The Department of Trade and Industry (DTI) went through its response to public submissions clause by clause and presented the proposed changes it was prepared to make based on the public submissions. The Committee considered the DTI’s responses clause by clause, accepted some proposals for the time being, and flagged others.
The Committee agreed that the Title of the Bill should not include the words ‘Promotion and’. It agreed that more rights from the Bill of Rights should be included in the Preamble as well as replace ‘need’ with ‘obligation’ in the Preamble. The definition of ‘enterprise’ was not changed. The definition to ‘investment’ was extended.
The Committee debated whether the Bill should attempt to protect investments by South Africans in other countries through Clause 5. The DTI felt that many existing bodies, both national and international, already do this, but some Members felt that government should be legally obligated to defend its citizens in dispute settlement abroad. The Committee deleted parts of Clause 6 on the Right of Establishment, but did not agree on whether such a clause was necessary or wise when trying to attract foreign investment. The DTI and some Members felt that denying a right of establishment was necessary to regulate who can invest in South Africa as well as to protect the government’s right to regulate in the public interest.
The DTI called for Clause 7 on National Treatment to remain intact; it defended the phrase ‘like circumstances’ as being necessary. The DTI emphasised that the purpose of national treatment is to reaffirm the DTI’s current practice of treating investments equally, irrespective of origin. Some Members felt that, in order to attract foreign investment, merely promising equal treatment would not be enough. The Committee added the word ‘physical’ to the title of Clause 8 and left in the controversial phrase, ‘subject to available resources and capacities’. Some Members called for Clause 9 title to be changed to make it clearer that the clause has to do with legal protection. The Democratic Alliance hoped that this clause could be amended to deal with issues not covered by Section 25 of the Constitution, such as deprivation or indirect expropriation of property; the Committee did not reach a consensus on this matter.
The Committee proposed replacing the word ‘transfer’ with ‘repatriation’ in Clause 10. No changes were proposed to Clause 11. As for Clause 12, the Committee welcomed the improvement offered by the Department on the process of mediation and arbitration procedures, but was still split on the merits of investor-state versus state-state dispute settlement. Some Members were concerned that the exact process/meaning of ‘exhaustion’ of domestic remedies was ill defined. No further clauses in the Bill had changes proposed or significant discussion.
Department of Trade and Industry Response to Public Submissions
Mr Mustaqeem De Gama: DTI Legal Director: International Trade and Investment (ITED) and Counsellor for the SA Mission to the WTO in Geneva, moved to continue the Department’s response by embarking on a page-by-page reading of the Promotion and Protection of Investment Bill (PPIB).
Mr Lionel October, DTI Director General, commented that the DTI is taking very seriously the useful comments made in last week’s meeting. The DTI’s role is now to merely make suggestions to the Committee since the Committee now controls the Bill. He agreed that the DTI should change the Title of the Bill to the ‘Protection of Investment Bill’. He pointed to the phrase ‘use of available resources’ from the clause on security of investment as only referring to physical security and policing. The aim throughout the Bill is to strengthen the protection of investment. There were suggestions that, in a dispute settlement situation, mediation should happen automatically with little restriction. In the EU-US agreement, parties immediately go into mediation and there is a list of six mediators already prepared. A copy of the EU-US trade agreement is available on their website. Both bodies are moving away from investor-state arbitration and are creating their own tribunal to resolve disputes. South Africa has much to learn from their agreement.
DTI Response to Title
Mr De Gama moved to delete the words ‘Promotion and’ from the Title. Since investment promotion is very important, the DTI is working in other ways to improve SA’s environment for business, including creating a ‘one-stop shop’ for investment with national and provincial standards overseen by the President.
DTI Response to Preamble
Mr De Gama said that the Centre for Advanced Legal Studies (CALS) had suggested that all instances of the word ‘need’ in the first paragraph be changed to ‘obligation’. The DTI recommended considering this change and noted that the Preamble is used to interpret language found elsewhere in the Bill. He pointed to the eighth paragraph of the Preamble as a prime example of where ‘need’ should be replaced with ‘obligation’.
Mr De Gama pointed to the Constitution which includes a Right to Information. The Preamble provides for ‘just administrative action’ and CALS therefore suggested that the Preamble should also include a guarantee of ‘access to justice, access to information and all other relevant rights set out in the Bill of Rights’.
DTI Response to Clause 1 Definitions
Mr De Gama explained that a submission had called for a change to the definition of ‘Department’ to ‘the Department responsible for trade and industry. Next, the DTI was amenable to deleting the part of the definition of ‘dispute’ that reads ‘provided that a dispute will only arise once the Parties agree, or as prescribed by law’.
Mr De Gama reminded the Committee that the DTI Summary of Submissions is a rough draft and only focuses on the DTI’s suggestions for deletions or additions of wording to the Bill.
