Promotion and Protection of Investment Bill [B18-2015]: public hearings; Trade, EU-SA Development & Cooperation Agreement (TDCA): Additional Protocol Croatia to the European Union

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Trade and Industry

09 September 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry (dti) briefed the Committee on the Additional Protocol to the Trade, Development and Cooperation Agreement (TDCA). South Africa had acceded to this Protocol, which came into force in 2004 and gained full implementation in 2012. Essentially, it had increased trade between South Africa and the European Union (EU), seeing tariff cuts on almost all trade between these partners, and allowing for expansion of both the EU and the Southern African Customs Union (SACU). The deals addressed competition, intellectual property, development cooperation, economic and political cooperation, and respect for human rights. The Agreement was now being developed with an Additional Protocol pursuant to the entry of Croatia to the EU. Croatia, with a population of four million, should impact positively on trade. South Africa exported agricultural goods to Croatia and imported textiles, machinery and wood and pulp. The dti pointed out that it was expected that exports would increase, and that no sensitive points in this trade had been identified. A number of stakeholders were consulted, and the SARS would implement the agreement. Members asked questions of clarity on what would happen after the TDCA expired but before the Protocol came into force, specific imports and rules of origin, but generally welcomed Croatia’s accession, and resolved to recommend ratification.

The Committee then moved on to the first round of public hearings for the Promotion and Protection of Investment Bill (PPIB). The Centre for Constitutional Rights (CCR) drew attention to clauses 9 and 11 of the PPIB, which dealt with property rights and the government’s right to regulate respectively. The CCR felt that both of these clauses were vague and ill defined, thus giving the government powers that are far too broad. Court cases defining the word ‘arbitrary’ were cited to support these claims. The CCR also warned that the PPIB might be unconstitutional as it could be seen as contradictory to international agreements, mainly those of the SADC Finance and Investment Protocol (FIP). The Committee was disappointed to note that the presentation was vague and unspecific and offered no suggestions as to how these clauses could be improved, particularly since they were direct repeats of wording of the Constitution. The CCR assured the Committee that it supported the Constitution, but not the overly broad language in the specific Bill. The Committee asked that a further submission setting out specific suggestions be prepared.

The Centre for Applied Legal Studies (CALS) made several specific suggestions for changed wording. It called for all instances of the word ‘need’ in the Preamble of the PPIB to be changed to ‘obligation’, for dispute settlement to require only one consenting party, for several issues around tax evasion to be addressed explicitly in the PPIB, for an anti-avoidance clause, and for dispute settlements to somehow include representation of affected communities in the process. The Committee welcomed the clear and specific suggestions, though the Committee felt that defining 'community' would be difficult and it worried that too much language about tax would make the PPIB seem more like a finance bill than an investment bill. Members also suggested that an anti-avoidance clause might be unnecessary and that it should be necessary for both parties to consent to dispute arbitration. CALS cited a case in which it was representing a community against the World Bank.

The South African Human Rights Commission (SAHRC) recommended that the PPIB include a specific obligation on investors to comply with the SA Bill of Rights. The SAHRC also submitted that clause 11, referring to the government’s right to regulate, should include ‘in the public interest’, and that national treatment language should be more specific. It suggested that the PPIB should include mechanisms for information disclosure and public participation, and that an independent oversight body be established to oversee implementation and Ministerial power. The Committee asked for clarification on some of the presenter’s word choices and expressed concern at creating redundancy with existing law. One Member expressed his concern with the suggestion that there should be yet another oversight body. The SAHRC offered to submit a written response on the more technical questions.

The EU Chamber of Commerce and Industry in South Africa described itself as a voluntary organisation representing the business interests of almost 2 000 major European businesses, many of which contribute to SA’s massively beneficial trade relationship with the EU. The EU Chamber felt that the termination of old Bilateral Investment Treaties (BITs) sent a negative message to businesses, many of whom were now worried that the PPIB will not provide adequate protection for investment. The presentation pointed to issues with ‘national treatment’, dispute settlement, and overly broad Ministerial powers. The Committee asked for clarification that the EU Chamber felt that the PPIB was making European business very uncomfortable with future investment, asked how the credit rating would affect investment and made the point that national treatment should not unfairly give special support to foreign investment, and how inclusive growth was covered.

