The Department of Trade and Industry (DTI) responded to the public submissions on the Promotion and Protection of Investment Bill (PPIB) and defended the Bill. The presentation highlighted investment commitments from companies like Mercedes Benz, BMW, and Unilever as discrediting claims of lowered international investor confidence. The DTI was willing to consider changing the name of the PPIB to the “Protection of Investment Bill”. The DTI emphasised the strength of the investment protection enshrined in the Constitution and explained why ‘fair and equitable treatment’, investor-state dispute settlement mechanisms, and other suggested clauses were not included in the PPIB. The DTI detailed the problems with old BITs and explained how the PPIB aligns with UNCTAD’s Core Principles. DTI Legal Advisors provided explanations to assure the Committee that there would not be conflict with the SADC FIP or with Section 25 of the Constitution on expropriation and they also explained the legal rationale behind various definitions.
The discussion that followed looked at the broad issues of the PPIB and eventually devolved into an ideological clash amongst political parties. The DA pointed out the overwhelming number of investors who raised serious concerns during the public hearings, which the ANC countered was the usual over-exaggerated business paranoia against change in favour of ordinary people. The ANC defended the PPIB as being a direct reflection of the Constitution and international trends. However, all Committee members agreed on the need for a Bill to protect investment. The Committee then argued about the process of ending the old BITs, which the legal advisors clarified. The DA pushed for an example of a foreign investor who supports the PPIB, and the Director General did cite the Minister’s meetings with Unilever where Unilever stated its clear intention to stay in SA. The Committee later discussed the mechanisms for dispute settlement, expropriation, ministerial powers granted by the Bill, and national treatment. The DTI agreed that an illustrative list of asset types could be included in the Bill.
DTI response to public submissions on Promotion and Protection of Investment Bill
Mr Lionel October: DTI Director General, explained that the presentation encompasses a detailed study of public submission, legal consultation, and Ministerial advice. The goal of the DTI is to build world-class industries for South Africa, for which Foreign Direct Investment (FDI) is necessary. The DTI wants SA to remain the favourite destination for FDI on the continent; the UK recently confirmed that SA is still the UK’s favourite destination. There has been no flight of investment; for example, Volkswagen announced a R4 billion investment three weeks ago despite the expiration of the German BIT. Unilever has also continued to invest.
Mr October pointed to the Constitution as providing high levels of investment protections. South Africa’s domestic legal system is one of the best in the world; when companies go to South African courts, they receive just treatment. Throughout the world, companies must exhaust domestic remedies before pursuing international arbitration. Domestic remedies are far more cost effective.
Mr October explained that market value compensation issues are covered by the four factors referenced in Section 25 of the Constitution. However, the Expropriation Bill covers further definition of compensation.
Mr October noted efforts by the Department to roll out a red carpet to investors, from creating an investment clearinghouse in government for investment to the DDG personally working with companies like Nestle on investment issues. The media is misrepresenting South Africa’s popularity as an investment destination.
As for old BITs, many of those that were not renewed were created before the new Constitution. The UNCTAD and many other international organisations have called for reform of the poorly drafted old BITs. The old BITs led to costly legal cases against, for example, an Italian company demanding compensation due to the MPRDA. Another investor, a private German citizen, wanted R4 billion from the Reserve Bank and invoked international arbitration under the German BIT. Both of these cases abused wide definitions of ‘expropriation’ and ‘fair and equitable treatment’ and investor-state arbitration. In both cases, the governments were against the cases but could not stop them. The PPIB aims to avoid such issues in the future. SA must protect its policy space and its right to regulate. Mr October reminded the Committee that the PPIB has been held against UN Best Practice policies, and the UN supports the PPIB. He also pointed out that the BITs were not cancelled or terminated, but rather allowed to expire.
The returned Chairperson thanked the DG and asked for a written summary of the Italian and German cases be provided. She invited the DDG to report on the public submissions.
Ms Xolelwa Mlumbi-Peter: DDG of the DTI explained that critical areas raised by multiple stakeholders include the title of the Bill, the definition of investment, the right of establishment, exclusion of ‘fair and equitable treatment’, national treatment, protecting of property, dispute resolution, and the government’s right to regulate.
