CONCERNS FOR SOUTH AFRICA AS AN EMERGING ECONOMY STATE RELATING TO STANDARDS OF TREATMENT OF FOREIGN INVESTORS AND INVESTMENTS – DENNIS SIBUYI

International trade and cross-border investments have seen the formation of custom unions such as the European Union (EU) and free trade agreements such as the North American Free Trade Agreement (NAFTA). Probably to match the competitive urge of the EU, the North American countries are attempting to extend NAFTA to most of South American countries by concluding a Free Trade Area of the Americas (FTAA). Similar patterns have been followed in other regions, for example, for the Southern African region there is the Southern African Development Community (SADC) and the Asian region the Association of Southeast Asian Nations (ASEAN) is in place. With the transformation of the centrally-planned economies of Eastern Europe countries, free trade agreement areas are likely to develop among Eastern Europe countries.

At the forefront of these hemispheric or regional trade and cross-border investments is the question of the standard of treatment of foreign investors and their investments. The parties to a free trade agreement have to adopt a standard of treatment for foreign investors and their investments to be followed and practiced by all parties to a particular free trade agreement. The controversy surrounding the standards of treatment, and the interpretation and application of these standards in practice has been a matter of international concern. The parties to free trade agreements are states with different economic, social and political backgrounds who find themselves obliged to adjust their foreign economic policies, and this may have an effect on the interpretation and application of the agreed standards of treatment by individual countries to a free trade agreement. Different views on the interpretation and application of these standards result in different treatment of foreign investors by different state parties which contrarily defeat the intended purpose of the set standards of treatment.

The problem is that, developed countries normally insist on setting the highest possible standards of treatment of foreign investors and investments. For example, under NAFTA, United States of America and Canada insisted on setting high standards of protection of foreign investors and investments despite Mexico’s protest against the set standards. The standards of treatment of foreign investors and investments set under NAFTA allow nationals and entities of a member state to institute legal actions against the host government. In addition, NAFTA allows the nationals and entities of a member state to bring an action against the host government in an international forum. This will normally put pressure on the host government to comply with the set standards because the nationals and entities of a member state are entitled to claim monetary damages from the host government.

South Africa as an emerging economy state that has recently entered the international community is bound to find itself at the centre of these hemispheric, regional and bilateral free trade agreements negotiations with the developed countries. For example, on 15 April 1994 South Africa signed the World Trade Organization’s General Agreement on Tariffs and Trade, and it is expected of South Africa today as a member of the WTO to open its markets and reduce trade barriers. In addition, South Africa has negotiated with the United States of America and EU governments regarding access to free trade areas.

South Africa cannot be an exception when dealing with foreign investors and investments. Currently, South Africa is faced with the similar problems regarding the drafting of standards for the treatment of foreign investors and investments. For South Africa, negotiation and drafting of the standards of treatment of foreign investors and investments at the international level should be informed by a clear understanding of country’s socio-economic policies and the prevailing political aspirations of the people of the country. It is often difficult to strike a balance between the host country’s socio-economic and political policies with the expectations of the foreign investors who normally guard jealously against their investments.

However, when drafting a standard for the treatment of foreign investors and investments, difficulties may not be entirely eliminated. Due considerations should be given to the impact of, and the practical application of, the set standard. The drafting of the standards for the treatment of foreign investors and investments have proved to be problematic to developing countries. For example, under NAFTA, Mexico complained on numerous occasions regarding its inability to comply with the set standards of treatment of foreign investors and investments. The problems faced with Mexico under NAFTA are reflective of the problems which are of concern to all developing countries intending to conclude free trade agreement with developed countries.

It is necessary for South Africa as a party to a free trade agreement whether at the regional or bilateral level to attempt to address these problems and to ensure that the free trade agreements entered into by itself are consistent with the socio-economic and political policies of the country. Failure to do so may lead to disregard of the agreed standards of treatment as agreed to by South Africa and thereby exposing itself to law suits in international forums by private foreign entities. One may only hope that South Africa’s expertise in negotiating and drafting of the standards of treatment of foreign investors and investments will be cultivated with time as South Africa gets more and more involved with negotiations at an international level.