The Mandela Institute saw the limited definition of investment, the right to regulate in the public interest, a constitutional approach to expropriation and compensation, the removal of ‘fair and equitable treatment’ and ‘most favoured nations’, and state-state international arbitration as major issues in need of improvement. It was suggested that the removal of investor protections like ‘fair and equitable treatment’ could be replaced by similar, but not identical language, in order to better balance state and investor interests.  The Mandela Institute also pointed out differences between the PPIB, the SADC Model BIT and the SADC FIP as potential legal issues, and said that some of the conflicting information would need to be addressed. It suggested that clause 5 should be amended to ensure that the PPIB complied with international agreements and said that it should clarify the procedure for requesting state to state arbitration. Public participation could be encouraged by a clause mandating public disclosure of information. Members asked that a full written submission be made covering all issues raised in the oral submission. Their questions clarified that the presentation was referring to previous BITs, and they called for further clarity on state to state resolution.

The National Union of Metalworkers quoted multiple sources to support its position that BITs were bad for South Africa, and called for total cancellation of BITs lest they have interim effects. NUMSA would support domestic courts being the only arena allowed for dispute settlement. It cited reports showing that South Africa was the 12th highest loser of money through illegal financial flows, and suggested that ways must be found to close loopholes allowing outflow of money. It must also pursue all avenues promoting development. It questioned the logic behind protecting “all investments” when some of those originated in countries with shocking human rights records. Members pointed out that the unions' stronghold in the mining industry was causing businesses to invest elsewhere and pointed out that dispute resolution jurisdiction did lie with local courts, in terms of the Bill. In her closing remarks, the Chairperson asked that all those debating this Bill put their personal views aside, and show the will to support democracies and realisation of rights
 

Meeting report

The Chairperson expressed her disappointment that the Committee did not have a quorum, and admonished those parties with few Members for not ensuring that this could be achieved at every meeting.

Trade Development and Cooperation Agreement (TDCA): Additional Protocol: Department of Trade and Industry briefing
Ms Xolelwa Mlumbi-Peter: Deputy Director General: International Trade, Department of Trade and Industry, noted that the Trade, Development, and Cooperation Agreement (TDCA) had increased trade between South Africa and the European Union (EU). The TDCA allowed for expansion of both the EU and the Southern African Customs Union (SACU).

Ms Niki Kruger, Chief Director: Trade Negotiations, Department of Trade and Industry, explained that the TDCA began in 2000, entered into force in 2004, and gained full implementation in 2012. This free trade agreement (FTA) had seen tariff cuts on almost all trade between the two parties. Agriculture quotas were managed by the Department of Agriculture, Forestry and Fisheries (DAFF). The TDCA covered 90% of trade between the two trading partners. Issues addressed in the deal included competition and intellectual property, development cooperation, economic and political cooperation, and respect for human rights. The TDCA was one of the first trade agreements South Africa had signed, post-democracy, with a developed country.

In terms of Article 22 of the TDCA, there was provision for Additional Protocols that smoothed the accession of new EU members and extended trade preferences. Currently, the third EU expansion was under way since South Africa (SA) had been in the TDCA. This would ensure that  Croatia will benefit and that SA’s exports would enjoy preferential treatment into Croatia.

She pointed out that the EU accounted for 40% of SA’s total trade. Croatia’s four million people would expand this market and should have a generally positive impact on trade. SA’s main exports to Croatia were agricultural and Croatia’s main exports to SA were textiles, machinery, and wood. SA exports should especially increase in value-added products. To give a previous example, when Romania acceded in 2007, SA's trade with Romania went from R650 million to almost R4 billion in 2014.

The Department of Trade and Industry (dti) had  consulted with the National Economic Development and Labour Council (NEDLAC), Department of International Relations and Cooperation (DIRCO), Department of Justice and Constitutional Development (DoJ&CD) and DAFF, and South African Revenue Services (SARS), and obtained Presidential approval. Industry representatives identified no sensitive areas for Croatian trade.

The SARS would be responsible for implementing the agreement, once ratified by Parliament. The dti would inform the various stakeholders via NEDLAC once implementation takes place.

