The Investment Treaty Regime and Public Interest Regulation in Africa

I. INTRODUCTION

Investment protection is an essential aspect of international law and a crucial requirement for attracting foreign direct investment (FDI). Potential investors may be hesitant to invest in a foreign market without adequate investment protection due to concerns about risks and uncertainties. African States have signed several bilateral investment treaties (BITs) or international investment agreements (IIAs) to attract FDI and improve their respective economies.² The prospect of economic prosperity and catalytic resource optimization underlay treaty-based investment protection. However, a policy debate has arisen on the continued benefits of the investment protection, given its implications on the State’s regulatory autonomy and development strategies. African States are concerned about the policy considerations shaping the contours of investor-State dispute settlement (ISDS), given that the framework allows investors to sidestep domestic courts and lodge claims against host governments directly with international arbitration tribunals. The concern is that ISDS elevates investors’ rights over those of sovereign governments by utilizing the private justice system to challenge vital and legitimate policy measures affecting the public interest, public health and the environment.

While these concerns have triggered a hot-button debate, little or no attention has been paid to the procedural and substantive constitutional standards underpinning public interest protection in international economic relations. The pertinent question, therefore, is whether the States can contract out of these constitutional requirements or other obligations under customary international law, international human rights treaties or international environment treaties. The Investment Treaty Regime and Public Interest Regulation in Africa, written by Dr Dominic Dagbanja,³ answers this critical question by contextualizing the problematic intersection between international investment law and regulatory sovereignty from an African perspective.

II. OBJECTIVES AND CONTEXT

The book adopts a thematic approach in analysing the fundamental obligations of States under the constitution and international law concerning public interest areas, including human rights, the right to development and the right to a safe environment, and how these obligations affect the States’ treaty-making powers. Using Cameroon, Egypt, Kenya, Nigeria and South Africa as case studies for other countries in the five regional groupings in Africa, Dr Dagbanja notes that the mandatory nature of the constitutional obligations in these countries makes them overriding considerations in all actions and decisions of government—including when concluding BITs and IIAs.⁴ As rightly noted, ‘[a]cademics have made various proposals as to how states can recapture or retain regulatory autonomy in international investment law’;⁵ However, the book’s unique contribution is its focus on the intersection of national constitutions and international investment law in Africa—identifying the conflict that may arise within the normative order and analysing the constitutional implications of investment obligations that undermine the State’s regulatory autonomy and its public interest obligations. The book fills the gap in current literature. First, it develops an interesting but important debate on the tension between neocolonialism and constitutionalism in the context of international investment law. Second, it provides a refreshing perspective on the appropriate interpretive method for BITs and IIAs—by attributing normative priority to the constitutional and general international law protection of public interest regarding disputes in Africa, given that the source of treaty making power emanates from the constitution. Laced with an Africanization approach,⁶ the book develops the ‘public interest prioritization principle’ and the ‘imperatives theory’ in international economic relations. These are explored in detail in the following sections.

III. ORGANIZATION AND THE MAIN ARGUMENTS

The book comprises six chapters—an introductory chapter, four substantive chapters and a concluding chapter—carefully designed around meticulously selected topics. The substantive chapters, in the main, question the legitimacy and efficacy of ISDS through arbitration fora, arguing that the:

“constitutional norms and customary international law rules on exhaustion of local remedies should prevent African states from entering into ISDS or require African states to agree to ISDS mechanisms that respect constitutional norms and preserve their autonomy to regulate in the public interest. In effect, the continued use of ISDS by arbitration must be informed by the constitutional position of each African state and relevant rules of customary international law.”⁷

The book further questions States’ competence to agree to a mechanism that enables foreign investors and international tribunals to override domestic courts—in breach of the State’s constitutional provisions.⁸

The first chapter sets the scene for the book, arguing that the decolonization of the African States and categorization of the former colonial powers as ‘capital exporting’ countries assume that the former colonies that receive the investment are not exporting countries, thereby threatening the essential nature of BITs or IIAs as the catalyst for reciprocal investment protection. Dr Dagbanja questions the efficaciousness of the standards of protection for foreign investors in the BITs signed by African States. Starting with fair and equitable treatment (FET), he argues that ‘founding FET obligation on an investor’s expectation of a stable and predictable legal environment is neither justifiable nor reasonable’.⁹ He notes that articulating the concept of legitimate expectation, which is often used as the basis to challenge the government’s lawmaking powers, is at variance with the inherent right of the government to amend or update laws for the public interest. On the national treatment standard, he notes the obligation’s chilling effect on laws and policies designed by the government to address specific situations of domestic businesses or to facilitate the growth of local companies so that they can compete with foreign investors.¹⁰ He argues that the national treatment standard constrains the government’s powers to implement such laws or measures—which ‘places extra regulatory and resource burdens on states by expanding their role towards citizen to include foreign investors’—thereby conferring citizenship benefits on investors without formal acquisition of citizenship under domestic laws.¹¹ On most-favoured-nation (MFN) treatment, Dr Dagbanja underlines how the MFN provisions can widen the host State’s obligations to the investors. He explains that the MFN provisions can be counterproductive—by defeating the very purpose for which a State did not agree to a particular substantive obligation with a treaty partner. Aside from the substantive standards of investment protection, most BITs and IIAs also provide dispute resolution mechanisms. Dr Dagbanja argues that the principal objective of the substantive standards and the dispute resolution mechanism is to ‘accommodate the interests of foreign investors and covered investments by restricting governmental regulation and action that will adversely affect the value of the investment’.¹² He describes such investment protection as damaging the State’s public interest obligations.

