Promotion and Protection of Investment Bill [B18-2015]: flagged clauses

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Trade and Industry

27 October 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met to hear responses from the Department of Trade and Industry (DTI) and legal advisors on the remaining flagged clause in the Promotion and Protection of Investment Bill.

The Committee heard in depth legal analysis of the case law pertinent to the Freedom Front Plus submission calling for an obligation on government to protect South African investors overseas. The DTI held that extra-territorial jurisdiction is unconstitutional and that South African investors already have access to a variety of diplomatic protections. The DTI also held that Section 25 of the Constitution provides sufficient coverage for the legal protection of investments and that further expropriation issues will be addressed by the Expropriation Bill. The DTI continued to defend state-to-state arbitration as necessary to prevent frivolous cases against the government and it refused to make government consent to international arbitration mandatory. The Democratic Alliance and the Freedom Front Plus disagreed with all of these positions.

The Committee agreed to the inclusion of a Judge President as an alternate competent authority to the Department in the event of a dispute mediator being necessary. The Committee also accepted an explanation on why the Bill is tagged as a Section 75 Bill rather than a Section 76 Bill. The Committee will vote on the Bill formally on Tuesday 3 November 2015.
 

Meeting report

Opening Remarks
The Chairperson noted that there are five flagged clauses remaining on the Promotion and Protection of Investment Bill (PPIB) and she hoped to finish by midday. She welcomed the contingency from the Department of Trade and Industry (DTI) and a team of legal advisors. She moved to immediately consider the flagged clauses and new submissions. The first flag was on Clause Five.

Clause 5: Application of the Act and Adv Alberts (FF+) submission
The Chairperson called for members to find common ground; members will not always agree. She invited input from the DTI.

Mr Lionel October, DTI Director General, thanked Adv Alberts for his submission. The submission makes clear that Mr Alberts is not calling for extra-territorial legal action. The Government and the DTI is very concerned with protecting nationals abroad. South Africa has foreign embassies and the DTI has foreign economic representatives in twenty strategic markets to assist South African investors abroad. The DTI is especially well represented on the continent, with an embassy in almost every country. Government has investment treaties with other African countries; none of which have been terminated. Thus, there are cast iron protections for South African companies in Africa. The SADC Protocol is also being reworded to provide even better protection. In terms of Adv Alberts concerns, therefore, South Africa handles them well already. Investor protection in the Bill has been kept from the bilateral investment treaties (BITs), and investors are still protected in most situations under BITs.

Adv John Strydom, DTI Legal Advisor, referred to a quote from the Kaunda and Others v President of the Republic of South Africa 2004 Constitutional Court judgment noted in the Office of the Chief State Law Advisor document from 9 October 2015: “The fundamental flaw in the applicant’s case is that it was premised on the proposition that the government has a constitutional duty to require Zimbabwe and Equatorial Guinea to comply with the rights contained in our Bill of Rights. The rights in the Bill of Rights bind this government and not foreign governments. Our government cannot require foreign governments to act in accordance with our Constitution. The applicants misconceived the nature of their rights and their remedies.” Adv Strydom quoted the Application of the Act. Adv Alberts’ proposal uses the words ‘confirms’ in his submission; this means that the submission is not creating anything new but rather merely confirming the Constitution.

Adv Allan Small: Senior State Legal Advisor said that he has been covered mostly by the responses from Mr October and Adv Strydom. He agreed that the Constitution is binding only within South African borders, and that standing international agreements protect South Africans abroad.

Ms Xolelwa Mlumbi-Peter, Deputy Director General: International Trade and Economic Development Division (ITED), said that Mr Alberts has argued that, since BITs have been terminated, protection is no longer there. The DTI is trying to create both the Tripartite and eventually Continental Free Trade Areas (FTA). Investors also must consider risk before investment. Investors can take insurance. SA is a member of the Multilateral Investment Guarantee Agency (MIGA) for further protection. The Government takes the protection of all citizens very seriously through general South African law and diplomatic channels. There is no need for further protection here.