In conclusion, the dti felt that the TDCA would provide for a seamless and mutually beneficial expansion of trade between South Africa and the EU.

The Chairperson noted that the Committee previously received the full text. She suggested that the Committee could probably agree to recommend its ratification, without further questions.

Ms Mlumbi-Peter noted that this deal would also aid South African job growth and development.

Discussion

Mr G Hill-Lewis (DA) asked what would happen in the interim period after the TDCA expired but before the EPAC came into force.

Mr M Kolako (ANC) noted that Article 22 of the TDCA had clearly set the procedure for this situation and welcomed the expansion of SA exports through this addition.

Mr N Koornhof (ANC) agreed with the general consensus that the presentation was very straightforward.

Mr B Mkongi (ANC) asked why the percentages of trade from the EU and SA respectively were slightly different, and asked for clarity on the period – ten or twelve years.

Mr J Esterhuizen (IFP) asked whether trade was still meeting the requirements for provincial trade and rules of origin.

The Chairperson noted that some of Croatia’s exports were products that SA would like to be producing. For this reason, she wanted to know how expansion of the Protocol might affect the SA localisation. She asked what exact exports of textiles and wood from Croatia were being received by SA , and why SA was exporting to asbestos to Croatia.

Ms Mlumbi-Peter explained that EPAC had not yet been ratified by member states, and would only come into effect after that had been done. She said that the TDCA recognised differences in development between the EU and SA, and thus the EU opened up slightly more, and took less time to implement, which explained the difference in figures. The purpose was definitely to open SA to trade opportunities. SARS attended to enforcement of tariffs and designated rules of origin; and no products will be traded without meeting the rules of the agreement. Trade always created competition between products, but SA attempted to limit this competition by identifying where SA production did not fully meet domestic demand. The World Trade Organisation (WTO) allowed for  exceptions to trade rules and asbestos was likely an example of this. Croatia was free to regulate and restrict trade of asbestos for itself.

Ms Kruger added that the EU also had its own rules of origin. Both sides checked that the trade would meet rules of origin requirements, and there had been many instances wherein rules of origin certificates have had to be verified. She explained that it was wood pulp that Croatia exported to SA ,and often it required further processing.

The Chairperson formally called for the Portfolio Committee to approve the recommendation that the accession to the Protocol be approved.

Committee Members adopted that recommendation and the Chairperson noted that it would be sent through to the House for consideration.

Promotion and Protection of Investment Bill (PPIB): Public hearings
The Chairperson observed that there had been a long process of stakeholder interaction with the Promotion and Protection of Investment Bill (PPIB or the Bill), and that the PPIB initial drafts had  evolved considerably before being tabled  in the current form in Parliament. She noted that the PPIB brings a new paradigm for investment, and likened this to the way in which the new Constitution had brought a fresh reflection of South Africa’s progress.

Centre for Constitutional Rights (CCR) submission
Mr Johann Kruger, Head of the Centre for Constitutional Rights, explained that the Centre (or CCR) aims to uphold the Constitution and assist citizens in claiming their rights. The presentation would focus on a few specific issues the CCR had found with the PPIB, rather than a full technical analysis.

Ms Phephelaphi Dube, Legal Officer, CCR, explained that the presentation would focus on clause 11 and clause 9 of the PPIB. She made the following submissions on each of the clauses:

Clause 11, which centres on the government’s right to regulate, is vague and does not provide guidance on the exercise of executive power. It gives the government the right to take unspecified measures with undefined limits. Laws must indicate with reasonable clarity the exact actions that are and are not legal. The PPIB does not explain how this clause will interact with various clauses of the Constitution. Courts have held that laws should be clear on what is prohibited so that a reasonable person can understand it. The CCR thus recommends that the language of Clause 11 be narrowed.

Clause 9, which addresses protection of property rights, is also vague. Section 25 of the Constitution says that “no one may be deprived of property except in terms of a law of general application” and “no law may permit arbitrary deprivation of property”. The PPIB makes provision for any number of unspecified regulations. Therefore, the PPIB does not meet the parameters laid out by Section 25 of the Constitution. The Courts in FNB v SARS defined “arbitrary” as procedurally unfair or inadequately defined, and the CCR feels that Clause 9 of the PPIB is thus arbitrary and needs to be narrowed.

