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INTERNATIONAL LEGAL FRAMEWORK FOR FOREIGN INVESTMENT
PROTECTION: AN ANALYSIS OF TANZANIA TREATY PRACTICE
WILLIAM TIMOTH MWAMPAGHALE
A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE MASTER DEGREE OF LAW OF THE OPEN
UNIVERSITY OF TANZANIA
2017
CERTIFICATION
The Undersigned certifies that read and hereby recommends for acceptance by the Open
University of Tanzania a Dissertation titled “International Legal Framework for Foreign
Investment Protection: an Analysis of Tanzania Treaty Practice” in Fulfillment of the
Requirements for Award of the Degree of Master of Laws (LLM) of the Open University
of Tanzania.
……………………..…………
Dr. Benhajj Masoud
Supervisor
……………………………………
Date
COPYRIGHT
No part of this dissertation may be reproduced, stored in any retrieval system, or
transmitted in any form or by any means without prior written permission of the author or
the Open University of Tanzania in that behalf.
DECLARATION
I William Timoth Mwampaghale, do herby declare that this dissertation is my own
original work, and that it has not been submitted for a similar degree in any other
University.
………………………………….
Signature
………………………………
Date
DEDICATION
To my beloved late daughter Glory, you were to me a beautiful star once fell to earth from
heavens, hence you once encouraged me to study hard, but now you have returned, Glory
be to God ! I know how you would feel to see me achieve this. I really miss your presence
when making this achievement, May your soul rest in peace. Amen.
ACKNOWLEDGEMENT
It is pleasure to acknowledge the aid and encouragement given to me by different people
whom without them this work would not have come to fruition.
I am indebted to M/S Bonnie Lowe Welsh Senior Law Enforcement Advisor USA
Ministry of Justice, ICITAP- Dar es Salaam for encouraging me to venture in this study
after finding out that I was keenly interested into State treaty practice issues. Despite her
other obligations and commitments she still found time not only to guide me on issues of
international relations which I have little knowledge on, but also to read my work and
gave thorough criticism and advice.
I thank my supervisor Dr. Benhajj Masoud Faculty of law of the Open University of
Tanzania for his guidance and valuable criticism which enlightened me on what, why and
how to write not only an acceptable proposal but also this research paper.
I remain indebted to my brother Shakib Mussa Nsekela for his encouragement and financial
support as he always believed that I could do it.
I should acknowledge my family, especially my wife Victoria Lukuwi and my three
children Adorath, Stephen also known as Chief and Innocent, from whom I had to be
away at the moment they needed me most. This is a dept I cannot repay.
Herein becomes difficult to mention every person who assisted me in one way or another,
I would like to thank all collectively for their ideas, materials, critical observations and
other type of assistance.
However any errors committed in this research paper remains my entire responsibility.
ABSTRACT
Most states of the world and among them Tanzania sought to create appropriate legal
frameworks to attract foreign investments. The conclusion of Bilateral Investment Treaties
(BITs), Multilateral Treaties (MITs), Regional Treaties and the enactment of National
investment legislation are the main instrument to achieve the aforementioned objective.
State’s entry into these investment treaties and ratifications of conventions into domestic
legislations makes the protection mechanisms part of their legal framework. Their
importance resides precisely in establishing a favorable climate for foreign investments by
contributing to legal certainty for foreign investors. The study analyses the treaties
concluded by Tanzania with the objective of establishing the investment treaty practice of
the country. In so doing, the study examines whether Tanzania treaty practice conforms or
differs from general investment law. The study also demonstrates the extent to which
Tanzania’s treaty provisions restrain legitimate right to regulate and suggests how the
country can contribute to the further development of international investment law and
legislation options to improve treaty negotiating in the country. The study also argues that
the present treaty practice of Tanzania suggests that the trend is toward a more cautious
and better-informed approach to investment treaty making with narrower and more precise
drafting of particular provisions, and specificity in treaty language to reduce the risk of
unexpected interpretations by arbitral tribunals.
TABLE OF CONTENTS
CERTIFICATION..............................................................................................................ii
COPYRIGHT.....................................................................................................................iii
DECLARATION................................................................................................................iv
DEDICATION.....................................................................................................................v
ACKNOWLEDGEMENT.................................................................................................vi
ABSTRACT.......................................................................................................................vii
LIST OF STATUTES........................................................................................................xi
LIST OF TREATIES........................................................................................................xii
LIST OF CASES..............................................................................................................xiv
LIST OF ABBREVIATIONS..........................................................................................xvi
CHAPTER ONE..................................................................................................................1
1.0 GENERAL INTRODUCTION....................................................................................1
1.1 Background of the Problem.............................................................................................1
1.2 Statement of the Problem................................................................................................5
1.3 Research Questions.........................................................................................................6
1.4 Objectives of the Study..................................................................................................7
1.4.1 General Objective.........................................................................................................7
1.4.2 Specific Objectives.......................................................................................................7
1.5 Significance of the Study...............................................................................................7
1.6 Scope of the Study...........................................................................................................8
1.7 Literature Review............................................................................................................8
1.8 Limitation of the Study.................................................................................................13
1.9 Research Methodology..................................................................................................13
1.10 Organization of Dissertation.......................................................................................14
CHAPTER TWO...............................................................................................................16
2.0 INTERNATIONAL LEGAL FRAMEWORK FOR FOREIGN INVESTMENT16
2.1 Introduction...................................................................................................................16
2.2 Bilateral and Regional Investment Treaties..................................................................16
2.2.1 Substantive International Investment Law: Investment Liberalization and Investor 18
2.2.1.1 National Treatment..................................................................................................19
2.2.1.2 Most Favored Nation Standard of Treatment..........................................................23
2.2.1. 3 Fair and Equitable Standard of Treatment.............................................................24
2.2.1.4 Minimum Standard of Treatment............................................................................25
2.2.1.5 Performance Requirements.....................................................................................28
2.2.1.6 Expropriation...........................................................................................................29
2.2.1.7 Investor to State Dispute Settlement.......................................................................32
2.3 Concession Contracts....................................................................................................33
2.4 Multi-lateral Investment Treaties..................................................................................34
2.5 International Customary Law........................................................................................37
2.6 World Bank’s Guidelines on the Treatment of Foreign Direct Investment..................37
2.7 Foreign Direct Investment under the World Trade Organization System ...................38
2.8 Conclusion.....................................................................................................................39
CHAPTER THREE..........................................................................................................40
3.0 TREND AND PATTERN OF TANZANIA’S TREATIY PRACTICE..................40
3.1 Introduction...................................................................................................................40
3.2 Trends in the Negotiation and Drafting of Investment Treaties....................................40
3.3 Trends in Drafting: Scope of Application.....................................................................41
3.4 Trends in Drafting: Investment Protection....................................................................42
3.5 Trends in Drafting: Investment Liberalization..............................................................44
3.6 Trends in Drafting: Dispute Settlement........................................................................45
3.7 Inclusion of Provisions on Responsible Investment and Sustainable Development.....47
3.8 Conclusion.....................................................................................................................48
CHAPTER FOUR.............................................................................................................49
4.0 THE IMPLICATION OF INTERNATIONAL LEGAL FRAMEWORK ...........49
4.1 Introduction...................................................................................................................49
4.2 The Relationship between Investment Treaties and National Laws.............................50
4.3 Inconsistency between Provisions under Investments Treaties and National Laws.....51
4.3.1 Taxation Law..............................................................................................................52
4.3.1 Bankruptcy Law.........................................................................................................55
4.3.2 Environmental Law....................................................................................................57
4.3.3 Labour Law................................................................................................................61
4.3.4 Property Law..............................................................................................................64
4.4 The Implications of International Legal Framework for Foreign Investment .............68
4.4.1 Introduction................................................................................................................68
4.4.2 Investment Protection.................................................................................................69
4.4.3 Investment Restriction and Requirement...................................................................70
4.4.4 Treatment of Investment............................................................................................70
4.4.5 Settlement of Investment Dispute..............................................................................71
CHAPTER FIVE...............................................................................................................73
5.0 CONCLUSION AND RECOMENDATIONS..........................................................73
5.1 Conclusions...................................................................................................................73
5.2 Recommendations.........................................................................................................74
REFERENCES..................................................................................................................79
LIST OF STATUTES
The Foreign Investment (Protection) Act and the State Trading Corporation (Establishment and Vesting of Interest) Act No. 2 of 1967.
The Companies Act of 2002.
The Customer Tariff Act, 1976.
The Environmental Management Act of 2004.
The Income Tax Act, 1973.
The National Investment (Promotion and Protection) Act No. 10 of 1990.
The Sales Tax Act, 1976.
The Tanzania Investment Act [Cap 38 RE 2002].
LIST OF TREATIESBilateral Investment Treaties
The Agreement between the Government of Canada and the Government of the United
Republic of Tanzania for the promotion and reciprocal protection of investments.
The Agreement between the Government of the Republic of Korea and the Government of
the United Republic of Tanzania for the promotion and protection of investments.
The Agreement between the Government of the Republic of Turkey and the Government
of the United Republic of Tanzania concerning the reciprocal promotion and protection of
investments.
The Agreement between the Government of United Kingdom of Great Britain and
Northern Ireland and the Government of United Republic of Tanzania for promotion and
protection of investments.
The Agreement between the United Republic of Tanzania and the Government of the
Italian Republic for the Promotion and Protection of Investments (August 21, 2001).
The Agreement of United Republic of Tanzania and the Government of the Kingdom of
Sweden on the Promotion and Reciprocal Protection of Investments (1 Sept 1999)
The Agreement on Encouragement and Reciprocal Protection of Investment between the
United Republic of Tanzania and Government of the Kingdom of the Netherlands (Sept
27, 2002)
The Treaty between Federal Republic of Germany and the United Republic of Tanzania
Concerning the Encouragement and Reciprocal Protection of Investments (Jan 30, 1965)
The Treaty between the United Republic of Tanzania and Government of the Kingdom of
Denmark Concerning the Promotion and Reciprocal Protection of Investment (April 22,
1996)
Multilateral Treaties
The Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, 575 UNTS 159; 4 ILM 524 (1965)
The General Agreement on Tariffs and Trade (GATT 1947), 55 UNTS 194
The Convention Establishing the Multilateral Investment Guarantee Agency 1988.
Vienna Convention of the Law on Treaties, 1155 U.N.T.S.331, 81. L.M. 679. Jan 27, 1980
LIST OF CASES
ADC and ADC & ADMC v. Hungary, ICSID/ARB/03/16.
Biwater Gauff (Tanzania) Ltd. v.United Republic of Tanzania, ICSID Case No.
ARB/05/22 (Biwater v. Tanzania)
Chemtura Corporation v. Government of Canada, UNCITRAL Award (formerly
Crompton
Corporation v. Government of Canada), Available at http://www .italaw.com /sites/default
/files/casedocuments/ita0149_0.pdf
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Republic of
Argentina, ICSID Case No. ARB/97/3 (Vivendi v. Argentina)
Elettronica Sicula S.p.A. (ELSI) (United States v Italy) (Jurisdiction and Admissibility)
[1989] ICJ Rep 15.
Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL FINAL AWARD
12 November 2010, Available at http://www.italaw.com/sites/default /files/ cased oc
uments/ita0342.pdf
Generation Ukraine Inc v Ukraine (2003) (Award) 44 ILM 404 (ICSID)
Glamis Gold Ltd v United States of America, UNCITRAL, Award (8 June 2009).
Available at: http://www.italaw.com/sites/default/files/case-documents/ita0378.pdf
Grand River Enterprises Six Nations, Ltd and Others. v. United States of America,
UNCITRAL - Available at:
http://www.italaw.com/sites/default/files/case-documents/ita0384.pdf
Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1 (Metalclad v.
Mexico)
Mondev International Limited v United States of America, ICSID Case No. ARB
(AF)/99/2, October, 11 2000,
Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case
No. UN3467FINAL AWARD Available at: http://www.italaw. com/sites/
default/files/casedocuments/ita0571.pdf
Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case
No. 2012-12; Available at:http://www.italaw.com/ sites/default/files/ casedocuments /ital
aw7303_0.pdf
Tecnicas Medioambientales Tecmed S.A. v.United Mexican States, ICSID Case No.
ARB(AF)/00/2 (Tecmed v. Mexico)
Total S.A. v Argentine Republic (ICSID Case No. ARB/04/01)
Vattenfall v. Federal Republic of Germany, ICSID Case No. ARB/12/12,
Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar (Award) (2003)
ASEAN Arbitral Tribunal 42 ILM .
LIST OF ABBREVIATIONS
ACPGS African, Caribbean and Pacific Group of States
ASEAN Association of Southeast Asian Nations
BITs Bilateral Investment Treaties
COMESA Common Market for Eastern and Southern Africa
EU European Union
FDI Foreign Direct Investment
FET Fair and Equitable Treatment
FTAs Free Trade Agreements
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
ICC International Chamber of Commerce
ICITAP International Criminal Investigative Training Assistance Program
ICJ International Court of Justice
IIA International Investment Agreements
ICSID International Centre for the Settlement of Investment Disputes
ILO International Labour Organisation
ISDS Investor State Dispute Settlement
MAI Multilateral Agreement on Investment
MIGA Multilateral Investment Guarantee Agency
MFN Most Favoured Nation TreatmeMIT Multilateral Investment Treaties
NAFTA North American Free Trade Agreement
OECD Organisation for Economic Cooperation and Development
PCIJ Permanent Court of International Justice
SADC Southern African Development Community
SCC Stockholm Chamber of Commerce
TIC Tanzania Investment Center
TRIMS Trade-Related Investment Measures
UK United Kingdom
UN United Nations
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
UNCTC United Nations Commission on Transnational Corporations
UNGA United Nations General Assembly
US United States of America
WTO World Trade Organization
CHAPTER ONE
1.0 GENERAL INTRODUCTION
1.1 Background of the Problem
Since its independence in 1961 the former Tanganyika also known as Tanzania mainland,
and currently the United Republic of Tanzania, made various attempts to establish the
requisite policy and legal frameworks for growth of its economy. In terms of foreign
investments in Tanzania, it is argued that only in the first six years of independence 1 and
later during the post-1985 period, the country experienced a favourable attitude towards
foreign investments. The government showed its determination when it enacted the
Foreign Investment (Protection) Act, 1963, which aimed to provide a legal warranty for
foreign investors so that they would be persuaded to invest in the country. The
government also entered mutual arrangements with foreign governments to back-up,
promote, and protect investments2.
The periods are separated by nearly two decades of hostility toward foreign private
investments following the promulgation of the Arusha Declaration3.The heart of the social
policy in Tanzania, which began by promulgating the Arusha Declaration in 1967, was to
promote mass nationalisation. In this respect, to ensure that the objectives of the Arusha
Declarations were met, various laws were enacted. The government guaranteed and
compensated for the nationalised property, but with inside and outside forces, the collapse
1 See for example the Foreign Investment Protection Act No. 40 of 1963, which was enacted in order to persuade Foreign Direct Investment in the newly independent Tanganyika which encouraged free enterprises as well as attracting foreign capital. For more analysis see JL Kanywanyi "Enabling Legal Framework for operation of a local capital market in Tanzania" (1992) 1 Eastern Africa Law Review 22 Chris P.Maina; (1994) Foreign Investments in Tanzania: The Mainland and Zanzibar. Friedrich EbertStiftung, Dar es Salaam.3 The Arusha Declaration was not a legal document, but a Political Manifesto of the Tanganyika African National Union Party (TANU) the ruling party of Tanganyika which declared socialism and self reliance as the official policy of the country; as a result of it, all major means of production were nationalized and privately owned investments were taken and controlled by the State. The nationalization was implemented by law as an implementation of the policy. See Foreign Investment (Protection) Act and the State Trading Corporation (Establishment and Vesting of Interest) Act No. 2 of 1967.
of the Soviet Union, and the reign of the capitalist bloc, Tanzania failed to embrace the
Arusha Declaration. In 1984, the fifth Constitutional amendment included the Bill of
Rights, and in 1985 the ascendency of the second phase of presidency necessitated a
changed investment climate. The enactment of the National Investment (Promotion and
Protection) Act in April 1990 marked the climax of economic liberalisation, which started
in November 1985. The Act covered the investment promotion centre, application
procedure, areas of investment, investment incentives, investment protection, dispute
settlement, and transfer of foreign currency. It also covers both foreign and local investors,
but excludes investment in petroleum and minerals from the scope of the Act. The Act was
silent on investors’ duties and provides procedures to avoid double taxation4.
The new investment regime saw the enactment of the Tanzania Investment Act, 1997,
which must be read together with the Financial Laws (Miscellaneous Amendments) Act,
1997. The Tanzania Investment Act, 1997 aimed to correct some aspects of the National
Investment (Promotion and Protection) Act, 1990, which restricted potential investors
from investing in Tanzania5. The Act offers a variety of incentives and legal guarantees.