The Chairperson urged the Committee to be amenable to this rough draft and reminded the Committee that the Committee is not making a decision currently, but rather only gathering information.
On the definition of ‘enterprise’, Mr De Gama said DTI has studied various pieces of legislation such as the Companies Act and the VAT Act to decide on the difference between ‘enterprise’ and ‘entity’. The DTI found no contradiction between the two terms and thus no issue with the use of the term ‘enterprise’ in the Bill. ‘Enterprise’ will cover all instances necessary under South African law and will not contradict other norms under SA law.
Mr De Gama explained that the EU Chamber proposed a change to the definition of ‘measure’. The DTI would not object to the definition reading ‘measure refers to binding governmental action directly affecting an investor or its investment, and includes laws, regulations, and administrative actions…’
Discussion on DTI Response on Title, Preamble, and Definitions
Mr A Williams (ANC) agreed that the removal of the words ‘Promotion and’ would be acceptable.
Mr B Mkongi (ANC) asked whether the Title should begin ‘Protection’ or ‘The Protection’.
The Chairperson said that the new Title should be “The Protection of Investment Bill”.
On the Preamble proposed changes, Mr Mkongi called for caution in accepting all instances of ‘need’ being replaced with ‘obligation’ in the Preamble.
The Chairperson observed that there were still no objections.
The Chairperson noted that there were also no objections to the specific inclusion of other rights from the Bill of Rights as proposed by CALS.
Moving to Definitions, Mr N Koornhof (ANC) asked why the definition of ‘Department’ needed the word ‘responsible for’ added. Are there other Departments responsible for trade and industry?
Mr De Gama explained that this is purely a drafting issue. National Treasury is referred to in this way in other Acts. Though the name and/or function of the DTI may change in the future, the primary responsibility currently lies with the department responsible for trade and industry; this language is in line with similar Acts.
The Chairperson agreed with the Department’s logic.
On the deletion of part of the definition of ‘dispute’, the Chairperson quoted Ms Ngema, Parliamentary Legal Advisor, as saying that ‘definitions that do not appear in the Bill have their ordinary dictionary meaning’.
Ms Phumelele Ngema: Parliamentary Legal Advisor, agreed that any language not explicitly defined in Clause 1 would have to take the ordinarily understood or dictionary meaning. The excess language in the definition of ‘dispute’ only brings ambiguity and confusion.
The Chairperson lauded the removal of the contradictory terms.
Mr G Hill-Lewis (DA) asked if the term ‘government’ includes state-owned entities and other non-departmental entities?
Mr Mkongi moved to emphasise that question and noted the potential for confusion between ‘state’ and ‘government’.
Mr De Gama said that government action encompasses entities that take action on behalf of government, thus the definition is sufficiently wide. This definition would include state owned entities.
Ms Ngema agreed with that explanation.
Mr Mkongi was not comfortable with that explanation. Are state-owned enterprises the same as government-owned enterprises? The Committee must be very comfortable.
Mr D Macpherson (DA) noted that these enterprises are clearly defined and listed in the Constitution.
Ms Ngema explained that ‘governmental action’ covers any action done in the public interest.
The Chairperson flagged this matter for later consideration.
She moved to consider ‘enterprise’ versus ‘entity’ and noted that no changes to the Bill were proposed here. Though perhaps entity could be a better definition, the Department, the Committee, and the Legal Advisors all seem to be okay with the current definition.
The Chairperson moved to consider the definitions of ‘Minister’, ‘organ of state’, ‘prescribe’, ‘regulation’, ‘Republic’, and ‘this Act’.
Mr Hill-Lewis asked whether it is good drafting practice to have a definition that only refers to a section of the Bill.
Mr De Gama explained that, originally, ‘investment’ was defined in the definitions clause, but then people felt that the definition was too long and cumbersome and thus investment was given its own clause in order to emphasise the importance of this definition.
Mr Koornhof moved to consider ‘investment’ later.
The Chairperson asked for confirmation that giving ‘investment’ its own clause is purely a crafting approach.
Adv Allan Small, State Law Advisor, agreed and explained that the definition should only appear once, regardless of which section it occurs in. If the definition occurs more than once, it should appear in Section One.
Mr Mkongi went back to his previous concern, saying that his issue would also apply to ‘organ of state’, and he pointed to Section 239 of the Constitution.
Mr Hill-Lewis said that he was satisfied that there were no legal issues and was merely asking about the crafting of the Bill.
Ms Ngema explained that, for the purposes of this Bill, the definition of ‘investment’ has been explicitly set aside.
The Chairperson observed the long list of organs of state as delineated in Section 239 of the Constitution. Is this compatible with the language of ‘governmental action’? The Chairperson flagged this matter for further consideration.
