I. The Pan African Code

PAIC is a model investment treaty drafted from the prospective of lesser developed countries under the auspices of the AU. The main objective of the PAIC is to promote sustainable development in Africa. It is written by Africans and from the African's perspective. The African perspective is that a good investment in Africa is one that promotes sustainable development. This sustainable development concept has caused the drafters of the PAIC to use or eliminate “old tools” such as the traditional clauses (MFN, NT, FET), that are common in most BITs in “new ways” in order to support and promote sustainable development throughout the continent.

Many African countries concluded BITs mainly in the period from the mid-1990s to the early 2000s. Traditionally, BITs were concluded with capital-exporting countries mainly from Europe. In signing the first-generation BITs, African states had hoped that establishing international rules in order to protect investments would create stability and predictability, thereby promoting and attracting FDI into their economies. According to United Nations Conference on Trade and Development (UNCTAD), by January 2017, African countries had signed 881 BITs or international investment agreements (IIAs).Footnote ⁵ The content of the majority of the BITs contains the traditional clauses that protect the investor while granting no protection to the state.

The first-generation BITs lack room for any defense for the state, but they provide protection for the foreign investor under domestic, international, and customary international law. The PAIC seems to deviate from the traditional BITs and consider all factors while creating a balance between the investor and the state's rights and responsibilities by revising old concepts such as MFN, NT, and FET, and create new obligations for both states and investors in the application of these traditional clauses in new ways that provide the balance between the investor's right and the state's legitimate right to regulate, thereby promoting sustainable development.

The PAIC contains specific features that are tailored to the needs of Africa. While the PAIC is not a treaty that is signed by African states, it can still be used as a guide to contracting states who are entering into concession agreements with investors. It is therefore submitted that states can use the specific provisions and wording articulated in the PAIC in their own BITs or concession agreements with investors. Moreover, states can even mention the PAIC in the preamble of any BIT and or agreement with an investor, thus, recognizing the PAIC's sustainable development principles as the model adopted in that given instrument. In doing so, where there is a dispute over the interpretation of the BIT and or the agreement, the Tribunal in its application of the Articles 31 and 32 of the Vienna Convention,Footnote ⁶ will be forced to look at the Preamble of the agreement that mentions the PAIC to determine the intent of the parties to adopt the PAIC as a legal framework of the agreement and or the BIT at issue.

The PAIC, specifically refers to the right of AU member states to regulate all aspects relating to investments within their territories with a view to promote sustainable development. In addition, it stresses the need to achieve balance of the rights and obligations among AU member states and the investors.Footnote ⁷ The drafters understood the negative effect that corruption can have on sustainable development, so they also ensured that the Preamble should emphasize the need to promote a corruption free investment environment that improves laws and regulations while promoting transparency and accountability.Footnote ⁸

Moreover, the PAIC defines the rights and obligations of member states as well as investors. Since the objective of the PAIC is to attract investments that foster sustainable development, it provides a landmark definition of investment which refers to the full Salini test,Footnote ⁹ requiring an investment to have the following characteristics: (1) the commitment of capital or other resources, the expectation of gain or profit; (2) the assumption of risk; and (3) a significant contribution to the host state's economic development.

It is further submitted that the PAIC does not embrace blindly the old concepts of MFN and NT. Instead it introduces new ways to deal with these old tools. The PAIC adds a separate provision, specific exceptions to both MFN and NT. For instance, the MFN exceptions can be noted at Articles 8.2 and 8.5.

In particular, Article 8.2 of the PAIC provides that there is no breach of MFN treatment when an AU member state adopts measures that are “designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment.”Footnote ¹⁰ The PAIC precludes measures that are taken by reason of “national security, public interest, and public health or public morals to be considered as a less favorable treatment” within the meaning of the MFN provision. Article 8.5 (a)(b) provides that the MFN principle does not oblige a member state to extend to the investor of any other country the benefit of any treatment contained in an existing or future customs union, free trade area or international agreement to which the investor's home state is not a party, or contained in any international agreement or domestic legislation relating to taxation.Footnote ¹¹

Regarding the NT exceptions, similar to MFN exceptions, Article 10.2 of the PAIC articulates the right of a member state to adopt measures in order to promote public welfare objective. Article 10.3 provides that AU member states may, in accordance with their respective domestic legislation, “grant preferential treatment to qualifying investments and investors in order to achieve national development objectives.” It seems that the drafters wanted to find a way to deny benefits to investors because Article 10.4 is similar to the Article 17 of the Energy Charter's denial of benefit clause,Footnote ¹² which states that the PAIC reserves the right of AU member states to deny an investor the benefits of the PAIC and to grant special and differential treatment by listing two examples: where there is no substantial business activity in that state, or the investor is engaged in activities inimical to the economic interest of member states.

It is noted that the PAIC omitted the notion of FET. Instead, it has dedicated an entire chapter to the obligations of investors. The chapter on investors’ obligations contains six provisions entitled: (1) framework for corporate governance; (2) sociopolitical obligations; (3) bribery; (4) corporate social responsibilities (CSR); (5) obligations as to the use of natural resources; and (6) business ethics and human rights. A brief description of the events that leads to the ratification of the AfCFTA followed by its characteristics and the future of ISDS under the treaty is essential to show how the AfCFTA has at least adopted the same protectionism and sustainable development as in the PAIC.