There are tax holidays, foreign exchange benefits and the right to use land. The process of
foreign investors to invest in another country establishes a legal relationship between the
host country and foreign investors, and the latter’s home state6.
Therefore, in order to consolidate guarantees and instill confidence to foreign investors
and enhance legal framework for arbitration of investment disputes, Tanzania joined the
International Convention for Settlement of International Disputes with the nationals of
4 Chris P. Maina, op cit5 Chris P. Maina, . and Saudin J. Mwakaje, (2004) Investments in Tanzania: Some Comments- Some Issues.Friedrich Ebert Stiftung, Dar es Salaam.6 Note that foreign investors in many parts of the world are protected primarily by international treaties commonly known as BITs which are concluded between the host states and home states of the investors; thus are those BITs which establish the legal relationship among them.
other States [hereinafter referred to as ICSID7] and the Multilateral Investment Guarantee
Agency [hereinafter referred to as MIGA8]. Since 1980s there has been a tendency
government to enter into bilateral investment treaties [hereinafter referred as BITs] which
contain substantive, as well as procedural guarantees, to the foreign investors9. This
tendency marks the development of an international legal framework for the protection of
foreign investments.
This framework originally rested on the customary international rules concerning state
responsibility for injuries to aliens and their property. However, as these rules were
uncertain and inadequate for the protection of foreign investments, an extensive network
of international investment treaties (alternatively, international investment agreements -
IIAs) started to be concluded10. Nowadays, the IIAs are the primary public international
law instruments governing the promotion and protection of foreign investments11. In
general, the only international rules that applied to some aspects of foreign investment
were rules of customary international law, and their application was purely exceptional.
Whether investments treaties actually benefit potential host states is debatable.
To date both national investment legislation and BITs offer comprehensive protection to
foreign investors by setting down principles of substantive investment protection,
including national and most‐favored‐nation treatment, fair and equitable treatment, full
7 Tanzania signed the International Center for Settlement of Investment Disputes on Jan, 10, 1992, later on ratified the instrument on 18 May 1992 and the entry into force of the same was on June, 17, 1992.8 Tanzania also joined MIGA on June, 19, 1992.
9 Although foreign investors are not party to Birateral Investment Treaties, but when their respective States do sign it, they declare the reciprocity duty upon protection of their respective investors in their jurisdiction. See for example Article 2 (2) of Tanzania - The Republic of Korea BIT of December 18, 1998 which states; “2.Investments made by investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party.”10 It is said that the first Modern BIT was signed between German and Pakistan in 1959.11 Stephan W Schill, ‘International Investment Law and Comparative Public Law-An Introduction’ in Stephan W Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press 2010) 5.
protection and security, protection against expropriation without compensation, and free
capital transfer. They also allow investors to enforce these standards in arbitral
proceedings directly against the host state, most commonly under the ICSID. Investment
treaty arbitration thereby not only empowers foreign investors under international law, but
also introduces investment treaty tribunals as novel actors into the arena of international
investment law.
In theory the BITs aim at attracting foreign investments through offering foreign investors
broad substantive treaty protection and the flexibility to directly resolve investment claims
through international arbitration usually under the framework of the ICSID. Indeed,
procedural rights contained in investment treaties offering foreign investors the possibility
of direct investor-state arbitration have been appropriately described as the ‘‘ultimate
investor protection’’. Arguably, states envision that by concluding BITs offering
substantive treaty rights including the right to direct investor-state arbitration reluctant
foreign investors will be persuaded to transfer foreign capital that would otherwise not
have been transferred had the investor not been assured of favourable treaty protection.
However, over the last decade, the modern investment regime as is loosely articulated in
the corpus of BITs is witnessing increased scrutiny and growing level of discontents12. The
discontent with the investment regime relates to concerns that include, inter alia,
ambiguity in treaty language, expansive interpretation by arbitral tribunals and the need
for a more inclusive regime that balances the interests of foreign investors’ vis-à-vis
interests of sovereign states. Foreign investment law is about to become one of the most
significant fields in the practice of public international law of relevance to practitioners,
and also in developing states such as Tanzania. Against this background, it was proper to
undertake a detailed analysis of treaties concluded by Tanzania with the objective of
12 For a thorough critique see generally Gus V. Harten, Investment Treaty Arbitration andPublic Law (OUP 2007). Chapter Seven at page 121-149
establishing the investment treaty practice of the country. In so doing, the study examines
whether Tanzania treaty practice conforms with or differs from international investment
law and whether it is in conformity with its BITs contents. While reviewing the treaty
practice of the country the study also explores the extent to which the emerging
investment treaty practice interferes or restrains legitimate policy making in the country.
1.2 Statement of the Problem
The problem addressed in this study is whether Tanzania treaty practice conforms with or
differs from international investment law and whether it is in conformity with its BITs
contents. In Tanzania there has been a remarkable increase in a number of BITS since
199013 and other international investment agreements or as part of broader regional trade
agreements more specifically in the Tanzania context, the Common Market for Eastern
and Southern Africa (COMESA) and the Southern African Development Community
(SADC) to mention those few. Hence, a sharp increase in foreign direct investment (FDI)
to Tanzania. The total FDI in 1992 was 12 million USD only but by the end of 2011 the
FDI value has increased to the tune of approximately 1.1 billion USD. The FDI stock
amounted to 388 million USD in 1990 compared to 7.8 billion USD in 201214. The
number and scope of treaties governing foreign direct investment continues to increase
and, as the result of investor-state arbitration provisions in many of these treaties, so does
the potential that state regulation that affects property rights may breach international
investment obligations. The evidence15shows that in the country many investments
projects are subject to public discourse as a result of the conflicting interest between the
property rights of the citizens and that of the investors as stipulated in their respective
13 To date there are about 20 known BITs signed by Tanzania but 8 of them are not in force, 7 other investment Agreements and 20 Investment Related Instruments.14 United Nations Conference on Trade and development (UNCTAD): World Investment Report 2012 http://unctad.org/en/PublicationsLibrary/ldc2012_en.pdf. accessed on 14/05/2015 15 See supra note 14
agreements. Thus, in some cases these disputes require the country to depend on law
enforcement agencies to quell public opposition to the project in order to balance between
the right of the government to undertake regulatory functions in the public interest, and the
right of foreign investors to carry on their business without arbitrary or unlawful
interference.16 Although BITs are country specific, the existing literature generally treats
them as one regime. It was thus important to review treaties from Tanzanian perspective
and explore whether treaties concluded by the country contain any nuances different from
other existing treaties. Particularly, the over generalization of the BITs as one regime
misses important differences such as whether a country enters into BITs and with whom,
how it approaches the key substantive standards, what influences a country or region to
conclude the BITs, the extent to which the BITs restrain a country’s legitimate legislation,
and how the country approaches dispute settlement. Therefore these are the apparent
problems addressed in this study.
1.3 Research QuestionsThe central question which the research addresses is the Tanzania treaty practice conforms
with or differs from international investment law?
16 See Onesmo Olengurumwa, PRIVATIZATION AND SOCIAL JUSTICE FOR MARGINALIZED COMMUNITIES: Grassroots Communities Experiences in Tanzania; A Paper Presented During Mwalimu Nyerere 7th Intellectual Festivals At Nkurumah Hall –University of Dar es Salaam on 13th April, 2015; he reports that on 16thMay, 2011 five people were shot dead and more than 10 people were left injured by police officers at Barrick North Mara gold mine in Tarime. Available at http://www.olengurumwamanofthepeople.com/wp-content/uploads/2015/04/Privatization-and-Indegenous-Community.pdf last visted on 28/09/2015. See also BBC News 24 May 2013 Tanzania Mtwara gas riots: 'Pregnant woman killed'. Available at http://www.bbc.com/news/world-africa-22652809 last visted on 28/09/2015
In order to fully answer this question, a number of secondary questions were raised,
which include;
(i) What are the salient features of the international investment protection agreements
signed by Tanzania?
(ii) What are the legal impacts of international investment protections provided for in
investment treaties entered by Tanzania on national investment related
legislations?
(iii) Is there a balance between the rights and duties of investors and states in
Tanzania’s treaty practice?
1.4 Objectives of the Study
1.4.1 General Objective
Generally this study seeks to examine the extent to which Tanzania treaty practice
conforms with or differs from international investment law.
1.4.2 Specific Objectives
In particular this study intended:
(i) Examines investment protection provisions in international investment agreements
signed by Tanzania.
(ii) Examines the legal impact of international investment protections provided for in
investment treaties entered by Tanzania on national investment related legislations.
(iii) Analyses the extent to which Tanzania treaty practice balances rights and duties of
investors.
1.5 Significance of the Study
This study intends to provide an insight on the development and application of the legal
framework governing international investment law and foreign investment protection, in
general, and in Tanzania, in particular.
Also the research contributes to the broader literature on procedure of international dispute
settlement, in general, and international investment dispute settlement, in particular, thus
generally the finding of this study implicitly revives the focus group knowledge to the
issue of settlement of investment disputes in Tanzania. An informed understanding of
legal framework governing international investment law and foreign investment
protection, therefore combined with its proper interpretation and application as enshrined
in the mechanisms of treaties, contributes positively towards the objective of ‘‘enhancing
the legal security of international economic life in Tanzania.”
1.6 Scope of the Study
The scope of this study focuses on investment treaty practice of Tanzania. The BITs and
legislations that were main focus of the work were limited to Tanzania mainland as
investment in Tanzania is not a union matter;17Zanzibar is constitutionally justified to have
its own investment laws and indeed it does have. To this end, the discussion focuses only
on Tanzanian Mainland. However, it should be stressed that although the main thrust of
the study focuses on Tanzania Mainland where necessary the study made reference to
other country’s BITs and Model BITs. But such reference is made only to serve as a
suggestion on how the provision should be. In terms of literature the study relies heavily
on the BITs concluded by Tanzania, national legislation, and investment cases concluded
through international arbitration as well as books, journals, published and unpublished
articles dealing with international investment law, theory and practices.
1.7 Literature Review
The research seeks to study the legal framework governing international investment law
and foreign investment protection with reference to Tanzania treaty practices.
17 The Union matters are provided for under the second schedule to the Constitution of the United Republic ofTanzania 1977 (as amended from time to time).
This is not a novel issue. Some literature does exist however, few writers have covered
the specifics and there is no up-to-date monograph as of yet. In other words, the subject
requires further research that provides a critical analysis of the existing legal framework
and that highlights its deficiencies and shortcomings in relation to treaty practice in
Tanzania. Maina and Mwakaje 200418 are of the view that although the Tanzania
Investment Act, 1997 provides more details than its precursor about the investment
process and investment opportunities in Tanzania, it has some shortcomings, including
failure to spell out the duties of the investor, double taxation, and two separate statutes to
govern investments. The Act also has a weak dispute settlement mechanism, and only
addresses foreign investors, not domestic investors. The authors are right but they only
review the statutory law dealing with investment in Tanzania but they did not analyse and
review the treaties signed by the country as they are compared with the relevant national
legislation.
Graham19 submits that international investment agreements have a detrimental effect for
developing countries. He argues that they limit a government’s ability to regulate in the
public interest, especially where these interests run counter to the foreign investors. He
adds that they restrict a country’s ability to enact measures responding to financial, social
and economic crisis and they impede democratic processes. The author might be right but
this is a general analysis of developing countries. The present research is specifically for
Tanzania it aims at establishing whether such agreements have such effect. Collins et all20,
argue that foreign investors can recourse their disputes to international commercial
arbitration proceses only if the state granted its consent to arbitration by contracts. The
18 Chris P. Maina, and Saudin J.Mwakaje, (2004) Investments in Tanzania: Some Comments- Some Issues.Friedrich Ebert Stiftung, Dar es Salaam.19 Mayeda Graham; "International Investment Agreements between Developed and Developing Countries ' Dancing with Devil?”Case comment on the Vivend, Sempra and Enron Awards" (2008) 4 McGill International Journal on Sustainable Development Law & Policy 189.20 Lawrence Collins et al; The Conflict of Laws, 14th Edition, Sweet & Maxwell Publishers, 2006 at page 779.
author adds that this is not true in practice. This consent is through arbitration clauses; is
only granted within the concession agreement; and will not cover other investment issues;
hence, a foreign investor can only pursue litigation in host countries. Whether such treaty
practice is true for Tanzania was the subject of the present study. Schill21 argues that
capital- exporting and capital-importing states although were still unable to agree on a
common set of substantive rules for international investment relations, above all the
appropriate level of protection of foreign investors, they agreed, by concluding the ICSID
Convention in the mid-1960s, to establish multilateral rules for the procedural aspects of
investor-state disputes. He adds that but they still disagreed on the extent of restrictions to
be imposed on states regarding the treatment of foreign investors. With respect the author
may be correct but whether Tanzania treaties are among those treaties which its provisions
are in disagreement on the extent of restrictions imposed on the country regarding the
treatment of foreign investors was the subject to this research.
Huiping22 argues that in an attempt to increase FDIs, many developing countries began to
sign high standard BITs with highly protective investor-state dispute settlement
mechanism without fully considering negative consequences of such BITs - most of
which have created regulatory challenges for policy makers by often challenging
regulatory measures intended by states to protect public welfare. The author might be
correct, but whether the BITs signed by Tanzania has the same effects to our country
policy makers and may challenge any regulatory measure by the country intended to
protect public interest was subject to this study. Ikenson23 argues that BITs and investor-
21 Stephan W. Schill, The Multilateralization of International Investment Law (Cambridge, CUP, 2009). at p. 241
22 Chen. Huiping, "The Investor - State dispute settlement mechanism: Where to go in the 21st Century” (2008) 6 Journal of World Investment & Trade 467.23 Daniel J. Ikenson, “A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement,” The Cato Institute, March 4, 2014. http://www.cato.org/publications/free-trade-bulletin/compromise-advance-trade-agenda-purge-negotiations-investor-state.
state dispute settlement (ISDS) give foreign investors privileges unavailable to domestic
firms, and undermine state sovereignty by offering a means for investors to intimidate host
governments to change policies arrived at through the democratic process. Whether
Tanzania BITs has caused also the country to change policies to suit the treaty practice
was subject to my research.
Poulsen24 shows that the IIA policy-making in developing countries has
hardly followed a rational approach and policy-makers in these
countries have insufficiently considered the risks involved when signing
thousands of the IIAs. As a result of ISDS cases brought against them,
more and more governments of developing countries have now realised
that they signed up to an especially constraining set of international
rules that are enforceable through independent, third-party arbitration
mechanisms. The author focuses his view to general developing countries with no
reference to Tanzania experience. Shaw25 is of the view that the BITs are the ones which
frequently provide for the recourse to international arbitration, especially under the ICSID
Tribunal in the event of an investment dispute between foreign investor and the host state.
Tienhaara26 argues that investment treaties do not offer states sufficient regulatory
space or appropriate deference to regulate in the public interest. Although the author
addresses the effect of treaties, he did not address the impact with aspect of the treaty
practice of Tanzania which is the aim of this study. Aust27 when explaining the
advantages of BITs, he submits that the BITs gives the foreign investors the right to
24 Lauge N. Skovgaard Poulsen. (2014): Bounded rationality and the diffusion of modern investment treaties, in: International Studies Quarterly, 58 (1), 1–1425 Malcolm N; Shaw; International Law; 6th Edition; Cambridge University Press. 2008 at Page 1041.26 Kyla Tienhaara, ‘Regulatory chill and the threat of arbitration: A view from political science’ in Chester Brown & Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press 2011) 606-627.27 Anthony Aust; Handbook of International Law, Cambridge University Press. 2005.
take the host states to international arbitration fora, and that they do not have to
exhaust local remedies initially. He adds that such a process is compulsory and once
the investors invoke it; there is no requirement of the host state to agree to the
arbitration. The author might be right but he seems to overlook the requirement of
consent of host states to international arbitration as required by the ICSID Convention
and BITs. He also overlooks the fact that some of those BITs do refer settlement of
disputes by either local courts or international tribunals (“fork in the road” clause).
This is why it is necessary for this study to consider whether Tanzania signed treaties
do require a consent of the parties on the case to case basis or not and the issue of
exhaustion of local remedies in the country.
Paulsen and Aishett28 they argue that many BIT negotiators from developing countries do
not thoroughly assess the implication of signing BITs and do not take decisions seriously,
partly due to lack of capacity and expertise. Their argument might be correct but they do
not explain the treaty practice of Tanzania; which the present study aims at establishing
whether it is true for Tanzania or not. Suchman and Edelman29 are of the view that no
aspect of BIT practice has been more informative to governments than investor-state
dispute. International treaties, like some domestic law, contain substantial ambiguities that
are only clarified overtime as the rules are implemented and enforced. The authors does
not fully analyse the BIT practices and also they does not explain what are those
ambiguities in treaties or domestic law. As seen above specialized studies on foreign
investment legal framework in Tanzania are scarce, this study makes use of other general
studies on treaties which analyse the treaty practice for rationale of this research. And
28 ? Lauge N. Skovgaard Poulsen and Emma Aisbett. 2013. When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning. World Politics 65 (2): 273-31.29 Suchman, Mark C. and Lauren B. Edelman. 1996. Legal Rational Myths: The New Institutionalism and the Law and Society Tradition. Law and Social Inquiry 21: 903-41.
therefore unexplored issues about legal framework for protection of foreign investments in
Tanzania by the above authors were subject of the discussion of this research.
