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Talkmore Chidede
ANNEX 1 to the Southern African Development Community (Sadc) Protocol on Finance and Investment (FIP) encourages Sadc member states to create a predictable investment climate in order to attract investment in their territories.
It also encourages member states to support the development of local and regional entrepreneurs, enhance regional productive capacity and to use public-private partnerships to ensure development within the region. More importantly, the Annex provides for substantive investment protections aligned to international standards including provisions on expropriation, fair and equitable treatment, and investor-state dispute settlement.
However, the Annex has elicited much criticism in the Sadc region due, inter alia, to the perception that it fails to adequately balance investor protection and regulatory autonomy of host states. Another criticism levelled against the Annex is that it contains investment protection standards which contrast with the recommendations in the Sadc Model Bilateral Investment Treaty Template (Sadc Model BIT), 2012.
For example, the Annex contains broad definitions of investments and investors, provides for fair and equitable treatment and prompt, adequate and effective compensation for expropriation as well as investor-state dispute settlement which allow investors to refer disputes to binding international arbitration upon exhaustion of local remedies.
Based on experience with investor-state dispute settlement, Sadc member states (e.g. Lesotho, Namibia, South Africa and Zimbabwe), have raised serious concerns about the settlement of investor-state disputes by international arbitration. These concerns include inter alia, lack of legitimacy and transparency, huge costs of arbitration and arbitral awards, inconsistent and erroneous decisions, and forum shopping. In addition, member states worry that the Annex’s ambiguous provisions are likely to give very wide interpretation discretion to international tribunals. It is against this backdrop that the Sadc member states have decided to amend the Annex.
Amendments to the Annex
Accordingly, a draft Agreement Amending Annex 1 to the Sadc FIP (Amendment Agreement) was approved by regional leaders at the 36th Sadc Summit held in Swaziland last year. The Amendment Agreement retains the same provisions of the Annex regarding the promotion and admission of investments, promotion of local and regional entrepreneurs as well as the use of public-private partnerships to ensure development in Sadc. More importantly, it either amends or replaces most of the Annex’s investment protection standards.
For instance, it narrows the definitions of investment and investors to include only those of a Sadc member state investing in another member state.
This means that the scope of application of the Protocol is to be limited to investors of the Sadc member states.
The Amendment Agreement further replaces fair and equitable treatment with national treatment standards; thus, host states shall accord foreign investors the same treatment as its domestic investors. With regards to compensation for expropriation, the Amendment Agreement replaces the payment of prompt, adequate and effective compensation with fair and adequate compensation. It is worth noting that such compensation is assessed in relation to the fair market value of the expropriated investment prior to expropriation. It is to be noted that this valuation method is recommended as an option for compensation payment in the Sadc Model BIT.
In addition, the Amendment Agreement prohibits race-to-the-bottom actions to lure investors and it preserves the right of host states to take regulatory measures to ensure that development in its territory is consistent with the sustainable development goals and legitimate social and economic policy objectives. More importantly, it removes investor-state dispute settlement via international arbitration and provides for settlement of investor-state disputes through domestic courts or tribunals of the host state. State-to-state investment disputes are to be settled in a manner set out in the Sadc Tribunal Protocol.
Entry into force
There is however, uncertainty as to whether the Amendment Agreement has entered into force. Some argue that it has entered into force, while others argue that it is going through a ratification process by member states, that is, not in force yet.
The Agreement Amending Article 22 of the Sadc Treaty, 2007, stipulates conditions for an amendment to a Protocol which is already in force within the region. Under Article 2, the Agreement states that any amendment(s) to a Protocol must be adopted by a decision of three-quarters of all state parties to the Protocol. In similar vein, Article 26,3 of the Sadc FIP specifies that amendments to the Protocol should be adopted by a decision of three-quarters of all state parties, and shall come into force 30 days after such adoption. But, Article 3 of the Amendment Agreement declares that the amendments shall come into force on the date of adoption by three-quarters of the members to the Protocol.
Neither the Agreement Amending Article 22 of the Sadc Treaty, the Sadc FIP, nor the Amendment Agreement requires amendments to a Protocol to be ratified to enter into force. This is perhaps because the amendments constitute an integral part of the Protocol already in force. The only condition specified is adoption by three quarters of the state parties to the Protocol. In accordance to general law on treaties, a “treaty is adopted through a specific act expressing the will of the states by voting on the text.”
Strictly speaking, the effect of these provisions is that an amendment to the Protocol is adopted by a decision of not less than three quarters of the member states and shall enter into force immediately after adoption without any need for ratification.
Turning to the Amendment Agreement, there are 15 members to the Protocol currently: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. As such, the quorum for the Amendment Agreement to be effective is, 11 but the official Amendment Agreement published on the Sadc website on 16 May 2017 has only been signed by eight members (Angola, DRC, Lesotho, Mauritius, Mozambique, Swaziland, Tanzania and Zimbabwe). This means that the amendments are not yet in force.
It is also important to note that neither the Annex 1 nor the Amendment Agreement clarifies how investors or investments affected by amendments (such as those from non-Sadc states) will be protected upon entry into force of the Amendment Agreement. Such a lack of a survival clause could result in non-Sadc investments or investors within the region covered by the Sadc FIP to be left without protection.
-Chidede is a researcher with the Trade Law Centre, is a capacity-building organisation developing trade-related capacity in East and Southern Africa.
Bongani Ndlovu