Speaking to other considerations, Ms Dube noted SA’s obligations to the SADC Protocol on Finance and Investment (FIP). Section 39 of the Constitution obligates the government to honour such obligations. The SADC FIP provides for ‘fair and equitable’ treatment, and the PPIB seems to illegally repudiate this provision by not including such a clause. The CCR feels that the title of the PPIB is misleading because it will not protect foreign investment adequately. Therefore, she submitted that the scope of the PPIB needs to be narrowed considerably, to clearly delineate the government’s powers under the PPIB, and ensure compliance with international agreement.

Discussion

Mr Hill-Lewis noted that he had not read the CCR’s report but asked for specific suggestions on how to improve the aforementioned clauses. He commented that clause 11 seems self-evident because the government obviously has a right to regulate. The same logic applies to clause 9 because property rights are enshrined in the Constitution. He asked for a copy of the FNB court case and asked what the CCR wanted these clauses to say.

Mr Mkongi proposed that Committee engagement be postponed until after all stakeholders had presented.

The Chairperson explained that this time was more for clarification than engagement.

Adv A Alberts (FF+) noted that the big question was whether the PPIB complies with the Constitution and international law, and asked if the CCR had actual evidence that it may not?

Mr Esterhuizen applauded the goals and efforts of the CCR. He noted that foreign governments worldwide were expanding their policy space on investment regulation. He called for greater clarity in the PPIB.

Mr Kolako also called for specific suggestions for changes to the PPIB, and asked the CCR to expand upon how it was possible to strike a balance between international law and the Constitution? He felt that the PPIB did strike a good balance between the two.

The Chairperson noted the consensus that the CCR needed to make a more specific recommendation. She also noted that most Members were of the view that the PPIB was strongly aligned to the Constitution, and asked how the CCR was suggesting that the reach of the state’s powers could be too broad? She also called for more specifics.

Mr Kruger noted that the more comprehensive report provided by the CCR contained some answers. He explained that the CCR was concerned that the issue of state powers applied to the Bill only, not the Constitution. The CCR still felt that the state's powers in the PPIB for these specific issues are too broad. Specific issues should have specific powers delineated. The Constitution ruled supreme, but the Constitution also did bind government to comply with international agreements, and this created the balance.

The Chairperson asked the Parliamentary Legal Adviser for his opinion on the Constitution’s position on international law, and he agreed with the position as presented by the CCR.

Mr Hill-Lewis called for thorough engagement with each presentation. He referenced section 25 of the Constitution and observed that the PPIB merely repeated this clause. For this reason, he asked whether the CCR was recommending that this Section 25 needs further limitation?

Mr Mkongi agreed that all presenters might want to answer this question. He also called for a rationale.

The Chairperson noted that a written response might be necessary.

Mr Kruger assured the Committee that the CCR supported the Constitution. He explained that in both the PPIB and the Expropriations Bill the language should expand and specify, rather than just repeating the Constitution.

Ms Dube held that this right to regulate was drafted vaguely and thus the language is arbitrary.

The Chairperson assured the Committee that the issue would be revisited. She felt that the CCR submission had been rather vague.

Centre for Applied Legal Studies (CALS) submission
Mr Ayabonga Nase, Candidate Attorney, CALS, explained that the CALS is a human rights monitor. He firstly explained SA’s stance on human rights. Regionally, SA has adopted the Statute of the African Court of Justice and Human Rights. The Constitution, in sections 7 and 8, also binds all institutions to the protection of human rights. Historically, bilateral investment treaties (BITs) had heavily favoured foreign investors, to the disadvantage of impoverished citizens.

CALS submitted that the language of the preamble of the PPIB should be changed. Firstly, all instances of the word ‘need’ should be replaced with ‘obligation’. Paragraph 7 should include ‘access to justice, access to information and all other rights in the Bill of Rights’. Paragraph 2 should include language referencing ‘inclusive socio-economic development’.

Ms Palesa Madi, Candidate Attorney, CALS, said that the language on dispute settlement should be changed so that only one party could confirm the existence of a dispute, rather than two, and that one party should thus be able to start the resolution process referred to in clause 12. The definition of 'dispute' should also be changed.

