How do we protect bilateral investments going forward?
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SubscribeOn December 22, 2023, the remaining 10-year period of the Agreement for the Promotion and Reciprocal Protection of Investments between the Kingdom of Spain and the Republic of South Africa (the "BIT") came to an end.
The BIT was signed on September 30, 1998, and entered into force on December 23, 1999 (BOE nº 26, January 31, 2000). South Africa unilaterally decided to withdraw from the BIT by exercising its right to do so under Article XII.2 of the BIT, with the withdrawal entering into force on December 22, 2013 (BOE nº 41, February 17, 2016). From that date, the BIT remained in force for 10 years for investments made or acquired before that date. This residual period during which the treaty remained valid has now come to an end.
The BIT that has now expired was a good example of both States' treaty practice in this area. It included a commitment to promote and admit investments by investors of one State party in the territory of the other State party, as well as a series of substantive protection obligations by the States party towards the investments of investors of the other State party (fair and equitable treatment, expropriation, compensation for losses and free transfer of investment payments and income). Moreover, as is customary in treaties of this type, Article XI included the possibility of submitting to arbitration investment disputes arising between a State party and an investor of the other State party.
The question now arises as to how to protect, from this point forward, Spanish investments in South Africa and South African investments in Spain in the event of possible measures that could be taken by either State affecting the investments made by investors from the other State, particularly in the context of political interest in increasing bilateral economic exchanges.
First, it would always be possible to bring the relevant claim before the competent jurisdictional courts and tribunals in each country to audit the acts and omissions of the corresponding local authorities, subject to the substantive and procedural limitations in each case. Access to justice is a fundamental right recognized by both States in their respective constitutions.
Second, the aggrieved investor may request the State of which it is a national to bring a claim against the other State for damages suffered on its investment. This alternative, called diplomatic protection, depends entirely on the willingness of the government of the State concerned to file and pursue the claim and gives the investor no real control over the case. Furthermore, it is a mechanism that is very rarely used by States in international practice.
Third, it is possible to channel the investment through companies incorporated in a third State that has in force a treaty similar to the BIT with the State where the investment is to be or has been made. This alternative is accepted in international arbitration practice (nationality or treaty planning), although with caveats and limitations in cases where it is reasonably foreseeable that a dispute will arise with the State receiving the investment. Therefore, the operation must be carried out with care, taking into account the requirements of the treaty to be used and in accordance with good faith.
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