DTI Response to Clause 2 Investment
Mr De Gama noted the consensus that it is insignificant where the definition of ‘investment’ appears in the Bill as long as it does appear. The DTI has found no contradictions between the current definition and existing South African law. Vodacom proposed an addition to 2(c) that would emphasise that the matters regulated here with regards to actions outside the Republic relate to policy in 2(a) and (b). The ‘holding, acquisition, or merger by such enterprise with another enterprise outside the Republic to the extent that such holding, acquisition, or merger with another enterprise outside the Republic has an impact on an investment contemplated by Clause 2(a) and (b)..’ Thus this situation only occurs under the parameters of subsections (a) and (b) of this clause.
The Chairperson called attention to 2(d).
Mr De Gama noted that Mr Hill-Lewis had called attention to assets on a previous occasion and had suggested defining assets. He believed that the Bill covers all pertinent assets, but the DTI was happy to include a further clause with a non-exhaustive list of examples of assets.
Mr Hill-Lewis reminded the Committee that he actually did not oppose this definition, though others did. He also observed that 2(f) needs to reference intellectual property.
Mr Hill-Lewis asked about minority shareholders. Does the illustrative list of assets cover this?
Mr De Gama said that the DTI has looked at the Companies Act and noted that it covers anyone who has an interest in a company, whether the interest is procedural or relates to property. Under general South African law, the right of anyone to claim money or performance under a contract is sufficiently protected. Clause 2(e) may cover performance claims either under or not under contract. Also, under 2(g), there is a reference to returns such as profits, royalties, dividends, and so forth. Anyone with any right to claim against a company would be covered by some combination of these subsections.
The Chairperson observed that everyone was agreed on Clause 2.
DTI Response to Clause 3 Interpretation
Mr De Gama noted a proposal by CALS similar to their early proposal calling for the naming of the relevant constitutional rights such as Access to Information from Section 32, Courts from Section 34, and other rights from the Bill of Rights. He agreed that transparency is important for promoting people’s understanding of the Bill.
Mr A Alberts (FF+) asked where the interpretation clause of the Bill of Rights was as it was not referenced. Section 39(1)(b) on the Interpretation of Bill of Rights states that when interpreting the Bill of Rights, one must consider international law.
Mr De Gama thought that the interpretative value of Section 39 could be added in a separate clause. The Constitutional Court has decided that the Bill of Rights applies to non-citizens as well.
Mr Mkongi asked why the language includes ‘other rights’?
Mr De Gama explained that it was unnecessary to explicitly list all the rights from the Bill of Rights. All of these rights have substantive and procedural aspects.
The Chairperson called for further consideration of these matters later.
DTI Response to Clause 4 Purpose of Act
Mr De Gama began with a proposal from the South African Human Rights Commission that suggested the addition of the phrase ‘in the public interest’ to the government’s right to regulate. The second suggestion addressed 4(d) that deals with investors. In most instances, investor and investment have been synonymous; this subsection should be modified to reflect that synonymy.
Mr Hill-Lewis noted that references to promotion must come out of Clause 4(a). He asked if there has been a proposed change to Clause 4(b).
The Chairperson said that this issue arises from the fact that the DTI is working with a rough draft.
Mr De Gama read the correct current wording of Clause 4(b) and explained that no change has been proposed to that clause.
Mr Hill-Lewis thought that the wording of 4(b) in the Bill was very clumsy. He proposed that that it read ‘confirm the protection of investments in respect of national treatment and security’.
The Chairperson observed that the Committee was happy with the proposed changes to Clause 4(c) and 4(d).
DTI Response to Clause 5 Application of Act
The Department proposed no changes to Clause 5 of the Bill.
Mr Hill-Lewis pointed to Agri-SA’s submission that the clause state that ‘the Act applies to all lawful investments in the Republic made in accordance with the requirements of Section 2.
Mr De Gama agreed that a reformulation could help but emphasised that all investments would be in accordance with Section 2.
The Chairperson saw that this change was accepted.
Mr Alberts observed that this Act does not apply to South African investments in other countries. What happens when South Africans invest in a country with which SA does not have a bilateral investment treaty? How will these investors be protected?
The Chairperson called for response.
Mr De Gama welcomed the point and asked the Committee to remember that SA law only applies in SA. The Bill does not address extra-territorial issues. Under international law, this Bill would only apply in SA. The Director General in the past has detailed the protection of SA investors within regional partnerships.
Mr Alberts said that if his property is expropriated in Germany, he must petition the government to help him. The Bill should oblige government to defend its citizens both in other countries and in international venues. With SA investors in Zimbabwe, the government refused to help its citizens. One cannot predict what other countries are going to do.
Mr M Kolako (ANC) asked if there are not other existing laws that address this issue. Perhaps the Committee should revisit this issue. He expressed doubt as to whether a clause addressing this would be appropriate in this Bill. He noted that everyone disapproved of what happened in Zimbabwe.