The PPIB provides a legislative framework for promoting investment. By protecting investment, the state indirectly promotes investment. Incentives like the investment clearinghouse created by government as well as the creation of Special Economic Zones. However, the DTI would be willing to change the title of the PPIB to the “Protection of Investment Bill”.
Ms Peter expressed concern at making definitions too prescriptive. The definition of ‘reasonable period’ for example, would differ between economic sectors. The DTI is not looking to protect short-term investment, but rather investment that would assist development; risk is necessary. The DTI will consider proposals on the definition of ‘measure’ and ‘enterprise’. The definitions in the current PPIB protect intellectual property. The PPIB covers enterprise-based assets. The definition of investment from the Companies Act is narrower in order to address securities; the two definitions are not contradictory. The SADC FIP was aligned with old BIT designs. A number of SADC countries are facing challenges due to inadequacies in the SADC FIP, thus SADC is updating the FIP. The SADC Model BIT is more up-to-date. The DTI cannot release proposed changes to the SADC FIP.
States maintain the right to make regulations governing admission of investment. This prevents companies from abusing an automatic right of establishment to avoid domestic law. Post-establishment rights, which are an international norm, prevent such issues. The DTI is considering changing the title of Article Six of the PPIB to reflect the post-establishment rights policy.
The DTI admitted that many submissions decry the absence of a ‘fair and equitable treatment’ standard. The DTI called such standards vague and claimed that governments around the world worry about the lack of guidelines on interpreting such standards in international arbitration. Brazil’s new BITs do not include ‘fair and equitable treatment’ or investor-state dispute resolution. SADC also agrees on the exclusion of ‘fair and equitable treatment’.
A Most Favoured Nation clause is not included because the PPIB only applies in the Republic and because the PPIB aims to give all investors equal opportunity, irrespective of their nationality. The national treatment clause grants equal favourability to domestic and foreign investors ‘in like circumstances’. Submissions have called the ‘in like circumstances’ vague and discouraging. This clause prevents investors from claiming incentives from different sectors. The DTI explained that the courts would decide whether a foreign company was treated unfairly. The PPIB does provide a non-exhaustive list of criteria, and this is not a new legal concept.
Security of investment only applies to ‘physical’ security. Customary international law requires a state to provide a level of protection to the assets of aliens. The PPIB reflects this protection but includes the phrase ‘subject to available resources and capacity’. A Swiss game farm investor successfully sued after he was not provided adequate protection. However, the DTI feels that it was cumbersome for government to compensate said game farmer. Security does not mean legal security, only police powers.
The objective of the Protection of Property Clause is to reflect Section 25 of the Constitution and not to contradict or overlap with other existing legislation like the Expropriation Bill. The clause preserving the government’s right to regulate is essential to the PPIB lest investors continue to challenge the government’s right to regulate. The government would obviously have to comply with the Constitution when regulating, and thus the powers provided are not too broad. Investors have challenged measures in the past like Affirmative Action, BEE, development aspects of the MPRDA, and public health measures. Internationally, investors have challenges measures in the past like tax collection, domestic fiscal package, plain packaging for cigarettes, environmental regulations, and many others. According to UNCTAD studies, many cases center around electricity and mining, but a wide range of sectors are evenly affected. Legal and arbitration costs millions of US Dollars, with 60% of cases being decided in favour of the investor. 40 known claims in 2012 exceeded one billion US Dollars.
With dispute resolution, investor-state arbitration has become unpopular globally due to the lack of governing legislation and the repeated attacks on the government’s right to regulate. The SADC FIP is being reviewed to align it with state-state arbitration factors. The PPIB aims to prevent investors from bypassing domestic courts. International arbitration is less efficient than domestic remedies. The PPIB also provides from dispute avoidance via mediation. Ms Peter defended the use of the word ‘may’ in the Section as promoting the exhaustion of domestic remedies.
Again, Annex One of the SADC FIP is being reviewed due to the fact that the 2006 FIP was constructed in line with problematic first generation BITs. The review is considering addressing the government’s right to regulate, removing fair and equitable treatment, reforming dispute settlement, and narrowing the definition of investment.
