end of July 2015.
Public hearings have commenced as from beginning Sept 2015
Public hearings have commenced as from beginning Sept Stakeholders that have made oral submissions on 9 Sept 2015 include:
Mandela Institute
Centre for Applied Legal Studies – University of Witwatersrand
SA Human Rights Commission
Centre for Constitutional Rights
National Union of Metalworkers of SA

11. Stakeholder Submissions
20 Stakeholder submissions received
Stakeholders include, inter alia:
Academic institutions (Mandela Institute, CALS)
Unions (NUMSA)
Policy think-tanks (SAIRR)
National (SAHRC) and Independent (FSB) organisations
Companies – mining (Anglo-American), Vodacom
The list of 20 Stakeholders includes:
Agri SA
American Chamber of Commerce (AmCham)
Anglo American South Africa Limited (AA)
The Banking Association South Africa (BASA)
Business Unity South Africa (BUSA)
Centre for Applied Legal Studies (CALS)
Centre for Constitutional Rights (CFCR)
European Union Chamber of Commerce and Industry in Southern Africa (EU Chamber)
Financial Services Board (FSB)
Hennie Botha*
Mandela Institute (MI)
National Union of Metalworkers of South Africa (NUMSA)
Offshore Petroleum Association of South Africa (OPASA)
René de Villiers*
South African Chamber of Commerce and Industry (SACCI)
South African Human Rights Commission (SAHRC)
South African Institute of Race Relations (IRR)
South African Property Owners Association (SAPOA)
Vodacom
Western Cape Government (WCG)
*Submissions with no substantive issues raised on the Bill

12. Critical issues raised in the submissions

13. Critical Areas
Critical areas raised – common to many stakeholder submissions
Critical areas include:
General comments
Title of the Bill
Definition of investment
Right of establishment
Fair and Equitable Treatment (FET) exclusion
National Treatment
Protection of Property
Disputes (incl community participation)
Right to Regulate

14. Title of the Bill

15. Title of the Bill Some submissions raise
Not clear how the PPIB promotes investment
Not clear what are the obligations of investors, only includes rights.
PPIB
Provides a legislative framework for the promotion of investment
The State implements strategies and mechanisms to facilitate and promote investment.
Government is also establishing the Inter-Departmental Clearing House to facilitate investment.

16. Definition of investment

17. Definition Definition of terms :
Reasonable period (context specific which may influence the meaning attributed);
Economic value (no ambiguity since the ordinary applies);
Measure (proposals in this regard may be considered;
Enterprise / Entity (various proposals may be considered)
Some of these proposal have merit and may be considered or even consented to subject to consultation with the State Law Advisors.

18. Definition of Investment
Assets constituting investment:
Intellectual Property Rights (covered by the definition)
Movable / Immovable property (covered as an asset class)
Minority equity investments (covered in so far such investments are established in accordance with the requirements of the Bill)
Enterprise v Entity (Consideration in the VAT Act and the Companies Act can be considered. Further deliberation is required).
Alignment to FIP (The Bill complies with the content of the Amended FIP, specifically Annex 1)
The definition of “investment” adopts an enterprise-based approach which is one of the models proposed in the SADC Model BIT. It requires the establishment or acquisition of an enterprise, as associated with FDI. The assets of the enterprise (shares, debentures, other ownership instruments) are also included in the investment.   
IPR’s are protected under the relevant legislation. However, assets derived from IPR’s that constitute part of business operations is considered as an investment, as the economic value of an IPR is recognised. The inclusion of IPR’s would mean a stipulation of an exhaustive list which is not a practical means of addressing this issue in the Bill.
Without having it explicitly stated, “movable and immovable” property is covered in the definition of “investment” as it is not possible to have an exhaustive list of assets stipulated under “investment”.
Minority equity investments include portfolio investments and venture capital investments.

