1. Towards a Model Investment Contract Making Agricultural Investment Work for Africa, 4-5 October 2012, Cotonou, Benin Henrique Suzy Nikiema and Carin Smaller, IISD s.nikiema@iisd.org and csmaller@iisd.org

2. Agenda Introduction: Contracts in context: The relationship between the sources of applicable law The problematique in a “pyramid” Good contracts: The scope of issues Implications and recommendations

3. Introduction Move towards comprehensive national laws that will make investment contracts unnecessary IISD not trying to promote investment contracts or bad investments BUT… facing reality:  Frequent use of contracts in developing countries  2000-2009: 1,217 projects covering 83 million ha of land Scope of the study: 60 investment contracts, including 58 from Africa (most are problematic) IISD objective: Improve the quality of contracts

4. Three Relevant Sources of Law Domestic law of host state Investment contract Investment treaty

5. Domestic law Laws, regulations, constitutions Common law/civil law/tribal and community custom/Islamic law Enforced in domestic courts or other proceedings

6. Investment Contracts State owns farmland in most developing countries, although some important exceptions, including in West Africa Investment contract is therefore an international contract between the government and the foreign investors, not a private contract Can be governed by law of host state or by law of another state or by international law Often has international arbitration provision now Frequent use of stabilization provisions

7. Stabilization Provisions –Def’n: a provision that freezes all or part of the domestic laws for the duration of the contract –Consequences: changes to existing laws or introduction of new laws is either forbidden or investor must be compensated for any additional costs Two types: –Fiscal issues: only fiscal laws are frozen (e.g. taxes and royalties). Often tolerated! –General issues: Any law that effects the investment is frozen (Environmental, worker health and safety, human health, etc…). Unacceptable!

8. Investment Treaties Over 2700 exist today Characteristic: treaty signed by two or more States…but the direct beneficiaries are foreign investors Typical provisions: Non-discrimination (national treatment and most-favoured nation treatment) Expropriation Fair and equitable treatment Investment liberalization (performance requirement prohibitions Investor-State arbitration

9. The Problematique: Relationship between the three sources of law, the right way Treaties Contracts Domestic law

10. Relationship between the three sources of law, the wrong way Treaties Contracts Domestic law

11. The Problematique: Treaties and Contracts can prevail Domestic law is generally not comprehensive in this field in developing countries –Land rights; water rights; environmental; health and safety; labour rights; indigenous rights; investment rights, incentives, taxation; community rights and benefits; food and water security policies Therefore, both treaties and contracts can: –Guarantee right to all resources necessary to fulfill investment goals –Restrict scope of changes that can be made to domestic law applicable to the investment

12. GOOD CONTRACTS PRINCIPLES: Use global and regional initiatives as a benchmark Must relate to all issues Must be inclusive of all actors in process Must interact carefully with domestic law in host State; set floors, not ceilings for obligations Example: Model Mining Development Agreement, International Bar Association, Mining Law Committee, April 2011 (www.mmdaproject.org)

13. Good Contracts SCOPE: Pre-contractual/pre-operational obligations of investors –Impact assessments (resulting conditions form part of contract) Environmental impacts and management plan Social impact Human rights impact –Business feasibility study and plan –Community agreement (free, prior and informed consent)

14. Good Contracts SCOPE: Land tenure –Identification of land, time period –Purchase or lease rates –Payments to landholders/users/communities –Does not extend to subsurface rights to minerals, petroleum, gas, etc. Taxation and other fiscal provisions

15. Good Contracts SCOPE: Common obligations –Anti-corruption –Transparency of contracts and payments –Limitations on rights to export foods during shortages –Possible requirements for constant sale of local production in host State

16. Good Contracts SCOPE: Water rights for investor –Domestic water laws versus investment treaties and contracts –Periodic reviews of water rights and allocations, including obligation to reduce water use –Water fees and levies –No stabilization provision for water laws and regulations

17. Good Contracts SCOPE: Economic and social obligations of investor –Transform principles to specific obligations; legally binding and annual reporting –Minimum levels of local employment and skills training –Local economic linkages: goods and services suppliers, value-added industries –Technology transfer –Contribution to local community –Gender and indigenous peoples issues

18. Good Contracts IMPLEMENTATION: –Capacity building for negotiations –Evaluation and monitoring needs –Community engagement and review –Transparency of contracts and annual reporting

19. Implications/Recommendations 1.Not every situation can create a win-win; not every investment is a good investment 2.Good investment contracts for development in developing countries must reflect all issues and actors, not just private law tenure objectives of investors 3.Achieving development benefits happens by design, not by accident:  The design MUST be in the contracts and domestic law

20. Helpful resources IISD, Model Investment Treaty UN Special Representative, Principles for Responsible Contracts International Bar Association, Model Mining Development Agreement For contracts: Liberia, Grain For treaties: UNCTAD BUT…no perfect model or blueprint— depends on domestic context, laws and regulations