South Africa Plans To Terminate And Renegotiate Treaties That Include Corporate Sovereignty

from the fair's-fair dept

Despite the growing evidence that corporate sovereignty clauses in international treaties pose considerable risks to nations that sign them, such "investor-state dispute settlement" (ISDS) mechanisms are present in both TPP and TAFTA/TTIP -- at least as far as we know: it's hard to be sure given the obsessive secrecy surrounding them.
South Africa has experienced first hand the reality of those bland-sounding systems and the behind-closed-doors tribunals that implement them. Here's what happened when it set about transforming the country after apartheid, as this column on the South African Independent Online site explains:

One would assume that no nation state would have the audacity to file such a [ISDS] claim against a post-apartheid country that has been widely held up as a model for the world. That, however, didn't stop European firms from filing claims under their bilateral investment treaties. Worse, they went right at the core of South Africa's post-apartheid transformation plan.

The reason the country was taken to these private tribunals was an attempt to shoot down South Africa's policy to seek greater equality in its lucrative mining sector. South Africa had required that these companies be partly owned by "historically disadvantaged persons".

Allowing external investors to dictate its social policies was unacceptable, and South Africa decided to review its other investment agreements to see if there were dangers there too. The problem turned out to be systemic:

Bilateral investment treaties, the review found, "pose risks and limitations on the ability of the government to pursue its constitutional-based transformation agenda".

Since this review South Africa has further concluded that "bilateral investment treaties were now outdated and posed growing risks to policymaking in the public interest". On that basis, the government has recently moved to terminate many of its bilateral investment treaties.

The dogma is that without such bilateral treaties and their guarantees of corporate sovereignty, external investors would be reluctant to invest in a country. But that turns out not to be true:

South Africa actually receives far more capital inflows from nations with which it does not have bilateral investment treaties than from nations with which it has a treaty. Therefore, renegotiating them should not cause capital flight.

Freed from the necessity to accept whatever terms other countries might seek to impose on it, South Africa is now able to renegotiate bilateral agreements that are fair and that preserve its right to pass laws as it sees fit, unconstrained by legal threats from foreign investors. The Independent Online article points out:

South Africa's efforts should not be seen in isolation. India is also undergoing a national review of its bilateral investment treaties. A group of 12 Latin American nations has recently convened to rethink the benefits of bilateral investment treaties, and the subject is under discussion at the [African Union].

Brazil, a country that did its homework ahead of time and does not negotiate bilateral investment treaties, is putting forth an alternative model for negotiating treaties that may serve as a template for others.

Over the next several years, we will thus see an increasing number of nation states withdrawing from their investment treaties and offering more balanced alternatives.

If that proves to be the case, it could be that those countries signing up for one-sided and inequitable ISDS clauses in TPP and TAFTA/TTIP will come to regret not choosing to preserve their sovereignty as South Africa has done.