II. African Continental Free Trade Area

On May 30, 2019, the AfCFTA entered into force. There are other frameworks and or agreements that lead to the ratification of the AfCFTA such as the 1980 Lagos Plan of Action for the Development of Africa and the Abuja Treaty proposed the creation of Regional Economic Communities (RECs) which are regional groupings of African states as the basis for wider African integration for regional and ultimately continental integration.Footnote ¹³ The AU recognizes eight RECs: the Arab Maghreb Union (UMA); the Common Market for Eastern and Southern Africa (COMESA); the Community of Sahel–Saharan States (CEN–SAD); the East African Community (EAC); the Economic Community of Central African States (ECCAS); ECOWAS; the Intergovernmental Authority on Development (IGAD); and the Southern African Development Community (SADC).Footnote ¹⁴ In 2012, the AU established a plan for the creation of the AfCFTA and after many years of negotiations and framework agreements, the treaty was signed, ratified, and entered into force on May 30, 2019.

The main characteristic of the AfCFTA is the creation of pan African free trade area liberalizing the flow of goods and services, thereby increasing intra-African trade and enhancing regional development prospects.Footnote ¹⁵ As of January 2020, Eritrea was the only African state that has not ratified the AfCFTA. This is the largest regional trade bloc in Africa covering fifty-four states and creating a market encompassing 1.2 billion people with a combined economic output in 2018 of $2.5 trillion.Footnote ¹⁶ A very important characteristic of the AfCFTA is that there is no ISDS provision. The Treaty has provided a state-to-state dispute resolution mechanism similar to the World Trade Organization.

III. The Future of ISDS Under the PAIC and the AfCFTA

Since the PAIC was enacted before the AfCFTA, one can say that AfCFTA followed the core principles of sustainable development under the PAIC, which has not included ISDS. South Africa, for instance, has a clear policy against ISDS. South Africa reviewed all of its international agreements in 2015 and terminated most of them. The law that will be applicable to foreign investors in South Africa is the Promotion and Protection of Investment Bill, which does not contain ISDS.Footnote ¹⁷ In fact, all SADC member states are opposed to ISDS as is evidenced by the amendments of August 2016 to the SADC Protocol on Finance and Investment. The amended version no longer contains any reference to ISDS and only provides for state-to-state dispute resolution. Africa is not alone in its nationalistic view of protectionism. On May 5, 2020, the European Union has cancelled all BITs amongst European states.Footnote ¹⁸ On July 1, 2020, the North American Free Trade Agreement ended, and a new agreement was signed and entered into force between United States, Mexico, and Canada (USMCA). The new trend in the most recent BITs is a state's preservation of the right to regulate to protect public health.Footnote ¹⁹

Chapter 6 of the PAIC deals with dispute resolution mechanisms. Article 41 provides state-to-state consultations, negotiations, or mediation. Arbitration is not the main focus, however, if the states agree to arbitration, the PAIC provides that such arbitration shall take place in Africa. In addition, the PAIC provides for a six-month cooling period, in the event that the states cannot resolve the issues, the states may refer the matter to the African Court of Justice whose decision shall be final and binding. Article 42.1 of the PAIC provides that “disputes arising between investors and Members States under the specific agreements that govern their relations shall be resolved under those agreements.” The PAIC further requires “that the investor and the concerned Member State should initially seek to resolve the dispute within six-months at the latest, through consultations and negotiations, which may include the use of non-binding, third-party mediation or other mechanisms.” One more important factor is that the PAIC has preselected the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules to govern any arbitration proceedings between a state and an investor. The dispute settlement provisions of the PAIC is centered around the continent and thus, seek to establish a better balance between the rights and obligations of investors and host states, thereby promote sustainable development.

Furthermore, under the PAIC, there is a possibility for a state to file a counterclaim against an investor for any violation under the PAIC. The inclusion of an express reference to counterclaims is an excellent way to obtain jurisdiction over the investor. Thus, a state may be able to invoke any violation of any relevant international treaty protecting the environment, human rights, and labor standards under the PAIC's provision on counterclaims.

IV. Conclusion

The PAIC is the first comprehensive investment treaty model in Africa that is written by Africans, for Africans, and tailored to the specific needs of Africa with the focus of nationalism and sustainable development. According to the PAIC, an investment is good only where it benefits Africa. The PAIC ensures that the investor is protected while imposing certain responsibilities on the investor. This balancing of rights and obligations upon the state and the investor is probably the reason for the omission of the FET clause in the PAIC. It is well established that almost every investor-state dispute contains a violation of FET and tribunals have rendered inconsistent interpretations of FET clauses that have led to the states paying exorbitant fines for expropriation. Inconsistent awards have led to a fragmented jurisprudence since there is no stare decicis in international arbitration, each tribunal being unique, which can lead to inconsistent decisions on the application of FET. Ingeniously, the PAIC has used old tools like traditional MFN, NT, and FET clauses in new ways to promote sustainable development in Africa in this new economic world order. It is therefore submitted that the AfCFTA, by eliminating or by not providing for investor-state dispute and only allowing state-to-state disputes, seeks to follow the same concept of sustainable development in Africa as does the PAIC.