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Why South Africa should send the Dutch government a letter in the next two weeks.

By Burghard Ilge , Both ENDS, Amsterdam, 16 Oct 2013

Only one year after the end of apartheid in South Africa, South Africa and the Netherlands signed a treaty only known to a few; a so-called Bilateral Investment Treaty aimed "to extend and intensify the economic relations between them and to stimulate the flow of capital and technology and the economic development of the Contracting Parties"[4] But signing the treaty was in fact mainly a symbolic act which since then has had little if any effect in this respect. However, Bilateral Investment Treaties (also known as BITs), and in particular the type of treaties the Dutch negotiated at that time, have now become highly controversial [1]. The key element of these BITs is that a foreign investor (a South African Investor in the Netherlands or a Dutch investor in South Africa) is given additional rights concerning their investment, which are not available for national investors. If, for example, the Dutch government should "take any measures depriving, directly or indirectly, investors of their investments"[4] Dutch investors would be obliged to get their rights under Dutch law in Dutch courts. However, under the DutchSouth African BIT this does not apply for investors from South Africa investing in the Netherlands. Under this BIT, South African investors get a privileged position. A South African investor would not be obliged to seek his right under Dutch law, but would be allowed to use the Bilateral Investment Treaty and sue the Dutch government directly. For this, a somewhat questionable arbitration process would be started at the Court of Arbitration of the International Chamber of Commerce. The scope of the Dutch BIT with South Africa is extensive and the meaning of "depriving investors of their investments" can be interpreted in many ways. In Article 1 of the treaty it is stated that the term investments "means every kind of asset" and this includes not only- as one would expect - "movable and immovable property"[4] or "claims to money"[4], but also "any performance having an economic value"[4]. This means that South African investors could even sue the Dutch state if he can show that a measure taken by the Dutch state has caused a loss of his brand value or any other "intangible assets" [2] Of course all which has been said here about the privileged rights of South African investors in the Netherlands also applies to Dutch investors doing business in South Africa. In fact not only real Dutch campiness can make use of such privileges in South Africa, actually any foreign company can do so, as long as they have "a legal presents" in the Netherlands from were they do their investment in South Africa. This also includes such artificial legal construction like the so called "letter box offices" which are frequently used by foreign companies to avoid paying taxes in their home state. Many bilateral investment treaties between other countries have followed the Dutch model and it therefore is not surprising that more and more countries are cancelling or revising them.

The situation for the Bilateral Investment Treaty between the Netherlands and South Africa merits special attention. All BITs have a special article which regulates the termination of the treaty [5]; but the Dutch agreement with South Africa is special. While the Dutch BIT with Nigeria, like most other BITs, can be cancelled at any time, terminating half a year after its cancellation, this is not the case for the Dutch BIT with South Africa. For this particular BIT a deadline was set; if South Africa does not cancel the treaty before the 1st of November 2013 [7], the treaty will automatically be extended for another ten years. This means that the BIT would continue not only to protect current "investment" but also any future investment that might be made until May 2024. In addition, the BIT with South Africa will not stop after it has been cancelled, due to a specific clause. This so called "survival clause"[3] of the BIT with South Africa can be found in Article 14.3 : " In respect of investments made before the date of the termination of the present Agreement the foregoing Articles shall continue to be effective for a further period of fifteen years from that date." [4] This means that even if the Dutch parliament would decide today to cancel this agreement, the Dutch government could still be sued under this treaty in the next 15 years. And if the Dutch parliament should miss the 1 Nov deadline one would be stuck with this treaty - which nobody really wants nor needs - until the first of May 2039. No matter how we vote in the future, no matter what any of our future governments might want, the rights granted to foreign investors in this treaty would be enforceable under international law until this date. However, there is also a slowly growing awareness in the Netherlands that the Dutch Bilateral Investment Treaties might not be such a good idea after all. While the pain of these treaties was felt mainly by developing countries in the past, this is changing nowadays. Global investment flows are no longer the exclusive domain of investors from Northern countries like the US or from Europe. More and more investment flows are now coming from Southern and Eastern countries that are investing all over the world, including in the rich North. This development is now also leading to an increase of cases against EU countries. Belgium, for example, probably never expected that its BIT with China could backfire on them. Last year the country was sued by a Chinese investor opposing the way Belgium rescued the Fortis bank. Belgium is now forced to defend itself in an international arbitration procedure, which is very likely to be won by the Chinese investor. This would mean that Belgium (read: the Belgian tax payer) may have to pay more than US $ 2 billion to the Chinese insurance company. [6] But since awareness in the Netherlands about the problem with BITs is only rising slowly, it is expected that there will be no intervention from the Dutch side before 1st of November.

