FOREIGN DIRECT INVESTMENT LAW
SETTLEMENT OF FOREIGN DIRECT INVESTMENT DISPUTES
Africa is rich in natural resources and boasts some of the most fertile lands for agriculture and animal husbandry in the world. Its tourist attractions include the Victoria Falls, the beautiful national parks in Botswana, South Africa and the amazing Serengeti national park in Tanzania that merges into the Masai Mara of Kenya. The Congo, often described to be as bigger if not bigger than the whole of Europe is home of the famous gorillas but also harbors some of the richest treasures such as gold, diamond, copper and timber. Africa’s riches were the main attraction for the scramble for Africa that ushered in colonial rule in late 19th Century until only recently when the last of the colonized peoples of South Africa attained their freedom and dignity in 1993. With the attainment of independence, since 1956 when Ghana attained self-rule followed by many more States in the 1960s, most if not all-African countries continued to depend on foreign aid from mostly their former colonial masters. This aid was supplemented by multilateral assistance from the World Bank and other satellite International Finance Institutions and the United Nations through its subsidiary and specialized agencies.
Foreign aid both bilateral and multilateral has proved inadequate to promote development in Africa largely because the programmes and projects designed with the cooperation of Governments have proved not sustainable. Funding is cut to fit a particular project without any consideration of the effect of the final product on the overall economy or the necessity for continued maintenance. The consequence has been continued dependence on fresh aid to reconstruct previous projects that had since collapsed or associated infrastructure not previously foreseen but required due to newly designed projects. Money has been moved form sector to sector on an experimental basis without much progress, first through governments as executing agencies and now directly through a myriad of NGOs that have been hastily formed to tap excess resources diverted from Government to avoid corruption, in the end feeding corruption of another kind.
Privatization which was forced on African Governments as the panacea for spurring development by dismantling non-performing public enterprises, set up initially on advice of departing colonial administrators, has not worked. Industries and plants sold at give away prices to so called private investors have been run down without replacement for lack of commitment to development. It is now time for Africa to take control of their economies and take a page from the success of the TIGERS of Asia or BRICKS. The success enjoyed by China has come from forming partnerships at home between indigenous companies (state owned) and foreign companies looking for markets. The key is to obtain the necessary know-how from the partnership so that the resulting industrial development can be continued even after the departure of the foreign partner. This is referred to as “transfer of technology”. It may be necessary to buy if necessary and for this Governments ought to set up Development Banks that can provide the capital to local enterprises to invest in the partnerships in exchange for disclosure of necessary intellectual property in the processes under manufacture. Some have referred to this cooperation as Private Public Partnerships.
DOCUMENTS
- A Bad Good Deal: The Challenges of Chinese Foreign Direct Investment in Africa
- What Am I signing: Discipline and Effects of Bilateral and Regional Investment Treaties in Sub-Saharan Africa. By Matteo Bonazzi
- Adjusting Structural Adjustment: The Role of the Structural Adjustment Program in Africa’s Development. By Tabisa Walwema
Model Bilateral Investment Treaties
US Model Bilateral Investment Treaty
A copy of the MODEL BIT can be found here
The New Indian Model Bilateral Investment Treaty 2015
On March 24, 2015, India released the latest draft of its Model Bilateral Investment Treaty (BIT). It reflects India?s recent experiences with investor-state dispute settlement. It is also a response to treaty claims faced by other governments in sensitive areas of regulation that have spurred a backlash in many parts of the world. With substantive changes, this draft is designed to provide greater protection for host countries and their ability to regulate investors. This is important as states? rights were previously signed away in many treaties without significant understanding, analysis or debate. Significantly, the Indian Model adds important qualifications for investor protection, thus providing more protection for the host State.
Clearly, the new Model BIT signals a clear shift toward governing the conduct of foreign investors, whereas previous treaties focused on the protection of investors. In direct response to the expansive rulings of arbitrators under ICSID jurisdiction, the India BIT removes from international arbitration any commercial contracts signed with an investor, especially as it relates to services supplied in exercise of governmental authority (Biwater Gauf (Tanzania)) or any Taxation Measure (Uganda-Heritage dispute). In addition, the BIT attempts to reverse the current trend in international arbitration to re-impose the compensation standard of old by adopting the General Assembly’s standard in the New International Economic Order resolutions of 1974, upon nationalization. In addition Articles 5.1, 5.3 and 5.4 of the BIT provide: 5.1 Neither a party may nationalize or expropriate an investment (hereafter “Expropriation”) or take any Measure having an effect equivalent to Expropriation except for reason of public purpose, in accordance with the procedure established by Law on payment of adequate compensation. Article 5.3 ” For avoidance of doubt, the Parties agree that no action taken by a Party in its commercial capacity shall not constitute expropriation or any other measure having similar effect ” 5.4 For the avoidance of doubt, the parties also agree that, 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 shall not constitute expropriation? ( Reversing Biwater Gauf (Tanzania)Ltd. ICSID case).
A copy of the MODEL BIT can be found here.
Brazil BIT with Mozambique
In a further effort to develop the law governing foreign investments and to ensure that the law regulates only major economic cooperation projects which result in mutual benefit for the people of the host country while producing reasonable returns for the foreign investor and the investor state, Brazil has developed a new Bilateral Investment Treaty Model, signed so far, in Africa, with Angola and Mozambique. A copy of the Treaty signed with Mozambique is produced here for ease of reference.
The Brazil Bilateral Investment Treaty with Mozambique can be found here.
Investor-State Disputes Settlement (ISDS)
The settlement of investment disputes, formerly dealt with under the domestic law of the host State, failing which, through diplomatic intervention by the investor?s home state, were since 1965 elevated to an international dispute settlement mechanism with the adoption of the International Convention on the Settlement of Investment Disputes (ICSID), concluded under the auspices of the World Bank which is also the home of the Centre established under the Convention. This mechanism required investors to demonstrate, where required by the host state, that all available domestic dispute resolution mechanisms had been exhausted without resolution of the dispute, but most importantly also that the host State and the investor have consented in writing to resolution of the dispute through ICSID (Article 25). However, with the advent of the proliferation of Bilateral Investment Treaties (BITs), also referred to as International Investment Agreements (IIAs), investors began to proceed directly to ICSID arbitration without demonstrating the written consent required under ICSID but, rather, relying on the arbitration requirements of the bilateral agreement between the host State and the investor?s home State. These Agreements are drafted variously depending on the intended purpose. In the case of BITs signed by capital exporting countries and developing countries, mostly, there has been a tendency to obtain the most favorable provisions for investors providing in many cases that all disputes with home State investor shall be submitted to ICSID arbitration. This language which was, for example, included in the Biwater Gauf case was considered sufficient to satisfy the necessary consent under Article 25 of ICSID, although there was no express written consent to submit that particular dispute to ICSID. In fact, in that case, the contract, a mere service contract for water supply, contained a dispute resolution provision under the UNCITRAL Arbitration Rules which had been resorted to unsuccessfully by the complainant. The use of BITs in this fashion has generated immense controversy among States and resulted in extensive studies by the United Nations Commission on Trade and Development (UNCTAD). A copy of one these studies is attached here. A summary review of the Investor-State disputes settled up to 2014 is also attached here.