UNCTAD’s Core Principles for Investment Policymaking emphasise investment promotion, inclusive growth, and the achievement of development goals. UNCTAD encourages the involvement of stakeholders; the DTI allowed for three months of public consultation as well as the NEDLAC process in originally formulating the PPIB. In addition, there was another month allowed for the submission of public comments. UNCTAD’s core principles include:
- Policy coherence
- Public governance
- Dynamic policymaking
- Balanced rights and obligations
- Right to regulate
- Openness to investment
- Investment protection and treatment
- Investment promotion and facilitation
- Corporate responsibility
- International cooperation
The DTI will continue to develop its responses to these public submissions. Ms Peter felt that the PPIB successfully aligns with the UNCTAD Core Principles. The DTI has developed a matrix to reflect such submissions.
The Chairperson thanked the DTI for its well-cross-referenced presentation and called for everyone to sign the register. She welcomed the various legal advisors. She mentioned Mr Hill-Lewis’s enquiry yesterday as to whether the PPIB could still be withdrawn. She shared the procedure that the executive who tabled the Bill has the opportunity to withdraw the Bill until the second reading of the Bill is decided. The Chairperson announced that, before engagement, the Department should take the Committee through the PPIB clause by clause.
Briefing by Legal Advisors
Dr Mustaqeem De Gama, DTI Counsellor, agreed that the first generation BITs were problematic. As for accusations that only EU BITs were terminated, the situation was simply that all of these BITs were ending around the same time and thus, after significant deliberation, were not renewed. At the time, the EU was busy negotiating the Lisbon Treaty, and thus were too busy to engage. Engagement with countries like Cuba and Argentina to terminate BITs is currently underway.
The PPIB can only create a framework for investment; it operates within the constraints of the Constitution and existing domestic laws and norms. For this reason, the PPIB cannot be too specific. For example, the PPIB must protect a wide range of assets beyond incorporeal properties. Language from previous versions of the PPIB could be included in an illustrative way.
South Africa must and will comply with its international obligations. While the SADC FIP includes things like ‘fair and equitable treatment’, it also includes language allowing for national policy space. The SA Constitution has a good approach to compensation that has been upheld in the courts. Only in a minimal number of cases would the history of acquisitions be considered. Though the legal language between the PPIB and the SADC FIP may be difference, in practice the courts have pursued similar action. The sentiment of ‘fair and equitable treatment’ is upheld in principle in the Constitution. Customary international law requires a state to provide a minimum level of treatment to the assets of aliens. The PPIB recognises this customary international standard of treatment.
A change to the title of the PPIB will be discussed. Submissions for the Preamble to become more obligatory can be considered, but the Preamble is meant to provide clarity and is not binding. Many submissions called language on the definition of dispute redundant or worthy of deletion. The PPIB does not contradict the Companies Act. The DTI would be willing to replace the term enterprise with entity in order to conform to the Companies Act. An illustrative asset-based list would be in line with international norms. Portfolio flows or private homes would not comply with the PPIB, though they would be protected under general South African Law.
Many submissions have been considered by the State Law Advisors that are sufficiently addressed in the PPIB, such as the definition of Minister. Definitions of concepts like ‘mergers’ are defined in other pieces of legislation. There is no necessity to proscribe fully sections of the Constitution. The DTI is not opposed to adding further rights from the Bill of Rights beyond Just Administrative Action; all rights from the Bill of Rights have equal enforcement.
The DTI is amenable to consider changing the title and content of the Right of Establishment section. States are allowed to set entry requirements; the right of establishment is not an automatic right. National security sectors in the US do not allow foreign investors to enter; SA has not followed such an approach. Submissions attempting to achieve further clarity are not necessary.
National treatment is one of the core issues of this Bill. SA has a non-discriminatory policy in general, but the Constitution does allow for discrimination in a few areas such as tax brackets. National treatment is given at the discretion of the state, but SA does not have codified discrimination in national treatment policy. In some instances, it will be necessary to treat different companies differently. Although the like circumstances concept has been controversial, the language has been tested many times internationally. The clause on national treatment is not vague nor does it afford excessive powers. The final decision on national treatment falls to the courts, not the government. All exceptions to national treatment are very narrow.