1.8 Limitation of the Study
Although the study has met its objectives there were some limitations. First time and
resources were the main hindrances to this study. Second internet research also poses a
challenge as the researcher has not subscribed to any electronic legal libraries. Hence the
materials accessed on the internet are only those that are freely available on line.
1.9 Research Methodology
The proposed study basically is explorative research, mostly qualitative which constitute a
desk and library based research. It involves qualitative analysis of all provisions in
Tanzania BITs to determine their conformity with or difference from international
investment law. Therefore the study adopted a legal doctrinal or ‘black letter law’
methodology; that is to say the study is based on analysing the legal rules under the
international legal framework for foreign investment protection and their logical
connections or disjunctions via examination of the cases, the wording and interpretation of
the treaties, as well as existing literature. This approach enables the researcher to critically
analyse the meanings and implications of these rules and the principles which underpin
them. The study mostly relied on the primary and secondary sources of law to address the
focus and aim of this study.
The primary sources of law included, the negotiated and signed bilateral investment
treaties, relevant legislation and decided disputes which was collected and then analysed.
Secondary sources included policy statements, books, research papers, articles, journals
and other commentaries on case laws which were relevant to the study. The sources were
gathered from different libraries found in Dar es salaam, Tanzania: the Open University of
Tanzania library, the University of Dar es salaam library and the Tanzania High Court
Commercial Division library. The sources were useful in this study as it provided various
information from different legal scholars on what they have written on the issue of
international legal framework for foreign investment protection.
Information was also gathered from different websites such as, the International Centre for
Settlement of Investment Disputes (ICSID) website, the International Chamber of
Commerce (ICC) website, and the United Nations Trade Conference on Trade and
Development (UNCTAD) website, in order to obtain the sources that were unavailable in
the said libraries such as arbitral tribunal cases and bilateral investment treaties which was
useful and helped to understand the general aspect of protection of foreign investment.
The study thoroughly examines treaties concluded by Tanzania. The reason for selecting
Tanzania is that the country not only concluded BITs but also has experienced litigation
under the ICSID arbitral rules. Various legal methods, more specifically rules of statutory
interpretations and legal reasoning such as deductive reasoning was applied in appropriate
circumstances as it was proper for the legal doctrine research method employed in the
study. The legal approach was both describing what the law is and how it operates
currently and proposing what the law ought to be and how it ought to operate.
1.10 Organization of Dissertation
The dissertation consists five chapters divided into several but interrelated parts. An
introductory chapter presenting an overview of the study topic, a definition of the research
problem, methodology for data collection and analysis, guiding research questions,
objective and significance of the study, literature review and scope of the research.
Chapter Two provides an overview of the international legal framework for foreign
investment protection which is based upon standards of treatment of foreign investor
established by bilateral treaties, multilateral treaties, customary international law, domestic
law, international contracts and other international rules and regulations such as the World
Bank’s guidelines on the treatment of foreign direct investments and the WTO systems.
Such instruments are carefully analyzed and summarized in order to insight into the
international legal regime for foreign investment protection.
Chapter Three critically reviews trends in Tanzania’s treaty practice, such as decision by
the governments whether to sign or not sign treaties, the evolution of treaty drafting on
scope of application, investment protection, investment liberalization and dispute
settlement, and the inclusion of provisions on responsible investment and sustainable
development in order to establish the extent to which Tanzania treaty practice conforms
with or differs from international investment law.
Chapter Four identifies the implication of international legal framework on Tanzania
foreign investment related legislation, more specifically the impact of increased protection
of foreign investment through BITs on the regulatory power of the country. Under the
chapter, the potential conflicts between investment treaty provisions and the country
investment related legislation is explored through analysis of some provisions and cases
decided by arbitral tribunals.
Chapter Five covers the conclusion and recommendations. It also summarises the findings
and draw conclusions that are recommended for implementation.
CHAPTER TWO
2.0 INTERNATIONAL LEGAL FRAMEWORK FOR FOREIGN INVESTMENT PROTECTION
2.1 Introduction
In the last two decades of the 20th century, great changes have taken place in policies and
legal structures relating to foreign investments. The rapid changes in foreign investment
have found their expression in numerous bilateral and multilateral investment treaties. In
the past, foreign investment was largely regulated domestically. In general, the only
international rules that applied to some aspects of foreign investment were rules of
customary international law, and their application was purely exceptional. With the
adoption of bilateral investment treaties beginning in the 1980s, an international legal
framework started to emerge. Both developed and developing countries were eager to
negotiate investment rules in order to further transnational investments. The legal
framework for foreign investment protection can be looked from different angles such as
standards of treatment of foreign investor established by bilateral treaties, multilateral
treaties, customary international law, domestic law, international contracts and other
international rules and regulations such as the World Bank’s guidelines on the treatment of
foreign direct investments and the WTO systems.
2.2 Bilateral and Regional Investment Treaties
BITs are agreements entered into between two countries whereby they mutually
undertake to protect the investment of persons and corporations from one country which is
made in the other country. A common provision of the BITs is that the parties provide
reciprocal protection and create favourable conditions for investments by investors of
either contracting state. The BITs provide a definition of what would be construed as an
investment, and the reciprocal standards of protection to investors from one contracting
state which will be entitled to in the other contracting state. Common standards of
investment protection found in BITs include undertakings that investments would enjoy
national treatment, most-favoured nation provisions, fair and equitable treatment, free and
unrestricted transfer of returns out of the host country, and that such investment will not be
directly or indirectly expropriated or nationalised without the payment of adequate
compensation.30 The BITs also often contain provisions that disputes concerning
investments between a contracting state and an investor from the other contracting state be
resolved through arbitration. These dispute resolution provisions are often invoked by
investors to institute arbitral proceedings against host states at the ISCID or by way of
international commercial arbitration.31
While the investment protection provided for in the BITs are fairly adequate for
contemporary foreign investors, these investment protection measures are limited to only
the investors who are nationalities of countries whose BITs with host states are in force.In
addition; the past decade has seen a rapid increase in regional investment agreements
among more than two states. There have been several regional treaties on foreign
investment such as the North America Free Trade Agreement (NAFTA) which creates a
framework for the free movement of investments within the NAFTA region. The treaty
provides for a strong investor state dispute settlement mechanism, giving the investor a
unilateral right to invoke arbitration against the host state. There has been much case law
generated under the NAFTA, and considerable literature has been generated because much
of this case law indicates that the NAFTA will provide restraints on the exercise of
regulatory powers by states. There are other regional treaties. The Association of
Southeast Asian Nations Treaty for the Promotion and Protection of Foreign Investment
(ASEAN) contained strong provisions for protection of foreign investments. The later
30 As discussed in 2.1. below31 Ibid note 30 supra
ASEAN framework Agreement on Investments, however, created the concept of an
‘ASEAN Investor’ and permitted freedom of movement within the ASEAN area to the
entity or person who fell within the definition. These earlier ASEAN treaties have now
been replaced with a new treaty, the ASEAN Comprehensive Treaty on Investments.
Other regional treaties, such as the Mercosur Agreement, create similar regional
arrangements with protection granted in varying degrees to the foreign investment of the
participating regional states. There is an increasing practice to negotiate free trade
agreements. Some of them are bilateral, and some are regional. These agreements contain
provisions on investment protection. While all these multilateral agreements are limited to
a specific region, no global investment agreement exists to date. Negotiations under the
auspices of the Organization for Economic Cooperation and Development (OECD) to
adopt a global agreement on investment the MAI failed in 1998 when countries realized
that granting extensive investor protection could lead to serious problems for the host state
to regulate in areas such as the environment and public health and that the negative effects
of a far reaching investment agreement could outweigh the benefits of investment
liberalization and investor protection.32
2.2.1 Substantive International Investment Law: Investment Liberalization and
Investor Protection
Investment treaties, both bilateral and regional, usually incorporate two types of issues.
One group of provisions concerns investment liberalization, the other covers investor
protection. The former category is based on the idea that investment liberalization leads to
higher economic efficiency. These provisions aim at a decrease or elimination of
restrictions on the entry and operation of foreign investment in a host country. The range
32 Members of the Organization for Economic Cooperation and Development (OECD) decided todiscontinue negotiations on the Multilateral Agreement on Investment (MAI), see UNCTAD, Lessons fromthe Mai, New York and Geneva, 1999.
of investment liberalization obligations contained in investment treaties varies
significantly. Any liberalization provisions are limited, and linked closely to the goal of
protecting established investment. It should be noted here that investment liberalization
commitments do not mean that no domestic laws are to be applied to the investment, either
as it is being made or subsequently. Rather, the commitment is to remove any
discrimination between the covered foreign investor and the domestic investors in that
sector. As a result, and importantly, the liberalization commitment is often found simply in
the national treatment and/or most-favoured nation (MFN) treatment provisions of an
agreement.
For example, the commitment in the Tanzania – Canada BIT arises in Article 4(1) on
National Treatment:
“each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments.”
The second group of provisions concerns the protection of foreign investments against
government action once established in the host country. Both groups of provisions are
included in virtually all investment agreements in varying forms. A brief overview of the
substantive rules that are usually included in investment treaties and related concerns are
described below.
2.2.1.1 National Treatment
Under most investment treaties, the host country must treat the foreign investors no less
favorably than it treats domestic investors in like circumstances. While at first blush this
requirement seems unobjectionable, in practice the national treatment obligation is
problematic because it requires the comparison of activities that are not necessarily easy to
compare. National treatment provisions require a host state to treat foreign investors and
investments at least as well as they treat their own investors. As such, national treatment
provisions limit the use of preferential laws and policies to favour nationally owned investments.
Depending on how these provisions are drafted, they may also limit a host government’s
ability to implement regulations that are more difficult for foreign investors to comply
with, even if those regulations apply equally to domestic and foreign firms.
Most investment treaties contain national treatment provisions but there is significant
variation in the way that they are drafted. These national treatment provisions of
investment treaties they apply to the treatment of investment after the investment has been
made that is, the post-establishment phase and before that is pre establishment phase. At
least with respect to the post-establishment phase of an investment, national treatment
aims at creating a level playing field between local and foreign investors as a prerequisite
for equal competition. Most BITs contain either a specific clause that prohibits
“discriminatory measures concerning the management, operation, maintenance, use,
enjoyment, acquisition, expansion, or disposal of investments33,” or a general
nondiscrimination clause that either separates between national and MFN treatment or
frames them as part of a single treaty provision. Some BITs, for example, contain so-
called “grandfather clauses” that only forbid the introduction of new discriminatory
measures, while allowing the retention of existing discriminations34. The granting of
national treatment after entry may confer advantages on aliens, as it will grant them the
same privileges enjoyed by nationals. Some of the BITs contain national treatment
33 See Article 3(2), Treaty between Denmark and the United Republic of Tanzania concerning the promotion and Reciprocal Protection of Investment, signed on April 22, 1999, entered into force on October 21, 2005. And Article 2(3), Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment, signed on June 19, 2001, entered into force on October 30, 2002.34 See Article 3(2-4), Treaty between United Republic of Tanzania and the Kingdom of Sweden concerning the Promotion and Reciprocal Protection of Investment, signed on September 1, 1999, entered into force on March 1, 202. And Article 3(6), Treaty between United Republic of Tanzania and the Kingdom of Netherlands concerning the Encouragement and Reciprocal Protection of Investment, signed on July 31, 2001, entered into force on April 1, 2004.
provisions with the clarification that the obligation to treat foreign investments no less
favourably than domestic investments only applies insofar as the comparison is between
investments “in like circumstances.”35 This phrase responds to concerns about the way in
which arbitral tribunals have interpreted and applied national treatment provisions in
investor state disputes. For example, in one case a tribunal held that a foreign investor in
the oil and gas sector had not been granted national treatment because it was subjected to a
less favourable taxation regime than that applied to domestic investors in the agricultural
sector.36
This trade-related term ‘in like circumstances’ is used to limit the effect of the national
treatment requirement. It is difficult to understand the nature of such a limitation in the
context of investment. A large multinational corporation as an investor is never ‘in like
circumstances’ because of its size and vertically integrated global organisation. This
formulation does not imply equality of treatment, as it leaves open the possibility for host
countries to offer foreign investors a more favorable treatment than that granted to its
national investors. National treatment may have far reaching consequences for economic
development policy because national companies cannot be favoured over foreign
companies e.g. incentives, subsidies to mention those few, unless it is so stipulated by the
way of exception in the BITs. Exceptions to national treatment can be of a general nature,
as those typically based on the right to treat domestic and foreign investors in certain types
of activities or industries differently for reasons of national economic and social policy.
Similarly, they could avoid extending to foreign investors the same treatment granted to
investors from countries which are partners to an economic integration arrangement, an
issue that is closely related to the most favored nation clauses of investment agreements.
35 See Article 4(1), Agreement between the Government of Canada and the Government of the United
Republic of Tanzania for the promotion and reciprocal protection of investments, see also UNCTAD,
National Treatment, UNCTAD Series on Issues in International Investment Agreements (New York and
Geneva, United Nations, 1999) 1, 10.36 Occidental v. Ecuador (I), Final Award, paras. 167-179.
The national treatment obligations also apply to the admission, establishment, acquisition
and expansion of investments i.e., at the pre-establishment phase. The pre-establishment
national treatment provisions are not always included in investment treaties. When
included, they govern a host state’s ability to limit or regulate the entry of foreign
investment.37
The pre-establishment national treatment does not require a host state to allow
unconditional market access to foreign investors. It require a host state to provide
treatment to foreign investors that is no less favourable than the treatment provided to
domestic investors in respect of the “acquisition, expansion, operation, management,
maintenance, use, enjoyment and sale or other disposal of investments”. Host states may
still impose restrictions or conditions on foreign investments, provided that the same
restrictions or conditions are applied to investments made by national investors from the
host state.
The national treatment provisions aims at giving the obligations to the contracting parties
to give the same treatment to foreign investor that is at least favourable like that given to
the national investor. In theory, this treatment is intended to create a level playing field for
the foreign investors and host state investors. But in practice this is not because the two
kind of investors are not identical, treating two different groups differently may not
amount to discrimination, that’s why the BIT include exception provision. The extension
of this to pre-establishment rights removing governments’ rights to pre-screen investments
further reduces chances for host countries to enact policies that will specifically benefit
domestic entrepreneurs.
37 See Article 4(1), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments. And Article 3(1), Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment, signed on June 19, 2001, entered into force on October 30, 2002.
2.2.1.2 Most Favored Nation Standard of Treatment
Most Favored Nation (MFN) treatment in the context of foreign investment means that, “a
host country treats investors from one foreign country no less favorably than investors
from any other foreign country.” The idea is to promote equality of competitive
opportunities between foreign investors and to provide a level playing field amongst them.
Like constitutional protections of equality, such clauses are regularly drafted in a broad
and general way. A typical clause thus stipulates: “Each Party shall accord to such
investments treatment which in any case shall not be less favorable than that accorded
either to investments of its own investors or to investments of investors of any third
country, whichever is most favorable to the investor concerned”38. Occasionally, MFN
provisions are subject to exceptions39. Some BITs, for example, contain so-called
“grandfather clauses” that only forbid the introduction of new discriminatory measures,
while allowing the retention of existing discriminations40. Although host countries may
express reservations or exceptions in the application of the MFN treatment vis a vis
different States, nonetheless, the way they are formulated tends in practice to restrict this
objective because the host country is required to ensure that the application be temporarily
and does not affect the foreign investment and companies.41
38 See Article 2(b), Treaty between United Republic of Tanzania and the Kingdom of Netherlands concerning the Encouragement and Reciprocal Protection of Investment, signed on July 31, 2001, entered into force on April 1, 2004.39 Exceptions to MFNT may only be found in general exception clause or taxation clauses see for example Article 14(2) read together with 14(5) Agreements between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.40 See Article 3(2-4), Treaty between United Republic of Tanzania and the Kingdom of Sweden concerning the Promotion and Reciprocal Protection of Investment, signed on September 1, 1999, entered into force on March 1, 202. And Article 3(6), Treaty between United Republic of Tanzania and the Kingdom of Netherlands concerning the Encouragement and Reciprocal Protection of Investment, signed on July 31, 2001, entered into force on April 1, 2004.41 See also, Benhajj S. Masoud ‘Implications of BITs for Cross-Border Insolvency Regulations in Sub Saharan Africa’ African Journal of International and Comparative Law. 24.1 2016; 64-85 at 76
2.2.1. 3 Fair and Equitable Standard of Treatment
While the national and MFN treatments constitute relative standards that depend on the
treatment accorded to a reference group, investment treaties also impose standards of
treatment on host states, such as fair and equitable treatment and full protection and
security, that are absolute in character and grant protection to foreign investors
independent of the host state’s treatment of its own nationals or of third-party nationals. In
this context, the BITs regularly provide that; “[i]nvestments of investors of each
Contracting Party shall at all times be accorded fair and equitable treatment and full
protection and security in the territory of the other Contracting Party42.”