Mr Mustaqeem De Gama, Director ITED, said that Adv Alberts’ submission is an important one. The member has been very concerned with the previous happenings in Zimbabwe. In order to provide context for this Bill, let us look at the opinion from the Von Abo case. In 2011 the Constitutional Court heard an appeal made by government of a decision requiring government to provide diplomatic protection to Mr Von Abo in Zimbabwe. Government had taken various actions to attempt to help Mr Von Abo over the years. Let us look at two important matters from the decision on the case. First, what does diplomatic protection mean? Rapporteur Dugard notes, “According to the Special Rapporteur’s report, diplomatic protection includes, in a broad sense, consular action, negotiation, mediation, judicial and arbitral proceedings, reprisals, retortion, severance of diplomatic relations and economic pressures.” Diplomatic protections thus imply a wide range of policy interactions. The equally famous Kaunda case also asks the question: is a citizen entitled diplomatic protection? South Africa believes that, yes, the state has an obligation to consider a request for diplomatic protection. To quote the Kaunda case, “If, as I have held, citizens have a right to request government to provide them with diplomatic protection, then government must have a corresponding obligation to consider the request and to deal with it consistently with the Constitution”. Adv Alberts in his submission references the Equality Clause of the Constitution. The judge references Section Seven of the Constitution in the Kaunda case: “It was expressly held that Section 7(2) of the Constitution should not be construed as granting citizens a positive right of demand or imposing on government a positive obligation to ensure that the laws and conduct of a foreign state and its officials meet not only the requirements of the foreign state’s laws but also the rights of our nationals under our Constitution”. South African law can only apply within South African borders; South Africa is not responsible for the laws and actions of foreign states. What is very clear is that the principle of legality and the separation of powers underlie the Constitution. Adv Alberts’ submission calls for an illegal undermining of the separation of powers.

Ms Phumelele Ngema, Senior State Legal Advisor, said that the DTI has been trying to explain the difference between diplomatic protection and extra-territorial action. As Mr De Gama has done, we must look at court cases, specifically the Kaunda case and Mohamed and Another v President of the Republic of South Africa and Others (Society for the Abolition of the Death Penalty in South Africa and Another Intervening (CC, 2001). In the Kaunda case quoted by Mr De Gama, it is crucial to note the lesson that our domestic laws cannot apply beyond the borders of South Africa. The Kaunda case says “there is a difference between an extra-territorial infringement of constitutional rights by an organ of state bound under Section 81 or 82 of the Constitution in circumstances that would not infringe the sovereignty of the foreign state and an obligation on our government to take action in a foreign state that interferes directly or indirectly with the sovereignty of that state.” Diplomatic protection is not an entitlement outright; the Government must consider the request. As has been indicated by all quoted cases, the Court is stating without ambiguity that our Constitution is about protection of human rights. If the Constitution can go beyond the borders to protect human rights, it will definitely do that; this is an obligation imposed by it. It will do whatever it takes within the lawful ambit to do whatever is necessary and to provide assistance. However, to regulate as Adv Alberts suggests, and to go beyond what the Constitution states and what is tried law in this country, would be contrary to the structure that we follow, contrary to the legislation that we have, and contrary to the principles of international law.

The Chairperson called for the close of this issue and asked to hear Adv Alberts’ opinion.

Adv A Alberts (FF+) thanked the DTI for its study of the submission. The DTI argues that some Bilateral Investment Treaties (BITs) are still in existence and thus still carry protection. There have been many references to the Southern African Development Community (SADC) countries. He had also previously used Germany as an example. There are not many BITs out there and most are allowed to lapse, thus BITs are a haphazard shield. He welcomed the news of regional treaties under negotiation especially within Africa, but this does not help with Mexico or any other country not in Africa. As for the Kaunda case, his submission explicitly states that South African law would not and cannot apply in a foreign state. All he argues is that the South African government has certain obligations. All countries, to various degrees, are subject to international law. No country in the world can expropriate without compensation under international law; this law has precedence over any domestic constitution.

The Chairperson called for comments from other Committee members.

Mr D Macpherson (DA) said that, if the DTI is assuring the Committee that the Government’s policy is to protect citizens and that there is not anything to worry about, surely the DTI must realise that policy is not binding. Government has frequently ignored policy and also policy changes. Why not put something unambiguous in law obligating Government in a way that you seem to welcome? This would avoid potential conflicts of policy interest. For example, what if a citizen’s property is being expropriated in a country with which South Africa is negotiating a trade deal? There is little comfort from as-yet unfinalised trade deals within Africa only; what about other continents? This is a great opportunity to provide concrete protection for South Africans overseas. We should compel Government to follow its own policy.