Mr Macpherson imagined a scenario where another country embarks on a similar process of investment policy review as SA and allows its BITs to expire. SA cannot predict the actions of other countries, thus SA should take action to compel government to protect its citizens all the way in other countries.
Mr October, DTI Director General, fully agreed with Mr Alberts and said that the DTI and the government fully protects the interests of SA companies abroad. SA laws only apply in SA. The purpose of the Act is to protect investment fully in the Republic. He noted the necessity of promoting FDI even though this particular Bill does not address that any longer.
Mr Hill-Lewis pointed out that it is discretionary for government to protect SA investments internationally at the current time. He supported a clause making government action to protect SA investments internationally mandatory.
Ms Xolelwa Mlumbi-Peter: DTI Acting Deputy Director General: ITED, noted the protections provided by SADC and the refinement of the SADC Financial Investment Protocol (FIP). She also mentioned the Tripartite Free Trade Area and the Continental Free Trade Area as initiatives being taken to protect investment on the continent. Beyond that, investors must undertake due diligence to ensure that their investments will be protected. The World Bank provides a framework for some insurance for international investment.
Mr October mentioned the Export Credit Guarantee Insurance Act through the Export Credit Insurance Corporation (ECIC). He gave the example of the MTN investment in Iran. He called on the state law advisors to study whether another, separate Bill could be drafted to protect SA investments worldwide. He said that it is a given that government will protect SA investments worldwide.
Adv Small agreed that the Bill only protects investments in the Republic. The Courts first consider the Title, then the Body, then the Preamble of the Bill if necessary for clarification. This bill is clearly meant for domestic investment. SADC and other entities are meant to protect international investment by South Africans.
Mr Koornhof noted that the definition of ‘investment’ from earlier clearly means investment in South Africa.
The Chairperson flagged the matter for further discussion.
DTI Response to Clause 6 Right of Establishment
Mr De Gama detailed a submission from the Mandela Institute that called for the clause to speak only about establishment. He noted that the clause does not seek to deal with or create a right of establishment up front, but only seeks to require that an investment be established in accordance with domestic laws.
Mr De Gama proposed a consolidation of 6(1) and (2). He noted that all countries have an inherent right to regulate who does and does not establish in their territory.
Mr Macpherson called Clause 6 an investment barrier. He pointed to the Regulation of Land Holdings Bill where it says that no foreign person may own agricultural land. He felt that South Africa should not be limiting investment but rather welcoming all investment in order to grow the economy. He was wary of specifying who can and cannot invest in South Africa.
Mr Mkongi noted that government has a right to regulate how, where, when, and for what purpose someone invests in South Africa. He was wary of investment being too open-ended. He did not think that having such rules would be an impediment.
The Chairperson noted that, for example, any government would not want foreign persons owning the coastline due to security reasons. She observed that, to her knowledge, foreign investors cannot buy land in Switzerland. She called for consideration of whether the policy serves the public interest.
Mr De Gama emphasised that no investors have ever been so bold as to attempt to exempt themselves from following domestic law. International law gives states the right to regulate the access of foreigners to their land. To enter another country’s land, one generally needs a visa. The Bill welcomes all investments provided that the investment positively impacts the economy. If the investment negatively impacts the economy, the state should have a right to take action to mitigate these negative effects through various policy spaces. Governments may also change their laws over time to reflect the public interest. Any regulations pursued by government to reconcile past injustices or protect national security will take place through the appropriate legal processes; protections would not be diminished. If expropriation is ever necessary in an extreme case, the Constitution requires just compensation be paid.
The Chairperson observed that there is no consensus among Members on an agreement to Clause 6.
Mr Hill-Lewis asked whether Clause 6 could not simply include only subsection 1 and delete the redundant subsection 2.
Mr De Gama thought it was a good proposal except that mentioning a right of establishment is necessary because, under international law, there are two phases of establishment: pre and post. South Africa has always followed an admissions model, which is predicated on an investment being established before the protection of laws can apply. Other countries do not follow this model and will have a pre-establishment model wherein rights are established before the investment reaches the country. Without the language in this subsection, there may be confusion as to whether SA permits a pre-right of establishment. On a technical level, the state must specify even further that the Bill emphasises a post-establishment model.
Mr Hill-Lewis agreed that he was familiar with pre and post establishment issues. However, from a drafting perspective, the language comes across as adversarial and hostile to investment.
DTI Response to Clause 7 National Treatment
Mr De Gama said that one proposal was worthy of consideration. Clause 7(1) includes the phrase ‘subject to national legislation’ which could be deleted. Subsection Two with regards to ‘like circumstances’ needs to stay to prevent issues with international law and does not create ambiguity. National treatment is a contingent standard. South Africa has taken a positive position by allowing national treatment with exceptions, which is in line with international practice.