Alternatively, some treaties explicitly provide that under fair and equitable treatment and
full protection host States “shall in no case accord treatment less favorable than that
required by international law43.” In view of the little specific obligation to accord fair and
equitable treatment and to provide full protection and security, the exact content of both
standards has not been authoritatively determined and remains contested. In particular,
although the standard of fair and equitable treatment easily finds passage in nearly all
BITs, it is probably the most controversial and complex undertaking for states engaged in
modern investment treaty practice. In fact, the jurisprudence of investment tribunals
interpreting fair and equitable treatment regularly has recourse to certain sub-elements that
run parallel to the concept of the rule of law in domestic legal systems. In this context, fair
and equitable treatment is interpreted to include the requirement of stability and
predictability of the legal framework, consistency in the host State’s decision-making, the
principle of legality, the protection of confidence or legitimate expectations, procedural
42 See Article 2(2), Treaty between United Republic of Tanzania and the Republic of Korea concerning the Promotion and the Protection of Investment, signed on December 18, 1998.43 See Article 2(4), Treaty between United Republic of Tanzania and the Kingdom of Sweden concerning the Promotion and Reciprocal Protection of Investment, signed on September 1, 1999, entered into force on March 1, 202. And Article 2(2), Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment, signed on June 19, 2001, entered into force on October 30, 2002
due process and the prohibition of denial of justice, the protection against discrimination
and arbitrariness, the requirement of transparency, and the concept of reasonableness and
proportionality44.
The standard of full protection and security, in turn, is closely connected to the fair and
equitable treatment standard. Unlike fair and equitable treatment, which primarily protects
the investor against interferences by the host state, full protection and security requires
positive action by the host state in establishing and enforcing a legal framework for the
protection of foreign investment and in protecting the physical integrity and safety of
foreign investments against interference by private actors, such as demonstrating or rioting
individuals. Apart from providing police protection, full protection and security is also
violated if state conduct actually infringes upon the physical safety of foreign investments
outside the scope of law enforcement. This standard was, therefore, held to be violated in a
case of destruction of foreign-owned property by the host state’s armed forces45. Both fair
and equitable and full protection and security treatment standards, ensure basic
requirements connected to the concept of the rule of law, namely that the state has to act
vis-à-vis individual economic actors through the means of the law, but also has an
obligation to protect the physical and economic integrity, safety, and security of its
subjects against unlawful interference by private and government actors.
2.2.1.4 Minimum Standard of Treatment
Many investment treaties include a minimal treatment standard that requires a host state
treat the foreign investor in accordance with international minimum standards of fair and
equitable treatment. Customary international law requires states to have a minimum
standard of treatment of investors and the traditional notion of diplomatic protection and 44 Stephan W.Schill, Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of Law pp. 11–23 (2006). 45 American Manufacturing & Trading v. Zaire, Award, February 21, 1997, paras. 6.04 et seq.; Asian Agricultural Products v. Sri Lanka, Final Award, June 27, 1990, paras. 45 et seq.
treatment of aliens. It is the notion of diplomatic protection of citizens and their property
abroad by home country that gave rise to modern rules of foreign investment law. BITs or
MITs that require the host states to extend the international minimum standard of
protection to both aliens and their property has extended the idea to the host state. It is
submitted that when the BITs prescribe treating the foreign investor in accordance with
customary international law, they should be understood to mean the standard of
international law embodied in the terms of some two thousand BITs. The minimum
standard of international law is the contemporary standard46.
One should refer to the meaning of the minimum standard of treatment to be certain
whether they interact or not. Roth defines it as ‘nothing else than a set of rules, correlated
to each other and deriving from one particular norm of general international law, namely
that the treatment of aliens is regulated by the law of nations’47. Other scholars define the
minimum standard of treatment in terms of comparison between it and national
treatment48. In this regard, Brownlie explains that the international minimum standard is a
moral standard for civilised countries as opposed to the principle of national treatment49.
Furthermore, Asante also asserted that, according to the doctrine of State responsibility,
“Host states are enjoined by international law to observe an international minimum
standard in the treatment of aliens and alien property. The duty to observe this standard
objective international standard is not necessarily discharged by according to aliens and
alien property the same treatment available to nationals. Where national standards fall
below the international minimum standard, the latter prevails.”50 Moreover, Root, argued
46 Stephen M. Schwebel, The Influence of Bilateral Investment Treaties on Customary International Law, 98 AM. Soc'Y INT'L. L. PROC. At p 29-30 (2004)47 Andeas H. Roth, The Minimum Standard of International Law Applied to Aliens (Leiden: AW Sijthoff'sUitgeversmaatschappij NV, 1949). At p. 12748 Ioana Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment, Oxford : Oxford University Press , 2008 at 6149 See Ian Brownlie, Principles of Public International Law (5 edn.; Oxford: Oxford University Press, 1998) at 50250 Samuel K.B Asante, International Law and Foreign Investment: A Reappraisal(1988) 37 ICLQ 588-628
that, “there was a standard of justice which formed part of international law [and that] if
any country’s system of law does not conform to that standard, although the people of the
country may be content or compelled to live under it, no other country can be compelled
to accept it as furnishing a satisfactory measure of treatment to its citizens.”51 In my view
such arguments creates a link between BIT and Customary international law.
Generally, treaty rules and customary international rules may co-exist and be applied
independently.52 However, there is no hierarchy between them.53 Instead, treaty rules are
considered as lex specialis and this is particularly evident in bilateral treaties.54 For that
reason an intense and continuous interaction occurs in different forms between bilateral
investment treaties and customary rules. As it has been recently argued by Lowenfeld that
“taken together, the [BITs] are now evidence of customary international law, applicable
even when a given situation or controversy is not explicitly governed by a treaty.”55
Therefore interaction between bilateral investment treaties and customary international
law is in place. They both intensely interact and constantly affect each other. The issue of
standard of treatment of foreign investors has resulted to the inclusion of provisions in
both national laws and international instrument agreement of the standard of treatment that
provides protection against discrimination of investors in a foreign state. Accordingly, it
may be concluded from the above that the International Minimum Standard of Treatment
called for the basic standards of justice, non-discrimination, due-process, fairness, equity
51 Elihu Root, The Basis of protection to Citizens Residing Abroad (1910) 4 AJIL517, 521-2.52 See Case Concerning Military and Paramilitary Activities in and against Nicaragua, Merits, ICJ Reports 1986, at para 175. See also P. Sands, 'Treaty, Custom and the Cross-Fertilization of International Law', Yale Human Rights and Development Law Journal, 1 (1998), 85-106. 53 Philipe Sands, 'Treaty, Custom and the Cross-Fertilization of International Law', Yale Human Rights and Development Law Journal, 1 (1998), 85-106 at 92 54 This view has been maintained by the ICSID Tribunal in ADC and ADC & ADMC v. Hungary case whereby it states that ‘there is general authority for the view that a BIT can be considered as a lex specialis whose provisions will prevail over rules of customary international law’, ADC and ADC & ADMC v. Hungary, ICSID/ARB/03/16, Award, 2 October 2006 at para 481. 55 Andreas F. Lowenfeld, International Economic Law, 2nd ed., Oxford, 2008, p. 584.
and basic human rights including right to property to be accorded to foreign investors.
This ensured investors protection against political risk of expropriation i.e. taking of
property or other assets by host States for a public purpose on a non-discriminatory basis
in accordance with due process of law, with prompt, adequate and effective compensation.
2.2.1.5 Performance Requirements
Investment agreements prohibit the use of a number of “performance requirements,”
which have traditionally been used by developing countries to ensure that foreign
investment furthered their developmental goals. Examples of performance requirements
include technology transfer obligations, local hiring and training requirements, and
domestic content rules. Being able to guide incoming investments so that they meet local
and national priorities is critical to harness private investment to further environmentally
and socially sustainable development. Performance requirements are requirements
concerning the location or the origin of the inputs, outputs or activities associated with an
investment. Examples of performance requirements include requirements that a foreign
investor use a certain percentage of host states produced inputs, requirements that
investors export a minimum percentage of their output and requirements that investors
employ a certain percentage of host states staff. From the outset, it is important to note that
some types of performance requirements are prohibited by the WTO’s Trade-Related Investment
Measures (TRIMs) treaty,56 specifically local-content requirements, trade-balancing requirements,
and export limits.57 Most other forms of performance requirements notably, requirements related
to employment, research and requirements to form partnerships or joint venture arrangements with
local firms are not prohibited by the TRIMs treaty. For example the Tanzania–Canada BIT
covers a much broader range of performance requirements it prohibits, among others, to
56 UNCTAD. (2014). Recent developments in investor-state dispute settlement. p. 3. Available at http://unctad.org/en/PublicationsLibrary/ webdiaepcb2014d3_en.pdf57 Agreement on Trade Related Investment Measures, annex.
achieve a given level or percentage of domestic content and to transfer technology, a
production process or other proprietary knowledge to a person in its territory.
2.2.1.6 Expropriation
A central provision of investment agreements is a prohibition on uncompensated
expropriation or taking of investors’ assets. Brownlie notes that expropriation per se is
lawful provided it is carried out for a public purpose, follows due process is non
discriminatory and the measures are accompanied with the payment of prompt adequate
and effective compensation.58 Almost all BITs contain expropriation clauses; but it is rare
for those clauses to specifically define what constitutes an expropriation. They contain
generalised expropriation clauses which do not explain the scope of expropriation and the
extent of government interference required for compensable regulatory expropriation.59
For instance, Article 5(1) of the Tanzania-UK BIT which provides that nationals or
companies of either contracting party shall not be:
“Nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation...in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation…”
Although the expropriation clause contained in the Tanzania-UK BIT does not explicitly
state concepts such as indirect expropriation, creeping expropriation and de facto
expropriation, these terms can be construed from the wording of the expropriation clause.
Indeed, the tribunal in Biwater v United Republic of Tanzania found that Article 5 (1) of
58 Ian Brownlie, Principles of Public International Law (6th edn, OUP 2003) 508-12. He notes that since international law recognises exceptions to the requirement of compensation this should be articulated in treaties so as to allow legitimate regulation.59 See for instance article 5 of the Treaty between the United Republic of Tanzania and Government of the Kingdom of Denmark Concerning the Promotion and Reciprocal Protection of Investment (22 April 1996) [Hereafter Denmark-Tanzania BIT]; Article 5 of the Agreement between the United Republic of Tanzania and the Government of the Italian Republic for the Promotion and Protection of Investments (2001) [Hereafter Tanzania- Italy BIT]; Article 3 of the Treaty Between Federal Republic of Germany and the United Republic of Tanzania Concerning the Encouragement and Reciprocal Protection of Investments (30 Jan 1965) [Hereafter Germany-Tanzania BIT].
the Tanzania-U K BIT was broadly framed to encompass both formal taking (direct
expropriation) but also de facto expropriation or indirect taking that does not involve
actual taking of title but nonetheless results in effective loss of property.60
Most of the provisions of the BITs in investment treaties deal with two distinct situations.
The first is “direct expropriation,” which occurs when a government nationalizes or
permanently takes over possession of an investment. The second is “measures equivalent
to expropriation,” more commonly referred to as “indirect expropriation.” Indirect
expropriation occurs when a government takes a measure akin to expropriation that does
not involve nationalization or the ousting of the investor from possession of the
investment. Such actions may include regulatory takings that affect the value of
investment or render it economically not viable and hence requiring compensation61. It is
not necessary that it should be an isolated event or that the host country should try to take
ownership of the investment. The question of whether government measures that prevents
a foreign investment from continuing to operate profitably amount to “indirect
expropriation” for which compensation is required has proved controversial in practice.
Investors have brought claims to investor state arbitration arguing that government
decisions not to renew an investor’s operating permit,62 or to ban the use of chemicals that
are harmful to human health, amount to indirect expropriations.63 The Tanzania- Canada
BIT clarifies what is meant by “indirect expropriation,” that determining whether an
indirect expropriation has occurred requires a case-by-case inquiry that shall consider,
among other factors:
60 Biwater v Tanzania, para 452.61 Benhajj S Masoud ‘Implications of BITs for Cross-Border Insolvency Regulations in Sub Saharan Africa’ African Journal of International and Comparative Law. 24.1 2016; 64-85 at 8262 Tecmed v. Mexico 63 Methanex v. United States; Chemtura v. Canada.
(a) the economic impact of the measure or series of measures, although the sole fact
that a measure or series of measures of a Party has an adverse effect on the
economic value of an investment shall not establish that an indirect expropriation
has occurred;
(b) the extent to which the measure or series of measures interfere with distinct,
reasonable investment-backed expectations; and
(c) the character of the measure or series of measures.64
The Tanzania- Turkey BIT also clarify that non-discriminatory regulatory measures
designed to protect legitimate public welfare objectives, such as public health, safety and
the environment, do not constitute indirect expropriation.65 This gives guidance to arbitral
tribunals and helps make the interpretation of this provision more predictable.
Most investment treaties endorse the basic principle that compensation should be
equivalent to the fair market value of the investment at the time when the expropriation
was announced. While this standard of compensation is common to investment treaties, its
application can lead to anomalous results in practice. For example, if an investor acquires
an investment for significantly less than its fair market value perhaps because a
competitive tender was not originally conducted it would still be entitled to full
compensation if the investment was renationalized, a situation that would grant the
investor a substantial windfall. For the country to consider alternatives to the fair market
value standard for compensation, the SADC Model Investment Treaty provides an
example of how a provision could be drafted so that compensation does take into account
the circumstances in which an investment is acquired.66
64 See Article 10(5), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments65 See Article 6(3), Agreement between the Government of the Republic of Turkey and the Government of the United Republic of Tanzania concerning the reciprocal promotion and protection of investments.66 SADC Model Bilateral Investment Treaty Template with Commentary, Article. 6(2), options 1 and 2.
2.2.1.7 Investor to State Dispute Settlement
In the past, disputes concerning the application of a treaty or the interpretation of its
provisions were primarily resolved by state-to-state arbitration or adjudication before the
International Court of Justice (ICJ). For example, in the post-World War II era, treaties of
friendship, commerce and navigation to which the United States. was a party usually
included a state to state dispute settlement mechanism to resolve investment disputes. The
negotiation of bilateral investment treaties in the early 1980s, however, brought a shift in
the resolution of disputes and began to introduce investor to state arbitration rules.
Investor to state dispute settlement extends to investors the right to initiate international
arbitration proceedings against the host state if the investor believes that one of the host
state’s obligations has been breached. In the past few years, investors have used this
mechanism aggressively to push their agenda.
The dispute settlement provisions included in the various investment treaties usually refer
to arbitration mechanisms, such as the International Center for the Settlement of
Investment Disputes (ICSID), part of the World Bank Group, the arbitration facilities of
the International Chamber of Commerce (ICC) in Paris, or the Stockholm Chamber of
Commerce (SCC) among others. Some dispute settlement clauses do not refer to any
particular arbitral institution but instead refer ad-hoc arbitration under the UNCITRAL
arbitration or other rules. While under ICSID rules cases launched are publicly registered
and listed on ICSID’s web site, other arbitration mechanisms do not publicize cases at all.
No arbitration rules, including those under ICSID, require open hearings or public access
to documents and decisions. The investor state dispute settlement system itself is
fragmented with various venues on offer for arbitration, each with its own rules of
procedure, history and culture. Arbitrators are chosen in an ad hoc manner and, in the
absence of an appellate process that ensures consistency and the correct application of
international law, the system is prone to inconsistent and diverging interpretations in cases
addressing the same provisions and similar facts. Recurring inconsistent awards and
interpretations by panels deepen the uncertainty about the meaning of key treaty
obligations and compound the problems of the unpredictability of treaties. There is also
growing evidence of dissenting views among members of panels.67
2.3 Concession Contracts
Concession contracts also known as called host government agreements constitute an
important element of the international investment regime. They are entered into by
governments and foreign investors to discipline their undertakings in investment projects.
Through these concession contracts, foreign investors usually acquire rights to explore and
exploit natural resources, including for example access to water, forests, minerals,
fisheries, etc. In spite of the fact that access to natural resources raises important public
interest concerns, these contracts are negotiated behind closed doors, without public
consultations. The covert character of these contracts greatly undermines the ability of
civil society to raise public interest concerns. Concession contracts also provides for the
settlement of disputes arising from the interpretation and application of the contract. Some
provides for international arbitration often in the framework of ICSID, other contracts
provide for settlement through the host state’s domestic courts or through arbitration under
the local law. Difficulties arises where the contract provide for dispute settlement through
domestic courts while an applicable treaty provide for international arbitration.
