On 19 February 2023, the African Union Heads of State adopted the Protocol on Investment (“Protocol”) to the African Continental Free Trade Area Agreement (“AfCFTA”). The Protocol is not yet publicly available. This post, however, examines the provisions of its initial draft (“Draft Protocol”) in a bid to anticipate the extent of protection under the adopted Protocol.
Background
The AfCFTA has been signed by 54 states and entered into force in May 2019. It creates the largest free trade area in the world in terms of geographical size and population. It aims to spur economic development on the continent by facilitating intra-African trade and investment. To further its objectives, Member States have concluded protocols to regulate intellectual property, competition policy and investment in the free trade area.
Africa’s investment protection framework and the Protocol
Investment protection on the continent is regulated by a web of instruments on a national, bilateral, and regional level. Of the 852 bilateral investment treaties concluded involving African states, 515 are currently in force, and 173 are intra-African. These bilateral instruments, alongside national investment laws and regional initiatives, regulate foreign investment across the continent.
The Investment Protocol
The Protocol will govern investment in the free trade area and define the rights and obligations of investors and Member States. The Draft Protocol states its objectives to be the protection of sustainable investment, balancing investor and state interests, protection of indigenous communities, and guarantee of efficient dispute resolution (Article 2). Notably, the Draft Protocol states that it will replace existing bilateral investment instruments between Member States and mandates them to align regional instruments with the Protocol (Article 5).
Covered Investors and Investments
The Draft Protocol covers investments made by investors in a Member State and defines these terms more restrictively than older treaties. It requires investors to maintain substantial business activity in the Host State and intend “lasting economic relations” (Article 1). It also allows Host States deny investors the benefit of the Protocol if their “investment is owned or controlled, directly or indirectly, by persons of a non-State Party” (Article 4).
Standards of Protection
Covered investors enjoy important protections under the Draft Protocol including the right to:
- be treated in a manner no less favourable than investors of the Host State and other Member States (Articles 11 & 13)
- not be subjected to arbitrary treatment in administrative matters and judicial proceedings (Article 15)
- be and have investments physically protected by the Host State (Article 16)
- not have investments or assets unlawfully seized by the Host State (Article 17)
- freely transfer funds relating to investments (Article 19)
Importantly, the Draft Protocol contains carve-outs to allow measures aimed at protecting and enhancing “legitimate policy objectives, such as public morals, public health, safety and the protection of the environment”. These carve-outs exclude liability for otherwise discriminatory (Articles 12 & 14) and expropriatory measures (Article 18).
The Draft Protocol also places obligations on investors, including to:
- comply with national and international law (Article 28).
- comply with standards of business ethics, human and labour rights (Article 29).
- respect and protect the environment (Article 30)
- respect the rights of indigenous people and communities (Article 31).
- refrain from corrupt practices (Article 33).
- contribute to the sustainable development of the host state (Article 34).
Dispute Resolution
The Draft Protocol allows investors to submit a claim under the UNCITRAL arbitration rules or the rules of any arbitral institution after failed amicable settlement attempts and the issuance of a Notice of Intent (Articles 5 & 6, Annex I). To this end, parties may resort to mediation at any time during the dispute (Articles 3 & 4, Annex I).
The Draft Protocol contains provisions regarding the arbitration process, including on the establishment and composition of the tribunal (Article 11, Annex I), the use of experts (Article 13, Annex I), submissions by non-disputing parties (Article 14, Annex I), transparency (Article 15, Annex I), and third-party funding (Article 16, Annex I). Additionally, it draws from the work at the UNCITRAL Working Group III as it incorporates provisions on the application of the Code of Conduct for arbitrators (Article 12, Annex I). It also expressly allows Host States to file counterclaims against investors (Article 10, Annex I), and permits appeals before a permanent body (Article 18, Annex I).
Conclusion
The AfCFTA is poised to radically transform trade and investment in Africa. The Draft Protocol, which is the result of collective effort by Member States spanning several years, addresses contemporary issues such as environmental protection, human rights, and ISDS. It remains to be seen if the provisions of the Draft Protocol have been adopted in the Protocol, and how these will be implemented once the Protocol comes into force.
For further information, please contact:
Matthew Weiniger KC, Partner, Linklaters
matthew.weiniger@linklaters.com
