Experts have called on the East African Community and the United States to pause trade partnership negotiations pending conclusion of the ongoing review of the region’s Model Investment Treaty.

The draft EAC Model Investment Treaty is currently under review by member states following concerns that it does not provide adequate protection to local investors.

“We are advocating for putting the EAC-US Investment Treaty negotiations on hold until the EAC partner states have agreed on the model. We also hope that the US would be willing to negotiate and amend the content of their investment model,” Jane Nalunga, the executive director at the Southern and Eastern African Trade Information and Negotiation Institute in Uganda said during a stakeholders meeting in Kampala on September 5.

However, Steven Kamukama, a commissioner in the Uganda Trade Ministry, who is among the EAC negotiators, said ongoing consultations with the US were expected to pave the way for negotiations based on reviewed investment codes of the Partner States.

“We reviewed all our investment codes in the EAC; looked at status quo under the proposed EAC investment model against what we are looking at but the process of developing a law takes a longer period and we cannot wait for all that,” Mr Kamukama said.

The contentious issues in the US Model Bilateral Investment Treaty include definition of investment, national treatment, most favoured nation, transfers and performance requirements among others.

On investment, the US investment model defines investment broadly to include every kind of asset that an investor owns or controls directly or indirectly.
However, experts want the definition of investment to be specific.

On national treatment, the US investors in the EAC will be accorded the same treatment with respect to acquisition of property, expansion, management, conduct, operation, and sale or other disposition of investments like those accorded to the EAC investors.

With such a provision, experts said, EAC governments will be constrained in promoting local industries, which need assistance to grow in order to compete with foreign companies.

On most favoured nation (MFN), the US wants EAC countries to accord its investors and their investment no less favourable conditions than what investors from any third party enjoy. This demand limits the ability of regional governments to choose which countries to give preferences.

On expropriation and compensation, the US model stipulates that investments from each contracting party shall not be nationalised.

However, the definition of  “expropriation” also include the loss of goodwill and future revenue/profits of a company or an investor, as a result of a government measure or policy, a provision that has been used by foreign owned companies to challenge government regulations.

For instance, in 2007, South Africa was sued by European mining investors who claimed to be disadvantaged by economic policies aimed at redressing the enduring legacy of apartheid. 

The resulting settlement effectively exempted the investors from the legislation and handed South Africa a legal bill of over $6.5 million.

As result, South Africa, which had concluded 30 business investment treaties with various countries to attract private investment immediately after Apartheid in 1994, issued notice for the termination of its business investment ties with Spain, the Netherlands and Germany, among other countries.

The US in its treaty also demands for free transfers relating to covered investments and prohibits host states from imposing performance requirements on the foreign investor or investment such as regulation on limits and conditions on equity, obligations for technology transfer, measures for using local materials and requirements to employ locals

The experts, however, say such clauses could lead to capital flight, which is necessary for reinvestment in the region to raise reduce unemployment.

Jenga Afrika executive director Jeff Wadulo said the rationale for EAC-US treaty is aimed at opening up market for finished products from the US and access to cheaper raw materials.

According to statistics from the South African research firm, Consultancy Africa Intelligence (CAI), over 400 investment treaties with developed countries to protect investors from uncertain business environments have been concluded in Africa.

The consultants said Egypt has entered into more than 100 treaties, while Nigeria has signed more than 20 business investment treaties.

Prof Lukas Saronga, Tanzania’s trade and negotiation expert said the US has to negotiate with EAC for better terms that are beneficial to both parties.

“We have to negotiate; unfortunately, we are told that it is already a draft agreement that cannot be touched because it has passed through the Congress. If we have issues or interest, we should put it as a footnote or annexed. But that is not enough for us… we also have our own parliaments,” Prof Saronga said.

According to the US Department of Commerce, the EAC exports to the US have increased from $186 million to $577 million while imports increased from $328 million to $1,184 million between 2000 and 2013.