Title
The EAC Model Investment Treaty
Preamble
1.0 INTRODUCTION
The EAC has elaborated a draft EAC Model Investment Treaty pursuant to directives of the Sectoral Council on Trade, Industry, Finance and Investment made on 30 May 2014 and on 22 May 2015.
The aim of the EAC Model Investment Treaty is to serve as:
(i) as a template for investment negotiations of the EAC and/or individual EAC Partner States with third countries or a bloc of countries;
(ii) or as an instrument to help guide the EAC's negotiating position with a third country when it accepts the third country's negotiating text as the basis of negotiations.
The EAC Model Investment Treaty is not intended to be and is not a legally binding document. Rather it provides guidelines for the Partner States in any negotiations they enter into relating to an investment treaty.
The preparation of the EAC Model Investment Treaty has been undertaken in an interactive process by EAC Experts from the Partner States. For the most part, the EAC Model Investment Treaty draws from the approaches set out in the 2012 Model Bilateral Investment Treaty Template of the Southern African Development Community (the SADC Model BIT), the COMESA Common Investment Area Agreement and the Model Text for the Indian Bilateral Investment Treaty (Indian Model BIT). The International Institute for Sustainable Development (IISD) also provided input towards the development of the EAC Model Investment Treaty. The EAC Secretariat facilitated the process of development of the Model Investment Treaty.
2.0 CONTENT OF THE DRAFT EAC MODEL INVESTMENT TREATY
Preamble
The Government{s] of and the Government of ,
Desiring to strengthen the bonds of friendship and cooperation between the State Parties;
Desiring to intensify economic cooperation for the mutual benefit of both State Parties;
Recognizing the important contribution investment can make to the sustainable development of the State Parties, including the reduction of poverty, increase of productive capacity, economic growth, the transfer of technology, and the furtherance of human development and human rights particularly in light of EAC Partner States commitments to international conventions in that respect
Seeking to promote, facilitate, encourage, protect and increase investment opportunities that enhance sustainable development within the territories of the State Parties;
Understanding that sustainable development requires the fulfillment of the economic, social and environmental pillars that are embedded within the concept;
Reaffirming the right of the State Parties to regulate and to introduce new measures relating to investments in their territories in order to meet national policy objectives, and taking into account any asymmetries with respect to the measures in place and the particular need of the EAC Partner States to exercise this right;
Seeking an overall balance of the rights and obligations among the State Parties, the investors, and the investments under this Treaty;
Agreeing that the objectives of this Treaty can be achieved without compromising public interest such as health, safety and environmental measures;
Have agreed as follows:
Body
Part 1. COMMON PROVISIONS
Article 1. Objective
The main objective of this Treaty is to promote, facilitate, protect and increase investments between investors of one State Party into the territory of the other State Party that supports: employment generation, increased production and productivity, technology and skills transfer for local value addition, synergies with local firms and ultimately contribute to poverty reduction in the host State in a sustainable way.
Article 2. Definitions
For the Purpose of this Treaty, Unless the Context Otherwise Requires:
Force Majeure Means Act of God Beyond the Parties' Control;
Home State Means, In Relation to
A. a Natural Person, the State Party of Nationality or Predominant Residence of the Investor In Accordance with the Laws of That State Party
B. a Legal or Juridical Person, the State Party of Incorporation or Registration Ofthe Investor In Accordance with the Laws of That State Party
and declared as the Home State at the time of registration where required under the law of the Host State.
Host State means the State Party where the investment is located. ICSID means the International Centre for Settlement of Investment Disputes, established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States as amended to date.
Investment means an enterprise within the territory of one State Party established, acquired or expanded by an investor of the other State Party, including through the constitution, maintenance or acquisition of a juridical person or the acquisition of shares, debentures or other ownership instruments of such an enterprise, provided that the enterprise is established or acquired in accordance with the laws of the Host State; and [registered][approved][recognized] in accordance with the legal requirements of the Host State]. An enterprise may possess assets such as:
a. Shares, stocks, debentures and other equity instruments of the enterprise or another enterprise
b. A debt security of another enterprise
c. Loans to an enterprise
d. Movable or immovable property and other property rights such as mortgages, liens or pledges
f. Copyrights, know-how, goodwill and industrial property rights such as patents, trademarks, industrial designs and trade names, to the extent they are recognized under the law of the Host State
g. Rights conferred by law or under contract, including licenses to cultivate, extract or exploit natural resources
For greater certainty, Investment does not include:
(i) Debt securities issued by a government or loans to a government
(ii) Portfolio investments
(iii) Claims to money that arise solely from commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party, or the extension of credit in connection with a commercial transaction, or any other claims to money that do not involve the kind of interests set out in subparagraphs (a) through (g) above.