International tribunals have held that they have jurisdictions for claims based on treaty
breaches while disputes based on contract would have to be brought before the domestic
courts or tribunal.68
67 UNCTAD (2013a), “Recent Developments in Investor-State Dispute Settlement.” IIA Issues Note No. 1. Geneva. March.68 Vivendi Universal .V. Argentina (Decision on Annulment of July 2002) para 93-115
2.4 Multi-lateral Investment Treaties
MITs are international investment agreements which are entered into collectively by more
than two states. MITs are similar to BITs except that parties have obligations among
themselves inter se, to the extent that they have made reservations. Below are few
examples of the MITs which are part of international investment legal framework.
i. General Agreement on Trade in Services
A good example is the GATS, administered by the Word Trade Organization and subject
to the WTO dispute settlement procedures.69 The provision of services abroad, for
example, banking or accounting or shipping management or engineering consultancy
services will usually require the establishment of some kind of commercial presence in the
state to which the services are supplied. That presence may be a branch or a subsidiary or
an agency; but whatever form it takes, the establishment of the presence buying or leasing
the premises, hiring the staff, and so on will in effect be the making of an investment in
the host state. And the conditions on which access to the market is given, and the
provision of the services takes place, are matters of exactly the same kind as are covered
by the investor protections under the BITs. There may, therefore, be a considerable
overlap between the GATS and BITs. A full account of the legal landscape would require
a consideration of instruments such as the GATS, which have a direct effect upon
investments but which have a different focus.
ii. International Center for the Settlement of Investment Disputes
The ICSID was established at the initiative of the World Bank in order to encourage
foreign direct investment (FDI) which was seen as a primary vehicle for economic
development, and with it social and political development. The role of the ICSID is
essentially supportive. The ICSID itself does not monitor investments or resolve
69 See the material published at < http://www.wto.org/english/tratop_e/serv_e/serv_e.htm
investment disputes. Rather, it performs the administrative functions necessary to establish
and support the operation of international arbitration tribunals.
The ICSID Convention and associated rules regulate the conduct of arbitration and
conciliation procedures under auspices of the ICSID. The Convention also provides for the
determination of challenges to awards rendered by the ICSID tribunals, and for the
recognition and enforcement of final awards by the courts of the ICSID States Parties.
While both arbitration and conciliation are possible under the ICSID Convention,
arbitration is much the more popular option. The ICSID is, therefore, a pre-arranged
procedure; a system for the handling of investment disputes between one ICSID member
state and nationals of another ICSID member state. Most of Investment codes and BITs
provide that if a dispute is not resolved by negotiation, the investor is entitled to have
resort to arbitration in accordance with the ICSID rules70. But the ICSID also has an
Additional Facility, first adopted in 1978 when the ICSID had little business and was keen
to attract more work.
The Additional Facility rules permit the ICSID to administer arbitration and conciliation
procedures where either the host state or the national state of the investor is an ICSID
party, but because one of those two states is not an ICSID state party the ICSID
Convention is, strictly speaking, not applicable. The great advantage of the ICSID system
is that it is comprehensive and self-contained. Clear rules for arbitrations are laid down;
and the tribunals, whose members are freely chosen by the disputing parties. The ICSID
Convention sets out very limited grounds on which alone ICSID awards may be
challenged, in proceedings before specially appointed ad hoc ICSID annulment panels;
and this helps to minimise challenges to the validity of arbitral awards; and the
Convention also provides that the ICSID awards must be given the same recognition and
70 See for example section 23 (b) of Tanzania Investment Act of 1997
enforcement by ICSID member states as would be given to a final judgment of a court in
that state.
iii. Multilateral Investment Guarantee Agency
The MIGA was established in 1988 within the World Bank group of international
organizations, in order to promote foreign investments and, in turn international
development. It does so by providing three main services. The first is insurance against
political risks, including losses resulting from war risks, expropriation, the imposition of
currency transfer restrictions, and non-payment of judgments or awards against a host
state arising from the breach or repudiation of a contract. The cover is available from the
MIGA for investors from any of the 167 State Parties to the MIGA who wish to invest in
developing countries that are members of MIGA. The MIGA’s primary tool for
promoting and protecting foreign investment projects consists in offering an insurance
scheme for foreign investors in developing countries. The second main role of the MIGA
is to provide technical assistance to developing states in creating an environment that is
conducive to investment and in attracting foreign investors. It provides both information
and capacity-building training to developing states. This is complemented by the MIGA’s
third main role, which is as an institutional mediator when investment disputes arise.
The MIGA’s institutional position as a public, international, organization that sees secure
investment as an essential element in development strategy, and which has the capital to
back its commitments, gives it a particular influence with investors and host states alike in
its mediation efforts. Thus, the MIGA has a mandate to conclude, based on the MFN
treatment, agreements with developing countries that assure MIGA and the investments it
insures certain standards of treatment. Furthermore, MIGA is charged with promoting and
facilitating the conclusion of international investment treaties among its member states.
This mandate of promoting and protecting foreign investments in a multilateral forum
further manifests the potential for multilateralism in international investment relations.
2.5 International Customary Law
The customary international law also plays an important role in investment law. The
international law minimum standards for the treatment of aliens are still relevant in a
number of context in a number of context including denial of justice. Also the minimum
standard principle has been adopted by most bilateral investment treaties as well as by
investment protection agreements between host states and private investors. State
responsibility is another area of international law that is frequently applied in cases71
involving the protection of investments. International rules on the nationality of
individuals and corporations are sometimes important in determining the applicability of
those BITs. Also the customary international law in the area of international investment
protection concerns mainly the issues of expropriation and nationalization of foreign
property. In international law, each nation state has the right to expropriate and nationalize
property on its territory due to its inherent sovereignty rights.
2.6 World Bank’s Guidelines on the Treatment of Foreign Direct Investment
The World Bank Group including, the International Monetary Fund, the International
Finance Corporation and the MIGA prepared the Guidelines in 1992 at the request of the
World community. The Guidelines were prepared by the World Bank to establish “general
principles suggested as a guide for government but are intended to influence the
71 For example the tribunal in Total S.A. v Argentine Republic (ICSID Case No. ARB/04/01), Decision on Objections to Jurisdiction, 25 August 2006 noted, referring to the Commentary to Article 2 of Draft Articles on the Responsibility of States for International Wrongful Acts. Reports of the ILC on the Work of Fifty Session UNGAOR. 56th Session, p. 43 UN DOC A/56/10(2001) , that: [a] basic issue in the present dispute is whether Argentina has committed an internationally wrongful act, that is whether it has breached the international obligations contained in the BIT by conduct attributable to it. As held by the I.L.C. these two conditions are sufficient to establish such a wrongful act giving rise to international responsibility. Having caused damage is not an additional requirement, except if the content of the primary obligation breached has an object or implies an obligation not to cause damages at para 51..
promulgation of new laws and treaties. The aim of the Guidelines is to promote the
international movement of capital. The Guidelines apply to supplement both BITs and
Multilateral treaties and as a source of legislating national laws governing foreign
investment.
2.7 Foreign Direct Investment under the World Trade Organization System and
other International Systems
In the world trade context, special rules on investment first made an appearance through
two agreements under the 1994 Agreement Establishing the World Trade Organization.
These are the Agreement on Trade-Related Investment Measures (TRIMS) and the
General Agreement on Trade in Services (GATS). The framework these create is limited,
however, and shortly thereafter the prospect of expanding the World Trade Organization
(WTO) investment mandate was raised in the lead up to the first WTO Ministerial
meeting, in Singapore in 1996. The results of Singapore saw further analysis of trade and
investment linkages mandated through a Working Group on Investment and Trade. The
two WTO Agreements that currently address investment are the TRIMs and the GATS, as
noted above. The GATS incorporates rules on investment, but only in so far as it is
necessary to address services that are provided by on-site investments, through a local
presence (referred to as a “commercial presence” in the legal texts) in the foreign country.
The TRIMS agreement, on the other hand, was intended as a first step towards a much
more comprehensive agreement on investment. States uses WTO’s Trade-related
Investment Measures (TRIMs) to promote development objectives, to encourage
investments in line with national priorities, and to attract and regulate foreign investment.
2.8 Conclusion
The MIT, BITs and state signed Conventions together with domestic legislation provide a
robust framework for the international protection of foreign investments. State’s entry into
these investment treaties and ratifications of conventions into domestic legislations makes
the protection mechanism part of their legal framework. The legal framework gives
investors an avenue to seek remedy outside the domestic courts of the host states, against
an act of government that have had a negative impact on their investment sometimes
without exhaustion of local remedies.
This concern and others relating to existing investment treaties have led several countries
to re consider their approach to their treaty practice, some countries ceased signing
investment treaties altogether. Whether Tanzania has reacted to these concerns one should
look to the trend in Tanzania’s treaty practice which is subject to discussion in the next
chapter.
CHAPTER THREE
3.0 TREND AND PATTERN OF TANZANIA’S TREATIY PRACTICE
3.1 Introduction
Tanzania signed the first BIT allowing for investor- state arbitration in 1996 with United
Kingdom. Most of Tanzania treaties are based on the template negotiating positions of
developed countries. For this reason, they are remarkably similar in their terms. During
this period, only a handful of investment treaty claims were submitted to investor–state
arbitration. As such, investment treaties attracted relatively little policy attention. Around
the year 2000 the number of investor–state disputes being brought to arbitration began to
increase sharply. Some of the arbitral tribunals adjudicating these claims adopted very
broad interpretations of the underlying treaties, expanding host states’ obligations to
foreign investors in ways that had not been anticipated when the agreements were
originally signed.
Recent trends in investment treaty-making reflect these experiences. Tanzania has
responded by significantly revising its negotiating templates, seeking to provide greater
clarity about the extent of particular obligations. Generally, the trend is toward a more
cautious and better-informed approach to investment treaty making with narrower and
more precise drafting of particular provisions. The following sections review these trends
in Tanzania treaty practice.
3.2 Trends in the Negotiation and Drafting of Investment Treaties
In light of this background, Tanzania had been rethinking its approach to the drafting and
negotiation of investment treaties. Generally, the trend points toward a greater caution in
the drafting and negotiation of investment treaties, and specificity in treaty language to
reduce the risk of unexpected interpretations by arbitral tribunals.
About the decision whether or not to sign investment treaties, in recent years, several
states have decided not to continue signing investment treaties. For example, following a
high-profile claim against the government’s affirmative action policies in the mining
sector, the government of South Africa decided not to sign new investment treaties and
has begun a process of terminating existing treaties. But Tanzania continues negotiating
treaties with other states.
3.3 Trends in Drafting: Scope of Application
Most of the BITs negotiated by Tanzania after 1990s contain provisions that provide for a
very broad scope of application. Thus, the trend has been toward narrower and more
precise drafting of the provisions that define a treaty’s scope of application. In many cases,
new treaty language responds to particular issues that have arisen in past disputes. For
example the Tanzania –UK BIT which was signed in Dar es Salaam in January 1994
broadly defined an “investment” as “every kind of asset.” Thus such broad language
counseled against using the narrow definition of “investment”.
Also for example the broad language in the expropriation provision made the tribunal in
Biwater v United Republic of Tanzania to find that Article 5 (1) of the Tanzania-UK BIT
was broadly framed to encompass both formal taking (direct expropriation) but also de
facto expropriation or indirect taking that does not involve actual taking of title but
nonetheless results in effective loss of property.72 In contrast the Canada- Tanzania BIT
which was signed in Dar es Salaam in December 1995 clarifies that a commercial contract
for the sale of goods does not qualify as an “investment” entitled to the treaty’s
72 Biwater v Tanzania, para 452.
protection.73 This responds to concerns that investment treaties could be held to apply to
any cross-border business transaction.74
3.4 Trends in Drafting: Investment Protection
As I fore said investment treaties negotiated by Tanzania after 1990s contained a handful
of broad, vaguely drafted provisions dealing with investment protection. For example,
article 2(2) of the Tanzania -U.K BIT requires each party to provide “fair and equitable
treatment” and “full protection and security” to the investments of investors of the other
party. None of these terms are defined with greater precision. Arbitral tribunals have
subsequently interpreted such provisions as requiring a state to ensure the stability of the
legal framework and to act consistently with an investor’s legitimate expectations.75 The
country has responded to these decisions which considerably expand the scope of states’
liability to foreign investors by drafting the investment protection provisions of new
investment treaties more narrowly and more precisely and by including new exceptions
clauses that protect governments’ rights to enact legitimate policy measures.
The Sweden- Tanzania BIT clearly illustrates this trend. The treaty requires each state to
provide “fair and equitable treatment” to foreign investment, subject to the requirement
that investment “shall in no case be accorded treatment less than that required
international law.”76 This text left open the possibility that the standard of “fair and
equitable treatment” required by the treaty could go beyond what was required by
international law. The corresponding provision of the investment treaty now requires
“treatment in accordance with customary international law, including fair and equitable
73 See Article 1(k), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.74 Mytilinenos v. Serbia and Montenegro, Partial Award on Jurisdiction, para. 106.75 See Frontier Petroleum v. Czech Republic, Final Award, para. 285 76 See Article 2(4), Treaty between United Republic of Tanzania and the Kingdom of Sweden concerning the Promotion and Reciprocal Protection of Investment.
treatment.”77 This formulation removes the possibility that the requirement of “fair and
equitable treatment” could be interpreted as going beyond what is otherwise required by
customary international law. However, questions remain about the standard required by
customary international law. This paragraph does not provide an exhaustive statement of
the content of customary international law, so questions remain about precisely what
customary international law requires. In contrast, the Canada- Tanzania BIT makes
reference to “customary international law minimum standard of treatment of aliens,
including fair and equitable treatment and full protection and security”, and clarifies that
the concepts of “fair and equitable treatment” and “full protection and security” do not
require treatment in addition to or beyond that which is required by the customary
international law minimum standard of treatment of aliens..”78
In addition to the clearer and more balanced drafting of substantive protections, the trend
in recent investment treaties has been toward the greater use of exceptions clauses to
safeguard governments’ policy space. A good example of this trend is the Turkey-
Tanzania and Canada- Tanzania BITs. These treaties include exceptions for government
measures necessary to protect public health and for measures relating to environmental
conservation, among others.79 Well-drafted exceptions clauses can help ensure that
governments are not held liable for legitimate public policy measures that affect foreign
investors. However, the precise effect of these provisions remains to be seen. For example,
the public health exception of the Canada- Tanzania BIT only covers measures that are
“necessary to protect human, animal or plant life or health.” Ultimately, it would be up to
a tribunal to decide whether the public health measure introduced by a state were
77 See Article 2(2), Agreement between the Government of the Republic of Turkey and the Government of the United Republic of Tanzania concerning the reciprocal promotion and protection of investments.78See Article 6(2), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments. 79 See Article 4 & 5(1), Agreement between the Government of the Republic of Turkey and the Government of the United Republic of Tanzania concerning the reciprocal promotion and protection of investments. And Article 15 & 17(1), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
necessary and, therefore, exempt from liability under the treaty. The Tanzania treaty
practice in investment protection is also relevant in connection with another aspect of the
clause. Most treaties concluded by Tanzania have a model clause to the effect that “...Each
Party shall in its territory accord to investments and returns of investors of the other
Contracting Party treatment which is fair and equitable and no less favourable than that
which it accords to investments and returns of its own investors or to investments and
returns of investors of any third State,...”.80
While this clause applies to national treatment of foreign investors and most favours
national treatment of foreign investors, it may also be understood to embrace the treatment
required by a Government for its investors abroad, as evidenced by the treaties made to
ensure their protection.
3.5 Trends in Drafting: Investment Liberalization
As Tanzania continues to sign investment treaties, there has also been a trend toward the
inclusion of provisions governing investment liberalization. The most common
liberalization guarantees in investment treaties are provisions that extend obligations to
provide national treatment and most-favoured nation treatment to the pre-establishment
phase. For example, the commitment in the Canada-Tanzania BIT arises in Article 4(1) on
National Treatment:
“…each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments.”81
Tanzania also now includes restrictions on the use of performance requirements. The
Tanzania–Canada BIT covers a broader range of performance requirements it prohibits,
among others, to achieve a given level or percentage of domestic content and to transfer
80 See for example Article 3(1) of the Agreement between the Government of the Republic of Korea and the Government of the United Republic of Tanzania for the promotion and protection of investments.81 See also Article 3(2) of Tanzania – Finland BIT
technology, a production process or other proprietary knowledge to a person in its
territory.82 It is submitted that this trend may raise a significant regulatory challenges for
Tanzania. Tanzania is likely to be increasingly confronted with requests from negotiating
partners to sign investment treaties that require investment liberalization. If Tanzania
decides to sign investment treaties containing such provisions, there is need for great care
in ensuring that reservations and exceptions are included to prevent any inconsistency with
existing laws.
