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Investor-State Dispute Settlement in Sub-Saharan Africa: Suggestions for Reform

Document Cited in Related
Vincent
DOI10.3366/ajicl.2019.0263
Published date01 February 2019
Date01 February 2019
Pages150-160
Author
INTRODUCTION

Investor-state dispute settlement (ISDS) has been increasingly scrutinised – and criticised – in recent years.1 The existing system of ISDS ‘borrowed its main elements from the system of commercial arbitration’, despite the fact that investor-state disputes often raise public interest issues usually absent from international commercial arbitrations.2 These public interest issues require tribunals to ‘determine the state's basic power, the extent of the state's ability to regulate in the public interest, and the state's capacity to make basic socioeconomic and political choices.’3 For example, in the sub-Saharan African context, arbitral claims brought by European investors challenging governmental measures to address racially unequal distributions of land and minerals – in Zimbabwe and South Africa respectively – raise the question of the scope of governments’ abilities to enact policy measures without incurring significant liabilities under bilateral investment treaties (BITs).4

The tension between the public law aspects of investor-state disputes and the largely private, contract-oriented nature of the existing dispute settlement system has led to a perception of illegitimacy.5 Indeed, investor-state arbitration ‘is facing challenges to its legitimacy that are unlikely to be resolved without additional reforms.’6 Many observers are now asking which reforms would more appropriately balance investors’ and states’ rights and interests.7 This analysis will explore various such reforms and the opportunities they may present to sub-Saharan Africa. These reforms include Brazilian cooperation and investment facilitation agreements, the investment court system proposed by the European Commission, a WTO-style advisory centre, mandatory amicus curiae participation and the allowance of counterclaims by states.

 AN ALTERNATIVE TO BITS: BRAZILIAN COOPERATION AND INVESTMENT FACILITATION AGREEMENTS

Brazilian investment treaties – called cooperation and investment facilitation agreements (CIFAs or ACFIs) – may represent not only a new treaty model, but rather ‘an alternative FDI policy’ that could be emulated by African countries.8 In the 1990s, Brazil signed but did not ratify 14 BITs due to national sovereignty concerns.9 It was only in 2012 that the Brazilian Chamber of Foreign Trade granted a formal mandate to a technical group to draft a new investment agreement sensitive to Brazilian needs and concerns.10 The drafting of the model investment agreement was strongly influenced by ‘ongoing debates concerning the reform of the international investment regime, lessons learned from the failure of the approval of the investment agreements negotiated in the 1990s, and internal demands for market access.’11 CIFA negotiations were launched in 2013.12 Brazil has concluded six CIFAs since 2015, with Mozambique, Angola, Mexico, Malawi, Colombia and Chile, and is negotiating similar agreements with Algeria, Tunisia, South Africa, Morocco, Nigeria and Peru.13

The Brazilian treaties ‘strengthen state politics in FDI relations’, viewing BITs as ‘the basis for a permanent intergovernmental dialogue to both promote and protect FDI’.14 ‘Constant cooperation among governmental agencies, mediated by diplomatic action, and deference to domestic legislation’ can be considered the leading notions behind the Brazilian model.15 Perhaps most notably, CIFAs include neither investor-state arbitration nor standards such as fair and equitable treatment.16

The central institutions in the CIFA framework are the ‘Joint Committee’, composed of representatives of both governments, and each state's ‘Focal Point’, whose principal function is to provide governmental support to investments of the other state in their country.17 Brazil's CIFAs with Angola and Mozambique contain provisions promoting the exchange of information between states, particularly relating to laws on foreign investment and foreign exchange, specific incentives, public policies that may affect investments, customs and tax regimes, infrastructure and public services, labour laws, immigration laws and regional investment projects.18 With respect to investment facilitation, CIFAs mandate that the Joint Committee develop thematic agendas of cooperation and facilitation and emphasise mutually beneficial bilateral discussions.19 Thematic agendas often include programmes on money transfers, visa proceedings and technical and environmental licences and certifications.20

Brazil's CIFAs with Angola and Mozambique require that expropriations and nationalisations be carried out for reasons of public interest in a non-discriminatory manner and in accordance with due process, accompanied by adequate and effective compensation.21 The agreements provide that each state will allow and encourage investments by the other party in its territory and create favourable conditions for such investments, but clarify that the provisions are not to be interpreted in a way that would impede the adoption or implementation of any measure aimed at imposing or collecting taxes as under domestic law.22 In the event of losses resulting from war or other armed conflict, state of emergency, revolt or insurgency, investors of the other state are to be treated no less favourably than the most favourably treated domestic or foreign investors.23 The Brazilian approach is therefore an attempt to ‘safeguard the parties’ right to regulate, without outright violations of investors’ rights’.24

With respect to disputes, the Focal Points and Joint Committee are to ‘prevent, manage, and resolve any disputes between the parties’.25 Before arbitration can be initiated, disputes must be assessed and examined by the Joint Committee, to which the states may submit specific questions of interest from investors.26 If it is not possible to resolve the dispute, the parties may resort to mechanisms of arbitration between states to be developed by the Joint Committee.27 CIFAs thus strongly emphasise the prevention of disputes through state-to-state...

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