South African trade department critical of approach taken to BIT-making

By Damon Vis-Dunbar
15 July 2009

A position paper published by the Government of South Africa takes a critical posture towards the country’s bilateral investment treaties (BITs).

“Existing international investment agreements are based on a 50-year-old model that remains focused on the interests of investors from developed countries.” writes the Department of Trade and Industry (DTI). “Major issues of concern for developing countries are not being addressed in the BIT negotiating processes.”

The DTI has formed a task force to review of the country’s policies toward the promotion and protection of foreign investment in order to ensure that they are in harmony with social and economic objectives.

The DTI task force observes that the South African government has demonstrated a “lack of understanding regarding the real nature and consequences of BITs…”, and finds that negotiations have not been guided by a common approach or strategic planning.

The DTI task force embarked on a review of South Africa’s BIT policy in October 2008, with a goal to making policy recommendations to South Africa’s Cabinet.

The government position paper published in June, “Bilateral Investment Treaty Policy Framework Review”, is the result of interviews with the various agencies responsible for developing international investment policies, as well as analysis of BITs that have been concluded, ratified or are under negotiation.

The DTI takes a dim view of the provisions standard in South Africa’s investment treaties, including settling disputes with foreign investors through binding international arbitration.

“There is no compelling reason why review of an investor’s claim cannot be undertaken by the institutions of the state in question – provided these are independent of the public authority that is in dispute and they discharge their duties in accordance with basic principles of good governance, including an independent judiciary,” writes the DTI.

In charting a way forward, the DTI suggests that South Africa might take lessons from other countries who have conducted reviews of their commitments under BITs.

The DTI also notes that “many of the initial BITs signed after 1994 will soon expire and this may be an opportunity for the RSA to reassess its position regarding the form and content of such agreements”.

The DTI task force is inviting the public to comment on the position paper no later than 24 July 2009. For a copy of the paper, and information on how to submit comments, see:

South Africa is currently involved in an investment dispute with several Italian citizens and a Luxembourg corporation who hold interests in South African granite quarrying companies.* They claim that legislation enacted in 2004 to increase the participation of historically disadvantaged South Africans effectively “extinguished” their mineral rights without providing adequate compensation.

The claim, registered with the International Centre for Settlement of Investment Disputes in 2007, is pursuant to the Italy-South Africa and Benelux-South Africa bilateral investment treaties.

* Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1)