She submitted that in clause 10 of the PPIB, the wording on transfer of funds should include language to prevent abuse of tax laws. In 2000-2008, Africa lost US$50 billion to illicit financial flows, which severely undermined development. This Bill has the opportunity to help this situation.
Expanding on clause 12, she noted that marginalised persons or communities should be considered when deciding on disputes. Affected community members should be explicitly given the right to participate and access information about dispute resolution cases.

The current PPIB lacked an anti-avoidance Clause. Without it, there would be no repercussions for investors attempting to circumvent the PPIB. She gave an example of investors attempting, in the past, to avoid responsibility in a mining expropriation case. The CALS recommended giving the Minister explicit powers to issue compliance notices, and in dire situations even to revoke licenses.

Discussion

The Chairperson commended the presentation and noted that the Committee currently had the power to change the wording of the Bill, and not the Minister.

Adv Alberts asked how a community would be defined. He also asked what the CALS meant in referring to “tax avoidance, which is legal”.

Mr A Williams (ANC) asked if anywhere internationally the community was given a voice in dispute resolution.

Mr Mkongi noted that the PPIB referenced investors and the state in many places, and wondered why the community should only appear in one clause. He also wondered why CALS had not expanded on issues of tax evasion, trade mis-invoicing, and abusive transfer pricing. He asked for more specifics on language.

Mr Hill-Lewis said that the community idea has merit, but agreed that defining 'community' will be very difficult and may create a situation where many communities wanted representation. He worried that an anti-avoidance law would deter investment. Investors would have very little power against the manager’s decision. He suggested that an anti-avoidance clause might be tautological.

Mr N Koornhof (ANC) said that it was necessary for both parties to recognise that there is a dispute. He asserted that this is not a tax law, and thus tax issues should be addressed elsewhere to avoid complication. He lauded the forward thinking, but he wondered why there was a suggestion to use wording referring to obligation rather than need.

Mr Kolako explained that Parliament was considering tax issues currently, in the Standing Committee on Finance. He fully agreed that communities were often victimised. He noted the issue of delineating authority between local, provincial, and national government in protecting communities, but wondered how this would be defined.

The Chairperson noted that, in regard to tax, the Bill was treading a fine line between trade and finance. However, the Bill could make reference to taxes, providing the wording was chosen with care. She noted that the Committee previously deliberated on the issue of 'community' when considering the Intellectual Property legislation.

Ms Madi agreed that communities vary widely and are difficult to define. However, often when communities seek legal representation, they are structured. These structures are not always perfect, but they did exist. Often, municipalities also represented communities. She noted that the CALS was currently in the process of  helping the women of Malagana challenge the World Bank. Their complaint dealt with the mining company’s non-compliance with Social Labour Plans.

She said that CALS acknowledged that this Bill is not a money bill and that the presentation should have emphasised all tax issues.

Mr Nase explained that the Department of Mineral Resources (DMR), when requiring Social Labour Plans, required mining companies to define the 'community'. In the CALS experience, ‘need’ had sometimes been interpreted as discretionary and the Constitution must be followed without discretion.

The Chairperson asked for the materials presented to be sent to the Committee in writing.

South African Human Rights Commission (SAHRC) submission
Ms Rachel Ward, Senior Researcher, South Africa Human Rights Commission, apologised that her Commissioners could not attend. She noted that this was the first time the SAHRC was appearing before this Committee. She explained the important relationship between foreign investment and human rights. Mining is a prime example of foreign companies damaging communities and causing poverty. She noted that South Africa is a perfect example of serious inequality. It is difficult to connect trade to a direct causing of human rights degradation, but the SAHRC had managed to target food shortages caused by international companies creating unaffordable food prices.

The SAHRC is a Chapter 9 institution, and in September 2014, a new SAHRC Act was passed allowing it to recommend to Parliament whether Parliament should accept or decline to pass any legislation.

The SAHRC wanted to recommend that the PPIB should include a specific obligation on investors to comply with the SA Bill of Rights as well as with all binding international human rights laws. The language used in the Bill should be in line with the UN Guiding Principles on Business and Human Rights. The protections should be in line with the SADC BIT template.