For example, Tanzania laws requiring foreign investment in certain sectors to be made
through joint venture arrangement are, arguably, inconsistent with investment treaty
provisions that require Tanzania to grant pre-establishment national treatment to foreign
investors. Tanzania laws limiting the ability of foreign investors to own land in Tanzania
are also, arguably, inconsistent with investment treaty provisions that require Tanzania to
grant national treatment to foreign investors.
3.6 Trends in Drafting: Dispute Settlement
Concerns about the investor-state dispute settlement (ISDS) have been behind many
countries’ hence the decisions to reconsider their approach to investment treaties,
Tanzania is not exception to this concerns. Tanzania has continued to sign investment
treaties that provide for the ISDS, two key trends have been evident in the country’s treaty
practice; one is toward greater transparency in the ISDS proceedings and the inclusion of
mechanisms that allow states to retain greater control over the interpretation of investment
treaties. New transparency rules for investor–state arbitrations held under the UNCITRAL
Arbitration Rules and the Canada–Tanzania BIT are two examples of recent trends toward
greater transparency in investor–state arbitration. Two of Tanzania’s BITs do contain
82 See Article 9, Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
provisions on the transparency of laws, regulations, procedures and administrative rulings
and judicial decisions of general applications as well as international agreements which
may affect the investment of investors of other contracting party. The Tanzania- Finland
BIT allow making publicly of such documents, subject to the reduction of confidential
information.83
Historically, most investment treaties do not require a foreign investor to try to resolve a
dispute in the court system of the host state before proceeding to arbitration through the
ISDS procedure. In these treaties ISDS is offered to investors as an alternative dispute
resolution mechanism to litigation in the national courts of the host state. Another
alternative is to make foreign investors’ ability to bring disputes to ISDS conditional on
the investor first having made a reasonable attempt to resolve the dispute in the national
court system. For example, the Tanzania- Finland, the Tanzania – Italy, the Tanzania –
Turkey, Tanzania – Korea and the Tanzania – UK BITs their provisions may
accommodate arbitration in the competent courts of the contracting party in whose
territory the investment was made.84 Efforts currently underway to improve the efficiency
and reliability of Tanzania’s national court system raise questions about whether
investment treaties should require foreign investors to make some attempt to resolve
disputes in national courts before submitting claims to ISDS.85
3.7 Inclusion of Provisions on Responsible Investment and Sustainable Development
83 See Article 16, Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment.84 See Article 8(2)(a) of the Agreement between the United Republic of Tanzania and the Government of the Italian Republic for the Promotion and Protection of Investments; Article 9 (2)(a), Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment; Article 8(2) of the Agreement between the Government of the Republic of Korea and the Government of the United Republic of Tanzania for the promotion and protection of investments; Article 10( 2)(a), Agreement between the Government of the Republic of Turkey and the Government of the United Republic of Tanzania concerning the reciprocal promotion and protection of investments and Article 8(3) of the Agreement between the Government of United Kingdom of Great Britain and Northern Ireland and the Government of United Republic of Tanzania for promotion and protection of investments.85 Efforts were made to strengthen and streamline arbitration through national laws which led to the formation of the Commercial Court in 2000 to expedite litigation of commercial disputes.
A report published by the OECD in 2014 shows the steady increase in the number of
investment treaties containing provisions dealing with sustainable development and
responsible investment.86 However, a significant majority of existing BITs signed by
Tanzania still contain no mention of either sustainable development or the need for
responsible investor conduct. Where investment treaties contain language on sustainable
development, it is often found in general statements of the treaty’s general aims contained
in the Preamble to the treaty.87 Such language may provide guidance to an arbitral tribunal
interpreting an investment treaty, but does not create substantive rights or obligations.
Similarly, where investment treaties contain provisions on responsible investor conduct,
they are normally phrased in aspiration, non-binding language. For example, Article 4 of
Tanzania -Turkey BIT deals with health, safety and environmental measures. It provides
that any Party should not waive or offer to waive or otherwise derogate from, such
measures as an encouragement for the establishment, acquisition, expansion or retention in
its territory of an investment of an investor, and if a Party considers that the other Party'
has offered such an encouragement, it may request consultations with the other Party and
the two Parties shall consult with a view to avoiding any such encouragement. In my view
such language is non- binding to neither investor nor the Government, and does not create
substantive rights or obligations to any contracting party. The SADC’s BIT model is more
innovative, in that it places binding obligations on foreign investors not to engage in
corrupt practices and to comply with the laws of the host state.88
3.8 Conclusion
86 See UNCTAD World Investment Report 2014 at Page 116, available at http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf87 See the Preamble to the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.88 See part III of the SADC Model Bilateral Investment Treaty Template with Commentary
Generally the trend in Tanzania treaty practice indicates that there is a tendency of
inclusion of different types of provisions in different treaties and from differences in the
drafting of provisions common to several treaties. The reason for such trend being to make
sure that Tanzania enters into investment agreements that achieve a balance between
protecting the capital exporting investors and defending the regulatory authority of the
country.'
The trend also indicates that there is a minor difference between one BIT and another, this
minor differences in wording may significantly alter an investment treaty’s implications in
practice. These differences make compliance with existing investment treaties difficult
and significantly increase the risk of unexpected and costly future investor state claims.
The impact of such investor- state claim is not only high cost but also may have a
significant impacts on the regulatory authority in the country, whether Tanzania treaty
practice have also impact on investment related legislations is the subject of the discussion
on next chapter.
CHAPTER FOUR
4.0 THE IMPLICATION OF INTERNATIONAL LEGAL FRAMEWORK FOR
FOREIGN INVESTMENT ON TANZANIA’S FOREIGN INVESTMENT
RELATED LEGISLATION
4.1 Introduction
The international legal framework for foreign investment protection has been outlined.89 It
has been established that state’s entry into these investment treaties and ratifications of
conventions into domestic legislations makes the protection mechanism part of their legal
framework. The legal framework gives investors an avenue to seek remedy outside the
domestic courts of the host states, against an act of government that have had a negative
impact on their investment sometimes without exhaustion of local remedies.
Therefore, the requirements of international investment law can have significant impacts
on the implementation of regulatory authorities within a host state. An increasing body of
investor-state disputes where the issue of balancing investors’ rights with host countries’
regulatory flexibility has been challenged under trade and investment treaties illustrates
this important evolution. The lawfulness of a host state’s regulations is more frequently
being challenged by investors. Investor protections contained in investment agreements
have the capacity to limit to a large extent their abilities to regulate in the public interest.
Tanzanian government like most other governments has been actively promoting its
country as an investment destination. It has increasingly adopted measures to facilitate the
entry of FDI. Examples of such measures include liberalising the laws and regulations for
the admission and establishment of foreign investment projects; providing guarantees for
repatriation of investment and profits; and establishing mechanisms for the settlement of
investment disputes. The country also provides the best incentives to investors like tax
89 See supra Chapter Two
incentives as part of these promotional efforts. The legal and corporate due diligence
evaluation for any particular foreign investment can be a complex exercise, touching on a
wide range of laws, regulations and other issues. However, for the matter of this study,
assessment and evaluation of the implication of international legal framework for foreign
investment on Tanzania’s foreign investment related legislation will dwell on the laws that
govern the issues dealing with foreign investment and are more likely to be affected by
treaty provisions of the country.
In the light of the above the Tanzania’s regulatory authority by means of taxation law,
environmental law, bankrupt law, labour law and property law will be outlined below.
And more particular the Tanzania Investment Act will be discussed in detail as it is the
main law which deals with investment issues in the country.
4.2 The Relationship between Investment Treaties and National Laws
Investment treaties are agreements between governments. They apply to all foreign
investment between the countries in question that falls within the scope of the treaty. They
impose general restrictions on the way in which any government entity including
parliament, ministries, regional governments, courts, the military and individual
government officials is allowed to treat foreign investors and investments. Foreign
investments are also governed by the national laws of the host state. These include laws
that are specific to investment such as a host state’s investment law and laws of general
application that apply throughout the host state.
Examples of laws of general application that are relevant to foreign investments include
land use laws, employment laws, contract laws, company laws, product liability laws and
environmental laws. Investment treaties provide an addition layer of legal protection to
foreign investments over and above the investor’s entitlements under the applicable law of
the host state and the provisions of any relevant investment contracts. Investment treaties
fall within the purview of international law, thus making them hierarchically superior to
national laws. As a consequence the provisions of investment treaties prevail over national
laws. As such a government may breach an investment treaty even though it complies with
its own laws.
Inconsistency between investment treaties and other legal instruments that govern foreign
investments can limit the ability of host states to regulate foreign investment effectively
and expose the host state to the risk of legal claims under investment treaties. These risks
are discussed in greater detail in subsequent sections.
4.3 Inconsistency between Provisions under Investments Treaties and National Laws
It is generally agreed as a principle of international law that, as sovereign entities, states
are entitled to regulate their national economies independently within their territory.90
Undeniably, the sovereign right to regulate is one of the main components of the
traditional conception of statehood in international law that affects the activities of foreign
investors. Investors are subjected to many laws in force in the host state such as the
relevant taxation laws as well as regulations related to competition, company laws and
employment and environmental protection amongst others.91 These tensions between
domestic law and international investment treaties are particularly evident when looking at
the issue of state liability for changes in the general legal framework that impact an
existing BIT, investor-state contract or quasi-contractual relationship, such as a permit,
license or authorization issued by the government to a private entity. Such impact is likely
to constitute a breach of international obligations where a broad definition of fair and
equitable treatment is adopted, or where the expropriation of an overseas investment is 90 United Nations General Assembly Resolution 3281 (XXIX): The Charter of Economic Rights and Duties of States, December 12, 1974 Article 2(2.a).91 Fiona Beveridge The Treatment and Taxation of Foreign Investment Under International Law: Towards International Disciplines (1st ed, Manchester University Press, Manchester, 2000) 5.
established, even if it is indirect, creeping92 or lawful. In the context of this section, the
level of respect that arbitration tribunals have paid Tanzania’s regulatory authority will be
assessed through five selected domestic laws. This will illustrate the potential conflict
between the investment security obligations of the country and its domestic regulatory
measures.
4.3.1 Taxation Law
Taxation is, undoubtedly, one of the first elements that potential foreign investor will look
at. It is often one of the aspects which can make the host state more competitive than the
home country of an investor, and thus conducive to relocation. Hence international
investment law shows a strong interest in taxation, for several reasons detailed below.
Host states are sovereign with regard to the sectors of the economy in which they allow
foreign investors to operate.93 Tax policy is a matter that clearly falls within the customary
regulatory powers of the state. Thus, governments can specify to what extent financial
limits (minimum or maximum) may apply on investments and what kind of restrictions, if
any, are placed on the import or export of goods or services, allocations of profits, and
taxes and other levies to be paid. Nevertheless, host states are also subjected to certain
obligations towards home states to respect the rights of foreign investors established
within their territory.94
Many different ways of treating taxation in modern bilateral and multilateral investment
treaties deserve to be closely analysed. International investment agreements make
provision for taxation issues only to a limited extent on the admission, treatment and
protection of foreign investment. Such provisions are not many in number because large
networks of tax treaties such as double taxation treaties exist in parallel. It appears that if
92 See Generation Ukraine Inc v Ukraine (2003) (Award) 44 ILM 404 (ICSID) paras 20-22.93 See Fiona Beveridge, supra note 9194 Ibid, 6.
some BITs state that the provisions on National and MFN treatments do not apply to tax
matters,95 others do extend those standards of treatment to legislation relating to taxation.
An example of a formulation of the exemption of taxation issues appears in Article 4 of
the Netherlands- Tanzania BIT.96 As a result, National and MFN treatments are granted to
investors of the other party by each of the parties in respect of taxes, fees, charges and
fiscal deductions and exemptions, except for fiscal advantages accorded by a party “(a)
under an agreement for the avoidance of double taxation; (b) by virtue of its participation
in a customs union, economic union or similar institution, or (c) on the basis of
reciprocity.”
The coverage of taxation matters in investment agreements may also be limited by a
general stipulation stressing that only expropriation protection will apply to taxation.
Thus, for example, the Canada- Tanzania BIT has a clause stating that expropriation shall
apply to taxation measures97, this means that some taxation measure may amounts to an
expropriation. Thus the foreign investor may be entitled to the claim for such taxation
measures which amount to expropriation under the treaty. This provision provides a strong
protection of investors under the investment treaty at the expense of the discretion of host
states in their use of tax measures as an instrument of regulatory power. Such an approach
relies on the definition of expropriation provided in the IIA as well as on whether a clear
distinction between legitimate taxation measures and measures whose effect is to
effectively expropriate the investment is expressly stipulated in the agreement.
95 See Article 3(3) of the Agreement between the Government of the Republic of Korea and the Government of the United Republic of Tanzania for the promotion and protection of investments. And Article 4, Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment.96 See Article 4 of Agreement on Encouragement and Reciprocal Protection of Investment between the Government of United Republic of Tanzania and The Kingdom of Netherlands.97 See Article 14 (5) (b) of the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
By contrast, other BITs contain a general exception on taxation. The BIT between
Republic of Korea and Tanzania is illustrative of one type of general exception that
excludes all taxation matters from the scope of application of the agreement. Article 3 (3)
reads:
“The provisions of paragraphs (1) and (2) of this Article shall not be construed so as to oblige one Contracting Party to extend to the investors of the other Contracting Party the benefit of any treatment, preference or privilege resulting from any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation.”98 Thus, regardless of the degree of inconsistency with any of the treaty obligations, no taxation laws or regulations could be successfully challenged under the BIT. Dealing with exclusively international taxation issues in separate treaties is considered by many countries as the best way to retain maximum fiscal sovereignty.99
Another interesting example is the reference to taxation measures in the Canadian –
Tanzania BIT. This clause attempts to strike a balance between the protections that the
BIT and an investment contract may provide to an investor, on the one hand, and the
concern of the government authorities to safeguard flexibility to implement their fiscal
policies, on the other. Thus, the BIT does not, in principle, apply to taxation measures,
unless the competent authorities of each contacting party disagree among themselves that
they in fact amount to an expropriation or that such measures violate a contract previously
agreed between the investor and the host country.100
Firstly, the National and MFN treatments apply to taxation measures other than certain
categories, including taxes on income, capital gains or on the taxable capital of
corporations and taxes on estates, subject to exceptions for advantages granted pursuant to
double taxation treaties and to country specific reservations. Secondly, an investor may
98 See also Article 7 of the Agreement between the United Republic of Tanzania and the Government of the Italian Republic for the Promotion and Protection of Investments.99 UNCTAD International Investment Agreements: Key Issues Volume II (United Nations, New York andGeneva, 2004) 216.100 See Article 14 (6), Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.87 Ibid, Article 14(4).
refer the issue of whether or not a measure is an expropriation to international arbitration
only if the competent tax authorities have failed to agree on it within a period of six
months after the date on which the matter is referred to them.101 Article also 14(6) (b)
requires that questions whether a taxation measure has expropriatory effects, or whether a
taxation measure alleged to constitute an expropriation is discriminatory, be submitted in
the first instance to the competent tax authorities of the contracting parties concerned and
it should be after a period of six months.
Besides, taxation does not amount to a taking. Nevertheless, when a state enforces a tax
qualified as unreasonable or discriminatory, an expropriation will be found.102 The need to
define expropriation with respect to tax measures becomes necessary. Such a need also
applies to other fundamental substantive provisions of the IIAs. Impliedly the law related
to taxation in foreign investment in Tanzania is governed by the Income Tax Act, 1973,
The Customer Tariff Act, 1976, The Sales Tax Act, 1976 and any other law for the time
being in force.103 And according to the Income Tax Act Chapter 332 [2008 Revised
Edition] if the provisions of the international agreements are inconsistence with that of
international agreements the international agreements provision will prevail104 thus the
need to properly draft the taxation provision in the BITs of which Tanzania is a party
becomes more important.
4.3.1 Bankruptcy Law
Where a state places a company into liquidation, this can obviously affect the foreign
investor, since it results in a loss of control over the asset. According to the treaties,
expropriation will be lawful and effective only if it is undertaken for a public purpose, on
101 Ibid, Article 14(6) (b).102 UNCTAD International Investment Agreements: Key Issues Volume II, supra note 85, 230.103 See section 3 of the Tanzania Investment Act of 1997 on the definition of Incentives.104 See section 128 (1) of the Income Tax Act of 2008.
discriminatory grounds and upon payment of prompt, adequate and effective
compensation. The trend is for such treaties to also cover “measures having effect
equivalent to expropriation or nationalization”.105 The interpretation accorded thus far
opens the expropriation provisions to indirect forms of expropriations, creeping, and
regulatory takings by a host country’s actions. Such actions may include regulatory
actions that affect the value of an investment or render it economically not viable and
hence requiring compensation.