If anyone establishes an investment in SA, the full scope of SA law and protection including those outlined in the PPIB would protect the investment. Security of investment refers to physical security, not legal security. The Neer Case from the 1920s in which a US investor was murdered in Mexico; Mexico subsequently compensated the US for police negligence. The PPIB provides the same security to foreign investors as it does to domestic investors due to complaints from domestic investors under the old BITs that they were receiving less security. The debate around security considers what the police and the government’s standard of care should be.
National Treasury has been consulted on issues with transfer of funds. Applicable legislation dictates the procedure for transfer of funds. Financial legislation is consistently reviewed. The right to regulate does not create an exception, but rather reaffirms the state’s right. Existing legislation and especially the Constitution as well as the German Grunt Norm limit this power. As long as these powers are applied equally and without discrimination, no investor will complain. Investors want certainty; government can change its laws through reasonable process.
State law advisors will further deliberate on language in the dispute settlement clause including ‘May’ versus ‘must’. Many other countries are pursuing state-state arbitration. The government takes very seriously its Constitutional obligation to consider disputes; SA is not the Banana Republic. However, an automatic government consent provision for international is absurd; the state should consider these cases individually and not sign a blank check.
BITs have a natural life span, and their sunset provisions will also eventually run out. The PPIB sufficiently addresses transitional arrangements.
The Chairperson thanked Mr De Gama for his erudite presentation and called for a tea break. The Committee would start its deliberations with definitions.
The Chairperson was disturbed by submissions from organisations such as the American Chamber of Commerce stating that many companies are on the fence about future SA investment. However, BMW recently announced that its SA plant will continue to operate even after 2019. The Committee must allay the fears of those who doubt SA’s investment climate. The Chairperson moved to deliberations on the definitions of the Bill.
Mr Macpherson moved to first question the presenters before starting to consider the PPIB.
The Chairperson insisted on the use of the DTI’s matrix. She explained that the proceedings would go issue by issue.
Mr Hill Lewis called for engagement with the broad policy notions presented by the DTI.
The Chairperson called for engagement with the broad overview of each of the three presenters in rounds.
Mr G Hill-Lewis (DA) noted that he has many questions. The Bill aims to promote and protect investment, yet all investors who have presented has said that the Bill achieves neither. We have heard serious concern from these investors that represent 80% of total investment. The Bill is for them and we must listen to them. Why are we not listening to them? We need to consider withdrawing the Bill. How can we legally proceed with the Bill if it is in contravention of the SADC FIP? The promise that the FIP will be updated is not enough. Should we not wait for the SADC FIP to be amended? The Committee needs more than a summary of unfinished proposals for the SADC FIP.
Mr A Alberts (FF+) asked for documents from UNCTAD. He called evidence for the need for the Bill ‘prima facie’. How many companies exactly abused the previous system of BITs? He asked for a non-superficial rationale for the necessity of the Bill. What happens if Germany confiscates all South African property in the absence of a BIT? In Zimbabwe, people have lost their farms. We need reciprocal protection, which the current Bill does not address.
Mr B Mkongi (ANC) welcomed the presentation as reflecting international practices. He said that UNCTAD agrees with the Bill. One cannot argue that the PPIB does not address or comply with international law. The public submissions only opposed specific aspects of the Bill, not the Bill itself. He lauded the DTI’s offer to change the title of the Bill. He welcomed the process of tightening up the terminology of the Bill. He claimed that some members do not read the bills, but only the public submissions. Anglo American, the South African mining company, is not against the Bill, but only small issues with the Bill.
Mr October welcomed a discussion on the rationale and the need for the Bill. He said that the DTI has dealt with all the issues raised in the public submissions, especially those who raised serious concerns. Investors are continuing to invest despite the termination of BITs. None oppose the idea of new legislation, but we need to narrow the scope of the Bill to only consider protection. He felt that the DTI has successfully assuaged Anglo American concerns about SADC compliance. A number of BITs will still continue for ten or twenty years, however these do not and will not contradict new legislation. Processing domestic legislation will not conflict with SADC.
Mr October reminded the Committee of the recent presentation by UNCTAD and said that UNCTAD gave the Bill a stamp of approval. SA has also consulted with the OECD to deliberate on updating BITs. Investments in Zimbabwe are protected under SADC. Investments in Germany are protected by international law as well as agreements with the EU like the TDCA. There is an international consensus on the undesirability of old BITs; this international consensus provides the rationale for moving away from such old BITs. Mr October agreed that cases of international arbitration have risen to oppose state regulation, not expropriation. SA would not expropriate foreign investors. In fact, SA strongly incentivises investment. The government cannot entertain paranoia on investor flight.