The SAHRC supported the government’s right to regulate, but submitted that the language should include ‘in the public interest’.

The SAHRC noted that clause 7, in relation to national treatment, is vague. This clause fails to define which cases will be considered.

SAHRC was also concerned about the Preamble, which makes no provisions relating to information disclosure. Ms Ward noted that transparency is a key issue with human rights and investment. She noted that national law requires information disclosure.

The SAHRC supported a national dispute resolution mechanism. However, the SAHRC is concerned by the wide powers afforded to the Minister and felt that the PPIB did not allow for independent oversight.

The SAHRC also recommended that public participation provisions be included. Ms Ward explained the Model International Agreement on Investment for Sustainable Development as an example of community involvement in making complaints. The UN Guide previously mentioned also detailed mechanisms for public participation.

The SAHRC called for the establishment of an independent oversight body to monitor implementation and to review national treatment and dispute matters. This body needed to include a human rights expert.

Discussion

The Chairperson asked if there was any better date when the SAHRC commissioners would be able to attend the hearing to expand on these points, and asked that Ms Ward convey the question to them.

Mr Hill-Lewis noted that language suggested must not state the obvious, such as that citizens must follow the law. He asked whether the SAHRC was suggesting that all investments be pre-vetted.

Mr Mkongi asked whether 'grievance' and 'dispute' are meant to have the same meaning. He also asked for clarification on the difference between ‘public interest’ and ‘community interest’ and ‘civil society’. He asked exactly what responsibilities the SAHRC was suggesting to protect communities?

Mr Esterhuizen noted that international companies frequently are strong enough to abuse human rights, so it is very important, especially with mining, to find a way to ensure that companies not abuse citizens.

Mr Williams suggested that section 4(a) covers the public interest issue.

Mr Koornhof asked for more specifics on another oversight body being created, which he personally said he would not support. He wondered if the SAHRC was happy with the progress of the PPIB.

The Chairperson asked Ms Ward to comment further on the property clause.

Ms Ward said that somewhat redundant language aimed to make explicit the human rights issues, lest companies should continue to circumvent and abuse the law. When referring to grievances, the SAHRC meant the pains the community felt from the dispute. She asserted that unfortunately the state does not always represent the interest of the people, and that people need to be able to engage directly in the process. The SAHRC welcomed the national dispute mechanism, but said this mechanism should expand participation. Ms Ward did not have an issue with section 25 of the Constitution.

The Chairperson referred to the mention, in the more detailed presentation, of the Constitution's property clause.

Ms Ward explained that these sections of the Constitution merely listed rights, and perhaps the wording of that section should be re-thought.

The Chairperson asked for a written response from the SAHRC.

She also asked that copies of a document prepared by the Chief State Law Adviser be circulated.
European Union Chamber submission
Mr Stefan Sakoschek, Chairman, EU Chamber, explained that this organisation is a very new organisation, having been incorporated in March. This Chamber is recognised by the European Commission and represents almost 2 000 companies with 300 000 employees. The Chamber is a Section 14 entity and has a board of directors. The Chamber aims to advocate for EU corporations. Members are registered as European Companies and are headquartered in member states. The presentation incorporated several comments from these companies on the PPIB.

The EU Chamber interacted both with the SA government and members on important policy issues in order to build mutually beneficial networks. The EU Chamber had made White Paper submissions on BBBEE, immigration, and BITs. The EU Chamber had also made public comments on sub-standard goods and was currently lobbying on the PPIB and other matters.

The EU Chamber had discussed the PPIB with the EU-SA links diplomats as well as with the private sector. The analysis considered how the PPIB could support the National Development Plan (NDP) and questions such as whether the Bill would increase foreign direct investment (FDI) and how it would affect day-to-day operations in the country and in trade. The EU Chamber was in favour of the PPIB. The withdrawal of some BITs with European countries was a negative signal to the EU business communities, and raised prices.

Mr Sakoschek quoted President Zuma’s remarks on the economy, in June 2014. He referenced the President’s Nine-Point Plan. He noted that the President had clearly highlighted the important role of the private sector. Mr Sakoschek explained that, in some instances, the EU competed with China as an investor in South Africa.