The introduction of unilateral insolvency by the administration or the incitement of this by
preliminary requisitioning can thus constitute an expropriation which requires
compensation for the investor.106 For example the Sweden- Tanzania BIT contains a
provision that refers to the protection against the abuse of the process of liquidation. 107
Although tribunal’s decision indicates that an order of liquidation incited by the
government cannot constitute an expropriation which implies compensation for the
investor when foreign companies are already in a failing situation.108 Such provision may
accommodate the government to be held liable for expropriation. Thus when used it is
important to list out in treaties and agreements the permissible regulatory actions
regarding procedures of liquidation so that there are no disputes or conflicts arising out of
such issues. Looking at the Companies Act of 2002 which deals with bankruptcy, it seems
that the Act deals with the foreign company winding up proceedings109 and that it offers
105 See also Article 5 of the Agreement between the United Republic of Tanzania and the Government of the Italian Republic for the Promotion and Protection of Investments.106 See Benhajj Shaaban Masoud, ‘Legal Challenges of Cross Border Insolvencies in Sub Saharan Africa with Reference to Tanzania and Kenya: A Framework for Legislation and Policies’ ( PhD thesis, Nottingham Trent University 2012), 133107 See Article 4(3), Treaty between United Republic of Tanzania and the Kingdom of Sweden concerning the Promotion and Reciprocal Protection of Investment.108 Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar (Award) (2003) ASEANArbitral Tribunal 42 ILM 540; See also Elettronica Sicula S.p.A. (ELSI) (United States v Italy) (Jurisdiction and Admissibility) [1989] ICJ Rep 15, para 9.109 See section 275 of the Company Act of 2002
additional protection for companies under difficulties.110This implies that in most cases
foreign company will rely in the BITs provisions when there is an abuse of process in
liquidation by governments as the Act is silent on the issue.
4.3.2 Environmental Law
Environmental protection issue becomes the foreign investors concern during the
investment process. On the one hand, it could be said that certain investors seek host
countries with lower environmental standards, in order to make more profits than in their
country of origin. The investors would seek to establish themselves within a sufficiently
healthy environmental framework to be able to attract social capital and, very often, in
order to sell their products in their home country. Regardless of the validity of each of
these facts, environmental protection, like other national laws, is of interest to
international investment law. The concept of environmental protection is broad because it
includes concepts of the preservation of the quality of the air, water, and soil; the
sustainable use of natural resources; the preservation of human, animal and plant life and
health, and of the ecosystem more generally.111
The basis of environmental regulation is therefore based on these key issues. The
protection of environment has gradually emerged as a new issue in several BITs. Indeed,
some agreements have reiterated the authority of national governments to design and
implement measures to safeguard certain values such as the environment. The investor
could encounter unforeseeable difficulties in environmental law given the interpretation of
a growing number of arbitration tribunals, if the interpretations are standards of general
application. Environmental protection applies not only to states but also to private non-
state actors such as corporations. It concerns many acts and can affect investors in several 110 See generally sections 247-266 of the Company Act,2002 which deals with protecting creditors interests and a balance between protecting creditor and saving distressed businesses.111 UNCTAD Environment (United Nations Publications, New York and Geneva, 2001) 9-10.
ways. The measures designed to protect the environment are applicable from the
establishment of the investment, but may be unknown to the investor because of promises
of exemption or exemptions previously allocated but subsequently withdrawn.
Alternatively, the foreign investor may be unaware of such measures due to lack of clarity,
false or contradictory information provided by the legal administration. In another
situation, the measures of protection of the environment may be introduced a posteriori
and differ from the initial expectations of the investor.
Therefore, the relationship and the issues that may arise between investment protection
and provisions of environmental protection in the IIAs may be illustrated by taking into
account some provisions of investment agreements. Host states grant themselves the right
to interfere when, for example, multinational corporations cause environmental pollution.
The regulatory right of the state might prevent a foreign investor from harmful decisions
protecting the environment.112 The protections that can be the basis for a dispute over
environmental regulation under the BITs, MITs or regional agreements like the SADC are
generally standards of treatment such as national treatment and most-favoured nation
treatment as well as prohibitions of expropriation. A certain number of standards of
protection regarding the environment included in the IIAs need to be examined. Four
categories can be distinguished:113 (1) the responsibility of governments or enterprises
with regard to environmental protection; (2) the regulatory power of states to take
measures for the protection of health and environment; (3) the avoidance of relaxation of
environmental standards as a means of attracting FDI; and (4) the promotion, development
and transfer of environmentally sound technologies and management practices.
112 Muthucumaraswamy Sornarajah The International Law on Foreign Investment (3ed, Cambridge University press, Cambridge, 2010) at page 110.113 UNCTAD Key Terms and Concepts in IIAs: A Glossary UNCTAD (United Nations Publications, New York and Geneva, 2004), 61.
Thus, such issues which can be found as provisions in free trade agreements or investment
treaties might be breached and consequently lead to an arbitration dispute. Therefore, it is
of interest to mention several provisions which address environmental concerns. One
among the Tanzania’s BITs discourages the lowering of domestic standards as a means of
attracting FDI. According to the Canada- Tanzania BIT provide:
“The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding any such encouragement.’’114
The above provision, not defining the term “environmental measures,” seems to cover any
law, regulation or administrative decision regulating environmental matters in the territory
of the contracting parties. The clause addresses the waiving or relaxing of “any”
environmental measure or offering to do so in order to attract or maintain an investment.
Thus, it would be unnecessary to demonstrate a continuous tendency of behavior by a
contracting party in violation of the commitment.
In consequence, a number of international investment agreements recognize the right of
states to adopt certain measures designed to ensure that investment activity is undertaken
in a manner sensitive to environmental concerns.115 In the light of the above analysis it is
submitted that Section 93 of the Environmental Management Act of 2004, which provide
the power to the minister of cancelation of license for business which contravene the Act
may attract expropriation dispute. Because arbitral tribunals have stated that one core
114 See Article 15, Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments115 See Article 4, Agreement between the Government of the Republic of Turkey and the Government of the United Republic of Tanzania concerning the reciprocal promotion and protection of investment
obligation in investment treaties the fair and equitable treatment (FET) obligation protects
the “legitimate expectations” of investors made at the time of the investment;116 and if the
legal framework governing the investment changes in a way that was not anticipated or
foreseen by the investor at the time of making the investment, then the investor should be
compensated for the cost of complying with those changes.117 This means that if a new law
is adopted, or an existing law is revoked or interpreted or applied in a new way,118 those
changes can trigger state liability.
In contrast the draft article of an agreement between the EU and the Pacific members of
the African, Caribbean and Pacific Group of States (ACPGS) countries of June 2006 takes
a step forward in narrowing the scope of regulatory measures as non compensable
expropriations:119 Consistent with the right of states to regulate and the customary
international law principles on police powers, bona fide, non-discriminatory regulatory
measures taken by a party that are designed and applied to protect or enhance legitimate
public welfare objectives, such as public health, safety and the environment, do not
constitute an expropriation under this Article.
If this draft article remains in the adoption of the final agreement, it would constitute an
important new trend in foreign investment law and would possibly be more protective in
acknowledging the exercise of the regulatory powers of host states.
116 Tecnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, May 29, 2003, para. 154.117 See also, e.g., Suez, Sociedad General de Aguas de Barcelona S.A. and InterAgua Servicios Integrales del Agua S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability, July 30, 2010, para. 207; Total v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, Dec. 27, 2010, para. 122.118 Occidental Exploration and Production Company v. Ecuador, LCIA Case No. UN 3467, Final Award, July 1, 2004.119 Draft Article 8.8(I) of the investment chapter in the context of the EU/PACP EPA negotiations, DG Trade G 1(D) (2006).
4.3.3 Labour Law
The labour law of the host state is also of great practical interest. Foreign investors often
have activities with a strong labour component in the host state, generally because the
production costs tend to be lower than in their home state. Accordingly, the legal system
applicable to the employees would be of interest to the investors. It is thus possible that
international investment law is invoked against measures taken by the host state regarding
the labour laws. This is true especially for the standards relating to minimum wage,
working hours or social contributions. However, the host state is unlikely to be sanctioned
for measures in this field if the increased costs are unforeseen to the investor, as it is a
normal investment risk. More particularly, such a measure would be by nature non-
discriminatory and thus in conformity with the principle of the national treatment as well
with the most-favoured nation treatment. Employment and labour provisions are relatively
uncommon in Tanzania’s IIAs.
Labour concerns may be incorporated in the BIT preambles through a political statement.
For example, the Finland - Tanzania BIT states:
The Government of the Republic of Finland and the Government of the United Republic of Tanzania, hereinafter referred to as the “Contracting Parties”, ... agreeing that a stable framework for investment will contribute to maximising the effective utilisation of economic resources and improve living standards; recognising that the development of economic and business ties can promote respect for internationally recognised labour rights; …120
Arguably, the parties’ policy space in relation to the improvement of labor standards is
nonetheless safeguarded through the preambular paragraph expressing the desire to
achieve the treaty objectives “in a manner consistent with … the promotion of
internationally recognized labor rights.” Some provisions may be impliedly interpreted
120 See the preamble of Treaty between United Republic of Tanzania and the Republic of Finland concerning the Promotion and Protection of Investment
that they also recognize international law standards of labour though they not directly state
about labour. For example the Tanzania- Republic of Korea BIT states:
“Where a matter is governed simultaneously both by this Agreement and by any other international agreement to which both Contracting Parties are parties, or by general principles of international law, nothing in this Agreement shall prevent either Contracting Party or any of its investors from taking advantage of whichever rules are the more favourable to his case.”121
This may accommodate the interpretation that they refers to the obligations of each party
derived from their membership of the ILO and the ILO Declaration on Fundamental
Principles and Rights at Work. But it lacks a clear obligation to adopt and maintain the
ILO standards as a minimum, and does not allow disputes to be submitted to
arbitration.The Canada- Tanzania BIT also stress that the contracting parties must
explicitly strive to abstain from relaxing labour standards as a means of attracting or
maintaining investment in their territories. It states:
“The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding any such encouragement”.122
Though limited to health, safety and environmental measures, the approach of this
provision can be adapted to employment issues in general, as well as to other emerging
issues. It is submitted that unlike other treaty’s substantive obligation, such as those
guarantee against expropriation without compensation; this provision lack effective
enforcement mechanism i.e. it is not subjected to the agreement dispute provisions. The
121 See Article 10(1) of the Agreement between the Government of the Republic of Korea and the Government of the United Republic of Tanzania for the promotion and protection of investments.122 See Article 15, of the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
treaty simply requires that the signatory states consult with each other regarding any issues
that may arise under this provision. But, while offering little in the way of formal redress
for transgression of this provision through the imposition of environmental or labour
oriented investment incentives, this is an intriguing recognition of the impact that
investment incentives may have on general public and how the concern may often fail to
be appreciated by either investors or governments during the negotiation of investment
packages.
It has been said that the threat of arbitration was likely to make host states hesitant to
implement measures in the pursuit of social policy objectives, such as the improvement of
labor standards, out of fear that by doing so it might violate the standards of treatment
prescribed by an investment agreement. On this account, the IIAs potentially even lead to
a 'regulatory chill'.123 The more so, since foreign investors have already demonstrated their
readiness to use the IIAs as a way to challenge undesirable legislative and administrative
measures adopted by host states in pursuance of public policy objectives, such as those
aimed at the promotion of public health or the protection of the environment.124
In light of these precedents, it is submitted that a fear that investors might bring similar
claims in response to the introduction or significant increase of a minimum wage,
introduction or strengthening of collective bargaining rights, constraints on the use of
casual labor, or the failure to end industrial disputes or strikes has the effect of affecting
regulatory authority for labour legislation to the country.
123 See e.g. UNCTAD, World Investment Report 2003, p. 111.124 For examples of the former, see Grand River Enterprises et al. v. United States of America, UNCITRAL, concerning U.S. tobacco settlement legislation, or the recently initiated Philip Morris Asia Limited v. Australia, UNCITRAL, arising out of the adoption by Australia of stringent tobacco legislation. For examples of the later, see Vattenfall v. Federal Republic of Germany, ICSID Case No. ARB/12/12, arising out of Germany’s decision regarding its nuclear phase-out.
4.3.4 Property Law
The taking of private assets by public authorities raises significant issues of international
law, where such takings involve the assets of foreign investors. This section examines the
concept of expropriation in the context of international law and IIAs. The focus of the
analysis is on the different categories of takings, addressing in particular the problem of
the distinction between governmental measures that involve interference with the assets of
foreign investors, yet do not require compensation, and those that do require
compensation.
The BITs and other international instruments for the protection of foreign investment
virtually always contain provisions prohibiting the taking of assets of foreign investors by
public authorities. Nevertheless, such takings are considered to be lawful if they respect
four requirements namely, if done for a public purpose, on a non-discriminatory basis,
with payment of compensation, and, in many cases, with due process of law. There has
often been a debate between the definition of the terms “expropriation” taking the property
of an individual firm and “nationalisation” taking property in an industry or economy-
wide context.125 The argument further advanced that expropriation is subjected to a
different standard of compensation than nationalisation. The IIAs traditionally do not
make such a difference and a single set of rules pertain to both expropriation and
nationalisation. For example Article 5(1) of the Denmark- Tanzania BIT states;
“Investments of Investors of each Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as ‘Expropriation’) except where such Expropriation is…”
It is traditionally acknowledged that the notion of expropriation is not restricted to
scenarios where there is a official transfer of title to a property but can also include certain
forms of interference by a state with property rights. The IIAs reflect the concept that
125 UNCTAD Taking of Property (United Nations Publications, New York and Geneva, 1999) 2.
expropriation and nationalisation can take place in many forms which include notions such
as “indirect” expropriation or action that is “tantamount” to expropriation. For example,
Article 6 (1) of the Tanzania – Turkey BIT states;
“Investments shall not be expropriated, nationalized or subject, directly or indirectly, to measures of similar effects (hereinafter referred as expropriation) except…”
It has been suggested that a “direct” expropriation is characterised by acts that transfer title
and physical possession, whereas “indirect” expropriation involves acts that effectuate the
loss of management, use or control, or a significant depreciation in the value, of assets.126
The Canada –Tanzania BIT127 provide that an establishment of whether an act or series of
acts comprise indirect expropriation necessitates a case-by case inquiry. This would be
done based on judging the economic impact of the measure, the extent to which the
government action infringes reasonable investment-backed expectations, and the character
of the government action. In addition, it is specified that non discriminatory regulatory
actions are applied only in special circumstances where legitimate public welfare
objectives are involved.
The broad scope of the notion of expropriation used in the IIAs (arising from the
references to indirect expropriation and processes with similar effects) has raised the
question of whether compensable expropriation of foreign investment would be the result
of a state exercising its regulatory powers in matters of trade, taxation, and public health.
As a result, in addition to the concepts of direct and indirect expropriation, the literature
often employs the concept of "regulatory takings". One suggested definition is that
regulatory takings "are those takings of property that fall within the police powers of a
state, or otherwise arise from measures like those pertaining to the regulation of the
126 UNCTAD Taking of Property, supra n 106, 3-4.127 See Article 10(5), of the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
environment, health, morals, culture or economy of a host country."128 Nevertheless the
IIAs do not unequivocally use the phrase “regulatory takings”; such takings are included
under the broad scope of indirect expropriation.
The concept of indirect expropriation and non-compensable regulatory governmental
measures as two distinct notions has not been systematically articulated.129 Nevertheless,
tribunals when providing their findings in many awards have found various criteria in
order to distinguish these concepts:130 “i) the degree of interference with the property right;
ii) the character of governmental measures (ex: the purpose and the context of the
measure); iii) the interference of the measure with reasonable and investment-backed
expectations.” In addition to the criteria determined via the jurisprudence whether an
indirect expropriation has occurred, the Tanzania’s treaty practice is also significant in
relation to this issue. Accordingly, the Canada- Tanzania BIT establishes explicitly a list
of what represents an indirect expropriation:
“The determination of whether an action or series of actions by a Party, in a specific fact
situation, constitutes an indirect expropriation requires a case-by case, fact-based inquiry
that considers, among other factors:
(a) the economic impact of the measure or series of measures, although the sole fact
that a measure or series of measures of a Party has an adverse effect on the
economic value of an investment shall not establish that an indirect expropriation
has occurred;
· (b) the extent to which the measure or series of measures interfere with distinct,
reasonable investment-backed expectations; and
128 UNCTAD The Taking of Property, above n 104, 12.129 August Reinisch “Expropriation” in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds) The Oxford Handbook of International Investment Law (Oxford University Press, New York, 2008) 432.130 OECD Indirect Expropriation and The Right To Regulate in International Investment Law Working Papers on International Investment Number 2004/4 (OECD, 2004) 22.