Ms Mlumbi-Peter added that there are discussions in the EU and TFTA on the continent for creating investment protection frameworks. BITs are not the determining factor for investors.
Mr Hill-Lewis agreed that the Bill should provide certainty and promote investment. However, 80% of investors, well beyond the IRR, have said that they are uncomfortable with the Bill. This Bill does not provide adequate security.
Mr October agreed that the Bill should meet Mr Hill-Lewis’s criteria. South Africa is in the top 10 worldwide for investment protection due to the Constitution. American companies do not need BITs because they rely on the Constitution. Everyone wants as much foreign investment as possible.
Ms Mlumbi Peter observed that these companies who have expressed discomfort only want the old BIT type protections added into the PPIB. However, there are good reasons to leave these provisions out and there are plenty of protections in the current Bill.
Mr DW Macpherson (DA) noted that, although Mercedes and BMW are reinvesting, four American companies and two training centers are leaving SA. FDI has dropped. The UNCTAD report was not fully positive, especially when they were asked to consider the impact of other legislation. It is not true that someone was expropriated under the Expropriation Bill would get market value; the board set up by that Bill could decide to pay less than market value. No one has given a guarantee that SA would agree to state-state arbitration. He asked for a memo from the Executive promising that the government would agree to arbitration that challenges domestic law. He pointed to the visa debacle as an example of cabinet’s lack of foresight. How will the DG sell this Bill to Cabinet? The Bill should be renamed the Prevention and Destruction of Investment Bill.
Mr Alberts said that, after the Bill is redrafted, it should be re-submitted for public comment in order to ensure that SA investors are happy. He expressed concern that, in contradiction with the historical development of international law, the Bill prevents individuals from accessing international forums. Other continents are developing and improving access to international courts, but here in South Africa we are taking power away from individuals and giving it to government. This is illegal. He was not aware of second generation BITs: are we pursuing them?
Mr A Williams (ANC)thought that, while this Bill is breaking new ground, it does protect investors. He noted that all new legislation to protect the people tends to create investor paranoia. He said that the Committee should move forward with the Bill.
Mr M Kolako (ANC) rejected Mr Hill-Lewis’s notion that 80% of investors do not like the Bill. Rather, many stakeholders offered minor suggestions to improve the Bill. These stakeholders called for the renaming of the Bill to the Protection of Investment Bill. No presenter said that the Bill is not necessary. The race question is still a major issue. There is always opposition to bills that aim to improve the treatment of the South African people. Fear of the taking of property is a white fear. No presenter disputed the strong protection of the Constitution. The DTI has tried to address the issues of the Bill, but the Committee has rather elected to raise broad political issues. No one has explored the reasons why companies are leaving; these people are only doomsayers. The Committee should not stop this Bill.
Mr Hill-Lewis resented accusations of party politics and was deeply offended by accusations of racism when he had just now said that everyone in the Committee has the goal of creating a world-class Bill. He found the consideration of investors’ uncertainty worthwhile, and moved to substantially re-draft the Bill.
Mr Hill-Lewis noted that the DG’s objection to the old BITs vagueness is hypocritical due to the vagueness of the PPIB. The court should not have to decide on every issue. The PPIB must better uphold the rule of law.
The Chairperson noted that, in South Africa, all MPs represent an ideological party position with a minimum number of supporters. Presentations have supported the South African Constitution. Acts like the Companies Act had far more objections to both the whole Bill and clauses than the PPIB. This Bill in not the most unpopular Bill the Chairperson has dealt with. The Committee must recognise the political nature of some points.
Mr Hill-Lewis called the claim that SA did not terminate the old BITs untrue. He pointed to language that SA actually “denounced” the treaties, and with little notice to applicable countries. It would have been far better to re-negotiate the BITs to avoid the 20-year continuation. The Expropriation Bill, which is still in Parliament, is controversial whether members find these concerns paranoid or not. The Committee must discuss the PPIB alongside the Expropriation Bill. The people cannot just take the DG’s word that the government would not expropriate; it should be put into the Bill.