19. Right of establishment

20. Right of establishment
States maintain the right to make regulations governing admission of investment.
Bill provides for post-establishment rights- investment is subject to national legislation.
We can consider proposals on the title of Article 6 of the Bill as proposed.
Customary international law subjects entry of aliens to the discretion of states. Admission and establishment is an aspect of market access. Protections will only start to apply once an investment is admitted and established. South Africa follows a post-establishment model which is predicated upon compliance with domestic law.

21. BIT-type provisions

22. Fair & Equitable Treatment
Purpose: Absence of FET standard in Bill – it is a non-discriminatory standard for the equal treatment of all investors (domestic and foreign).
Most submission decry the omission of the this standard. The omission is justified on the basis that the standard is vague and subject to abuse by investors
Procedural and substantive standards contained in the constitution and various piece of legislation protect legitimate interests that investors may have.
Concerns raised:
Inclusion in line with international practice
Alignment to SADC Protocol
Omission from the Bill:
 FET is a non-discriminatory standard. It is a highly problematic provision internationally wherein it has been widely interpreted in many arbitral decisions due to its vagueness. The exclusion of FET is a risk mitigation effort by the SA Government to avoid such wide interpretations. FET provisions has brought to light the need to balance investment protection with competing policy objectives of the host State, and in particular, with its right to regulate in the public interest. Measures that the SA Government is desirous of implementing in its pursuit of its transformational based agenda may be inconsistent with this non-discriminatory obligation. Thus The Government is of the view that the public policy space may be unduly constrained with the FET provision. SA Constitution already deals with fair and administrative justice and access to information and the right to access to the Courts.
Problematic nature of FET is evidenced in many arbitral decisions and academic writings.
In a Special Note, the Drafting Committee of the SADC Model BIT has recommended against the inclusion of an FET provision in treaties due to its problematic nature. The same is applicable to national legislation. Nevertheless, a Member State is free to exercise its prerogative for the inclusion of an FET provision in investment agreements with suggested drafting proposals contained in the Model.
The SA Government has opted against the inclusion of the provision as the substantive and procedural fairness is confirmed by the rule of law, further to the access to information as affirmed in the Constitution
SADC Protocol
Reference to "fair and equitable" treatment in Article 6 has been deleted and the provisions of Article 6 now align with National Treatment provisions as contained in the bill.

23. Most Favored Nation
Purpose: To ensure that any favourable treatment that is given to a foreign investor is extended to any third investor
There is no clause on MFN since the Bill applies only in the Republic
The Bill moves away from the concept of nationality and treats all investors in a similar manner irrespective of their nationality
Given the objectives of the Bill, such a clause would be redundant since any advantage given to an investor under the Bill is automatically extended to all investors irrespective of their nationality

24. National Treatment
Purpose: grants an investor the right to be treated no less favourably than SA investors so long as their investments are “in like circumstances”
Concerns raised:
Scope and content unclear / vague
Non-exhaustive criteria
Skews in favour of domestic investors
Case review: review process and comparison of all factors are discretionary
Limitations imposed on the concept of national treatment are legitimate and entirely in line with international legislative and treaty practice.
National Treatment
The “like circumstances test” determines that if foreign investors are not “in like circumstances” in respect of South African investors, then national treatment will not be granted;
This test has its origin in international investment law and has been applied in respect whether certain government measures directed to specific domestic policy objectives can be accessed by any foreign investor. For example, if a tax or rebate system is designed to stimulate the development of domestic small businesses in a particular sector (lets say cut flowers), it stands to reason that a multi-million dollar company that operates in the oil and gas sector cannot come and claim the same rebate or tax treatment.
If the like circumstance test is applied under these circumstances, it would be apparent that the factors assist in determining whether the respective companies are in “like circumstances”. For instance, are the companies in the “same sector, what is the “economic rationale” for such a measure, etc.

