WTO Decision on Implementation of Paragraph 6 of DOHA Declaration on TRIPS Agreement and Public Health; Protection of Investment Bill [B18B-15]: briefing & adoption

Meeting report

Given the unusual circumstances under which the Committee had to meet, the Chairperson requested the Department of Trade and Industry summarise what it had intended to present to the Committee. The Africa Group had met with the World Trade Organisation in order to make the case for Africa to be liberated as far as trade was concerned. The Protection of Investment Bill was therefore of great importance.

Protection of Investment Bill (PIB)

The Department of Trade and Industry (DTI) briefed the Committee on the Protection of Investment Bill (PIB). The delegation comprised of amongst others Mr Lionel October, Director General; Ms Xolelwa Mlumbi-Peter, Deputy Director General: International Trade and Development Division; Ms Niki Kruger, Chief Director: Trade Negotiations; Mr Wamkele Mene, Director: Investment and International Law; Mr Marumo Nkomo, Director; and Mr Johan Strydom, Legal Adviser.

Mr October explained that Bilateral Investment Treaties (BITs) were treaties between two countries. The PIB was one piece of legislation to protect investors. International consensus was that the bilateral model was flawed and there was abuse or misuse of it. Investors were aware of the broad definition of expropriation. Multinational companies had challenged public interest. In countries and regions like Australia and South America there had been abuse of bilaterals. An Italian company had challenged SA when it had come to the Minerals and Petroleum Resources Development Act (MPRDA). The company alleged that SA was expropriating via the MPRDA. Another instance was where a German investor had held private shares in SA’s Reserve Bank. The investor had used the German Bilateral Treaty with SA to take SA to court. BITs sometimes allowed companies to bypass local courts of law. SA’s BITs had been in existence for twenty years. The question was whether SA should renew the BITs or terminate them. Cabinet had decided against renewing the BITs. It was decided to go the route of the PIB coupled with SA’s Constitution.

Ms Mlumbi-Peter continued with the actual briefing. The USA and Japan was attracted to invest in SA even though there had been no BITs in place. Consultation on the PIB had taken place. Revisions were made to the PIB based on inputs made. The PIB was also referred to the National Economic Development and Labour Council (NEDLAC). Key chambers like the European Union Chamber had also been consulted, and the PIB had also gone through parliamentary processes. The PIB was once again revised to take into consideration inputs made.

The key issue dealt with by the PIB was the protection of investors and the importance of Foreign Direct Investment (FDI). BITs protected foreign investors whereas the PIB protected local and foreign investors. The PIB followed an enterprise-based approach, which aimed not to provide protection to speculative investments. Regarding the interpretation of the PIB it was aligned with the constitution of SA. The PIB also contained BIT type provisions that were in line with customary law. The concept of fair and equitable treatment was omitted from the PIB as investors often cited it due to it being very vaguely defined in most treaties. Investors were entitled to fair administrative treatment from government. Administrative, legislative and judicial justice had to be ensured.  The PIB provided that SA had the right to make regulations governing the admission of an investment. The PIB provided for post-establishment rights ie the investment was subject to national legislation. Any investment in SA had to be in line with SA’s developmental objectives. The PIB treated all investors in a similar manner irrespective of their nationality. The PIB also granted an investor the right to be treated no less favourably than South African investors as long as their investments were “in like circumstances”. The PIB furthermore did away with the notion of the Most Favoured Nation.

An obligation was also placed on government to provide physical security to investments covered by the PIB. The South African Police Services (SAPS) should protect investors’ investments. The legal protection of investments was in line with section 25 of the Constitution. Section 25 of the Constitution guaranteed that there would be no arbitrary expropriation of property. The PIB did allow for a foreign investor to repatriate funds subject to taxation and other applicable legislation. One of the most fundamental provisions of the PIB was that government had the right to regulate in the public interest. Some of the issues that investors had challenged government on included measures relating to affirmative action, Broad Based Black Economic Empowerment (BBBEE). Other issues were tax related, bans on mining and also environmental regulations. There were huge costs to governments to defend court actions by investors. On average the cost to defend a case was $8 million but it could exceed $30 million. Russia had just lost a lawsuit amounting to $140 million. Peru had also lost a suit to the value of $50 million. The idea was to limit the risk to SA. Some lawsuits were frivolous. The PIB made provision for dispute resolution through domestic courts. Mediation was also provided for in the PIB. The DTI was in the process and engaged in discussions to review the Southern African Development Community (SADC) Finance Protocols that were in line with BITs. The PIB did not contradict finance and investment protocols. Protocols did not prevent countries from developing their own legislation like the PIB.