The EU Chamber expressed concern at the definitions of ‘measures’ and ‘investment’ and proposed definitions. In regard to clause 4, it felt that the wording on national treatment does not adequately protect investors. The EU Chamber felt that there is also a degree of uncertainty on investment security. Mr Sakoschek noted that many of the issues he was now raising had been previously discussed.

Mr Sakoschek proposed the removal of the word ‘may’ from clause 11. He also proposed rewording of clause 12 because the Minister can decline to set up arbitration. He noted that an investor must persuade both his or her home state as well as SA to mediate, which is problematic. He called for alignment to UNCITRAL Protocol. Mediation should be available as a default. The procedure for appointment of the mediator should be reformed.

Mr Sakoschek concluded by emphasising the importance of the EU business community as an investor in SA, and noted that the current version of the Bill makes European investors uncomfortable.

Discussion

Mr Hill-Lewis asked for confirmation that European investors are displeased with the PPIB. He asked what the effect on European investment was likely to be, if the current version of the PPIB is passed. He noted that Mr Sakoschek had also agreed that clause 11 of the PPIB is very problematic.

Mr Esterhuizen noted that SA cannot grow without FDI and therefore SA’s credit rating on investment bonds must remain high. He asked how the credit rating would affect investment.

Mr Mkongi asked Mr Sakoschek to expand on his comment that the PPIB does not adequately promote and protect investment. He said that national treatment must not unfairly give special support to foreign investment. He asked why this presentation had referenced Zimbabwe and Mozambique. He wanted to know where inclusive growth fitted into the presentation.

The Chairperson noted that the presentation did not actually challenge clause 11, but rather proposed a change. She asked Mr Sakoschek to explain the specific concern of the EU Chamber on this point.

Mr Hill-Lewis explained how the definition of investment in the PPIB covered minority shareholders.

Mr Kolako asked whether the EU Chamber has considered the effect on communities.

Mr Sakoschek said that he would send a response on clause 11 in writing. He explained that the EU Chamber represented the interest of business. The EU Chamber felt that the PPIB would create an unfair investment environment, especially considering that European business needed an edge in SA, due to competition from Nigeria, Kenya and China, among others. The reasons for investment and the factors considered were complex, but right now he said that investment is frozen, due to apprehension on the outcome for the PPIB. He noted that China enjoys preferred treatment in SA. He explained that the EU Chamber is trying to become a regional body.

Mandela Institute submission

Dr Fola Adeleke, Head of Research, Mandela Institute,  explained that the Mandela Institute has consulted with various stakeholders in order to prepare some proposed amendments. The Mandela Institute had highlighted the following areas as needing improvement: the limited definition of investment, the right to regulate in the public interest, a constitutional approach to expropriation and compensation, the removal of ‘fair and equitable treatment’ and ‘most favoured nations’, and state-state international arbitration.

Dr Adeleke explained that the right to regulate needs to be explicitly stated and limited to avoid situations that had arisen in the past; where, for example, the government over-regulated an Italian mining company to the point that the obligations in the applicable BIT were breached.

He explained that market-value compensation is different to other kinds of compensation, and that such language appears in the SADC FIP. He suggested that the removed investor protections be replaced with other protections in order to better balance state and investor interests.

The Mandela Institute felt that there was a need to differentiate between investors and investments, although it lauded the PPIB’s assertion that foreign investors would be subject to domestic law. The definition of 'investment' should better align with the definition from the SADC Model BIT.

Dr Adeleke observed that the BIT between SA and China includes a ‘fair and equitable treatment’ clause. He suggested that clause 5 be amended to ensure that the PPIB complied with international agreements, especially those of the SADC. He suggested that ‘like circumstances’ language be removed from clause 7.

As for dispute settlement, he said it is not clear whether the PPIB aligns with international arbitration laws. He posited that the PPIB would allow an international tribunal to make decisions about the SA Constitution. The PPIB should clarify the procedure for requesting state-state arbitration. A potential problem of unclear committee participation in arbitration could occur.

Dr Adeleke compared the PPIB with the the SADC FIP, and also with the SADC Model BIT. A right to regulate appears in all three and ‘most favoured nation’ language is absent from all. However, they disagree on procedures around fair and equitable treatment and arbitration, which could create problems.

