By Moses Chongo
BACKGROUND
Bilateral investment agreements or treaties (BITs) have become a common avenue for many countries to establish long lasting international relations. BITs establish the reciprocal standard of treatment of investments in countries that are party to it. Bernard Kishoiyian notes in his article (The Utility of Bilateral Investment in the formulation of Customary International Law) that most existing bilateral agreements are between developed and developing countries. Although China is not considered a developed country by the World Trade Organization, China still holds enough financial muscle to gain advantage over lesser developed countries like Zambia when it comes to implementing its investment interests where no BIT exists.
It is worth noting that most of the bilateral agreements that have been signed between developed and developing countries are couched in a way that puts more emphasis on the guaranteed protection of investments and not host state interests. In practice, due to the low financial capacity of less developed countries, investors from these countries (less developed) do not have what it takes to carry out an investment in a developed country and so, the said protection in most BITs works to only protect the more capable investors from developed states. For this reason, this paper seeks to show how a BIT could be used to promote and protect host state interests through the inclusion of strategic provisions in BITs.
Currently, China and Zambia do have an existing bilateral agreement which was signed on the 21st June 1996, however, it is not in force. What this means is that the provisions of the bilateral agreement cannot be relied upon in ensuring the realization of the benefits contained in the said agreement. Put simply, it could be argued that there is no BIT between China and Zambia. Additionally, this paper will further aim to show the importance of not only having a BIT, but having one that is in force, especially with a country such as China which contributes immensely to Zambia’s economic growth through numerous foreign investments.
WHAT IS A BIT?
A Bilateral Investment Agreement has been defined by UNCTAD as “… agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country.” Going by this definition, BITs aim to protect investments abroad, in countries where investor rights are not already protected through existing agreements. And so, if China and Zambia create a bilateral agreement that is in force, the content of the said agreement will have to set a standard of how investors from both Zambia and China will be treated in either country.
OPERATION OF BITs
It is worth noting that there exists no single standard of what elements or provisions that a BIT ought to have. The essence of BITs is to ensure that the parties to it encourage, promote and protect investments in their countries. This means that the content of a BIT needs to be in the best interest of both the host state and the foreign investor in that the investor will be guaranteed the protection of his investment while the host state will benefit from the transfer of technology and other benefits.
Considering that China is one of Zambia’s major contributors of foreign investment, the lack of having a bilateral agreement that is in force between the two countries leaves room for uncertainty with regards investor relations. Having a BIT that is in force will ensure that Chinese investors conduct themselves in accordance with the set standards as contained in a BIT. In doing so, this would lead to the effective protection and promotion of investments.
Every BIT has its own specialized provisions that address the concerns established by the state parties to it. Due to practice, BITs have come to have some common features that are used to provide the needed cooperation between states and investors. BITs will commonly allow parties to define what would constitute an “investment” for reasons that would be of benefit to the host state. An example would be the Zambia-Germany BIT that came into force on 25th August, 1977. In this BIT, there are limitations to what will amount to an investment. The Germany-Zambia BIT excludes portfolio investment from being recognized as an investment. This means that German nationals who simply gain majority shareholding in private Zambian companies will not be considered investors for purposes of what an investment is in Zambia as prescribed in the BIT. Furthermore, a Bit may include a “Denial of Benefits” clause that would deny benefits to certain investors that have control over an investment that has been set up in a country with which the said investor’s country is not a party to the BIT. In defining an investment, state parties and investors will understand exactly when a breach of an investment has occurred so as to allow them to seek the necessary redress.
In the case of China-Zambia investments, if a definition of an investment between Zambia and China is contained in a BIT, Zambia would reduce running the risk of categorizing foreign nationals that are retailers or engage in small local businesses that employ 5 – 10 Zambians as investors. In cases where this is so, there would be a negative effect on the local market as more Zambian competitors will find it hard to keep up with heavily financed foreign nationals, in that, these nationals(foreign) usually come into the country with enough finances which would enable them obtain investment incentives as provided under section 56 of the Zambia Development Agency Act (ZDA Act). In this regard, foreign investors will gain an upper hand at possessing a huge market share. If an agreement is made to include what would amount to an investment between these two countries, and exclude certain businesses from that definition, small enterprises in Zambia would face less chances of running down. In the preamble of the ZDA Act, it states that the Zambia Development Agency (ZDA) will be established “to promote greenfield investment through joint ventures and partnerships between local and foreign investors.” Greenfield as a type of investment is one which requires the investor to expand existing facilities or carry out an investment by putting up new facilities where such new facilities did not exist. To this effect, it would mean that an investor carrying out this type of investment is required to take up the responsibility of setting up infrastructure, provide the necessary machinery and further provide local employees with the necessary knowledge to operate the investor’s machinery. This type of investment is usually associated with industrious activities which are what Zambia needs to ensure that its citizens benefit through job opportunities which are not casual in nature while ensuring that the investor retains his profits. By having a BIT that supports this position, more tangible investments will occur that will benefit more Zambians.