Mr October explained that the SA government actually currently applies national treatment in line with the WTO. The DTI has never discriminated based on place of origin. The only reason for the ‘like circumstances’ clause is because of past abuses of minor black empowerment policies. Companies qualify for incentives in specific industries regardless of place of origin unless, for example, the company applies for a black empowerment grant and is not a black company.
Mr Hill-Lewis called this section the crux of the Bill. He felt that the essence here is that foreign investors will be treated the same as domestic investors except in the many exceptions where SA will treat the foreign investors less favourably. In addition, SA may legislate in the future to further disadvantage foreign investors.
Mr October disagreed and said that the Bill reaffirms that SA has never and would never discriminate against foreign investors. The only situation is when a foreign investor would not qualify for a specific small business grant, which would have nothing to do with the company’s place of origin.
The Chairperson noted that this issue was not closed.
The Chairperson welcomed everyone back and resumed discussion of national treatment.
Mr Hill-Lewis said that the offer presented by National Treatment is not particularly enticing. The DG’s reassurance unfortunately does not protect investors. He was still worried about the effect of future legislation on foreign investors. What is the point of having this Bill say that foreign investors are treated exactly the same as domestic investors? Why not just apply existing domestic legislation? There must be some extra comfort for foreign investors to justify the Bill.
Mr Koornhof noted that, while this specific clause deals only with foreign investment, the rest of the Bill deals with all investment. What if a South African moved his business to London, then reinvested in South Africa? Would they enjoy the benefits Mr Hill-Lewis wants foreign investors to enjoy? Would that not open a floodgate for South Africans to leave and then reinvest with the same profits and added benefits? If a foreign automotive manufacturer wants to invest in South Africa, does the Bill allow that company to create a BIT with the DTI?
Mr October said that the Bill has two purposes: national treatment and the protection of investments. National treatment is required by the WTO and is found in many other countries. National treatment must be included to comply with the international community. The Automotive Production and Development Programme (APDP) is an incentive that anyone can get as long as they produce 50 000 cars or more; a company’s qualification for this incentive has nothing to do with the company’s origin. The Minister, when considering whether to renew the old BITs, had to decide between creating hundreds of new BITs or one piece of legislation. The Minister preferred consolidating protection to one piece of legislation. The legislation reaffirms the Constitution. South Africa is number ten worldwide in quality of investment protection. The DTI already treats companies like Toyota as if they are local companies; this Bill makes that practice explicit. Any investment and production in South Africa produces a net gain, no matter where the company is from or whether the company left for a month or whatever. Most companies in the film industry that benefit from the DTI’s incentives, are foreign. South Africa still is the number one destination for FDI on the continent. He reminded the Committee that the Trans-Atlantic Agreement between the US and the EU is virtually the same as this Bill.
Ms Ngema asserted that the Constitution is the supreme law, and thus all laws must conform to it. Most rights in the Constitution apply to ‘everyone’ or ‘no one’; thus, most protections in the Constitution are human rights and apply to everyone in South Africa, not just citizens. Therefore, national treatment applies to all people.
Mr Hill-Lewis referenced the SADC FIP and the EU Model BIT as having additional protections provided under national treatment. Global investment is extremely competitive. Though South Africa is the best on the continent, South Africa only attracts something like one percent of global FDI. Without further guarantees than equal treatment, investors will not be interested. At least add another clause elsewhere adding further guarantees.
Mr Macpherson pointed out that the statistics the DG mentioned also notes that South Africa has slipped from 33 to 41 in global FDI rankings; this slide has been going on for four years. In business, in order to be competitive it is not good enough to only offer what everyone else is offering. South Africa is not rolling out the red carpet for FDI, but rather forcing foreign investors to get in line with everyone else and deal with South Africa’s infamous democracy. He recognised that there are some incentives, but asserted that these incentives are not enough. He agreed that another section should be added to give international investment favourability.
Mr Mkongi asked how many countries are rolling out red carpets for investors? He quoted the former Australian Prime Minister as warning against letting investors having too much power over the country. The Guardian echoed the same sentiment. Canada has put in place strict limits on foreigners buying land. South Africa is not the only country protecting its own interests. He rejected the necessity of a section on favourability. The DG has illustrated many instances where the DTI has rolled out a red carpet. He worried that the national treatment debate would take until the end of the meeting.
Mr J Esterhuizen (IFP) was sad to miss the meetings last week and agreed with Mr Macpherson that there needs to be less stick and more carrot. Government regulation has become cumbersome.
Mr Williams asserted that equal treatment for foreign investors is a good way forward. He agreed with Mr Koornhof that South African companies would leave the country so as to get the favourable treatment for which the DA advocates.