In providing a theoretical ballast for its public interest prioritization principle, the book, in chapter 2, introduces the imperatives theory—drawing from established theories on constituent power, constitutionalism and the role of the State. Using provisions contained in the constitutions of the selected African countries as the framework for his analysis, Dr Dagbanja notes that a conflict exists between investment treaty norms and the State’s public interest obligations. He argues that an analysis of the conflict of legal norms and interests in international investment law must start with examining the limits to the legal obligations that States can assume under investment treaties—the imperatives theory is then used as a framework for resolving this conflict. The imperatives theory is described as ‘theoretical implications based on constitutional analysis on how to address the challenge international investment law poses to regulatory autonomy’.¹³ The book questions the efficacy of State-specific defences and justifications in investment treaty arbitration,¹⁴ arguing that the ‘defences do not provide realistic, tangible and easily measurable standards on which States can safely rely to assert their policy space and regulatory autonomy’. Two arguments were proffered for the suitability of the imperatives theory over State-specific defences and justifications. First, the primary obligation of the States under the respective constitutions is to prioritize the interest of their citizens in all government decisions and actions—including when entering into investment treaties. Second, given that States enter into BITs to attract investments and advance development objectives, it should follow that where the terms of such treaties will undermine development objectives, they should not be agreed upon. Central to this analysis is whether matters of international concern relating to the environment or human rights are jus cogens principles, which trumps the rights of foreign investors under investment treaties. In answering this question, Dr Dagbanja concludes that ‘unless in concluding investment treaties African States are restrained by the very legal norms which justify public interest regulation, and which States rely on as legal justification for challenged measures in investment arbitration, regulatory autonomy cannot be effectively recaptured or retained’.¹⁵

The author further explores in chapters 3, 4 and 5 how ISDS can affect the exercise of the judicial authority of the courts in Africa; how BITs restrict the adoption of measures aimed at protecting the environment and human rights in Africa; the constitutional right to development and the potential effects of BITs for development policymaking and implementation in Africa. Dr Dagbanja notes that businesses (including foreign investors) in the mining industry have contributed to environmental damage in Ghana, Nigeria and South Africa, thereby threatening people’s right to food, health and well-being.¹⁶ In these circumstances, African States have constitutional and general international law obligations to act to protect human rights and the environment. Accordingly, the substantive obligations in existing treaties to protect foreign investment must be interpreted and enforced to account for that development objective and the legal duties of African States to make and implement development policies. Dr Dagbanja concludes that foreign investors must take risks inherent in government regulation and not seek to operate free from and untouched by the challenges, difficulties, realities and consequences of undertaking business in a foreign country.¹⁷

Chapter 6 of the book serves as its conclusion and provides three scenarios of how to reconcile the standards of investment protection with the obligations of African States towards the public: (i) the framework for making future treaties, (ii) the renegotiation of existing treaties and (iii) the interpretation of current treaties that remain unchanged.¹⁸ On the framework for making future treaties, the author, first, proposes that investment should only be entitled to coverage and protection under an investment treaty where it has made a tangible contribution to the development in one of the ways identified in African constitutions and as defined by the parties to the investment treaty. Second, the author argues that indirect expropriation must be abandoned completely—given that the only recognizable basis for compensation under African countries’ constitutions is for compulsory possession or acquisition of property by law, which applies only to direct expropriation. This is so because of the legitimate expectation of the States to exercise their freedom to regulate and that foreign investors will not seek to profit from exercising that freedom when it adversely affects the value of their investments.¹⁹ Third, the author examines the proprietary features of national and MFN treatment and argues against their inclusion in future investment treaties in Africa. On national treatment, the author notes that African States should be able to initiate and implement measures solely in the interests of citizens without having to incur treaty liability.²⁰ The argument against MFN is that there may be a special public interest reason why particular treatment may have to be accorded to investors of a contracting State instead of another.²¹ Thus, African States should not be burdened with the additional responsibility to extend such special treatment to the third State investors if it does not serve the public interest to do so. Fourth, the author argues that the continued use of the FET standard should be conditional on limiting its scope and defining the contours of its application to preserve regulatory autonomy.²² Accordingly, the investors’ legitimate expectations under the FET standard will inevitably be subject to the States’ public interest objective, so not every change in law will be considered a frustration of investors’ legitimate expectation. Lastly, the author argues against the inclusion of ISDS in future African investment treaties—noting that African States should require the use of national courts to resolve investment disputes or develop alternative inter-State mechanisms that have greater legitimacy, and are accountable for the effective protection of public and private interests.²³ He further notes that a State–State dispute settlement body should work for investment disputes as it does, for instance, with trade disputes in the case of World Trade Organization dispute settlement and appellate bodies.²⁴