Mr N Koornhof (ANC) said that, with respect, Adv Alberts’ submission is being slipped into a Bill where it may not be appropriate. This Bill explicitly states that the Bill applies to investments within South Africa. Also, how can we compel other governments to follow our law? It is very difficult to support this submission.

The Chairperson saw that this matter is exhausted. She hoped that a vote on these matters would not be necessary. She called for the Committee to find agreement in principle so that Creda Printers could print the Bill. She called for members to agree or disagree with the DTI position on the submission. She observed that there would not be a vote as yet. The DA and the FF+ supported Mr Alberts’ submission and the ANC opposed it.

Legal Protection of Investment
Adv Strydom said that, since the DTI has submitted a new Clause 6, so this clause in now Clause 10.

Ms Mlumbi-Peter said that, in response to Mr Hill-Lewis’s submission, Section 25 of the Constitution is sufficient and does not need to be further expanded, explained, or explored. The Expropriation Bill will also address some of the points from Mr Hill-Lewis’s submission.

The Chairperson noted that Mr Hill-Lewis was away and called for a response from Mr Macpherson.

Mr Macpherson said that, although the DTI says that this issue should be left for the Expropriation Bill, it is vitally important within this Bill to send out a message that is very clear on exactly what the rights and remedies are for investors. Mr Hill-Lewis’s submission made very clear the protections for investments in South Africa. Section 25 of the Constitution does not address issues that Mr Hill-Lewis’s submission does. This submission is on sound legal ground.

Mr Koornhof said that the Constitution is not just the ‘other law’ but rather the preeminent law of the land. Section 25 of the Constitution is very clear and does not need further explanation or re-writing. A change to the Constitution is not on the cards.

Mr Alberts said that laws must be accessible and readable for common people; we must not just say that people can go to court. Senior Counsel is unaffordable often times for the vast majority of people. He supported Mr Hill-Lewis’s submission. There is a worldwide movement to write laws that people can understand without running to a lawyer.

The Chairperson called for comment from the DTI.

Mr October said that only one parliamentary committee should deal with expropriation. It is inappropriate for the DTI to deal with expropriation. The DTI is about attracting and protecting foreign investment, not extending the MyCiti bus line. Foreign property rights are not under threat from this Bill.

Mr Macpherson said that the fact that this Committee does not have a position on expropriation is problematic. Investors want to know what the impact of the Expropriation Bill will be, and this Committee offers no advice. Why is this Committee in such a rush to finish this Bill when investors are so concerned with the Expropriation Bill? We are putting the cart before the horse. He moved to wait for the outcome of the Expropriation Bill before finishing this Bill.

The Chairperson replied that expropriation is not within the mandate of Trade and Industry, Department or Committee. Members should not wildly conflate the mandate.

Ms Ngema said that Section 232 of the Constitution already covers the points advanced in Mr Hill-Lewis’s submission. Section 25 of the Constitution already covers the rest of the submission.

The Chairperson said that the only point not already covered in the Constitution from Mr Hill-Lewis’s submission is the phrase ‘readily convertible currency’ from sub clause 5.

Mr Macpherson asked, if the submission is thus consistent with the Constitution, why not codify it here? We would be happy to delete those three words. Codifying it here would make the law more accessible to investors.

The Chairperson said that Mr Macpherson made it quite clear earlier that he wished to delay the Bill over these matters.

Mr October said that Mr Macpherson has answered: if it is covered by the Constitution then investors have the legal protection. He is admitting what the DTI has been arguing: these protections already exist in law. The reason it is unnecessary to include it in this Bill is that it is already in the Constitution. All the companies that come here are familiar with the Constitution. This lower piece of legislation cannot possibly be more comforting than the supreme law of the land.

Ms Mlumbi-Peter said that selectively poaching bits from Section 25 may lead to the misconception that not all of Section 25 applies.

Ms Ngema said that her remarks should not be viewed as her condoning the phrase ‘readily convertible currency’ as legally sound.

The Chairperson said that she has requested the Hansard from these past couple of meetings in order to make it very clear what has been said on these complex points.

In principle, there is clearly no agreement on the ‘Legal Protection of Investment’. The Chairperson moved to consider ‘Dispute Resolution’.

