South Africa terminates Bilateral Investment Treaties with Germany, Netherlands and Switzerland

South Africa has given notice to terminate three of its most important bilateral investment treaties: those with Germany (on 23 October), Switzerland (on 30 October) and The Netherlands (on 1 November).   The German and Swiss treaties contain a twelve-month notice period with a run-off protection for existing protected investments of 20 years, whereas the Netherlands treaty has only a six-month notice period with a 15-year run-off period.

South Africa had already given notice of termination of at least two other BITs with EU states: those with Belgium & Luxembourg (on 7 September 2012) and with Spain (on 23 June 2013).  It is understood that terminations of at least two other EU BITs are in the pipeline: those with Austria and Denmark.  Together, these amount to nearly a third of South Africa’s total 23 BITs in force, of which 13 are or were with EU states.  South Africa’s BIT with China is also under discussion.

The terminations follow a Cabinet-mandated review initiated by the Department of Trade and Industry in 2007.  According to a recent speech by a DTI official, the DTI has been “instructed to work on modernising and strengthening the country’s investment regime to ensure South Africa remained open to foreign direct investment, while preserving the sovereign right of the government to pursue policy objectives”, following the presentation of its findings to the Cabinet in 2010 .  Core measures mandated by Cabinet for the implementation of this new policy framework include the development of foreign investment legislation, the review and termination of existing old-generation BITs and the development of a new-model BIT.  (Report of a talk by Dr Mustaqeem de Gama, DTI’s legal international trade and investment director, to the Mandela Institute’s second annual economic law update in Johannesburg on 21 October 2013: http://www.engineeringnews.co.za/article/sa-proceeds-with-termination-of-bilateral-investment-treaties-2013-10-21).

South Africa has been quicker to terminate its BITs than to legislate this promised new framework.  A draft ‘Promotion and Protection of Investment Bill’ was published for public consultation only on 29 October 2013 and it could be a further year before it becomes law (see Peter Leon of Webber Wentzel at: http://www.bilaterals.org/spip.php?article24060#sthash.Fts9L5uq.dpuf).

EU Trade Commissioner de Gucht has reportedly said that the moves will “certainly affect the investment climate” (http://blogs.ft.com/beyond-brics/2012/10/19/south-africa-bits-in-pieces/?#axzz2kLrQceG3).  Even the necessarily restrained formal announcement on the German’s South African diplomatic website barely concealed its dismay:

“The Investment Promotion and Protection Treaty was an enormous success story for both sides. It was a solid base and valuable incentive for the continuous and mutually beneficial growth of bilateral German-South African trade …  In light of this success, the German Government would have preferred the continuation of the Treaty.  It calls upon the South African Government to create an equivalent legal framework tying in with the success story of the terminated Investment Promotion and Protection Treaty” (http://www.southafrica.diplo.de/Vertretung/suedafrika/en/__pr/2__Embassy/2013/4thQ/10-InvestmentTreaty.html).

Judging by the draft Bill for public consultation the German Government’s wish is unlikely to be fulfilled.

These terminations follow closely on the heels of the endorsement in June 2012 by the ruling African National Congress Party of proposals in a report on State Intervention in the Minerals Sector that include increased taxation, mandating the regulation of “strategic minerals” with regard to their beneficiation, exportation and sale, and the strategic nationalisation of mineral resources on the “balance of evidence” (http://www.bowman.co.za/FileBrowser/ArticleDocuments/South-African-Government-Canceling-Bilateral-Investment-Treaties.pdf).

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