The renegotiation of BITs has been a subject of debate in the ongoing reform of international investment law. The author argues in support of renegotiation—noting that the starting point for African States to renegotiate is the 2016 Draft Pan African Investment Code (PAIC). PAIC aims to ‘promote, facilitate and protect investments that foster the sustainable development of each Member State’.²⁵ Notably, PAIC abandons the FET and Full Protection and Security standards and limits the application of MFN, national treatment, expropriation, transfer of investment and returns and performance requirements. The author argues that the ‘revolutionary’ provisions of PAIC present a good starting point for future improvements in Africa’s investment treaty policy framework.²⁶

Lastly, on the interpretation of existing investment treaties, the author argues that the treaty interpretation must align with the African States’ public interest obligations and the specific legal justification for exercising the right to regulate in the public interest. The author notes that ISDS tribunals must give normative priority to public interest obligations of the States where the regulatory power is justified under the constitutions and general international law.²⁷

IV. REFLECTIONS AND CONCLUSION

Dr Dagbanja’s book Investment Treaty Regime and Public Interest Regulation in Africa is intellectually stimulating and necessary for every international investment practitioner, particularly those focusing on Africa. Its offering will be invaluable and serve as an informative tool for African and non-African State officials when drafting and negotiating investment treaties involving African States. While some of the recommendations may appear to be far-reaching, they represent the policy position espoused by African governments in draft investment instruments such as the PAIC and regional investment instruments such as the Southern African Development Community Protocol on Finance and Investment, as amended in 2017. For example, these instruments promote the complete abandonment of the FET standard due to (i) the overly broad meaning that tribunals have given to the FET standard—which flows into the controversial debate on whether the FET standard is independent of customary international law minimum standard of treatment or a mere reflection of it; (ii) the perceived unpredictability of the FET standard based on the decision of tribunals; and (iii) the FET standard holding the most risk for States to be found to have violated a treaty, as well as being the most frequently invoked standard of investment protection.

Dr Dangbaja’s golden buzzer and novel contribution to the investment law reform discussion is the development of the debate on the tension between neocolonialism and constitutionalism—rooted in constitutional–general international law imperatives. The theoretical framework provides an innovative evaluation of the often neglected basis for States’ regulatory autonomy and the constitutional limits of prioritizing public interest in international economic relations.

That said, the book does not explain how the constitutional-general international law imperatives apply to intra-African BITs and IIAs – given that the recent intra-African investment agreements retained some of the standards of protection that the author argued against. For example, the Nigeria-Morocco BIT,²⁸ includes the FET standard and ISDS provisions. The possible response to this concern will be that given the Investment Protocol to the African Continental Free Trade Area Agreement, which the Assembly of Heads of States adopted in February 2023, all intra-African BITs between state parties would be terminated after five years from the entry into force of the Protocol. It remains to be seen how the complex legal and policy questions arising from sunset clauses and implementation of the Protocol would be resolved. Rather than abandoning the standards of protection, including MFN, FET, and ISDS as suggested by the author, the correct approach is to find the appropriate balance to address the conflict between investors’ legitimate expectations and the State’s right to determine its own legal and economic order. The Nigeria-Morocco BIT, while protecting foreign investments, imposes human rights and environmental obligations on investors and imbues the contracting States with the power to introduce new policy measures by applying their regulatory sovereignty to meet the national policy objectives.²⁹ There are also investment arbitration tribunals that have recognized the states’ regulatory powers. For example, the Chemtura v Canada³⁰ and Philip Morris v Uruguay³¹ tribunals gave significant deference to Canada and Uruguay’s decisions to adopt environmental and public health measures considered permissible within their regulatory powers.

Other recent initiatives have focused on investment law reform in Africa and provided a balance between investors’ legitimate expectations and the State’s regulatory autonomy. For example, the Africa Arbitration Academy Model Bilateral Investment Treaty for African States 2022 (AAA Model BIT)³² uniquely balances the relationship between investment promotion and sustainable development. The AAA Model BIT has three essential flavours—Africanization, innovative reforms and sustainability. The model agreement is substantially oriented towards an African approach, and incorporates African principles such as the Ubuntu Zulu principle, referring to the importance of human dignity and equality. It prioritizes provisions on sustainability and acknowledges the importance of sustainable investment for Africa. The Model BIT contains modern provisions on dispute prevention, the right to regulate, the balance of the rights and obligations of States and investors, and unique principles and requirements on ISDS.

Dr Dagbanja’s book displays depth, learning and scholarship. Its value lies both in the depth of its intellectual wealth and in the equilibrium it achieves between legal theory and the practical realities of the workings of constitutional imperatives in international economic relations.

Footnotes

Author notes