25. Security of Investment
This provision refers to the government’s obligation to provide “physical” security to investments covered by the Bill, this obligation can be further clarified in order not to create confusion in respect of the legal protection of such investments;
Customary international law requires a state to provide a level of protection to the assets of aliens and the Bill emphasises the Republic must accord foreign investors and their investments a level of security as may be generally provide to domestic investors, subject to available resources and capacity
In the modern era this refers to so called police powers to provide protection against unlawful interference with such rights

26. Protection of property

27. Protection of Property
Purpose: reference S 25 of the Constitution
Concerns raised:
Initially the Bill contained norms addressing expropriation
However the “Expropriation Bill” deals with these matters and as a result the PPI Bill defers to the more specific legislation, the PPI Bill creates no tension with said bill or other applicable norms
Protection of Property:
The Bill refers to the right to property in terms of section 25 of the Constitution. The intention of the Bill is not to interfere with current processes regarding the Expropriation Bill or supercede the provisions contained therein. The Bill references Section 25 of the Constitution which ensures that any investor that looks at the Bill will see that his / her property rights are protected in terms of the Constitution and further processes stipulated thereunder.

28. Right to regulate

29. Right to Regulate
Purpose: Government has the right to take measures to regulate in the public interest
Concerns raised:
Wide powers to organs of state in absence of precise language
No regard for constitutional provisions
Open-ended exceptions
Government has the obligation to regulate in the public interest. The police space to do so must be preserved.

30. Right to Regulate SA experience includes:
challenges by investors against measures directed at affirmative action,
corrective measures to address injustices of the past e.g. Broad based black economic empowerment legislation,
challenges by mining companies against developmental aspects of the MPRDA,
public health measures to address access to critical medicines.

31. Right to Regulate
Internationally, measures subject to challenge by investors have included:
measures imposing and attempting to collect taxes;
measures changing domestic fiscal policy;
decisions regarding whether to grant development permits;
bans on mining;
environmental regulations,
regulations governing health insurance;
measures aiming to reduce smoking e.g. Australia’s plain packaging
regulations aiming to improve the economic situation of minority populations; and
measures aiming to increase revenues gained from production and export of natural resources.

32. ISDS cases by economic sector
(per cent, total as of end 2014, UNCTAD) 32

33. Arbitration costs and size of awards
Legal and arbitration costs average over US$8 million per investor-state dispute, exceeding US$30 million in some cases.
Unprecedented amounts of compensation claimed and amounts awarded.
40 known claims at the end of 2012 were above US$1 bn, the highest amounting to US$114 bn against the Russian Federation, US$50 bn claim against Peru and US$31 bn against Venezuela;
Other multi-billion dollar claims include Algeria; Argentina, Austria, Belgium, Cyprus, Ecuador, Egypt, India, Kazakhstan, Nigeria, Pakistan, Romania, Slovakia, South Sudan, Turkey, Ukraine and Uzbekistan;