Investment authorization means any government permit, authorization, licence, registration certificate or similar legal instrument that entitles an investor to establish, expand, acquire, own or operate an investment.
Investor means a natural person or a juridical person of the Home State Party making an investment into the territory of the Host State Party, provided that:
1) the natural person, if a dual citizen, is predominantly a resident of the Home State[, and in any event is not a national of the Host State Party as well]
2) for a juridical person, [it is a legally incorporated enterprise under the laws of the Home State.] [it is a legally incorporated enterprise under the laws of the Home State and is effectively owned or controlled by a natural or juridical person of the Home State Party. ][it is a legally incorporated enterprise under the laws of the Home State.] [it is a legally incorporated enterprise under the laws of the Home State, is effectively owned or controlled by a natural or juridical person of the Home State Party].
Measure means any form of legally binding governmental act [directly affecting] [that is applied directly to] an investor or its investment, and includes any law, regulation, procedure, requirement, final judicial decision, or binding executive decision [subject to the exclusion of measures of a [state][provincial] [municipal] level government].
Portfolio investment means investment that constitutes less than 10 per cent of theshares of the company or otherwise does not give the portfolio investor the possibility to exercise effective management or influence on the management of the investment.
Senior Management means a group of high level executives that actively participate in the daily supervision, planning and administrative processes required by a business to help meet its objectives.
State Party or Party means a State that is party to this Treaty.
Territory in relation to a State means the total land area of that State Party and, in relation to (a coastal State) , includes, in addition, the territorial sea and any maritime area situated beyond the territorial sea that has been designated, or that may in future be designated, under the law of and in accordance with international law, as an area over which may exercise rights with regard to the sea bed, subsoil or natural resources.
Transfers means international payments and transactions in electronic or any other form.
UNCITRAL Arbitration Rules means the arbitration rules of the United Nations Commission on International Trade Law as approved at the time an arbitration is commenced pursuant to the submission of a notice of arbitration under such Rules, including any rules or annexes specific to investor-State arbitration processes and, in particular, the UNCITRAL Rules on Transparency in Treaty-based investor-State Arbitration.
Article 3. Scope and Coverage
3.1 This Treaty applies to measures adopted or maintained by a Party relating to:
a. investors of the other Party; and
b. investments in the Territory of the Party of investors of the other Party [in existence as of the date of entry into force of this Treaty or established, acquired or expanded thereafter] [established, acquired or expanded as of the date of entry into force of this Treaty.
3.2 A Party’s obligations under Part 2 shall apply to:
a. a state enterprise or other person when it exercises any regulatory, administrative, or other governmental authority delegated to it by that Party (1) and
b. the political subdivisions of that Party.
3.3 For greater certainty, this Treaty does not bind either Party in relation to any act or fact that took place or any situation that ceased to exist before the date of entry into force of this Treaty.
4. Each Party shall admit the entry of investment made by Investors of the other Party pursuant to its applicable laws and regulations and in line with their national development and social goals
Part 2. SUBSTANTIVE PROVISIONS
Article 4. National Treatment
4.1 Subject to paragraphs 4.3 - 4.5, each State Party shall accord to Investors and their Investments treatment no less favourable than the treatment it accords, in like circumstances, to its own investors and their investments..
4.2 For greater certainty, references to "like circumstances" in paragraph 4.1 requires an overall examination on a case-by-case basis of all the circumstances of an Investment including, inter alia:
a. its effects on third persons and the local community;
b. its effects on the local, regional or national environment, including the cumulative effects of all investments within a jurisdiction on the environment;
c. the sector the Investor is in;
d. the aim of the measure concerned;
e. the regulatory process generally applied in relation to the measure concerned; and
f. other factors directly relating to the Investment or Investor in relation to the measure concerned.
The examination referred to in this paragraph shall not be limited to or be biased toward any one factor.
4.3 Non-conforming measures and excluded sectors:
a. This Article shall not apply to future measures or to sectors and activities set out in the Schedules to this Treaty.
- Measures, including all government measures that the government intends to enact that would be non-conforming, future amendments to same, and other possible areas, including performance requirements.
