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Bilateral Investment Treaty Policy Framework Review

Bilateral Investment Treaty Policy Framework Review Briefing to Portfolio Committee on Trade & Industry 6 October 2009 Presented by: Mr Xavier Carim- Deputy Director General & Ms Sureiya Adam Director- Special Projects International Trade & Economic Development Division. Background.

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Bilateral Investment Treaty Policy Framework Review

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  1. Bilateral Investment Treaty Policy Framework Review Briefing to Portfolio Committee on Trade & Industry 6 October 2009 Presented by: Mr Xavier Carim- Deputy Director General & Ms Sureiya Adam Director- Special Projects International Trade & Economic Development Division

  2. Background • Rapid increase in BITs during 90’s and investment related disputes globally • Recent litigation- Italian investors • BITs review processes initiated in other jurisdictions, including developed countries • Increased momentum in debate around the lack of flexbility and erosion of developmental imperatives in traditional BITs • Lack of guiding principles informing process

  3. What is a BIT? • Treaty between two countries to protect and promote investments in the territory of the other party • Also referred to as: Investment Promotion and Protection Agreements (IPPAs) or Bilateral Investment Promotion Agreements (BIPAs) or Reciprocal Investment Promotion Agreements (RIPAs)

  4. RSA BITs at a Glance

  5. RSA BITs at a Glance

  6. Structure of Review Mandate • Review BITs • Identify legal risks and other contingencies • Develop Model BIT • Make recommendations to Cabinet in light of findings

  7. Structure of Review Methodology - Stock-take and assessment of existing BITs • Reconciliation of records within ITED as well as DIRCO • Macro review- conducted on basis of interviews at desk manager level • Micro review- legal analysis of texts

  8. Macro Review • Questionnaire • Bilateral desk managers • SACU, SADC, AU and NEPAD desks • DFA • Presidency • Purpose • Identification of BITs with bilateral partners • Strategies underpinning conclusion of BITs – focus on outward and inward investment strategies • Emerging challenges and needs assessment in respect of BITs

  9. Macro Review Basis of FDI policy • Conclusion of early BITs historic – coincide with RSA’s entry into global community • Ad-hoc basis - generic mix of agreements with bilateral partner • Lack of clear FDI policy Outward Investment Strategies • Varying approaches • Driven by need for protection of SA investors Inward Investment Strategies • Perceived risks associated with investing in Africa

  10. Macro Review Observations • Significant increase in BITs globally particularly between developing nations • Review of BITs in several jurisdictions including both developed and developing countries • Independent research also points to the need for greater developmental emphasis in BITs

  11. Micro Review • Analysis of 11 standard clauses found typically in BITs concluded by RSA • Preamble • Definition of investment and investor • Geographic application • Duration and termination • Standards of treatment • Expropriation • Transfer of funds • Dispute resolution

  12. Standard Clauses • National Treatment and Most-Favoured Nation Neither Contracting Party shall in its territory subject investments or returns of nationals or companies of the other Contracting Party to treatment less favourable than that which it accords to investments or returns of its own nationals or companies or to investments or returns of nationals or companies of any third State. (RSA-UK BIT, 1994)

  13. Standard Clauses Expropriation Early BITs provide for “immediate, full and effective compensation” Developing countries prefer “appropriate compensation” RSA Constitution refers to “just and equitable compensation” (Section 25(2))

  14. Standard Clauses Dispute Resolution BITs gave rise to investor-state disputes Extensive powers to tribunals to rule on issues related to public policy Permits investors to leapfrog domestic legal systems New approach to dispute resolution sought

  15. Micro Review Observations - text of 1st generation BITS one-sided - based on OECD model of BITs - later BITs clearly reflect changing investment context - future BITs need to provide for developmental objectives of host state & exhaustion of domestic legal remedies

  16. Status and Progress • March 09 -1st draft finalised & circulated for intra-govt comment • April 09- government stakeholders workshop • May 09- extension for further government input • June 09- 2nd draft circulated for public comment • Aug 09- external stakeholders workshop • Sept 09- additional comments received from SAHRC & UN • Oct 09 – 3rd draft in progress in preparation for submission to Cabinet

  17. Comments Received Reflect concerns pertaining to: • Upholding human rights • Ensuring developmental policy space for RSA • Compliance with the Constitution • Need for data on FDI trends • Need for protection of SA business interests

  18. Recommendations • Assessment of current position & risks • Learning from experience of others • Lapsing of existing 1st generation BITs • Negotiation of new texts based on template in future • Empirical data and analysis of FDI trends important • Safeguarding RSA policy space and developmental priorities

  19. Thank You

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