34. Dispute resolution

35. Dispute Resolution
Purpose: Exhaustion of domestic remedies prior to international arbitration
Concerns raised:
Investor-State arbitration is absent
SADC Protocol provides for Investor-State dispute – contradicts the Bill
Powers of domestic courts pronouncing on regulatory matters taken by executive / legislative arm of Government
Bypass domestic remedies
Mediation - non-committal
Arbitration - rules and procedures, lack of governing legislation
Lack of judiciary independence, limited experience of ConCourt
Participation of aggrieved civil society and communities
Concerns raised:
1 Investor-State arbitration is absent
The Bill contains no provisions in respect of investor-state arbitration and limits dispute resolution to domestic remedies and subject to exhaustion of such remedies, state-to-state arbitration may ensue. Most investor-state arbitration cases been in favour of the investor and to the detriment of the host country. There has been much controversy around such arbitrations and the decisions taken which has resulted in divergent or even conflicting outcomes in similar cases. South Africa’s policy space and the implementation of its developmental policies will be put at great risk if such arbitration is allowed. Any measure that is introduced to develop the economy and to carry out the very large mandate of radical transformation will be subject to legal challenge through international arbitration even if exhaustion of local remedies is required. The dynamics in a state-to-state dispute will be significantly different from the outset, because states are presumably less likely to challenge certain types of regulatory measures, or make certain types of legal arguments that could be brought against them in the future.
2 SADC Protocol provides for Investor-State dispute – contradicts the Bill
With regard to the FIP, certain provisions of the dispute settlement process have been amended. Reference to international arbitration has now been excluded but member states must give investors the right of access to courts, tribunals in line with relevant host states domestic laws in their respective jurisdictions.
3 Powers of domestic courts pronouncing on regulatory matters taken by executive / legislative arm of Government
Courts will not pronounce on disputes without due consideration of the policy issues.
4 Bypass domestic remedies
Bypassing the domestic courts and allowing for direct access to international arbitration is indicative of a blatant disregard for the SA’s legal system, hence undermining the judiciary. The domestic mechanism affords SA the opportunity to build capacity whilst ensuring that the country’s policy space is preserved further to understanding of the measures the Government is desirous of implementing.
5 Mediation - non-committal
Mediation is one of the dispute resolution options available to an investor. In terms of Section 12(3), the Minister must prescribe information and forms to be submitted by an investor for the purpose of dispute resolution (through mediation - Section 12(1)). Other options include resolution via competent courts, an independent tribunal or statutory body. Considering the latter options also available to an investor, it is not the intention of the Bill to prescribe the domestic resolution process to be pursued by an investor. An investor is free to elect the best suitable option.
6 Arbitration - rules and procedures, lack of governing legislation
There is no legislation in place that governs international arbitration. The International Arbitration Bill has been developed by the Dept of Justice but the focus of this Bill is on commercial disputes. If and when a dispute warrants for international arbitration, the parties to the dispute can elect on the arbitration rules that will be applied by the tribunal to the dispute. Amongst others, a tribunal can utilize the ICSID additional facility rules of the UNCITRAL arbitration rules.  
7 Lack of judiciary independence, limited experience of ConCourt
Over the years, RSA has continued to strengthen its national legal framework. All investors are afforded the necessary safeguards for investment protection through a robust judiciary. We have recently had the reassurance of SA's most senior judges, led by Chief Justice Mogoeng Mogoeng, in that they remain "steadfast in their fidelity to the Constitution and their oaths of office". Reliance is placed on South Africa’s domestic judiciary for the resolution of any disputes that may arise. Interference in the judiciary undermines the court proceedings and sanctity of the law.
8 Participation of aggrieved civil society and communities
Arbitration tribunal can apply its discretion for the participation of civil society and communities aggrieved by actions of the investor. This can be included in the Regulations of the Bill, once promulgated, through the *amicus curiae (friends of the court) representation that influences the outcomes of judicial proceedings. The procedure is used to ensure that courts are responsive to the human rights needs of vulnerable and marginalised groups and individuals. South Africa has adopted the procedure by entrenching it in its procedural laws and embracing it as part of judicial practice. Many organisations in South Africa have taken advantage of this by making timely, well researched and invaluable interventions.
* Amicus curiae is someone who is not a party to a case and offers information that bears on the case, but who has not been solicited by any of the parties to assist a court.

36. SADC Protocol

37. Alignment with SADC FIP
The SADC FIP was concluded in line with first generation BITs;
Various risks were associated with the vague formulations found in such BITs which represented unacceptable risks to governments’ right to regulate;
In view of global developments Annex 1 of the FIP has been reviewed to address shortcomings of the previous version including addressing governments’ right to regulate, FET, dispute settlement, definition of investment etc.

38. UNCTAD Principles on investment policy

39. Core Principles for Investment Policymaking

40. Conclusion

41. Conclusion
All submission have been reviewed and matrix has been developed to reflect such submissions;
the dti has also developed a set of comprehensive responses which react to various aspects of the abovementioned submissions;
PPIB is aligned to the core principles as confirmed by UNCTAD.