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Dutch unfazed by SA’s cancelled trade treaty

Business Day | 17 July 2014

Dutch unfazed by SA’s cancelled trade treaty

by Mark Allix

SOUTH Africa’s unilateral cancellation of its bilateral investment treaty with the Netherlands, a major trade and investment partner, does not appear to have dampened the Dutch appetite for investment in the country.

Representatives of 50 Dutch companies jetted into Johannesburg and Cape Town earlier this month, led by their country’s Foreign Trade and Development Co-operation Minister, Lilianne Ploumen.

The Dutch are keen to show South Africans their capacity in agrifoods, horticulture, renewable energy, life sciences, health, and the creative, transport and logistics industries.

A deal was struck during the visit, leading to the creation of Mazars Berenschot SA. This combines local global tax, legal and audit services with a Netherlands-based management consultancy. The entity will advise mainly on the water, energy, healthcare and transport sectors in South Africa and elsewhere in Africa.

Ms Ploumen says South Africa is the main Dutch business partner in Africa, and is also regarded as the "gateway" to the continent.

Despite the cancellation of the treaty, South Africa imported R16bn worth of Dutch goods last year, while exporting R30bn in goods to its former trading partner.

About 350 Dutch firms in South Africa employ about 10,000 people.

South Africa remains intent on unilaterally cancelling bilateral investment treaties — designed to protect foreign investors — with a dozen other European Union (EU) states. The 28-member bloc is by far South Africa’s largest trade and investment partner, with annual bilateral trade worth more than R400bn. Existing investments with former EU partners will remain protected for periods of between 15 and 20 years.

In their stead, South Africa is proffering the Promotion and Protection of Investment Bill, aimed at aligning the trade policy investment framework with the government’s other policy objectives.

The bilateral treaties had been used to take South Africa to international arbitration to challenge black economic empowerment provisions in the mining sector. Foreign firms will in the future have to rely on South Africa’s constitution for compensation claims, but this also means foreign investors no longer have recourse to international arbitration as laid down by World Bank regulations in the event of expropriation.

Ms Ploumen says the protection of investments is high on the global agenda. "As a key investor, we would like to see good balance between the sovereignty of South Africa and its people and the protection of our investors."

The government is adamant that the new bill will provide a legal framework for investments and protect all investors in line with the constitution. But critics say it contains diminished investment protection for foreign investors, not least by removing recourse to global arbitration.

"There is no international law issue here; South Africa is perfectly entitled to allow its bilateral investment treaties to expire and not replace them. The real issue is what impact this will have on investor perceptions as well as ultimately investment decisions," says Peter Leon, partner and head of the mining regulatory group at Webber Wentzel.

"I do not think this sends a positive message to EU investors at a difficult time for the South African economy, which is already struggling with twin fiscal and current account deficits, sovereign ratings downgrades and ongoing labour unrest."

South Africa is also finalising negotiations — along with other Southern African states — for an economic partnership agreement with the EU, aimed at reciprocal trade between the two regions. Issues still unresolved include which countries will enjoy duty-free and quota-free access for their goods in EU markets, relative to their perceived developmental status — among them least-developed countries, low-income states and upper middle-income nations.

Department of Trade and Industry deputy director-general of international trade and economic development Xavier Carim says that Ms Ploumen had a "cordial" meeting this month with Trade and Industry Minister Rob Davies.

"Minister Davies confirmed that the EPA (economic partnership agreement) negotiations are very close to conclusion, with a few, relatively minor technical issues that still need to be settled," says Mr Carim.

He also says that Mr Davies indicates that while South Africa supports work being done by the World Trade Organisation on trade facilitation, many African countries will still require financial support to fulfil their legal obligations.

 source: BD