Info Service on WTO and Trade Issues (Oct12/01)
8 October 2012
Third World Network
BITs ‘not decisive in attracting investment', says South Africa
Published in SUNS #7446 dated 27 September 2012
Geneva, 26 Sept (Meena Raman) -- South African government's experience
has shown that there was no clear relationship between signing Bilateral
Investment Treaties (BITs) and increased inflows of FDI, according
to a senior official of that nation.
South Africa's Deputy Director General from the Department of Trade
and Industry, Mr. Xavier Carim, gave this view at a WTO Public Forum
on international investment agreements held on Tuesday, 25 September.
The session on international investment agreements at the WTO public
forum was organized by Our World Is Not for Sale Network, the International
Trade Union Confederation, and Public Citizen entitled "Investment
provisions and agreements: What is the right 21st century approach?"
Others in the panel included Ms. Sanya Reid Smith from the Third World
Network, Ms. Melinda St. Louis from the US Public Citizen's Global
Trade Watch, Mr. Roberto Bissio from Social Watch in Uruguay and Dr.
James Zhan, Head of Investment Policies and Capacity Building Branch
at UN Conference on Trade and Development.
Carim, one of the presenters at the international investment treaties
session, said that his government's experience demonstrated that there
was no clear relationship between signing Bilateral Investment Treaties
(BITs) and increased inflows of FDI, which had been a motivating factor
in signing BITs in the 1990s.
"We do not receive significant inflows of FDI from many partners
with whom we have BITs, and at the same time, we continue to receive
investment from jurisdictions with which we have no BITs. In short,
BITs are not decisive in attracting investment," Carim said.
"In addition, over the last decade, South Africa had to confront
several challenges, and threats of challenge, brought under various
BITs. This focussed our minds! Most of the threats of challenge can
only be described as spurious or frivolous but they all underscored
the fact that BITs do not adequately take into account the particular
conditions found in South Africa, the complexities of our socio-economic
challenges and the broad objectives of government policy," he
Referring to South Africa's post-apartheid Constitution which embedded
"a transformation agenda that seeks to overcome deeply rooted
inequities inherited from apartheid's exclusionary policies,"
Carim said that the Constitution "also provides for non-discrimination
between foreign and domestic investors and all investors need to undertake
their activities in this context of the transformation agenda set
out in the Constitution."
"However, as we assessed the bilateral investment treaties that
we had entered into, we began to identify a range of inconsistencies
with the Constitution," and this, "prompted South Africa
to review the BITs in 2008."
After the reviews, Carim said, the South African Cabinet concluded
that South Africa "should refrain from entering into BITs in
future, except in cases of compelling economic and political circumstances."
Giving a short background of South Africa's experience, Carim said
at the outset: "In the immediate post apartheid era (1994-1998),
South Africa concluded around 15 BITs mainly with European countries.
At the time, this was a good faith attempt to assure investors that
their investments would be secure under the new democratically-elected
government. Signing these BITs was also seen as an important diplomatic
signal confirming South Africa's re-entry to the international community
after the years of isolation under apartheid.
"However, we soon became aware of challenges posed by international
investment treaties. We observed the fractious debate in the OECD
when its members were seeking to negotiate a multilateral investment
agreement in the late 1990s. We were participants in the discussions
in the WTO that sought to include, as one of the Singapore Issues
- trade and investment - in the Doha Round negotiations, where many
developmental concerns emerged in the engagements."
"Perhaps most seriously, the spike in international investment
arbitrations that followed the financial crisis in 2008 laid bare
that bilateral investment agreements can pose profound and serious
risks to government policy," he said.
Carim referred to the intervention by South Africa's Minister of Trade
and Industry, Dr Rob Davies, on 26 Sep. at the UNCTAD Trade and Development
Board discussion on Investment Policy Framework for Sustainable Development,
and said his own presentation at the WTO forum complemented Davis's
statement at the TDB.
The South African government, Carim said, had held "extensive
and intensive consultations in South Africa over a three-year period.
We invited international experts to contribute to the discussion.
The review identified a range of concerns associated with expansive
interpretations of the provisions usually found in BITs: definitions
of investment, investor, national treatment, fair and equitable treatment,
most favoured nation clause, expropriation, compensation, transfer
of funds etc."
