News in Brief

South Africa begins withdrawing from EU-member BITs

South Africa has terminated its bilateral investment treaty with Belgium and Luxembourg, and intends to phase out other treaties with European countries.

In a September 7th letter to Belgium’s Ambassador in Pretoria, South Africa’s Minister of International Relations denunciated the treaty, in accordance with the treaty’s termination clauses (most termination clauses in BITs allow either contracting party to give a written notice of termination after a specific number of years).

The treaty’s sunset clause guarantees that existing investments will continue to be covered by the treaty for another ten years.

ITN understands that  at least six more letters will be sent to European countries. In total, South Africa has 13 treaties with EU member states.

South Africa’s weighs risks and benefits of BITs

In recent years South Africa has critically reviewed its investment treaty practices. That scrutiny came in the wake of a 2007 claim by several Italian citizens and a Luxembourg corporation filed a claim under the Belgium-Luxembourg BIT. The claimants charged that the 2004 Mineral and Petroleum Resources Development Act (MPRDA)—part of South Africa’s efforts to increase participation by historically disadvantaged South Africans in the mining industry—amounted to the expropriation their mineral rights.

While the case was settled in 2010, it stirred the South African government to reconsider its investment treaty policies. A report issued by the Department of Trade and Industry (DTI) was particularly critical of South Africa’s investment treaties.

“Existing international investment agreements are based on a 50-year-old model that remains focused on the interests of investors from developed countries. Major issues of concern for developing countries are not being addressed in the BIT negotiating processes,” wrote the DTI.[1]

More recently, South African Trade Minister Rob Davies has said that the South African Cabinet was largely supportive of the DTI’s conclusions.

“Cabinet understood that the relationship between BITs and FDI was ambiguous at best, and that BITs pose risks and limitations on the ability of the government to pursue its Constitution-based transformation agenda,” said Davies at an UNCTAD event in Geneva on 24 September 2012.

Davies has stated that the Cabinet ordered that South Africa’s first-generation treaties—agreed to shortly after the 1994 transition to democracy—should be “reviewed with a view to termination.”

China and Canada conclude BIT negotiations

China and Canada have concluded negotiations over a bilateral investment treaty (termed a foreign investment promotion and protection agreement in Canada) after 18 years and 22 rounds of formal negotiations.

The treaty, published in late September, must still be ratified by both parties. It is China’s most comprehensive investment treaty to date, but also features notable deviations from Canada normal practice in recent years.

Canada’s relatively robust transparency provisions for dispute settlement have been watered down. While Canada’s recent investment treaties require the publication of a range written materials related to arbitration proceedings — with legitimately confidential text redacted — the Canada-China agreement only demands the publication of final awards. Other documents — such as notices of dispute and pleadings — will be made public at the discretion of the disputing state. The disputing host state would also have to approve public hearings.

A non-disputing party (amicus curiae) may be allowed to submit written submissions at the tribunal’s discretion if it “has a significant interest in the arbitration.”

Canada’s recent treaties have also provided national treatment for the establishment of investment —i.e., allowing the foreign investor the same rights to set up an investment as domestic investors. The treaty with China, however, only provides Most-Favoured Nation treatment with respect to establishment.

Notably, the treaty does not place further restrictions on performance requirements, as has been the case in previous agreements with Canada. The treaty only reaffirms the state parties’ obligations under the WTO Agreement on Trade-Related Investment Measures.

The provisions on capital flows allow the state parties to restrict transfers in circumstances of serious balance of payment difficulties, so long as a number of conditions are met. These include that they are of limited duration, and applied equitably without discrimination.

Foreign direct investment between the China and Canada are modest, but have climbed steadily over in recent years. The stock of Canadian Direct Investment in China was valued at nearly C$4.5 billion at the end of 2011. The stock of FDI into Canada from China was C$10.9 billion at the end of 2011.

The treaty is available here: http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/china-text-chine.aspx?lang=en&view=d

ICSID secretariat publishes background paper on annulment

The ICSID secretariat has published a background paper on annulment procedures in response to a letter from the Philippine Office of the Solicitor General. The letter expressed concern over an ICSID ad hoc committee’s decision to annul a 2007 award that favoured the Philippines (Fraport AG v. the Philippines).

Characterizing the annulment decision as “seriously flawed” and taken in excess of the ad hoc Committee’s authority under the ICSID Convention, the Solicitor General urged the ICSID Administrative Council to issue guidelines on annulment for use by ad hoc Committees in order to ensure fair and effective annulment proceedings.

The ICSID paper is intended to assist State-parties to the ICSID Convention in deciding whether to look into the matter raised by the Philippines.

The Solicitor General cites statistics claiming that 11 out of 41 annulment applications have resulted in annulment and that eight out of the 11 annulments were rendered in the past 10 years.

The background paper, in addition to providing a substantial review of the annulment mechanism and past annulment decisions, emphasized the necessity of placing the numbers into proper perspective. The paper explains that throughout its 47-year history, ICSID has:

The 2007 award dismissed Fraport’s claims in connection with its investment in the Ninoy Aquino International Airport Terminal 3 Project after the tribunal concluded that Fraport had made its investments illegally, and thus was not entitled to protection under the Germany–Philippines BIT.

The award was subsequently annulled by an ad hoc Committee on the ground that there had been a serious departure from a fundamental rule of procedure.

Experts file amicus briefs in support of BP Group PLC

Arbitration experts from the United States have filed amicus briefs in support of a petition for review filed by BG Group PLC (BG) with the US Supreme Court.

The arbitrators critique a January 2012 decision by a US Court of Appeals for the DC Circuit. That decision set aside an UNCITRAL award following the court’s determination that BG had failed to seek relief in the local Argentinean courts as a precondition to international arbitration under the Argentina-UK BIT.

The amicus fear that the appellate court’s decision would adversely impact on the attractiveness of the United States as a seat of international arbitration.  One brief authored by the American Arbitration Association characterizes the decision as “a dramatic and unprecedented instance of … judicial intrusion.”

Another brief prepared by George Bermann and a team from law firm Hughes Hubbard & Reed finds fault with what the appellate court called a “temporal limitation” (i.e., by requiring that an investor initially seek recourse, for eighteen months, in domestic court as a pre-condition to arbitration) before the UNCITRAL rules are “triggered.” The UNCITRAL rules allow arbitrators the authority to rule on objections to their own jurisdiction, counter the amicus.

The Bergmann-Hughes Hubbard brief says the appellate court decision “shows why threshold and merits questions alike are better dealt with by arbitrators,” and urges the Supreme Court to seize the opportunity “to clarify the confused state of United States law” concerning the difference between substantive and procedural arbitrability.

The vacated UNCITRAL award obligated Argentina to pay BG more than US$185 Million in damages after the tribunal had found that Argentina had breached the fair and equitable treatment standard. More information on the appellate court’s decision can be found here http://www.IISD.org/itn/2012/04/13/awards-and-decisions-7/