· (c) the character of the measure or series of measures.131
Furthermore, the BIT addresses the borderline between indirect expropriation and the right
to regulate it provides that;
“Except in rare circumstances, non discriminatory regulatory actions by a Party that are designed and applied to achieve legitimate public welfare objectives, such as the protection of public health, safety and the environment, do not constitute indirect expropriations”.132
These criteria are consistent with those emerging from arbitral decisions. Such a detailed
list of criteria provides a significant assistance when determining whether an indirect
expropriation requiring compensation has occurred. As seen above depending on the
definition of expropriation, the scope of these clauses can be very broad and include a
substantial amount of regulatory measures taken by the host state that could affect the
investment or property of a foreign investor. With the objective of adequately and fully
protecting of the investor from expropriation, the IIAs with a wide international legal
requirement of compensation have the side effect of reducing legitimate national
regulatory activity133, due to the host state’s fear of having to pay compensation arising
from the violation of the expropriation clause. This is especially relevant when dealing
with possible cases of indirect expropriation, since the host state regulation will either be
accepted as an act falling under the sovereign competences of the state and not result in
compensation134 or will amount to indirect expropriation and consequently the foreign
investor will receive compensation.135 Although it is widely accepted that host states have
131 See Article 10(5), of the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.132 Ibid supra n 110133 UNCTAD, Taking of Property. UNCTAD series on issues of international investment agreements. (UNCTAD/ITE/IIT/15), UN , 2000 p. 41134 With the view that acts within the sovereign competences might not result in compensation, see Orrego Vicuna. Regulatory Authority and legitimate expectations: Balancing the Rights of the State and Individual under International law in a Global Society, International Law Forum, 2003, p.190; and Ian Brownlie, Principles of Public International Law, 2003 P. 209. See also Tecmed V Mexco ICSID Case No. ARB(AF)/00/2 Para 119135 Explaining how regulatory measures might result in indirect expropriation, See Rudolf Dolzer & Christoph Schreuer. Principles of International Investment Law, 2008. P. 109; and Anne K.Hofman. Indirect
the right to enact legitimate regulatory acts that affect foreign investors, the understanding
regarding which regulations do not result in compensation differs substantially. Therefore,
to avoid legal uncertainty, the drafting parties should avoid over inclusiveness and under
inclusiveness of the expropriation clause in order to strike the appropriate balance between
the protection of the foreign investors and the host state regulatory activity.
4.4 The Implications of International Legal Framework for Foreign Investment on
Tanzania Investment Act
4.4.1 Introduction
The Tanzania Investment Act, Act No 26 of 1997 is the main law relating to investment
issues in Tanzania. It is an Act to make provisions for investments in Tanzania, to provide
for more favorable conditions for investors, and for related matters.136 It provides for the
establishment of enterprises; investment incentives and guarantees; transfer of capital
profits; guarantees against expropriation; dispute settlement; and employment of foreign
staff. The Act also establishes the Tanzania Investment Centre (TIC) as a “one-stop”
office for investors.
This implies that the Act has direct implications on establishment, encouragement and
enjoyment of foreign investment in the country. Because when it comes to the issue of
determining the rights and duties of either a foreign investor or a host country both the
international law or host state law is applicable,137it is submitted that the Act could be of
the most assistance in interpretation of some parts of treaty provisions as herein below
discussed.
Expropriation. In: Standards of Investment protection, August Reinisch (ed), 2008, p.165.136 See the long title of the Tanzania Investment Act of 1997137 See section 42(1) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965.
4.4.2 Investment Protection
The Tanzanian Government is aware of the long-term adverse effects of government
expropriation or seizure of private sector corporate assets, and has specifically addressed
this issue in the 1997 Act. The Tanzania Investment Act provides specific protection to
foreign investments. Section 22 of the Act provides for the protection of foreign
investments. The provision reads:
“22 (a) No business shall be nationalised or expropriated by the government.
The provision further provides that in case of expropriation conducted under due process
of law, payment of fair, adequate and prompt compensation shall be made.”138The
provision looks clear and unambiguous but is subject to criticism as the international
framework protections of foreign investors provide for indirect expropriation; failure to
address the issue of indirect expropriation in my view will lead for foreign investors to
resort to those provisions in the BITs which most of them allow indirect expropriation.
One would expected that it could provide a detailed explanation on indirect or creeping
expropriation that an investor whose claim is based on creeping or indirect expropriation
would have to establish that the acts complained of amounted to tantamount expropriation
or have expropriatory effect which would have placed the burden of proof to investor.
The Act has given foreign investors various rights but it is silent on duties on the part of
investors. The Act fails short of incorporating corporate social responsibility clause. This
is an area which needs amendment. This will enable foreign investors to have certain
duties and responsibility to the local community. This need to be made compliance for
foreign invested enterprises in Tanzania. The corporate social responsibility clause would
encourage foreign companies to play a role in engaging with stakeholders and contribute
to the economic, social and environmental development in the country.
138 See section 22 of the Tanzania Investment Act of 1997
4.4.3 Investment Restriction and Requirement
The Act does not set performance requirements or any other quantitative or qualitative
investment goals for investment projects in either a formal or an indicative sense. There is
an expectation that the job creation, investment expenditure and business growth targets
provided by investors in the business feasibility plans attached to their business
registration application will be actively pursued.
4.4.4 Treatment of Investment
A policy priority in Tanzania is to treat foreign investors on a par with domestic investors.
The provisions of the Act apply to both foreign and local investors without distinction,
with the important qualification that the benefits and protection to be afforded by the Act
to a foreign investor require a minimum capital investment of $300,000 (Tshs
660,000,000/=) but are extended to a local investor on a capital investment of $100,000
(Tshs 220,000,000/=).139
Local investors are granted certain benefits on a par with foreign investors even in cases
where it is common to grant such benefits only to foreign investors. These include the
fiscal stability clause contained in Section 19(2), which provides that benefits accorded to
a holder of the Certificate under applicable fiscal legislation will not “be amended or
modified to the detriment of the investors enjoying those benefits.” Other examples
include repatriation of funds and employment of expatriates. Section 21 guarantees to all
certificate holders the right to make transfer payments in freely convertible currency. Such
payments include transfers to service loans in foreign currencies, transfers of dividends or
profits and proceeds of sale or liquidation. The Act however does not make provisions for
further standards of protection as discussed earlier140 such as Free and Equitable
Treatment, Most Favoured Nation status, national treatment, discriminatory and arbitrary 139 See section 2 (2) of Tanzania Investment Act of 1997140 See supra Chapter Two
measures, and full protection and security this may accommodate the foreign investor to
rely mostly in BITs for applications of such standards.
4.4.5 Settlement of Investment Dispute
The Act contains provisions for the negotiation and settlement of disputes among
Tanzanian and foreign enterprises, the TIC and central government, but it does not shed
light on how disputes with local communities will be dealt with. Where the preferred
amicable settlement via negotiation between the parties is not achieved, the parties may
then seek agreement through the arbitration laws of Tanzania, through the ICSID, or
within appropriate bilateral or multilateral treaties.141
The provision of the resolving dispute within the appropriate bilateral or multilateral
treaties gives foreign investors the opportunity to use international arbitration laws and
tribunal rather than arbitration laws of the country and courts. Investors are typically
concerned about the time it takes for disputes to be settled in national courts. Delays in
dispute settlement can have major implications for returns on investments. Also, investors
may be concerned that courts in the host country may not be impartial or effective. The
Tanzania Investment Act also does not provide for specific mechanisms for the
determination of investment disputes between local communities and investors. Those
disputes would need to be determined by national courts on the basis of applicable
national law. Those disputes relating to land can be taken to the dispute settlement
mechanism that was established by the land laws of 1999, namely the Land Act and the
Village Land Act. Not only that but also more importantly, there appears to be no defined
statutory mechanism through which investors can ensure that progress is made in
addressing concerns and disputes of investors that are less serious than full disputes. The
Act also does not include a 'fork-in-the-road' provision which generally limits an investor
141 See section 23 of the Tanzania Investment Act of 1997
to selecting only one out of a number of agreed dispute resolution forums. For example, if
an investor submits its dispute to the local courts, then a fork-in-the-road provision would
prevent the investor from also pursuing other dispute resolution procedures under the BIT,
such as international arbitration. In the absence of a fork-in-the-road provision, submission
of a dispute to local courts will not preclude the investor from pursuing other dispute
resolution options. Consequently, a foreign investor is at liberty to institute arbitration
proceedings against a government in Tanzania even after bringing a claim or counterclaim
against the government in a court or domestic arbitration.
The issue of consent to arbitration is also provided in the Act. Section 23(2) of the
Tanzanian Investment Act of 1997 provides in relevant part:
"A dispute between a foreign investor and the [Tanzania Investment] Centre or the
Government in respect of a business enterprise which is nit settled through negotiations
may be submitted to arbitration in accordance with any of the following methods as may
be mutually agreed by the parties, [...]"
This provision required a subsequent agreement between the parties, as a prerequisite for
jurisdiction.142
142 This was also the opinion of the tribunal in Biwater Gauff (Tanzania) Ltd. v.United Republic of Tanzania, ICSID Case No. ARB/05/22 at para 327-337.
CHAPTER FIVE
5.0 CONCLUSION AND RECOMENDATIONS
5.1 Conclusions
This study set out to situate the investment treaty practice of Tanzania and examine
whether the country treaty practice conforms or differs from general investment treaty
practices. Through reviewing the treaty practice of the country, the study also sought to
explore the extent to which the emerging investment treaty practice interferes or restrains
regulatory authority of the country. In so doing, the study raises awareness to Tanzania
specific concerns with respect to the international law of foreign investment; the
controversy entrenched in substantive treaty standards and the suitability of treaties
concluded by the country.
Chapters 2, 3 and 4 show that Tanzania treaty standards are similar to general treaty
provisions elsewhere. In essence, BITs of which Tanzania is a party do not offer any
nuance and generally follow existing BITs. It can be concluded here that Tanzania has the
requisite legal framework for protection of foreign investment under its national and
international instruments the same as international legal framework for protection of
foreign investment.
The analysis also demonstrates that there really are not many differences between the
BITs concluded by Tanzania and other existing BITs. Similarly, the majority of the BITs
concluded by the country have more similarities than differences. In essence, some
Tanzania’s BITs contain slight variations. This variation results from the inclusion of
different types of provisions in different treaties and from differences in the drafting of
provisions common to several treaties. It is submitted that this minor differences in
wording can significantly alter an investment treaty’s implications in practice, and that
such differences make compliance with existing investment treaties difficult and
significantly increase the risk of unexpected and costly future investor–state claims.
As the analysis illustrate, some BITs have expropriation provisions that do not explicitly
capture indirect expropriation but contain phrases such as measures equivalent to
expropriation which are functionally equivalent to indirect expropriation. Perhaps, more
striking is the fact that majority of Tanzania expropriation clauses are generic and do not
delimit the contours of indirect expropriation. The resulting consequences for the country
is that predominantly arbitral tribunals apply the sole effect test which has the propensity
to constrain the country from pursuing regulatory measures even in the public interest.
The country treaty practice also indicates that most of the treaties focus exclusively on
foreign investor rights and protection. One can only but notice that except for the BIT
between Canada and Tanzania, which is more sophisticated and try to strike a better
balance between the different private and public interests at stake, in other BITs there is no
frequent space for provision of the right of the country to take regulatory measures in
order to achieve the objective of making laws for public interest.
5.2 Recommendations
On the basis of the existing investment regime, Tanzania can pursue a number of policy
options which include, withdrawing from BITs, renegotiate existing BITs, refusing to
consent to foreign model drafts, and prepare more favourable model drafts. However, for
Tanzania to successfully pursue any of these practical policy options this would require.
Although withdrawing from BITs and renegotiating existing BITs are attractive policy
options, this is not without high risks. Essentially, this can create the perception that the
country is renouncing its BIT treaty commitments which in turn may discourage reluctant
foreign investors from investing in the country.
Given the high risks, the most plausible option would be for Tanzania to prepare its own
model text which in turn would enable the country avoid the practice of simply consenting
to foreign model drafts. In essence, through this approach the country would be using legal
tools to advance more balanced treaty provisions that do not expansively constrain the
ability of the country to implement regulatory measures. There are many model texts the
country can borrow from when drafting or negotiating future treaty provisions that balance
the interests of foreign investors and government regulatory competence. With respect to
existing models, the SADC BIT Model is an ideal starting point because it addresses many
of the ambiguities existing in majority of BITs.
For purposes of clarity, the Tanzania BIT model should draw a distinction between direct
and indirect expropriation. For purposes of regulatory autonomy, the country BIT model
should stress that legally implemented regulatory measures aimed at serving legitimate
public objectives such the environment, public health, safety do not constitute indirect
expropriation. Even more, for purposes of guiding the discretion of arbitral tribunals, the
model text should provide approaches arbitral tribunals can use when examining
allegations of indirect expropriation. To this end, the country model text should follow the
wording of the Canada Tanzania BIT. It reads as follows;
“The determination of whether an action or series of actions by a Party, in a specific fact
situation, constitutes an indirect expropriation requires a case-by case, fact-based inquiry
that considers, among other factors:
(a) the economic impact of the measure or series of measures, although the sole fact
that a measure or series of measures of a Party has an adverse effect on the
economic value of an investment shall not establish that an indirect expropriation
has occurred;
· (b) the extent to which the measure or series of measures interfere with distinct,
reasonable investment-backed expectations; and
· (c) the character of the measure or series of measures”143
By including the above provisions the Tanzania model text would ensure that not all
government regulatory measures amount to indirect expropriation. Also, the suggested
provisions require arbitral tribunals to consider the character of government measures and,
more importantly, economic considerations do not outweigh the purpose of government
measures. Obviously, arbitral tribunals must make a value judgment but such an analysis
cannot entirely be influenced by economic considerations but rather a thorough
consideration of the government regulatory measures vis-à-vis the extent to which such
measures interfere with duly acquired property rights.
Similarly, as noted in Chapter 3, the standard of fair and equitable treatments in majority
of Tanzania BITs is autonomous and not linked to the minimum standard. Given the
expansive wording of the standard, arbitral tribunals have the discretion to interpret the
meaning of fair and equitable treatment broadly. Obviously, although the content of the
minimum standard remains controversial but for the purposes of avoiding an overly
expansive interpretation of fair and equitable treatment, the model Tanzania text should
stipulate that fair and equitable treatment is no more than the minimum standard. This
would minimise the possibility of arbitral tribunals second guessing the intention of the
contracting parties. For further clarity and to guide arbitral tribunals, the model Tanzania
text should stipulate that fair and equitable treatment is functionally equivalent to the
minimum standard and not an independent treaty standard. The benefit of this approach
ensures that arbitral tribunals do not impose an idiosyncratic standard of what is fair or
143 See supra note 112
equitable without reference to established sources of law.144 According to Mondev
International v United States of America, the phase ‘‘minimum standard of treatment has
historically been understood as reference to a minimum standard under customary
international law, whatever controversies there may have been over the content of that
standard.”145
Since there is no Tanzania BIT model and it may take long time to make it, it is
recommended that when negotiating new IIAs or revising their current ones, Tanzania
need to legitimately consider new concerns such as environment and social issues. One
way of doing so is for the country to clarify uncertain legal terms where interpretation
provided by tribunals might be inconsistent such as ‘foreign investor’, ‘fair and equitable
treatment’ or ‘indirect expropriation.’ When negotiated with care and caution the BITs can
deliver the promised benefits of foreign direct investment and economic growth, but for
that it is crucially important for the policy makers and negotiators of the BITs to be well
informed of the implications of the obligations that they are entering into. It is hoped that
the trend towards fostering and developing an understanding of these terms will continue
and secure the best possible deal for its adherents in future negotiations.
In fact, BITs are not intended to be creating hardship to host countries. It is for this reason
that a reasonable degree of fairness shall be maintained for both contracting parties. One
way of doing this is to include specific exceptions to the BITs clauses. For instance, the
Canada-Tanzania BIT provides as an exception by allowing contracting parties to exempt
strategic spheres such as defence and the maintainance of the national security, public
144 See Mondev International Limited v United States of America, ICSID Case No. ARB (AF)/99/2, October, 11 2000, pata 119.
145 Ibid para 121.
order, as well as international peace.146 Tanzania could consider updating its investment
treaty provisions and better reflecting some innovative practices in its future BITs.
Although Tanzania’s existing BITs already provide for the most important investment
protection principles, they could go into further details on issues such as ISDS. For
example, future ISDS provisions should provide more detailed procedural guidance, in
order to give Tanzania greater control over the conduct of the arbitral proceedings and the
interpretation by arbitrators, of its international commitments. As Tanzania has already
been involved in a few ICSID cases, it could also be the country’s benefit to specify, in its
future treaties, that the Most Favoured Nation treatment applies only to substantial rights
and does not extend to procedural matters. The totality of the BITs should be given full
legal efficiency and should all be ratified following the signing phase.
146 See Article 17(4), of the Agreement between the Government of Canada and the Government of the United Republic of Tanzania for the promotion and reciprocal protection of investments.
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