towards a model investment contract making agricultural investment work for africa, 4-5 october...
TRANSCRIPT
Towards a Model Investment Contract
Making Agricultural Investment Work for Africa, 4-5 October 2012, Cotonou, Benin
Henrique Suzy Nikiema and Carin Smaller, IISD
Agenda• Introduction:
• Contracts in context: The relationship between the sources of applicable law
• The problematique in a “pyramid”
• Good contracts: The scope of issues
• Implications and recommendations
Introduction• Move towards comprehensive national laws that will
make investment contracts unnecessary• IISD not trying to promote investment contracts or
bad investments• BUT… facing reality:
Frequent use of contracts in developing countries 2000-2009: 1,217 projects covering 83 million ha of land
• Scope of the study: 60 investment contracts, including 58 from Africa (most are problematic)
• IISD objective: Improve the quality of contracts
Three Relevant Sources of Law
• Domestic law of host state
• Investment contract
• Investment treaty
Domestic law
• Laws, regulations, constitutions• Common law/civil law/tribal and
community custom/Islamic law• Enforced in domestic courts or
other proceedings
Investment Contracts• State owns farmland in most developing
countries, although some important exceptions, including in West Africa
• Investment contract is therefore an international contract between the government and the foreign investors, not a private contract
• Can be governed by law of host state or by law of another state or by international law
• Often has international arbitration provision now
• Frequent use of stabilization provisions
Stabilization Provisions–Def’n: a provision that freezes all or part of the domestic laws for the duration of the contract–Consequences: changes to existing laws or introduction of new laws is either forbidden or investor must be compensated for any additional costsTwo types: –Fiscal issues: only fiscal laws are frozen (e.g. taxes and royalties). Often tolerated! –General issues: Any law that effects the investment is frozen (Environmental, worker health and safety, human health, etc…). Unacceptable!
Investment Treaties• Over 2700 exist today• Characteristic: treaty signed by two or
more States…but the direct beneficiaries are foreign investors
• Typical provisions:• Non-discrimination (national treatment and
most-favoured nation treatment)• Expropriation• Fair and equitable treatment• Investment liberalization (performance
requirement prohibitions• Investor-State arbitration
The Problematique: Treaties and Contracts can prevail
• Domestic law is generally not comprehensive in this field in developing countries– Land rights; water rights; environmental; health
and safety; labour rights; indigenous rights; investment rights, incentives, taxation; community rights and benefits; food and water security policies
• Therefore, both treaties and contracts can:– Guarantee right to all resources necessary to
fulfill investment goals– Restrict scope of changes that can be made to
domestic law applicable to the investment
GOOD CONTRACTS
PRINCIPLES:• Use global and regional initiatives as a
benchmark• Must relate to all issues• Must be inclusive of all actors in process• Must interact carefully with domestic law in host
State; set floors, not ceilings for obligations• Example: Model Mining Development
Agreement, International Bar Association, Mining Law Committee, April 2011 (www.mmdaproject.org)
Good Contracts
SCOPE:• Pre-contractual/pre-operational
obligations of investors– Impact assessments (resulting conditions
form part of contract)• Environmental impacts and management plan• Social impact • Human rights impact
– Business feasibility study and plan– Community agreement (free, prior and
informed consent)
Good ContractsSCOPE:• Land tenure
– Identification of land, time period– Purchase or lease rates– Payments to
landholders/users/communities– Does not extend to subsurface rights to
minerals, petroleum, gas, etc.
• Taxation and other fiscal provisions
Good ContractsSCOPE:• Common obligations
– Anti-corruption– Transparency of contracts and payments– Limitations on rights to export foods
during shortages – Possible requirements for constant sale of
local production in host State
Good ContractsSCOPE:• Water rights for investor
– Domestic water laws versus investment treaties and contracts
– Periodic reviews of water rights and allocations, including obligation to reduce water use
– Water fees and levies– No stabilization provision for water laws
and regulations
Good ContractsSCOPE:• Economic and social obligations of
investor– Transform principles to specific obligations;
legally binding and annual reporting– Minimum levels of local employment and
skills training– Local economic linkages: goods and services
suppliers, value-added industries– Technology transfer– Contribution to local community– Gender and indigenous peoples issues
Good Contracts
IMPLEMENTATION:– Capacity building for negotiations– Evaluation and monitoring needs– Community engagement and review– Transparency of contracts and annual
reporting
Implications/Recommendations
1. Not every situation can create a win-win; not every investment is a good investment
2. Good investment contracts for development in developing countries must reflect all issues and actors, not just private law tenure objectives of investors
3. Achieving development benefits happens by design, not by accident:
The design MUST be in the contracts and domestic law
Helpful resources
• IISD, Model Investment Treaty• UN Special Representative, Principles for Responsible Contracts• International Bar Association, Model Mining Development
Agreement• For contracts: Liberia, Grain• For treaties: UNCTAD
BUT…no perfect model or blueprint—depends on domestic context, laws and regulations