The Chairperson noted that she has been referring to discussions in the House in relation to the issue of BIT ending. This issue should be pursued later. She called for DTI response on other issues.
Mr October believed that the only companies leaving SA are the two training companies. BMW has been in SA for 42 years and has said that they intend to significantly reinvest. Honda and Ford have contributed to depleting the DTI’s incentive fund due to the huge investments in the automotive industry. Mr October assured the Committee that SA is becoming a world-class automotive industry. Mr October welcomed any input from UNCTAD. Because market value is enshrined in the Constitution and upheld of the courts, the legislature cannot override this concept. The Constitution aimed to fix past issues of arbitrary expropriation on African peoples. Everyone in the international community is moving away state-investor arbitration because individuals abused this right to take huge amounts of money from states. Individuals should not be allowed to bypass domestic courts. It would not be unconstitutional for the government to promise that all domestic laws can be challenged. He reminded the Committee that regulations are the issues challenged. Brazil, the EU, and the UNCTAD are all moving to state-state arbitration. He agreed that the rule of law must be upheld and called for the assertion of constitutional rights. He said that the concept of ‘like circumstances’ is reflected in international law and is very precisely defined.
Mr Mkongi agreed that the submissions were not against the whole Bill itself. He called for the Chairperson to begin to process the Bill in order to debate specific language and the constitutionality of the Bill.
Mr Macpherson felt that the government is not going to subject itself to international arbitration on domestic law. He asked the DTI to name a business or investor that would publicly support this Bill. As for text being too specific and thus narrowing, businesses crave specifics. The DTI should rethink its unwillingness to be specific in the Bill.
Mr Alberts agreed that state-investor arbitration has been problematic. He asked if state-investor arbitration could be allowed for after exhausting domestic laws as an appeal mechanism. He said that criteria could be created to regulate these procedures. Businesses should have the right to react negatively to domestic court findings, especially when they are international issues.
Mr October explained that the state-state arbitration idea came only after consultations. He entertained Mr Alberts ideas but still strongly supported domestic remedies. The state must be there to prevent maverick investors. Cases have never been about expropriation. Every investment here in SA is protected by the Constitution.
Mr De Gama pointed to the Vienna Convention on Treaties and said that all treaties are regulated by consent. BITs have a limited time span that parties agree on. SA treaties did not end in denunciation, but rather notice of termination that was a consensual agreement.
Mr Mlumbi-Peter said that no consulted business has opposed the Bill. They have only called for improvement.
The Chairperson called for further consideration on these broad issues after lunch. After that, the Committee will hopefully speedily move through specific issues of the Bill.
Mr Macpherson asked the DDG again to name a business or investor that would publicly support this Bill.
The Chairperson asked whether individual people or businesses have been consulted on the PPIB? Do you advertise in the papers, or what is the process of consultation?
Ms Mlumbi-Peter said that the DTI uses the government gazette, the website, and the NEDLAC to engage stakeholders. Business formations were consulted through the NEDLAC on the PPIB and approved the PPIB.
Mr October said that BUSA and the Black Business Council and other organisations were consulted; while they proposed changes, they approved of the Bill. Businesses disagree on specific changes necessary for the bill; BASA for example wants a return to the first draft of the Bill. The current Bill is a consensus product. Comments are normally concluded in thirty days; comments for this Bill were culled over three months.
Mr Macpherson asked whether major investors outside of business councils and NEDLAC such as BMW have been consulted on the bill? After all, yesterday the major EU and American Chamber of Commerce investors raised serious issues about the Bill.
Mr October said that Unilever saw no deterrent to future investment when the Minister consulted them. The EU accepts that old BITs need to be replaced with more modern policy. One piece of legislation can replace 180 or more BITs. The US and Japan have never had BITs and support a single investment act. He called for government to create a unified message inviting investment.
The Chairperson noted that NEDLAC is a good representative of business interests, though she did not know the exact list of businesses in NEDLAC.
Mr Macpherson held that NEDLAC does not represent foreign investment interests. Has any foreign investor publicly endorsed the Bill, yes or no?
The Chairperson found the notion that the DTI should be consulting every foreign investor in every country absurd. These investors have the responsibility to check the government gazette. These parliamentary processes have had opportunities for public engagement.
