Is the tide turning for Africa’s investment treaties?

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8 March 2013

In January, the president of Benin and the prime minister of Canada announced they had signed a new bilateral investment treaty (BIT). The treaty, which is now publicly available, is just the latest in a large number of BITs signed by African countries over the past 20 years.

Women walk along a red dirt road in Benin.

Investment treaties, or preferential trade agreements that include chapters on investment, are international treaties that promote foreign investment flows through protecting investments by nationals of one country against adverse interference from the government of the other country. The United Nations estimates that some 3,000 investment treaties have been concluded worldwide.

How does the Benin-Canada investment treaty measure up?

In some ways, the Benin-Canada bilateral investmnet treatry (BIT) looks different from many other treaties currently in force in Africa: some of its rules are formulated more carefully to reconcile investment protection with a wider set of policy goals.

Take the legal requirement for the two governments to accord to each other’s investors “fair and equitable treatment”, which is found in virtually all BITs. Investors have relied on this standard of investment protection to challenge government measures all over the world – including, for example, in recent suits brought by a major tobacco company to challenge plain packaging legislation in Australia and Uruguay. Even if the company were to lose these cases, the governments may still face costly legal bills.

Few would argue that investors should be treated unfairly. But establishing what is “fair” or “equitable” is not always straightforward. Many arbitral tribunals called upon to adjudicate disputes between investors and governments have interpreted this standard very expansively, and have ordered governments to pay large compensation amounts to investors whose business prospects had been adversely affected by government action. And where governments were unwilling to pay up, companies have been able to seize assets that governments hold overseas.

Commentators have pointed out that these broad interpretations of a government’s obligations, coupled with effective enforcement mechanisms, can significantly constrain the ability of governments to protect their country’s environment or public health, or to improve labour standards, for example, where doing so adversely affects commercial investments. Poorer countries may have to pay steep bills if they wish to regulate in the public interest.

In line with some other recent BITs signed by Canada, the Benin-Canada treaty contains a more restrictive clause on fair and equitable treatment, and clarifies that this standard does not create new obligations beyond more narrowly interpreted customary law requirements.

Similarly, investment treaties typically establish rights, but not obligations for investors. Most treaties say little or nothing about the duty of investors to comply with environmental regulations, for example.

Again in line with some recent treaty practice, the Benin-Canada treaty includes a provision calling on the two governments to encourage their investors to comply with internationally recognised standards of corporate social responsibility.

Also, investment treaties commonly enable investors to bring disputes to international arbitration. Many investment disputes affect not only commercial interests, but also important public interests. For example, a dispute about contracts for a company to run water supply schemes raises important issues for people’s access to water.

The Benin-Canada treaty recognises that transparency and public scrutiny are critical for these wider interests to be properly considered in arbitration proceedings, and allows NGOs to file submissions with arbitral tribunals where specified criteria are met.

These positive developments raise two questions. First, what made them possible? Second, do they signal a genuine shift in investment treaty-making in Africa?

A changing global context

The global context of investment treaty-making today is very different compared to just ten years ago. Growing NGO scrutiny has increased pressure on governments to take fuller account of sustainable development considerations in investment treaties.

In addition, high-income countries like the United States and Canada are also important capital importers, even more so as global economic power is shifting east. These countries have now seen their own public action challenged by foreign investors relying on generous investment protection regimes. For example, last year the Canadian government was sued by a petroleum company for $250 million. The suit challenges a moratorium on fracking enacted by the provincial government of Quebec.

While in the past these countries promoted robust standards of investment protection, they have now developed model investment treaties that better balance investment protection with a continued ability of governments to regulate in the public interest. Australia recently announced that it would not include arbitration clauses in future investment treaties.

Some Latin American countries have been very vocal in challenging investment protection regimes. Bolivia, Ecuador and Venezuela have terminated BITs or withdrawn from the International Centre for Settlement of Investment Disputes (ICSID), an important arbitration system.

In addition to these changes in political attitudes, there is now much better international guidance on how to strike a better balance between investment protection and other public-interest goals. This includes:

Balancing up investor rights and obligations

This changing context is facilitating the emergence of a new generation of investment treaties. While Africa has so far been at the margins of these shifts, this trends is now affecting African countries as well.

But is having different wording on a treaty enough? Important concerns remain. For example, the reference to corporate social responsibility standards in the Benin-Canada treaty falls short of creating enforceable obligations for investors to meet.

In legal terms, saying that governments “should encourage” companies to comply with voluntary standards means very little.

This asymmetry between investor rights and obligations under the treaty compounds wider imbalances in international law. Treaties provide effective protection for foreign investment, but not for the rights of people who may be affected by investment flows – as I have argued both here and here.

Also, like many other Canadian BITs the Benin-Canada treaty creates obligations for states in relation to the admission of foreign investment. Outside a few excluded sectors, the government of Benin could only regulate the admission of a Canadian investment within its territory through terms not less favourable than those applicable to investments made by its own nationals – an obligation that has far-reaching implications for national sovereignty, and that can help open up Benin’s resources to Canadian companies. 

More fundamentally, the treaty is still based on a model developed by a capital exporting country. Benin has effectively signed up to the Canadian model investment treaty. Treaty negotiations only lasted a few months. One wonders how much democratic debate and public scrutiny there has been in Benin before and during the negotiation. These important aspects of investment treaty-making have not changed.

A genuine shift in treaty-making would require African countries themselves to seek a better deal, based on democratic deliberation and an inclusive vision of national development. Greater interest in Africa’s natural resources should strengthen the continent’s negotiating power vis-à-vis the outside world.

Some governments are becoming more assertive in investment treaty-making. Last year, South Africa terminated a BIT and announced more cancellations. Concerted action by organisations representing a region or sub-region’s interests, such as the Southern African Development Community (SADC), can help address asymmetries in negotiating power. For example, SADC has developed a model investment treaty that more carefully balances investment protection with other policy goals.

Push for change

And it is not just about what governments can do. National civil society can play a crucial role in increasing pressure on their government.

For example, Free Trade Agreement Watch (FTA Watch) Thailand, an NGO coalition in Thailand, has driven public scrutiny on the preferential trade agreement being negotiated between the European Union and Thailand. FTA Watch warned the government that it would violate provisions of the Thai constitution that require public consultation and parliamentary scrutiny if the negotiations for major economic treaties continued without following constitutional procedures.

FTA Watch’s experiences were shared last week at a civil society workshop on ‘Legal Tools for Accountability in Agricultural Investments in Southeast Asia’, organised by IIED and Focus on the Global South as part of IIED’s Legal Tools for Citizen Empowerment initiative.

Similar strategies may enable African civil society to push harder for treaty-making to reflect the values and aspirations of citizens.

For the tide to really turn, the push for change must come from within Africa.

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