"The review also identified difficulties with respect to international
arbitration. It observed fragmentation in the system; the lack of
common standards of protection; inconsistent interpretations by arbitration
panels even on similar matters; as well the growing complexity of
the international system through an evolving jurisprudence. All this
exacerbates uncertainty and risk," he added further.
"In particular, we were concerned with investor-state dispute
provisions in our BITs. This, in our view, opens the door to narrow
commercial interests on subject matters of vital national interest
and to unpredictable international arbitration outcomes, and is a
direct challenge to constitutional and democratic policy-making,"
"Against this background, in April 2010 the South African Cabinet
concluded that South Africa should: First, refrain from entering into
BITs in future, except in cases of compelling economic and political
circumstances. Second, the Cabinet instructed that all ‘first generation'
BITs which South Africa signed shortly after the democratic transition
in 1994, many of which have now reached their termination date, should
be reviewed with a view to termination, and possible renegotiation
on the basis of a new Model BIT to be developed."
"Third, the Cabinet decided that South Africa should strengthen
its domestic legislation in respect of the protection offered to foreign
investors. In this regard, key considerations would be to codify BIT-type
protection into South African law and clarify their meaning in line
with the South African Constitution. We would also seek to incorporate
legitimate exceptions to investor protection where warranted by public
policy considerations such as, for example for national security,
health, environmental reasons or for measures to address historical
injustice and or promote development.
"Fourth, the Cabinet elevated all decision-making in respect
of BITs to an Inter-Ministerial Committee tasked with oversight of
investment, international relations and economic development matters."
Carim added: "This is the work we are undertaking now. The process
of interdepartmental consultations is underway; there will be an extensive
set of intergovernmental consultations as well as consultations with
stakeholders and with Parliament - a social and economic dialogue."
"We are working to terminate existing BITs; develop a new Model;
and developing an Investment Act. This is complex technical and legal
work and is unfinished. Nevertheless, our broad policy approach is
clear. We aim to update and strengthen South Africa's investment regime
to ensure that South Africa remains open to foreign investment, provides
adequate security and protection to all investors, while preserving
the sovereign right of the South African Government to pursue its
developmental public policy objectives. We also aim to reduce exposure
to the unpredictable risks we see and have had to confront in our
bilateral investment treaties."
"The new approach does not introduce any new obstacles to investment
but will establish a framework for more equitable relationships between
investors and Government based on respect for human rights, the rule
of law and due process, sustainable development, and security of tenure
and property rights within the framework created by the South African
"As we do this nationally, we are acutely aware of the unfolding
debate at the international level. In broad terms, a broad distinction
can be discerned between a Freedom of Investment Model, on the one
hand, and an Investment for Sustainable Development Model, on the
other. The Freedom of Investment model tends to assume that all investment
is good, and that all investment promotes development."
"The derived policy implications are that Governments should
continue to liberalise their investment regimes, reduce or limit regulations
and conditions on investors and, in so doing, realise the benefits
of FDI. ‘First generation' BITs tend to reflect this approach."
"The Investment for Sustainable Development Model approach recognizes
that while FDI can make a positive contribution to sustainable development,
the benefits to host countries are not automatic. It posits that regulations
are needed to balance the economic requirements of investors with
the need to ensure that investments make a positive contribution to
sustainable development in the host state."
"The associated benefits of investment as they relate to technology
transfer, skills development, research, establishing local economic
linkages etc., need to be purposefully built into the investment regime,
and not taken for granted. New thinking and practice in international
economic policy-making, notably with respect to the role of state
in economic development, finance and industry, are also finding expression
in international investment policy-making."
"The debate on international investment treaty and policy is
yet to be settled, and there are numerous efforts underway to fashion
a common understanding to international investment policy. UNCTAD's
plays a vital role in this process given its long-standing work and
expertise on investment policy from a development perspective. Indeed,
the Investment Policy Framework for Sustainable Development developed
by UNCTAD gives us a strong point of departure for such dialogue and
cooperation. South Africa will participate in this dialogue, and we
will also participate in other forums, as we search for a common understanding
on what could constitute an appropriate model and framework for investment
protection and promotion at the international level." +