Mr Macpherson asked how companies like BMW or Unilever feel about the bill?
Mr October said that, while specific companies are not normally consulted, Unilever supported the notion of such legislation.
The Chairperson asked Mr Macpherson to accept this answer.
Mr Hill-Lewis noted that his colleague had not been answered. He quoted the American Chamber’s quote that the Bill would be a ‘nail in the coffin’ of the SA economy. He found the question to be an important one.
Mr Mkongi did not think that the question is productive. He quoted various economists supporting the notion that investors were not concern with the Bill. He noted that this Bill does not address expropriation and the issue should not be smuggled in. As for issues of transitional protection, investors are protected by the Constitution. He accused the DA of only protecting the interests of white investors.
The Chairperson reprimanded the Committee for interrupting each other.
Mr Mkongi noted that old BITs prohibited expropriation except in rare cases. Nonetheless, the SA government was taken to court by investors over affirmative action and other issues. The Bill should protect sustainable development and uphold international law like those outlined by UNCTAD.
Mr Williams asked the Committee to consider its faith in Section 25 of the Constitution when talking about investor uncertainty. Everyone is aware that the opposition generally does not like government’s bills, but this Committee needs to consider substantive issues.
Mr Hill-Lewis welcomed Mr Williams’ refocusing of the Committee. Mr Hill-Lewis expressed unshakable confidence in Section 25, but worried that government policies circumvent the Constitution. Expropriation is central to the issue of investment.
Mr October said that the DTI aims to reaffirm the Constitution and expressed pride that SA is one of the few countries in the world that protects property from arbitrary expropriation.
The Chairperson quoted SOPOA as saying that the Constitution cannot be confirmed, only affirmed. There has been legislation in the past that has had issues of constitutionality.
Ms Phumelele Ngema: Parliamentary Legal Advisor explained that privation can only be done in terms of law of general application. The expropriation Bill seeks to review the Expropriation Act. Any expropriation will have to be done within general domestic law. With regards to the right to regulate, Ms Ngema reminded the Committee that SA is a sovereign state. The SA Constitutional Court as well as the Canadian Supreme Court have clearly decided on the powers in Sections 231-233 of the Constitution. These courts have decided that sovereignty empowers a state to exercise the functions of a state within a particular territory to the exclusion of other states. Clause 12 of the PPIB closes the door neither to domestic nor international arbitration. Domestic courts must give a fair decision on domestic issues. Right now the government is only operating on perception, therefore the courts will have to decide on these issues.
The Chairperson called for engagement on broad issues with Mr De Gama.
Mr Macpherson repeated his question on the necessity of specifics in the Bill. He noted that PSIRA and the Landholdings Bill are barriers to foreign investment. He worried that this Bill would couple with other bills to create a total barrier. The Committee need to consider where its hamburgers come from.
Mr Williams called the notion of a barrier a myth. In the event the government were circumventing the Constitution, the government would be taken to the Constitutional Courts. The whole point of government is to obey the Constitution. Section 25 is some of the best protection in the world. Government does not take away companies on a whim. The Bill is fundamentally about investment protection, which the Constitution also upholds.
Mr Kolako disagreed with the characterisation of the EU Chamber’s view; this body raised issues but does not oppose the Bill. What has the DTI done to improve the Bill in light of these suggestions? Other presenters like Anglo American raised concerns; he asked the DTI to zoom in on these issues in order to tighten up protection and boost investor confidence. Bills in other Committees are DA interests.
Mr Hill-Lewis noted the government’s recent loss in the courts with regards to constitutional violation over lunch. He welcomed a non-exhaustive, illustrative asset-based list. A phrase like ‘minimum standard of treatment in accordance with international law’ should included in the Bill. The SADC Model BIT includes language on Fair Administrative Treatment; language like this in the PPIB would help assuage investor concern. National treatment language in the Bill simply repeats the status quo of domestic law. Mr Sakoschek pointed out how the Bill exhaustively lists exclusions for national treatment for various investments; this creates a negative perception. He suggested that the right to regulate ‘in the public interest’ should be amended to use the language from the Constitution.