According to Prof. Muna Ndulo in his article titled “Chinese Investment in Zambia”, China dug itself out of its economic hardships through major foreign investments from countries such as the United States of America and the United Kingdom inter alia. To benefit from foreign investments, a country is to ensure that there is proper strategic and effective regulation of said investments. To ensure such regulation, common ground needs to be found between Zambia and China to show what type of investments are needed by both countries so as to ensure that Foreign Direct Investments(FDI) is effectively injected into the right sectors, in stipulated capacities while attracting the necessary host state support in the form of equitable incentives.
Another scholar, Prof Kenneth Mwenda observed in his paper titled “Legal Aspects of Foreign Direct Investment in Zambia” that “what has not been subjected to legal test, however, is the issue of tax discrimination which favours aliens and operates against indigenous persons. As a result of this gap in jurisprudence, the leaders of a number of developing countries recognise the need to exploit the above sovereign right in international law in order to attract foreign investors through lofty fiscal incentives.” Going by his observation, it can be seen that there happens to be great liberal issuance of government incentives in the quest to attract investors.
An example would be the mining sector in Zambia. China over the past few years has grown as a major consumer of copper due to its ever growing economy. The copper commodity is on high demand and it would be of great importance for our regulating authorities to ensure that the government does not lose revenue by pleasing investors that already have what it takes to extract the copper commodity without much fiscal assistance. It is for this reason that BITs are important. To not only ensure the protection of investments, but to also take into consideration the interests of the host state.
CONVERNS
In Zambia, it has been alleged that Chinese investors, do not show the much needed respect for human rights. This could be seen in the recent news concerning Chinese nationals locking up their Zambian employees in warehouses under the guise of preventing the spread of the Corona Virus or for some unknown reasons. The Zambian government through the legislation that was passed to regulate the handling of the pandemic did not in any way pronounce that employers are to confine their workers to their premises so as to have the said premises double as quarantine facilities. For these reasons it has been speculated that the workers are confined for purposes of meeting production targets. Our Zambian Constitution under the Bill of Rights provides that every Zambian shall enjoy the freedom of movement, association, speech and shall not be subjected to inhumane treatment. Where these freedoms are arbitrary taken away from Zambians, it creates a hostile environment which would make it difficult to ensure the much needed encouragement, promotion and protection of investments.
EMERGING BIT FEATURES AND HOW THEY CAN BE ESSENTIAL TO ZAMBIA-CHINA INVESTMENT
Issues have been raised concerning what content or provisions that need to be included in a BIT. Since the China-Zambia BIT is not in force, these are some of the considerations that need to be made when revising it. These issues have come about due to the change in the investment practices and hence it has been observed that they need to be taken into consideration when constructing a modern BIT. It has been argued that one of the issues that need to be contained in a BIT is that of Economic Development. This concern is that there needs to be immense efforts from governing bodies to influence allocation of private sector investment towards opportunities that can lead to sustained economic growth. Economic growth would contribute to the provision of sufficient income for locals, more profits for businesses and the necessary infrastructure to support the said economic growth. By governing bodies setting the necessary regulations, it would seem that there would be more chances of developing a mechanism that provides for the sufficient absorption of locally produced goods, in the carrying out of investments in selected sectors as outlined by host state authorities.
Another issue which has been put forth is that of Human Rights. To have a Human Rights provision in a BIT would show a strong willingness by both governments to ensure the protection of their citizen’s Human Rights in the execution of investment obligations. By including such provisions, investors will be bound to ensure that sufficient attention is given to the respect of Human Rights. However, It is also worth noting that it has been stated that Human Rights have no standing in investment matters as was stated in the ICSID case of Siemens v Argentina. In this case, Argentina sought to relay on the principle of “margin of appreciation” but it was denied as this practice was not recognized under international customary law to provide states with the ability to deny compensation. In this light, the international rights of investors would be protected against illegal expropriation by default.
CONCLUSION
A bilateral agreement or treaty works as a document that sets out the much needed protection of both host state interests and those of foreign investors. In the case of Zambia and China, a BIT will enhance the quality of investments that flow from China and also improve the manner in which they are implemented. A BIT between these two countries will further prove to efficiently support local enterprises by protecting their interests from unfair foreign competition.
