In a possible further blow to investor confidence in South Africa, the South African government expressed its intention to terminate its bilateral investment treaty (BIT) with the Belgo-Luxembourg Economic Union on 7 September 2012.¹

In accordance with the notice, the BIT will terminate when its ten-year term expires on 13 March 2013. The South African government also announced its intention to not renew twelve other BITs it previously entered into with other European Union (EU) member states.

Under the BITs, existing investments enjoy a ten-year sunset period of protection, but any investments made after the date of termination will not receive any of the investor protections afforded by the BITs.

BITs defined

BITs are binding international treaties between two states under which each state undertakes certain reciprocal obligations in respect of any investments made by nationals of the other state within its territory. These treaties generally oblige each state party to accord fair, equitable and non-discriminatory treatment to investments of nationals of the other state.

Review of BITs

The decision to cease the renewal of the BITs between South Africa and EU member states is pursuant to the BIT policy framework review conducted by the Department of Trade and Industry (DTI) in June 2009 (the review).

The DTI concluded in the review that South Africa's BITs extend too far into the policy sphere, as the first generation of BITs, which the government entered into post-1994, were allegedly skewed towards investors. First-generation BITs apparently did not contain the necessary safeguards to preserve flexibility in a number of critical policy areas.

The DTI further observed in the review that BITs sometimes allowed the legal and business community to challenge regulatory changes, which the government considered to be in the public interest. The DTI accordingly recommended restructuring South Africa's BITs to ensure that the treaties are harmonious with the country’s broader social and economic priorities.

On 26 July 2012 these concerns were reiterated by Minister of Trade and Industry, Rob Davies, at a United Nations Conference on Trade and Development (UNCTAD) event in Johannesburg. Dr Davies observed that the first-generation of BITs "pose a risk and limitation on the ability of the Government to pursue its Constitutional-based transformation agenda".

According to the Minister, the Cabinet endorsed the review's recommendations in April 2010 and decided to refrain from entering into any new BITs except in cases of "compelling economic and political circumstances". The government also undertook to review all first-generation BITs that are approaching their expiry date "with a view to termination, and possible renegotiation on the basis of a new Model BIT to be developed".

Dr Davies suggested that domestic legislation might replace BITs to appropriately balance investor protection with other public interest goals, including the promotion of development and historical redress. He was critical of international arbitration, which he considered unpredictable; implying that it impeded further governmental intervention in the economy.