Mr Kolako asked the DA whether they advocate for treating South Africans less favourably than foreign investors or rather providing special incentives for foreign investors? He asked the DA to write up their specific clause that they want. He also asked for clarity as to whether they reject the notion of national treatment entirely?
The Chairperson asked for that write-up by tomorrow. She flagged national treatment.
Mr Hill-Lewis wanted to confirm that there would be further discussion with the Department.
The Chairperson explained that the Department would be here tomorrow and that the Committee should aim to work through the whole Bill today and tomorrow with the Department. Then, over the constituency break, Members could ponder and discuss the Bill with their parties. The Committee would have to complete the BRRR process in October.
Mr Hill-Lewis said that he did not reject national treatment as a concept. His concern was that, if the Bill offers nothing extra, not a red carpet but for example an ironclad guarantee, global investors will find SA a less attractive destination for investment. After all, global investment is both fluid and competitive. If the Committee accepts that equal treatment is necessary or at least a point of departure, then what is the point of the Bill? All investors here are already subject to domestic laws.
Mr October repeated that the Bill must protect equality through national treatment and property through Clause 9 on Expropriation. He read the EU-US agreement’s language on expropriation and asserted that it was weaker than the Bill’s language. He repeated that the Constitution protects investment, which is why South Africa ranks so well. Africa is growing rapidly as an FDI destination. BMW, which has been here for 62 years, has committed to stay. This legislation enhances legal protection. In addition, South Africa’s incentive programmes are keeping SA competitive and rolling out the red carpet. Investors are equally capable of qualifying for incentives.
The Chairperson asserted that these matters would be further pursued tomorrow. She hoped that the critical issues could be fully addressed by tomorrow, though some legislation takes a year.
DTI Response to Clause 8 Security of Investment
Mr De Gama proposed the addition of the word ‘physical’ in front of security to allay concerns from multiple submissions. This clause clarifies that South Africa will grant the same level of physical security to domestic investors as foreign investors. The DTI agreed that the word ‘physical’ should be added. Mr Hill-Lewis’ suggestion on a ‘minimum standard of customary international law’ should also be added. The DTI wishes to retain the phrase ‘subject to available resources and capacity’.
Mr Hill-Lewis asked that the word ‘physical’ be inserted into the title of the clause. He asked that ‘minimum standard’ language be inserted also where the Bill speaks about legal security/protection of property.
Mr Alberts took issue with the phrase ‘subject to available resources and capacity’. However, he said that the addition of Mr Hill-Lewis’ phrase could solve the problem. He wanted assurance that South Africa would hold itself to international standards and not use excuses like the police’s failure to properly maintain their vehicles or train their personnel.
Mr Esterhuizen noted that this Bill, when combined with other legislation, sends a negative message to foreign investors.
Mr Kolako imagined a situation in which a town has an uprising and foreign investors sue the government for not preventing property destruction. He was wary of government facing an excessive number of lawsuits. He did not want the government to be the private army of investors.
Mr Mkongi asserted that, in terms of security, the police protect everyone to the point that there have been accusations of the creation of a police state. He gave the example of people being taken out of their homes in Johannesburg. Laws in place already protect capital. He noted that security language in the USA strongly protects national security, yet people still invest there. Similar language exists in Canada and Australia. The state should not incur excess costs when other countries find such actions unnecessary. The Committee should not rush to sign things.
Mr Hill-Lewis said that he agreed with Mr Mkongi and called again for the addition of the word ‘physical’ to the title of the clause.
Mr De Gama welcomed the comments and asked the Committee to consider this clause in the context of the state’s duty to provide physical security. In different circumstances, the state will have to act reasonably. The state has a duty of care that it owes to everyone, foreign and domestic. Ultimately, this formulation takes into account all viewpoints. South Africa is a developing country, and thus has a few constraints on its physical security capacity. Under international law, states have been seen to not comply with their duty to protect investment; there are clear precedents. The interpretation of the Bill must be done in terms of international law and the Constitution and legislation such as the Police Act.
The Committee had no further protest on this section.
DTI Response to Clause 9 Protection of Property
Mr Hill-Lewis called for a change to the Clause Title to the ‘Legal Protection of Investment’. He noted that Section 25 of the Constitution makes it clear that ‘property’ does not only refer to land, but does not set out to what else ‘property’ refers. One must assume that it refers to things like ‘assets’ and ‘resources of economic value’. The Constitution refers to ‘laws of general application’. The Expropriation Bill in its current form also fails to say exactly what property does mean beyond land. Since the Expropriation Bill currently in Parliament will eventually be the law of general application, one would have hoped that it would clear up this issue. The current Expropriation Bill, when it talks about the process for expropriation, reverts back to seeming as though it is only talking about land.