- Sectors or subsectors to be excluded from post-establishment national treatment obligations.
b. Paragraph 4.1 shall not apply to non- conforming measures, if any, existing at the date of entry into force of this Treaty maintained by each State Party under its laws and regulations or any amendment or modification to such measures, provided that the amendment or modification does not decrease the conformity of the measure as it existed immediately before the amendment or modification. Subject to paragraph 4.3(a), treatment granted to investment once admitted shall in no case be less favourable than that granted at the time when the original investment was made.
4.4 Exception for formalities
Nothing in this Article shall be construed to prevent a State Party from adopting or maintaining a measure that prescribes special formalities in connection with the Investments of Investors, such as a requirement that their Investments be legally constituted under the laws or regulations of the State Party, provided that such formalities do not materially impair the protections afforded by a State Party to Investors of the other State Party and their Investments pursuant to this Treaty.
4.5 Application to Treaty
This Article shall constitute the definition and scope of all references to non- discrimination or national treatment or Most Favoured Nation treatment for all purposes under this Treaty. Any reference to any such term elsewhere in this Treaty shall be applied and interpreted in accordance with this Article.
Article 5. Most Favoured Nation Treatment
The MFN clause (under paragraph 5.1) (1) does not include pre-establishment commitments (as expressions "establishment, acquisition, expansion" are not included), (2) the term "in like circumstances" is clarified under paragraph 4.2, and (3) treatment promised under other treaties is appropriately excluded from MFN coverage under paragraph 4.7.
In addition to the schedules, the article also provides for exclusions. Paragraph 5.2 excludes the application of MFN to the advantages given to investors under other international agreements.
5.1 Subject to Article 4, each State Party shall accord to Investors and their Investments treatment no less favourable than the treatment it accords, in like circumstances, to investors of any other State and their investments with respect to the management, operation and disposition of Investments in its Territory.
5.2 Notwithstanding any other provision of this Treaty, the provisions of this Article shall not apply to concessions, advantages, exemptions or other measures that may result from:
(i) bilateral investment treaty or free trade agreement that entered into force prior to this Treaty; or
(ii) any multilateral or regional agreement relating to investment or economic integration in which a State Party is participating or may participate.
5.3 For greater certainty, the "treatment" referred to in Paragraph 5.1 and 5.2 does not include dispute settlement procedures provided for in other treaties, including those provided for in other investment treaties. Substantive obligations in other treaties, including other investment treaties, do not in themselves constitute "treatment", and thus cannot give rise to a breach of this article.
Article 6. Treatment of Investors and Investments
An alternative approach has been included, based on the approach of the Indian Model BIT.
6.1 The State Parties shall ensure that their administrative, legislative, and judicial processes do not operate in a manner that is arbitrary or that denies administrative and procedural [justice][due process] to investors of the other State Party or their investments taking into consideration the level of development of the State Party.
6.2. Investors or their Investments, as required by the circumstances, shall be notified in a timely manner of administrative or judicial proceedings directly affecting the Investment(s), unless, due to exceptional circumstances, such notice is contrary to domestic law.
6.3 Administrative decision-making processes shall include the right of administrative review, appeal of decisions, commensurate with the level of development and available resources at the disposal of State Parties.
6.4 The Investor or Investment shall have access to government-held information in a timely fashion and in accordance with domestic law, and subject to the limitations on access to information under the applicable domestic law.
6.5 State Parties will progressively strive to improve the transparency, efficiency, independence and accountability of their legislative, regulatory, administrative and judicial processes in accordance with their respective domestic laws and regulations.
6.6 A determination that there has been a breach of another provision of this Treaty, or of a separate international agreement, does not establish that there has been a breach of this Article.
Article 7. Expropriation
7.1 Neither Party may nationalize or expropriate an Investment (hereinafter "expropriate"), or take Measures having an effect equivalent to expropriation, except for reasons of :
i. public purpose or interest,
ii. in accordance with due process of the Law,
iii.on anon-discriminatory manner, and
iv. on payment of just and adequate compensation.
The determination of whether a measure or a series of measures have an effect equivalent to expropriation requires a case-by-case, fact-based inquiry, and usually requires evidence that there has been:
i. permanent and complete or near complete deprivation of the value of Investment;
ii. permanent and complete or near complete deprivation of the Investor's right of management and control over the Investment; and
iii. an appropriation of the Investment by the Host State which results in transfer of the complete or near complete value of the Investment to that Party or to an agency or instrumentality of the Party or a third party.
