Poor timing and poor PR in termination of bilateral with Germany

South Africa has been accused of bad timing and poor PR following the termination of its bilateral investment treaty (BIT) with Germany. “It does not make much sense that the SA government sought to terminate such an apparently important treaty before the domestic legislation which is supposed to replace it and other BITs has been put into place,” according to Sean Woolfrey, a researcher with the Trade Law Centre (tralac), who is also critical of the way it sold the idea to foreign investors. The Promotion and Protection of Investment Bill has recently been approved by Cabinet, but has not yet been published. And it is also unlikely to become law for at least a few months. “So this means there is likely to be a significant and unnecessary gap between the scrapping of the German BIT and the introduction of the law to replace it,” Woolfrey added. “Something that is bound to create uncertainty.” The other issue was the way the Government framed its actions. It was not open and honest about its desire to create a more level playing field between domestic and foreign investors, in his view. Nor did it point out that it was to ensure that the promotion and protection of foreign investment did not unnecessarily constrain its ability to enact laws and measures it perceived to be in the public interest. “The government,” Woolfrey said, “has insisted that its ‘intention is to upgrade the investment framework in SA to ensure that we have a modern piece of legislation that will provide certainty, predictability and a stable environment for any investor in South Africa’. But there is a problem with this sales line, he added. “From the point of view of foreign investors, it is virtually inevitable that the standard of investment protection provided for under the new legislative regime for foreign investment is likely to represent a ‘downgrade’ from the standard provided under SA’s BITs with its European partners. “For example, it seems that the new Investment Bill will not provide for international investor-state arbitration. In addition, it appears that the new regime will allow for less-than-market-value compensation in cases of expropriation, especially where the expropriation has been undertaken for a public interest purpose. “This would, after all, be consistent with the Constitution. BITs, by contrast, generally specify compensation to be at full market value.” Woolfrey also suggested that moving from BITs to domestic legal protection of foreign investment cannot honestly be said to increase certainty and predictability for foreign investors. “Domestic law,” he said, “including the Constitution, can be unilaterally amended at any time. This is not the case for international treaties.” This termination of the BIT with Germany, brings the number of BITs the country has terminated in little over a year to three.