Dispute Resolution
Ms Mlumbi-Peter clarified that in future this will no longer be Clause 12 but will be Clause 13 of the Bill. There were three issues with this clause. For the first issue, the DTI has replaced the phrase ‘competent authority’ with ‘the Department or the Judge President of one of the divisions of the High Court’ who would act as the competent authority if the Department could not. There was also a request to ensure that there is consistency that ‘foreign investor’ is in small caps; this has been fixed. The last issue is around state-to-state arbitration. South Africa is not the only state to express concern with the investor-state dispute mechanism. The EU is also looking at alternatives to investor-state. The DTI still holds that state-to-state arbitration is the way to go after an investor has exhausted domestic remedies.

The Chairperson noted that the main disagreement last week had been around the phrase ‘competent authority’ which the DTI has now corrected.

Mr A Williams (ANC) found that including a Judge President is perfectly acceptable.

Adv Alberts asked what would happen if one party wanted the Department and the other wanted a Judge President.

Mr Macpherson said that the text calls for the parties to reach a joint decision. If parties disagree on who the mediator should be, whose request wins?

Mr Williams replied that this whole debate arose to deal with the situation in which the Department is one of the parties; if it cannot be the Department, then it would go to a Judge President.

The Chairperson saw that, in principle, there was agreement on this. She called for the DTI to speak further on state-state dispute settlement (SSDS) versus investor-state dispute settlement (ISDS). This issue has been discussed in Committee at least three times now.

Ms Mlumbi-Peter said that she has already indicated that the DTI feels that the Bill should maintain SSDS. There are serious risks to the economy and South Africa in general with ISDS. After exhausting domestic legal systems, the investor may request the government to consider pursued SSDS; this will adequately address the concerns of investors.

Mr October said that studies have shown how much cheaper and better domestic remedies are. The Judiciary is more than capable of dealing with a potential case of arbitrary action by the Executive. SSDS is an extra option that we have provided for extra investor comfort. ISDS has only been used to bypass domestic courts to challenge legislation. Requiring investors to approach the state prevents frivolous cases.

Mr Williams said that the ANC is happy with the clause.

Mr Macpherson called for Clause 12(5)  to state: "government will" not "government may".

Adv Alberts said that government is obliged to pursue international arbitration, but we can define certain parameters. The legal advisors have referenced case law; there is much case law dictating when government should act.

Mr October said that it would be irresponsible to take away the discretion of government. The decision to pursue international arbitration must depend on the government. For example, the government may not have the money to pursue a case. Government will not act arbitrarily lest it be challenged in court.

Ms Ngema agreed with the DTI position.

The Chairperson noted that the DA’s "government will" proposal has been rejected by both the DTI and the ANC. She asked if the DA has now changed its position.

Mr Macpherson said that the DA has not changed its position. He said that, throughout the process of this Bill, he has asked repeatedly whether the government would submit to international arbitration if government were a defendant and he has never received an answer. Who would determine whether the DTI has enough money for international arbitration? The reasons against "government will" are weak.

Ms Mlumbi-Peter said that the word ‘may’ guards against frivolous cases. Mr Macpherson’s concerns have been addressed by the Fair Administrative Treatment clause; government’s decision can be challenged in court.

Mr Alberts said that one hears every now and then that ‘the public must go to court’; why not put the onus on government? After all, government runs to court quite regularly. Putting in an obligation would be in line with the Constitution.

The Chairperson saw that Clause 12(5) has not been agreed upon. She moved on to consider the Minister’s regulatory powers.

Ms Mlumbi-Peter confirmed that only one word in Clause 12(5) remains in contention.

Regulations
Adv Small said that Mr Hill-Lewis had felt that this clause gives the Minister unfettered powers. However, checking all regulatory powers with Parliament would be a tedious process. At times, it is necessary for the Executive to be able to regulate within the scope of the Act in the name of efficiency.

Adv Strydom noted that the words ‘or expedient’ have been deleted from the clause. If this clause is removed, the Committee would be saying that the Minister would have no power to create necessary regulations. The powers provided here are not unfettered. Should any regulation be made beyond the scope of the Act, a court would declare it invalid.

Mr October agreed that, just like legislation cannot go outside the scope of the Constitution, the Minister cannot go outside the legislation. This is common practice. The Minister will have very fettered power and will not have access to wide discretion.