All hope now rests with the government of South Africa. In contrast to the Netherlands, South Africa undertook an extensive, multistakeholder review of all its 19 Bilateral Investment Treaties, which toke place between 2007 and 2010. All of these BITs had been negotiated and concluded before the new Constitution of South Africa had been adopted in 1996. Like in the Netherlands this new Constitution provides robust safeguards to protect all private property and investment in South Africa. During the review it was found that these South African BITs are outdated and pose a growing risk to policy making and public interest. In September last year South Africa notified its intention to cancel its BIT with Belgium and Luxemburg and a similar letter was sent just 3 months ago to Spain. Therefore there might indeed be a chance that South Africa terminates its BIT with the Netherlands before the 1 Nov deadline expires. So let's cross our fingers and hope that such a letter arrives in The Hague in time.
Dr. Burghard Ilge is senior policy officer at the Dutch NGO Both ENDS were he works on international trade and investment policies and their implications for sustainable development.

----------------------------------------------------------------------------------------------[1] See e.g. Both ENDS news item on an international NGO investment meeting in Brussels 2012: "Criticism on international investment treaties" http://www.bothends.org/en/News/newsitem/203/NEW-VIDEO-Criticism-oninternational-investment-treaties- , R. van Os and R. Knottnerus "Dutch Bilateral Investment Treaties- A gateway to treaty shopping for investment protection by multinational companies" http://somo.nl/publications-en/Publication_3708 or Cecilia Olivet ,"IntraEU Bilateral Investment Treaties-A test for European solidarity" http://www.tni.org/briefing/intra-eu-bilateral-investment-treaties-testeuropean-solidarity [2] Article 1 of the Dutch Model BIT protects Investors also against the loss of "goodwill". For an explanation of the scope and meaning of "Goodwill" as an accounting concept see e.g. http://en.wikipedia.org/wiki/Goodwill_%28accounting%29 [3] This clause is sometimes also revered to informally as "The Zombie Clause" of BITs since even so the treaty has been terminated it remains enforceable under international law for a given period, of typically 10-20 years [4] Direct quotation from the Bilateral Investment Treaty between the Netherlands and South Africa. The full text of the treaty has been published in the TRACTATENBLAD VAN HET KONINKRIJK DER NEDERLANDEN JAARGANG 1998 Nr. 162 [90 (1995) Nr. 1] and is available online at: https://zoek.officielebekendmakingen.nl/trb-1998-162.pdf [5] At least all BITs I have seen so fare have such an article [6] For more details on this case which also relates to the rescue of the Dutch ABN AMRO bank see: http://www.wunscharb.com/news/chinese-insurer-files-first-investmenttreaty-claim-icsid [7] This is six month before it has been 15 year in force. The Dutch BIT with South Africa entered into force on 1st May 1999 see: http://www.rijksoverheid.nl/onderwerpen/internationaalondernemen/documenten-en-publicaties/rapporten/2010/02/22/ibolandenlijst.html The BIT between South Africa and the Netherlands is not the only one which has these provisions, since these are part of the so called Dutch model BIT which can be found here: http://www.rijksoverheid.nl/onderwerpen/internationaalondernemen/documenten-en-publicaties/convenanten/2004/08/27/ibomodelovereenkomst.html