The African Continental Free Trade (AfCFTA) agreement’s Protocol on Investment will help to regulate investment between partner countries. This key protocol will influence the ability of governments to state the types of jobs they envision when companies invest in their countries. But it could also cause them to lose the ability to promote social and environmental protections. Thus, trade unions must always advocate for governments to protect their policy development power.
Examples of investment provisions include; market opening; non-discrimination of foreign investors as compared to local firms; protection of investors; the right to establishment; Investor-State Dispute Settlement (ISDS) procedures; pre-establishment provisions; and expropriation rules.
Martin Myant, a researcher at the European Trade Union Institute, describes ISDS procedures thus:
“The exact terms of ISDS procedures differ between treaties, but the essential features are similar. Private foreign investors, but not domestic firms, can claim compensation from a State if its decisions are judged to have been commercially harmful to them.”
The Protocol on Investment is a balancing act for governments. The question to ask is, what are governments willing to do to attract foreign investment? Within the Investor State Dispute Settlement (ISDS) procedures, the reluctance by governments to enforce the necessary rules and regulations is particularly evident.
“One negative effect of such investment provisions concerns their preventive effect on policymaking, in that governments refrain from laws and regulations to promote local enterprises or that provide for financial stability or social and environmental protection, because there might be a dispute as a result.”
~ International Trade Union Confederation (ITUC).
ISDS procedures aimed to protect investors against arbitrary expropriation or nationalisation. But the unintended result was MNCs having too much power. By 2017, about 767 companies had successfully claimed under the ISDS provision in the various trade agreements, with the first case awarded in 1990. Through the provision, MNCs can demand substantial compensation based on estimating future income lost.
The ISDS mechanism is in more than 4,000 trade agreements across the globe. Of further concern is the tendency by governments to have a ‘regulatory chill’ even when they win cases, as Myant notes. The governments after signing investment treaties refrain from introducing new regulatory measures to avoid confrontations with the MNCs.
Countries such as South Africa, Australia, Ecuador, Bolivia, Venezuela and Indonesia have refused to sign agreements with ISDS clauses or cancelled existing agreements when they can. South Africa, Namibia and Tanzania have adopted national investment and related laws omitting or limiting ISDS provisions. Within the AfCFTA, some member states have already raised concerns regarding the inclusion of traditional ISDS mechanisms. The main concerns are “…the independence of arbitrators, the consistency of decision-making and the duration and costs of cases.”
Also worth noting is that the existing Regional Economic Communities (RECs) have their own ISDS approaches:
“For example, the SADC Finance and Investment Protocol and ECOWAS Supplementary Investment Act do not grant ISDS procedures but rather make provision for investors to use local remedies. The COMESA Common Investment Agreement incorporates ISDS arbitration through the COMESA Court of Justice, African arbitration tribunals, as well as ICSID and UNCITRAL arbitral tribunals.”
~ Dr Talkmore Chidede, Tralac
Different countries subscribe to different ISDS approaches. Further research would be needed to determine the appropriateness of the approaches within the AfCFTA.
Trade unions should approach the Protocol on Investment with much care and seriousness. Of significance in the Protocol are the following:
- Foreign companies should not get more favourable treatment than local companies.
- Foreign companies should not be exempt from certain labour, fiscal or other legislation.
- The investment provisions should not restrict government regulation.
- The investment provisions should not prevent governments from prioritising local firms or requiring the use of local input.
- The investment provisions should not impose any obligation of “right of establishment” that requires countries to accept any foreign investment, regardless of its consequences.
Governments have a very determining role to play in the Protocol and need to have clear and transparent policies on the following:
- The type of investment they want to attract.
- How decent jobs will be created, social protection provided, and social dialogue promoted (restrictions can be placed on the hiring of foreign personnel etc.).
- How to distribute the benefits derived from investments.
Unions should particularly guard against the establishment of ISDS procedures that provide MNCs with too much power to assist in safeguarding the ability of governments to develop social and environmental policies without fear of prosecution by MNCs.
The negative consequences of ISDS procedures are indirect and easy to miss. Trade unions should note the following:
- Countries can refuse to have any ISDS provisions proposed to be included in the AfCFTA.
- AfCFTA member states have already raised concerns regarding the inclusion of traditional ISDS mechanisms. These must be furthered and emphasised.
- If foreign investors or investors from outside a particular country have the right to use dispute settlement mechanisms against a government when their interests are threatened, then workers and their representatives should have access to the same.