He suggested that public participation should be encouraged through a clause mandating public disclosure of information. The PPIB could also include an administrative standard, a form of which appears in the SADC Model BIT.

Discussion

The Chairperson noted that Dr Adeleke spoke about issues not set out in the written presentation and asked for these further issues to be provided in writing.

Mr Esterhuizen noted that BITs had been problematic for SA in the past and asked Dr Adeleke to comment on this issue.

Dr Adeleke agreed that BITs had prohibited the state from properly regulating in the past. He called for the PPIB to balance state and investor interests, and he reminded the Committee that many foreign entities were reforming in a similar way.

The Chairperson noted point 60 of the Mandela Institute presentation on dispute settlement, and explained that the goal of government was to make dispute settlement more proactive and efficient. She observed that domestic dispute settlement is unpopular in these hearings. She asked for Dr Adeleke’s view on this matter.

Dr Adeleke replied that state-state resolution is impractical because it gives too much leeway to everyone involved. He supported domestic dispute settlement. He called for improvement on state-state resolution language.

National Union of Metalworkers of South Africa (NUMSA) submission
Mr Woody Aroun, Parliamentary Officer, NUMSA, explained that although NEDLAC has also commented on the Bill, NUMSA was glad to have its unique voice heard. He explained that Joseph Stiglitz approved of the termination of BITs, whereas the EU felt that this termination negatively affected relations. He recognised that new BITs had been reformed.

Mr Aroun quoted Professor Isaack from the University of Witwatersrand who had said that BITs in the past had affected uneven creation of wealth and had disempowered developing countries. NUMSA agreed that BITs were bad as they give investors too much leverage over policy space.

Mr Aroun asserted that NUMSA supports domestic dispute settlement as the sole arena for resolution. He spoke about the problem of a lack of impartiality at international tribunals. He noted that, due to SA’s agreement to the SADC FIP, foreign investors could potentially still take SA to international arbitration, even without BITs. 

NUMSA is concerned that, in the transitional arrangement, BITs that had been cancelled would still remain in effect for a number of years. These BITs must be declared null and void in order to prevent money from leaving the country. In 2013, R21 billion was taken out of the country in FDI according to the National Treasury. A report from the Mail and Guardian showed that, out of 151 countries, South Africa was the 12th highest loser of money through illegal financial flows. Mr Aroun expressed concern on what NUMSA sees as over-emphasis of the importance of FDI and asserted that SA must fight against this significant loss of money.

Mr Aroun questioned how SA can protect ‘all investments’ when some investments originate in nations that, for instance, were prepared to execute LGBTG individuals, or upheld an embargo on Cuba.

NUMSA wished to close loopholes that allow outflow of money and to pursue all avenues that promote development. Mr Aroun repeated that BITs need to be thoroughly cancelled.

Discussion

Mr Esterhuizen explained that the PPIB gives dispute resolution jurisdiction to local courts. He called for an improvement to the trade deficit by improving the climate for investors. He noted that unions largely run the mining industry, which is causing businesses to invest elsewhere.

Mr Aroun noted that unions strongly agree that job creation is a priority. Nevertheless, FDI is still not “a silver bullet” to solve this problem. SA should stick to the principles that helped make the new Constitution. He said that companies could endure easily the domestic remedies to reach international arbitration. He asked again about the loopholes created by SADC agreements. He expressed worry at the shortness of the PPIB.

Closing Remarks

The Chairperson said that the ANC had always called for the retention of policy space, but that all countries also aim to do this. She referenced the government’s past consideration when sending a loan to Cuba in solidarity. She called South Africa a pioneer in supporting Cuba. She urged everyone not to lose the courage that they had shown from 1994, as well as the will to support democracies. She noted that the Constitutional Court had supported, many times, the ‘progressive realisation’ of the Bill of Rights. She urged the Committee to listen to everyone, regardless of his or her own opinion. She called for the presenters to succinctly and specifically offer both criticism and improvements. She was happy to have heard voices from across the political spectrum.

The Chairperson reminded Members of the Joint Committee meeting on Friday. She reminded those present that this Committee does not consider monetary policy.

The meeting was adjourned. 

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