Arbitration may still be possible after bilateral investment treaties with the EU are terminated.
The mining industry this week expressed its concern about a raft of new Bills, including the Promotion and Protection of Investment Bill, which are intended to replace old bilateral investment treaties that presently cover issues such as expropriation.
However, examination of an existing treaty, in this case the Southern African Development Community (SADC) protocol, which came into force in 2010, suggests that investors will still have international legal protection when doing business in the SADC region after their bilateral investment treaties have expired.
The department of trade and industry had not responded by the time of going to press about whether it had examined the protocol, and if it complemented the draft Bill.
The draft Bill, which is intended to replace old bilateral investment treaties in at least 13 European Union (EU) states, attracted widespread consternation not only from affected countries, but also from investors and sectors such as mining, where there are concerns that the new legislation would provide less protection for foreign investors.
Germany, the fourth country with which a treaty was not renewed, recently warned that the decision would affect investor confidence. Treaties that have already been cancelled are with the Netherlands, Spain, Belgium-Luxembourg and Germany.
The draft Bill to be published on Friday is expected to include a model bilateral investment treaty on which future treaties might be based.
Investors in the SADC region still protected
Delegates attending the Investing in Resources and Mining in Africa conference held in Johannesburg this week were told by Peter Leon, mining expert and partner at law firm Webber Wentzel, that a review of the protocol indicates that investors doing business in the SADC region, including South Africa, will continue to have protection.
"The good news for EU investors is that they still have recourse to international arbitration in the event of an investment dispute with South Africa, and full market value compensation in the event of an expropriation of their investments.
"In order to remove this protection, South Africa would have to withdraw from the protocol on 12 months' notice to SADC, which may obviously have regional consequences."
This is of significant importance to new EU investors who will not protected when the treaties with their countries expire. The present trade agreements contain 10-year sunset clauses for existing investors.
Leon said the SADC protocol that came into force in April 2010 requires SADC countries to create a "predictable" climate for investors, and when it comes to expropriation to be allowed "prompt, adequate and effective" compensation.
"The protocol provides full market value compensation for the expropriation of any investments made in South Africa by an investor since April 16 2010 independent of any bilateral investment treaty," said Leon.
Option of international arbitration
"Although it does not provide the full range of bilateral international trade protection, the protocol does provide reasonable protection to investors from expropriation and unfair or inequitable treatment, which is subject to international arbitration."
Investors do not need to be part of SADC to enjoy the protection of the protocol.
"This means that any investor has the option of international arbitration," said Leon.
"South Africa as a state party is obliged to submit to arbitration under either the rules of the International Centre for Settlement of Investment Disputes or the United Nations Commission on International Trade Law, provided that domestic remedies are first exhausted."
He said the protocol would apply not only to expropriation but to changes made to existing policy that would not be in the investor's interest.
Trade and Industry Minister Rob Davies has promised that the new Bill would provide clarity on the protection investors will enjoy, dismissing the view held by Leon and others that the cancellation of trade investment treaties would affect ties.
Davis has justified the termination of the treaties, saying that government wanted a standard comprehensive legal framework for investment and that some agreements were in place before the Constitution was drafted and did not contain black economic empowerment requirements.
Leon argues that changes could have been made to existing treaties, which did not need to be replaced. Spokesperson Sidwell Medupe said the department expected to provide more certainty on Monday.