Investment Protection Provisions & their Implications An Introduction Fui S. Tsikata Reindorf Chambers Accra UNCTAD Workshop Natural Resources & Economic Development Dar Es Salaam 12-16 July 2010
Legal Instruments for Investment Protection • Host State Laws • Company/Government Agreements • Mining lease • Investment/development agreement • Government assurances in Project loan documentation • Treaties • Bilateral • Multilateral
Institutional responsibilities For different instruments Or different parts of instruments Investment Promotion Agency Ministry of Mines Ministry of Finance/Central Bank Ministry of Foreign Affairs Ministry of Justice
Host State Laws Constitutional provisions and expressions Regulation of discretionary power Mining and environmental laws on duration suspension and termination of rights and operations
Key Provisions in Company/State Agreements No expropriation or nationalization Stability of fiscal regime Undertakings regarding exercise of Governmental powers (also in project loan documentation) International arbitration Waiver of sovereign immunities
Key provisions in Treaties • No expropriation or nationalization • National treatment • Most favoured nation treatment • Fair and equitable treatment
Expropriation Indirect expropriation/ regulatory takings Compensation measure
Fiscal stability How does it work when there are higher than expected returns Stabilizing for how long
Undertakings regarding exercise of Governmental Power Which Government institutions are bound by them? When do they constrain conscientious exercise of discretion at time all facts are known?
International Arbitration • Institutions/Rules • Ad hoc vs. institutional • Institutions • ICSID • PCA • UNCITRAL Rules • On what matters? • Expense • Who is familiar with its procedures and requirements? • Confidentiality/non-transparency criticism • Significance of place of arbitration • Potential for clashes with national courts
Waiver of sovereign immunity Diplomatic premises & funds Other state funds
Treaty Provisions & National Development Programmes • Measures to redress historic inequalities • Preferential treatment to encourage linkages • Imposing local content obligations • Improving environmental standards • Additional non-discriminatory tax measures
Who Is Protected? Incorporation to expand investment protection. Compare Incorporating to limit risk and exposure
Examples: (I) Waiver of Immunity • To the extent that the government may in any jurisdiction claim for itself for its assets or revenues immunity from suit execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to government or its assets or revenues such immunity (whether or not claimed) government agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction
Examples: (II) Governing Law • This Agreement and the rights, obligations and duties of the Parties hereunder shall be construed and interpreted in accordance with Law (i.e. the laws of the country) and by such rules and principles of generally accepted international law as may be applicable, particularly with regard to an investment by nationals of one country in another country. Notwithstanding the foregoing, in the event of a conflict between this Agreement or the rights, obligations and duties of a Party under this Agreement, and any other Law, including administrative rules and procedures and matters relating to procedure, and applicable international law, then this Agreement shall govern the rights, obligations and duties of the Parties.
Examples: (III) Stabilisation of Fiscal & other terms • The State, its departments and agencies shall support this Agreement and shall take no action which prevents or impedes the due exercise and performance of rights and obligations of the Parties hereunder. As of the Effective Date of this Agreement and throughout its Term, the State guarantees Contractor the stability of the terms and conditions of this Agreement as well as the fiscal and contractual framework hereof. This Agreement and the rights and obligations specified herein may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the Parties. Any legislative or administrative act of the State of any of its agencies or subdivisions which purports to vary any such right or obligation shall, to the extent sought to be applied to this Agreement, constitute a breach of the Agreement by the State.
Examples: (IV) Most Favorable Treatment • In the event that Government enacts any Law or adopts any practice or policy that permits more favorable treatment of any other person engaged in exploration for or mining of [specify mineral] than that accorded to X by this Agreement, then Government shall grant the same more favorable treatment to X with effect from the date of its application to such other person or of its entry into force, as the case may be.
Examples: (V) Indirect Expropriation • (a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes and indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: (i) the economic impact of the government action, although the fact of an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) the character of the government action. • (b) Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations (Annex B, Article 4, 2004 US Model Treaty)
Examples: (VI) Renegotiation Provision • Where a Party considers that a significant change in the circumstances prevailing at the time the Agreement was entered into, has occurred affecting the economic balance of the Agreement, the Party affected hereby shall notify the other Parties in writing of the claimed change with a statement of how the claimed change has affected the relations between the Parties. The other Parties shall indicate in writing their reaction to such representation within a period of … Months of receipt of such notification and if such significant changes are established by the Parties to have occurred, the Parties shall meet to engage in negotiations and shall effect such changes in, or rectification of, these provisions as they may agree are necessary to restore the relative economic position of the Parties at the date of this Agreement.
Suggested Readings (I) • Howard Mann, International Investment Agreements, Business & Human Rights: Key Issues & Opportunities (2008) www.iisd.org/pdf/2008/iia_business_human_rights.pdf (43 Pages) • Luke Petersen & Ross Garland, Bilateral Investment Treaties & Land Reform in Southern Africa (June 2010) http://www.dd-rd.ca/site/_PDF/publications/BITS_land_reform_en.pdf (17 Pages) • Luke Petersen, Bilateral Investment Treaties - Implications for Sustainable Development & Options for Regulation (2007) www.fes-globalization.org/.../FES%20CR%20Berlin_Peterson.pdf (8 Pages) • Luke Petersen, South Africa's Bilateral Investment Treaties: Implications for Development & Human Rights (2006) http://library.fes.de/pdf-files/iez/global/04137-20080708.pdf (44 Pages)
Suggested Readings (II) • Republic of South Africa, Bilateral Investment Treaty Policy Framework Review (June 2009) http://www.dti.gov.za/ads/bi-lateral_policy.pdf ( 59 Pages) • UNCTAD, International Investment Rule-Making: Stocktaking Challenges & The Way Forward (2008) http://www.unctad.org/en/docs/iteiit20073_en.pdf (125 Pages) • UNCTAD, Key Terms & Concepts in IIAs: A Glossary (2004) http://www.unctad.org/en/docs/iteiit20042_en.pdf (231 pages) • UNCTAD, International Investment Agreements: Key Issues, Vol. 1 (2004) http://www.unctad.org/en/docs/iteiit200410_en.pdf (415 Pages) • UNCTAD, Taking of Property (2000) http://www.unctad.org/en/docs/psiteiitd15.en.pdf (78 pages)
CONCLUSION Watch Those Words !