Adv Alberts said that, while he understands the necessity of regulatory powers, much legislation actually allows for the referral of the regulations first to Parliament and the parliamentary committee responsible and it secondly mandates the canvassing of public opinion. If he understands it correctly, this is when a piece of legislation is especially important. If we look at the Amendment Act for e-tolling, this Act included a process for any draft regulation to have to be approved by Parliament and go through a public participation process. The impact that this Bill will have on trade and industry is very significant; this is an important Bill. It would be fair to require at least the referral of ministerial regulations to Parliament. He understands that sometimes the Minister would need to act speedily; perhaps one can differentiate somehow between urgent and non-urgent regulations.

Mr Macpherson said that when the Minister gazetted the new Black Empowerment codes, pandemonium ensued. The Committee could have advised him on this. Despite assurances from the legal advisors, the language in this clause is unacceptably broad. Why risk years of litigation and expense to taxpayers when we as this Committee can avoid that problem?

Mr B Mkongi (ANC) said that this clause gives a necessary power and a constitutional power. Ministerial power should not be subject to DA approval. The DA has wasted millions of rands of taxpayer money when the DA challenges the ANC government in court. The DA is grandstanding here. The ANC supports the DTI’s language.

Mr Williams said that the Purpose of the Act is clearly defined; the Minister can only regulate within that.

The Chairperson said that there clearly is no agreement. She pointed to an extra submission in writing from Mr Alberts on tagging that was not one of the flagged items. She called for comment from Ms Ngema.

Tagging
Ms Ngema said that tagging is always complex, especially with the content of the Bill being so borderline. Past judgments have helped in this decision. First of all, the main point that one must look at is whether the subject matter of the Bill falls within any of the scheduled tagging subjects. In the submission, there is a point that asks whether this Bill falls under ‘trade’ because trade is a subject matter listed under Schedule Four (Functional Areas of Concurrent National  and Provincial Legislative Competence). At the time the Bill was introduced, serious debates took place as to whether this is a Section 76 (affecting provinces) Bill. One can argue that the Bill falls under ‘trade’, ‘consumer protection’, ‘industrial promotion’, etc. The DTI thoroughly engaged in this debate with state law advisors to decide on the tagging of the Bill. We concluded, as the Memorandum of the Bill shows, that this is a Section 75 (not affecting provinces) Bill. We wrote an opinion at one point that we can make available to the Committee to advise the Joint Tagging Mechanism (JTM), which has the final say, to say that the content of the Bill does not speak to Schedule Four and thus is not a 76 Bill. The Bill seeks to regulate investment in broad terms. This investment is not limited to the definition of trade. This Bill also does not impact other spheres of government. This is a Section 75 Bill.

Mr October said that provinces deal with trade and investment promotion, but now promotion has been removed from the Bill. Provinces cannot enter into BITs and can only deal in Memoranda of Understanding for promotion activities. This Bill only considers investment rights and obligations.

The Chairperson quoted Mr Alberts’ submission “It is well known that provinces also enter into trade agreements with foreign jurisdictions”. She asked Adv Small if provinces have the constitutional right to do that.

Adv Small agreed that he was not aware that provinces can do that. For this reason, we tagged the Bill as a Section 75 Bill.

Mr De Gama said that, according to Section 231 of the Constitution, provinces cannot enter into international trade agreements.

Mr Alberts said that he was unsure on this point but has now had it clarified. He knows of situations of ‘twin cities’ and agreements between businesses, but he does not have a problem with the Section 75 tag.

Mr Macpherson said that Mr De Gama’s submission cleared his concerns as well.

Mr Williams said that the ANC agrees.

The Chairperson handed over to the Committee Secretary to explain the printing process and when the Committee would get the final B version of the Bill.

Mr Andre Hermans, Committee Secretary, said, on receipt of the A-List from the State Law Advisor this afternoon, they will prepare a B-Bill which will be submitted to Creda Printers for processing. The process following that: they will proofread and prepare a clean document for submission to the Committee on Tuesday 3 November for the Committee to consider clause by clause.

The Chairperson said that on 3 November the Committee will vote on each clause. She thanked everyone.

The Chairperson announced that the Committee will not consider the Bill tomorrow. The Committee will look at the South African Customs Union (SACU) agreement, will work on a Committee Report, and explore a potential site for an oversight visit. The Committee has visited the Eastern Cape, so we should look at the Western Cape and KZN. The Committee is looking at gambling broadly, production, manufacturing, and tyres. The Committee is looking at issues around Christmas decorations and other matters raised by the National Regulator for Compulsory Specifications (NRCS).

The meeting was adjourned.

 

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