7.2 Just and adequate compensation shall normally be assessed in relation to the fair market value of the expropriated investment immediately before the expropriation took place ("date of expropriation") and shall not reflect any change in value occurring because the intended expropriation had become known earlier. In no event shall the valuation date be moved to any future date. The computation of the fair market value of the property shall exclude any consequential or exemplary losses or speculative or windfall profits claimed by the Investor, including those relating to moral damages or loss of goodwill. However, where appropriate, the assessment of fair and adequate compensation shall be based on an equitable balance between the public interest and interest of those affected, having regard for all relevant circumstances and taking account of:
a. current and past use of the Investment, including the history of its acquisition and purpose;
b. the duration of the Investment and previous profits made by the Investment;
c. compensation or insurance payouts received by the Investor or Investment from other sources;
d. the value of property that remains subject to the Investor or Investment's disposition or control,
e. options available to the Investor or Investment to mitigate its losses, including reasonable efforts made by the Investor or Investor towards such mitigation, if any;
f. conduct of the Investor that contributed to its damage;
g. any obligation the Investor or its Investment is relieved of due to the expropriation,
h. liabilities owed in the Host State to the government as a result of the Investment's activities,
i. any harm or damage that the Investor or its Investment has caused to the environment or local community that have not been remedied by the Investor or the Investment, and
j. any other relevant considerations regarding the need to balance the public interest and the interests of the Investment.
7.3. Any payment shall be made in a freely convertible currency. Payment shall include simple interest at the current commercial rate of the Host State from the date of expropriation until the date of actual payment. On payment, compensation shall be freely transferable.
7.4. Awards that are significantly burdensome on a Host State may be paid over a period as agreed by the parties to the arbitration, subject to interest at the rate established by agreement of the parties to the arbitration or by an arbitral tribunal failing such agreement.
7.5. This Article shall not apply to the issuance of compulsory licenses granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with applicable international agreements on_ intellectual property.
7.6. A non-discriminatory measure of general application shall not be considered an expropriation of a debt security or loan covered by this Treaty solely on the ground that the measure imposes costs on the debtor that cause it to default on the debt.
7.7. | Anon-discriminatory measure of a State Party that is designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment, does not constitute an indirect expropriation under this Treaty.
7.8. The Investor affected by the expropriation shall have a right under the law of the State Party making the expropriation to a review by a judicial or other independent authority of that State Party of his/its case and the valuation of his/its investment in accordance with the principles set out in this Article.
Article 8. Senior Management and Employees
8.1 A State Party shall not require an investor to appoint, to senior management positions for its investment, individuals of any particular nationality.
8.2 A State Party may require that some of the board of directors, or any committee thereof, of an Investment be of a particular nationality, or resident in the territory of the State Party, provided that the requirement does not materially impair the ability of the Investor to exercise control over its Investment.
8.3 Subject to its laws, regulations and policies relating to the entry of aliens and engagement of non-national labour or management, each State Party shall grant temporary entry to nationals of the other State Party, employed by an Investor of the other State Party, for the purpose of rendering services to an Investment of that Investor in the territory of the Host State Party, in a capacity that is senior managerial or executive or requires specialized knowledge.
8.4 Notwithstanding any provisions of this Treaty, a State Party may require an Investor of the other Party or its Investment, in keeping with its size and nature, to have progressive increases in the number of senior management, executive or specialized knowledge positions that nationals of the Host State occupy; institute training programs for the purposes of achieving the increases set out in the preceding paragraph and to Board of Director positions; and to establish mentoring programs for this purpose.
Article 9. Transfers
9.1 A State Party shall accord to Investors the right to:
(a) repatriate the capital invested and the Investment returns;
(b) repatriate funds for repayment of loans;
(c) repatriate proceeds from compensation upon expropriation, the liquidation or sale of the whole or part of the Investment including an appreciation or increase of the value of the Investment capital;
(d) transfer payments for maintaining or developing the Investment project, such as funds for acquiring raw or auxiliary materials, semi-finished products as well as replacing capital assets;
(e) remit the unspent earnings of expatriate staff of the Investment project;
(g) tax obligations;
(h) social security, public retirement or compulsory savings schemes;
(i) severance entitlements of employees;
(j) the formalities required to register and satisfy the Central Bank and other relevant authorities of a State Party;