The SADC MODEL BIT Template: Investment for Sustainable Development

The Southern African Development Community (SADC) Model Bilateral
Investment Treaty Template and Commentary was completed in June 2012 by Member States of the Community.[1] Its completion marks the end of an 18 month process of consultations and drafting among government representatives and is intended as a guide for member states in future investment treaty negotiations.

In undertaking this process, the SADC Member States completed the challenge of drafting a new model for bilateral investment treaties for regional governments to use and adapt according to their needs. By making the documents public, they have also decided to make the template a tool available for other African and non-African governments alike to consider as what UNCTAD calls a “new generation” of investment policies begins to take root.[2]

The template fits squarely in this next generation model. Whereas other contemporaneous documents provide guidance in the form of analysis and general recommendations, the SADC template provides guidance in the form of specific textual language along with a commentary explaining the choices made.

This brief note discusses the orientation of the template, the drafting process, the key features, and some brief conclusions.

Orientation

The preamble reflects the orientation of the template: to relate FDI to sustainable development through the fuller text of the model. This is further seen in the Objectives, Article 1: The Main objective of this Agreement is to encourage and increase investments … that support the sustainable development of each Party, and in particular the Host State where an investment is to be located.

This orientation is maintained throughout the text and was used as a benchmark when examining other draft provisions for the text. It was thus not simply a question of inserting the words sustainable development, but also of seeking throughout the process what this meant in practical terms for drafting various articles.  The result is a concrete draft text for an investment treaty that incorporates sustainable development thinking from the beginning to the end of the text.

The drafting process

The drafting process began with a meeting of Member States in April 2011 that concluded with a recommendation to develop the model BIT template. Two drafting committee meetings were held in 2011 and 2012, with a total of nine member states participating.[3] Drafts were routinely circulated to all member states for review and comments.

The process was therefore inclusive and transparent, facilitated but not run by the SADC secretariat. This is further evidenced in the fact that in some instances differences of view maintained by the Member States were reflected in the final text, by the inclusion of options with commentary for each option. In other words, where there was consensus, this is clear in a single option being put forward. Where the differences remained, this was reflected in the final text. The recommended draft articles as well as the commentary were all equally subject to full review in the drafting committee meetings.

At the same time, it was recognized in the process that the model template is not a legally binding document for Member States, but a guide and tool to be used and adapted as needed. This allowed a comprehensive approach to be articulated that Member States (or indeed other governments) can draw upon in whole or in part, depending on individual needs in a negotiation. This approach also meant that each Member State did not have to endorse every draft article in order for the text to be completed.

Key features

The template is divided into six parts:

1. Common provisions
2. Investor rights post-establishment
3. Rights and Obligations of investors and State Parties
4. General provisions
5. Dispute settlement
6. Final provisions

Within these parts, key issues are fully developed.  For example, the issues relating to the establishment of investments are dealt with in Part 1, where a position against the inclusion of investment liberalization provisions is taken. This is then related to the rejection of a provision prohibiting performance requirements by host states. In place of such a provision, the text actually makes it clear that any performance requirements imposed or undertaken by a foreign investor or its investment shall not be considered a breach of the Agreement as long as this was done before the investment was authorized and acted upon by the investor. Requirements imposed afterwards are subject to the other provisions of the model.

Part 2 itemizes the standard list of investor protections. Special attention is paid to the issue of fair and equitable treatment (Art. 5), which continues to grow in controversy among developing countries. Here, a recommendation is made to avoid such a provision. A narrowly constructed version of a fair and equitable treatment clause is provided as an alternative option. In addition, however, the template sets out an entirely different approach based on the recognition of administrative law approaches to fair administrative treatment and due process of law instead of the international law language of fair and equitable treatment. The intent here is to begin to construct an alternative to the continuously controversial and enduringly unclear FET provisions, which is based more clearly on known and less vague standards.

As an example of how sustainable development approaches are reflected in different parts of the template, one can look at the right of investors to engage foreign personnel. This right is made clear, but is also subject to a requirement to balance this with domestic programs to train local employees wherever feasible. This reflects the development goals associated with FDI of skills development and transfer as well as higher value-added employment.

The obligations of investors in Part 3 include anti-corruption, compliance with domestic law, environmental assessment and management, human rights, social and economic development issues, corporate governance, and so on. The question of enforcement of these obligations is addressed in three ways:

1. The obligations can be made part of domestic law if they are not already so, and therefore enforced through domestic courts.
2. Depending on the specific obligations, a breach may vitiate the jurisdiction of an investor-state tribunal if one is established (for example a breach of the anti-corruption obligation) or enable a state to take counterclaims for breaches related to the conduct of the investor.
3. The template calls for the investor to accept the possibility of civil liability in its home state for decisions and acts taken by the investor that impact the conduct of the investment and may lead to damage in the host state. This is not a standard of liability, but simply a requirement to wave the use of such doctrines as forum non conveniens in order to allow such a case to be heard on the merits in the home state.

Part 3 also address the state right to regulate and the right to pursue development goals, thus balancing the investor rights expressly with the state rights commonly recognized by international law.

Part 3 also follows the growth of the Extractive Industries Transparency Initiative (EITI) by calling for transparency in contracts and revenues flows between the government and investor. This is seen as an increasingly important element in avoiding corruption and promoting more sustainable conduct and relationships.

Part 5 on dispute settlement again reflects the growing concern among developing countries over the growth of the investor-state arbitration industry. It recommends against the inclusion of investor-state arbitration in future treaties, and ties this to a limited MFN provision that, if included, ensures against future tribunals importing investor-state rights through the MFN provision.

However, the text also recognizes that some states may nonetheless choose to include investor-state arbitration for different reasons. Thus, it builds a carefully constructed process that circumscribes investor-state arbitration rights to alleged breaches of the treaty and not other permits or authorizations, as set out in the United States’ model BIT of 2012. It also expressly recommends against the inclusion of an umbrella clause and the transfer through this provision of domestic law issues into international law issues. And finally it recommends the inclusion of a provision that requires treaty arbitration tribunals to recognize and give primacy to dispute settlement mechanisms identified in any investment contracts for any matters related to the alleged breach of such contracts, even if restated as a breach of the treaty. An exhaustion of local remedies rule is also put in place, subject to a tribunal being able to assess whether the claims relating to the underlying measure can be addressed in a domestic court.

Finally the template calls for full transparency in investor-state processes if one is included.

In sum, the template rejects the old style approach of 8 page treaties popular in the 1990s and into the 2000s. It puts in place a comprehensive approach that reflects the relationship between investment and sustainable development, and allocates rights and obligations in accordance with this relationship.

The template also rejects the view that because something was done before it must be done the same way again. Hence, for example, investor-state, investment liberalization, the promotion of social and economic development, investor liability, FET, MFN, all get new or different treatment, or are recommended against.  The template thus demonstrates a new approach not just in principle, but through concrete language and recommendations that are clearly set out.

Conclusions

The template is not without its limitations. For example, not every issue is fully ‘resolved’. Indeed, seeking to do so was beyond the mandate of the drafting committee. And it is not drafted as nor intended to be a legally binding document on Member States. Still, it is a tool that provides a coherent option to SADC Member States in any future negotiations, and by extension to other governments who wish to access the template and assess its value as a guide in their own contexts.

Author: Howard Mann is the Senior International Law Advisor to IISD. He acted as a consultant to the SADC Secretariat and Member States on this project.