Mr October explained that there was an unfounded belief that if BITs were cancelled then foreign investors would be scared away. A case in point was that the automobile manufacturer BMW had just announced a $6 billion investment in SA even though SA had just cancelled its BIT with Germany. The UK based company Unilever had also opened up four new plants in SA, and Magnum Ice Creams had also opened up a new plant in the Gauteng Province.

Discussion

The Chairperson asked how many Committee members needed to be present in a meeting to make up a quorum of members.

Mr Strydom answered that in terms of the Rules of the National Council of Provinces (NCOP) one third of members from the Committee needed to be present to make up a quorum of members.
Mr B Nthebe (ANC, North West) appreciated the work that the DTI was doing in relation to Foreign Direct Investment (FDI). He understood the concept of grandfathering in the context of Bilateral Investment Treaties (BITs).  Grandfathering was where the BITs would continue for another ten years without renewal from the date that they were intended to cease. It was considered better not to have to renew BITs that would run for another twenty years. He asked whether infrastructure advantages from the domestic market would be lessened. How could the DTI provide the domestic market with a competitive edge? Everyone welcomed the investment that BMW was earmarking for SA. How could the objectives of the National Development Plan (NDP) be elevated? He also asked how the PIB would speak to the objectives of the NDP and encourage skills development. If the PIB intended to level the playing ground, he asked what about emerging domestic investors.

Ms Mlumbi-Peter responded that the Bill contained a transitional clause. Protection clauses as contained in BITs would still be valid during the transition period. The BITs would continue and its terms would continue to be in place. The survival clauses would eventually come to an end. The objectives of the NDP would be enhanced and skills development would be encouraged by giving government the right to regulate in the public interest. It would drive SA’s transformation socio-economic agenda. The development of Small, Medium and Micro Enterprises (SMMEs) could take place as well. The levelling of the playing field referred to protecting all investors. In the past only international investors were protected. There were instruments in place to promote investment for emerging investors. The DTI had an Investment Clearing House. Cabinet had approved a Black Industrialist Programme.

Mr Y Vawda (EFF, Mpumalanga) asked how SA could ensure that it was protected against claims of investors like those that had to be paid out by the governments of Germany and Peru.  If the intention of the PIB was to protect investors, what about upholding social justice and the best interests of SA? The best security to investors was to have a stable society. The society would be stable if it was treated fairly. A stable society was good for investment. SA’s wealth of natural resources alone was an invitation for investment. He asked whether SA’s right to regulate was given sufficient protection.

Ms Mlumbi-Peter said the risk attached to survival clauses came in when there was arbitrary expropriation. There was thus some risk attached to having survival clauses. She felt it important to have the PIB. There needed to be legal certainty to protect investments. She agreed that investment policy should be part of the broader policy of government. She had a sense that Mr Vawda was leaning towards saying that there should be obligations placed on investors. At the end of the day investors had to comply with the domestic laws of SA.

Mr October said that at present SA’s unemployment rate was 25%. In order to address the issue SA needed gross domestic production to expand. However foreign investment was critical. Foreign investors provided access to global markets and also introduced the latest technologies. SA was also building its local capabilities like building locomotives and ships. A balance was needed between local and foreign investors.

The Chairperson placed the Report of the Committee to the NCOP before the Committee for consideration.

The Committee agreed to present the PIB to the NCOP. 