The Chairperson noted that the Expropriation Bill is currently undergoing changes in the relevant Portfolio Committee. The Trade and Industry Committee cannot consider the Expropriation Bill.
Mr Hill-Lewis assured the Committee that his point would apply. The current Expropriation Bill only speaks about property value. This all goes to show that there is no legal certainty. The Constitutional Court in the FNB case differentiated between expropriation and deprivation. The Constitutional Court in the Agri-SA case differentiated between expropriation and custodianship. This Clause in the Bill is interpreted through the Constitution, the Courts, and the law of general application; none of these interpretations give investors enough certainty as to what amounts to expropriation, what can and cannot be expropriated, what amounts to deprivation and what amounts to indirect expropriation. The Committee should expand Clause 9 beyond Section 25 of the Constitution to include things that are not expropriation such as deprivation and custodianship because no other venue has properly addressed these issues.
The Chairperson made it very clear that this Committee should not deal with a Bill that is in another Committee and further that, until the current Expropriation Bill is finished, no one can know what it may or may not say.
Ms Ngema said that language in Section 25 of the Constitution says that ‘no one may be deprived of property except in term of a law of general application’. The current law of general application is the Expropriation Act of 1975 until the current Expropriation Bill is passed. The 1975 Act defines property as both movable and immovable property; that is currently the law.
Mr De Gama also read Section 25 and emphasised the inclusion of both ‘deprived’ and ‘deprivation’. Nothing in the Agri-SA case suggests that this Bill departs from the FNB decision. The law on this issue is developing. The Agri-SA case, in which the state acts as a custodian with no land rights and thus did not expropriate, is a very specific scenario. The Court emphasised this decision as not being a precedent and called for expropriation to be considered on a case-by-case basis. A big question is how the Constitution addresses indirect expropriation. Mr De Gama agreed with the opinion of Ms Ngema.
Mr Hill-Lewis thanked Mr De Gama for making the point that the Agri-SA judgment does not set precedent and thus that there is no legal certainty. He called for this Bill to create legal certainty. This issue is a serious one for investors. There are many circumstances beyond the scope of these non-precedent setting court cases that could occur. Future legislation from any government could for example mandate that fifty one percent of the automobile manufacturing industry be locally owned; this would be clear deprivation, though the state would not be the owner and thus a foreign investor would have no redress. This Bill needs to provide protection from this and other situations.
The Chairperson asked that the two court cases be made available to the Committee. She flagged this issue for discussion tomorrow.
DTI Response to Clause 10 on Transfer of Funds
The Chairperson noted that there appeared to be no issues with this clause.
Mr De Gama agreed that this clause reflects existing South African law.
The Chairperson noted an issue raised by Ms Ngema as to the definition of funds.
Mr De Gama recognised that this concept in other laws sometimes state ‘transfer of returns’, but he held that the term ‘funds’ has been well defined.
Mr Hill-Lewis had no problem with the term ‘funds’ but proposed changing the word ‘transfer’ to ‘repatriate’ in order to make clear that the transfer of funds would go out of the country.
Mr October agreed with Mr Hill-Lewis but wanted to check on the precise legal terminology.
DTI Response to Clause 11 Government’s Right to Regulate
The Chairperson observed that the DTI was proposing no changes to this Clause.
Mr Hill-Lewis noted that many public submissions had complained about the language of this Clause being too broad. He did not give a specific suggestion, but wondered why the DTI had made no effort in tightening up the language?
Mr Macpherson saw no harm in Vodacom’s suggestion to add a reference to the Constitution in 11(2).
Mr October explained that this clause is about the separation of powers. This clause reaffirms that the legislature can legislate on any matter. In investment tribunals, investors never challenged expropriation, but rather regulations. In order to avoid such cases, an explicit clause is necessary.
DTI Response to Clause 12 Dispute Settlement
Mr De Gama reminded the Committee that the DTI supports a re-definition of ‘dispute’. Many submissions support community or third-party representation or intervention in dispute settlement. These mechanisms are supported already by various court rulings and thus need not be included in the Bill. Subsection 2 and 3 also require clarification as to what will happen if mediation is invoked. The DTI will draft a paper for selecting mediators and outlining the procedures for arbitration lest the Minister has to decide this every time. Investors should submit a paper detailing a summary of the claim, the state entity implicated, and the relief sought by the investor.
Mr Macpherson welcomed the movement towards common ground. He hoped that the procedures for appointing a mediator would become even clearer and exclude the Minister.
Mr Alberts referenced international law as saying that, if an applicant has no hope of success, then that applicant does not have to exhaust domestic remedies. If there is a hostile court environment, international law is very clear that an individual need not ‘exhaust’ domestic remedies. He expressed concern that government would control whether investors can go to international arbitration. He called Clause 12(5) unconstitutional and contradictory to international law. He noted that South Africa has not signed the Convention on the Settlement of Investment Disputes Between States and Nationals From Other States from 1965. He suggested that SA sign this treaty and allow individuals to use this entity. People could still use domestic remedies, but if problems arise then individuals must have access to international arbitration.