The Chairperson noted that the EU Chamber of Commerce, which represents a large number of investors, did clarify its concerns with the Bill. The EU felt that many issues are not dealt with ‘adequately’. She moved to debate on national treatment at a later date. She summarised the DA’s view that the government may not uphold the Constitution. She asked the DTI to address the issue of adequacy and the differing opinions on the constitutional jurisprudence on property and compensation.
Mr Macpherson fully supported getting clarity on these matters.
The Chairperson pointed to specific pages of the public submissions’ summary that detailed issues raised by the EU Chamber of Commerce. She called for clarification on the issue of mediation.
Mr Macpherson noted that Clause 13 of the PPIB gives the Minister power to appoint mediators. He called for this mechanism to be further specified and not left to the deference of the Minister.
Mr October asserted that all foreign investments will be entitled to market value. Dealing with compensation in this Bill is tricky, but regardless the Expropriation Bill would trump anything included in the PPIB. He recalled that US companies returned in droves after the 1994 constitution. US companies want protection from arbitrary decisions, coercion of decision-making, and denial of justice; the Constitution protects investors from all three.
Mr De Gama agreed that bills should be understandable and as specific as possible. The DTI is willing to consider suggestions to create further clarity. Vagueness is definitely a danger to bills. However, the PPIB is close to being as specific as it can be. SA has placed no barriers to entry into the SA economy. Some sectors have caps and regulations, but SA has no rule that targets foreign investors. The PSIRA does not prohibit entry or investment, but rather updates requirements for businesses. The Landholdings Bill also would not prevent foreigners from investing in any sectors. Regulations are not unique to SA.
Mr De Gama agreed with points made by Mr Williams. The DTI has already discussed the rationale behind the PPIB’s language on national treatment. National treatment follows international norms. Sometimes discrimination is necessary to preserve fairness. The exclusions in the national treatment clause all work to achieve the public policy goals of government. Many countries have lists of exclusion for national treatment. Mr Hill-Lewis made some good proposals on the definition of investment. The PPIB should not try to redesign the wheel; many of these terms have long-established meanings and judicial precedence. The issue of compensation is very complex and long-debated. Compensation is often determined based on the nature of the asset. Some assets inherently lack a market value. The matter of market value should be left up to the courts.
Many of the submissions have merit and will be considered. An illustrative list of assets will be considered. The Bill already basically provides for a minimum standard of treatment due to its linkage to Section 232 of the Constitution. Many parts of the Constitution are directly included in the PPIB. The state does not have an unmitigated right to discriminate on national treatment matters. National treatment has not been watered down by limitations in the clause. Public interest is not only defined in terms of land reform. The scope of public interest is very different in various areas of government.
The right to protection of property is very controversial, but expropriation is limited by longstanding norms and regulations. All bills passed in Parliament will have to comply with Section 25 of the Constitution. Compensation is difficult to define, especially in the international arena and will be a matter for whatever jurisdiction is appropriate. Mr De Gama agreed that there should be regulations for the appointment of and procedures for mediators and pointed to UNCITRAL and others as bodies with examples of such rules. UNCITRAL has been a leader in exploring alternative dispute resolution.
Mr Hill-Lewis agreed that a much longer session on national treatment is necessary. He asked for further explanation on the DG’s remarks on market-based compensation.
Mr De Gama explained that SA courts have held that market value is an important factor in determining fair compensation. The famous FNB case has set precedence in these matters. AgriSA vs Minister of Mining was decided based on the FNB case market value decision.
The Chairperson thanked the Department and the legal advisors for entertaining this marathon session hashing out the broader issues of this PPIB. Past bills have taken over a year; though this is a short Bill, it is a complex one. She thanked PMG for its attendance.
The Chairperson reminded the Committee of the plastics industry tour on Friday. Mr Hill-Lewis, Mr Mkongi, Mr Esterhuizen, and Mr Alberts would attend.
Next week would include further deliberations on the Bill on Tuesday 22 September.
Mr Hill-Lewis noted that next week is not a sitting week. Thursday is a public holiday, so he moved to not sit on Friday 25 September.
Tuesday’s meeting would start at 10 o’clock and last until 4 o’clock. Wednesday’s meeting would last from 9 o’clock until 3 o’clock.
Mr Macpherson asked why the EFF is not participating.
The Chairperson replied that EFF members have other commitments and she left it up to the party whips to discipline their members for non-attendance.
The meeting was adjourned.