Protocol Amending the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement
The DTI also briefed the Committee on SA’s acceptance of the Protocol Amending the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Ms Kruger undertook the briefing. The TRIPS Agreement was the most important and comprehensive Agreement dealing with intellectual property rights. The World Trade Organisation administered the TRIPS Agreement. The Africa Group felt that the TRIPS Agreement had to be relooked at to allow countries to address public health issues that it had. It would cover access to drugs, local manufacturing capacity and the development of new drugs. In November 2001 at the Doha Meeting developing countries demanded the reassessment of TRIPS. One of the issues was the recognition that intellectual property protection was important for the development of new medicines. It also recognised concerns about its effect on prices. Between 2003 and 2005 much work was done calling for the adoption of the TRIPS Agreement. The decision was made to adopt the Protocol Amending the TRIPS Agreement and it was submitted to member states for acceptance. The Protocol was initially open for acceptance until the 1 December 2007. However the period was extended a number of times due to a low number of instruments of acceptance deposited with the World Trade Organisation Secretariat. The latest deadline was the 31 December 2015 but it could be extended further. The Protocol took effect upon acceptance by a two-thirds majority of member states. A total of 86 countries had already accepted the Protocol. Another 21 countries needed to still accept the Protocol in order for it to come into effect. A World Trade Organisation Ministerial Council Meeting was scheduled 15-18 December 2015 in Nairobi and it was hoped that the Protocol could be adopted. Members were given insight into how the contents of the Protocol was giving effect to rights on health care services as contained in the constitution. Some of the benefits of the Protocol was that full and effective implementation of flexibilities would enable government to provide access to cheaper and better health care. Work on intellectual property policy review was already underway to come up with proposals on how effectively to take advantage and implement flexibilities.

Discussion

The Chairperson asked why the DTI had only come to the Committee now regarding the Protocol.

Ms Mlumbi-Peter explained that the delay in bringing the Agreement was because of huge outcry from civil society and in particular the Treatment Action Campaign (TAC). Eventually agreement was reached and the TAC supported the Agreement. The TAC had felt that the Agreement had procedures that were cumbersome to developing countries. Over the years much engagement had ensued, as it was difficult to make changes to the system if you were on the outside. The DTI did work on trying to improve procedures. The DTI had met with civil society as recently as the week before and civil society had given its full endorsement to ratify the Agreement so that flexibility could be put in place.

Mr Vawda said it was an opportunity to develop a pharmaceutical highway to export to the rest of Africa. It was an opportunity to create jobs. SA was always agreeable to import. Measures needed to be put in place to ensure that SA’s interests were protected. What was the need for patents?

Ms Mlumbi-Peter reacted that there was a cost attached to patents. Patents encouraged companies to do research and development. Companies needed incentives. A balance was needed on costs incurred and on the ability to recover funds and make a profit. The intention with TRIPS was also to make drugs accessible and affordable. She conceded that on flexibility the system could be better, the DTI would look into the issue. The TRIPS was not only an opportunity to import but also to export. Initially the drugs were for domestic use but with changes made to the TRIPS drugs could now be exported. The dual benefit of the TRIPS was that firstly it was advantageous towards public health in SA and secondly there were improvements in industrial capacity. 

The Chairperson agreed that it was an opportunity for SA to compete. He had visited a pharmaceutical company in Port Elizabeth that exported, and was impressed by the company’s capacity and training.

Mr Nthebe noted that efforts had to be made to get the remaining 21 member states to support the Protocol.

The Chairperson asked how possible it was to convince the 21 member states to vote in favour of the Protocol at the World Trade Organisation meeting in December 2015.   

Ms Mlumbi-Peter explained that the Director General of the World Trade Organisation had written to member states that 31 December 2015 was the deadline to ratify the Agreement. The DTI worked through regional and continental structures to impress upon member states the importance of ratifying the Agreement.

Ms Kruger said that it was correct that 31 December 2015 was the deadline. However if a two-thirds majority was not obtained at the World Trade Organisation meeting then the period may be extended for another two years.

The Chairperson placed the Report of the Committee to the NCOP before the Committee for consideration.

The Committee agreed to present the Protocol to the NCOP. 

Mr Strydom clarified that on a section 75 Bill a majority of permanent members were needed for a quorum.

Mr S Mthimunye (ANC, Mpumalanga) asked whether it was a majority of provinces or members that was required for a quorum.

Mr Strydom responded that in terms of Rule 154 of the NCOP Rules a majority of permanent members was required.

The meeting was adjourned.