Mr Hill-Lewis agreed that ‘exhaustion’ must be better defined. Groups in a variety of countries own the BMW Group; if there is a dispute with BMW, which state should SA approach? It is not good enough to answer ‘wherever the company pays tax’.
Mr October answered that it would be wherever the company is registered.
Mr Hill-Lewis said that if BMW’s Hong Kong investors have a problem with BMW South Africa, they must petition Germany to settle with South Africa, which is absurd.
Mr Hill-Lewis also pointed out that Clause 12(5) is a reversion to the 1800s. Arbitration should be based on the rule of law, not based on the discretion of governments.
Mr Koornhof noted that South Africa has the rule of law, but not all countries do. The Hong Kong investors signed a shareholding agreement that settled these matters; BMW Germany is a vehicle for investment in South Africa.
Mr Mkongi reiterated the point that thinking on investment policy is evolving. This trend, of which state-state arbitration is a part, is evolution, not reversion.
The Chairperson observed that different Members have issues with dispute resolution for different reason. She remembered the issue around the inclusion of ‘may’ in the clause. The DTI should be in a better position to discuss these positions tomorrow.
DTI Response to Clause 13 Regulations
Mr De Gama said that the DTI currently has no proposals, but asked the Committee to consider this Clause in light of earlier proposals to amendments to Ministerial powers.
DTI Response to Clause 14 Transitional Arrangements
The DTI had no proposals.
DTI Response to Clause 15 Commencement
The Bill would come into operation on a date fixed by the President by Gazette Proclamation.
The Chairperson noted that the Title of the Bill would be changed in this clause.
The Chairperson noted that various definitions had been flagged for discussion on the next day. Interpretation had been flagged. Application had been flagged due to the issue of outward investment. National Treatment had been flagged. Security of Investment had been flagged. Protection of Property had been flagged. Transfer of Funds had been flagged only to confirm the language around ‘returns’. Dispute Resolution had been flagged. All these issues would require comment from the DTI and the Legal Advisors.
Mr De Gama felt that today had been very constructive. He thanked the Committee for its constructive input and called this well-rounded approach ‘good government’.
Ms Mlumbi-Peter thanked the Committee for its comments and promised to prepare well for the next day.
The Chairperson noted that after the next day’s meeting, the next meeting to consider the Bill would not occur until 20 October due to the constituency break. The Committee would need to start with the Budget Review and Recommendation Report (BRRR) after the constituency break. She would be attending the International Astronautical Congress that SA has hosted before and attended every year. The Centurion Aerospace Village is busy manufacturing components for this event. This event draws much investment and job creation. Thus the election on an acting Chairperson for 13-16 October would be necessary. That election could only take place in the current Chairperson’s absence as per National Assembly rules.
Gambling Subcommittee business
The Chairperson noted that in response to Mr Hill-Lewis’s request on 15 September, the DTI replied in writing that “The DTI is finalising the comments received from the published National Gambling Policy. The comments will also be discussed with the National Gambling Regulators Forum, a forum of gambling boards.” The Chairperson noted that there are nine Provincial Boards as well as the National Board. The policy will be tabled before the NGPC meeting. At the moment, the DTI is still waiting for the date of the National Gambling Policy Council (NGPC) meeting. The Regulatory Boards are scheduled to meet tomorrow, 23 September.
Given that, the Committee will look at the programme and, based on when Parliament is closing, the Committee will address this matter tomorrow.
Mr B Mkongi (ANC) said that he resented Mr Hill-Lewis’s previous comments that Mr Hill-Lewis had been unable to contact Mr Mkongi who had been away on sick leave. He stated his email for the record and said that he had never received an email from Mr Hill-Lewis.
Mr G Hill-Lewis (DA) explained that he had been using Mr Mkongi’s Parliament email address and noted that he is not the Chairperson of the Subcommittee and thus it is not his job to convene the Subcommittee.
The Chairperson was glad to have cleared up the email issue and noted that many Members have multiple emails. She said that a short meeting to discuss a plan for the future should occur soon.
Mr Hill-Lewis noted the weekend’s Rugby World Cup trauma where SA lost to Japan, and pointed out that Mr Koornhof is wearing a Japanese Rugby Union tie. He asked that the Chairperson force him to remove it.
The Chairperson hoped that Mr Koornhof’s fashion decision was in the name of positive international relations and noted that the Parliamentary Rugby Team had won two games over the weekend.
Mr Koornhof (ANC) explained that the gift predated the loss to Japan and that the ruling party should recognise the Japanese side’s good performance.
The meeting was adjourned.
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