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Q&A | Tanzania - Netherlands investment treaty: The key issues

2019-04-18 11:31:40

By Paul Kibuuka @tzpaulkibuuka

On 30 September 2018 the Government of Tanzania notified the Government of the Netherlands of its intention to terminate the bilateral investment treaty between the two countries and that the treaty, which has been in force for the last 15 years, actually expired on April 1, 2019. Why did Tanzania choose to end the treaty? Is Tanzania the only African country to terminate a bilateral investment treaty with the Netherlands? What’s the implication of termination of the treaty on existing Dutch investments in Tanzania? Does Tanzania have a Model Treaty it wants to introduce as its own blueprint for new investment agreements?

The decision of the Government of Tanzania to terminate its bilateral investment treaty (BIT) with the Government of the Netherlands reflects the ongoing global and local polemics of BITs, and specifically the question of compensation from host governments even for legitimate public policy and regulatory measures as long as the Investor-State Dispute Settlement (ISDS) arbitral tribunal believes such measures flout the “fair and equitable treatment” standard and affect the foreign investor’s forecasted profitability. According to its notice issued on 25 March 2019, the Government of the Netherlands sought a temporary extension of the hitherto existing treaty and/or a prompt start of the renegotiation process. But there was no progress; so, it expired on April 1, 2019.

The impetus for the decision

Tanzania’s decision to terminate the ‘Agreement on Enforcement and Reciprocal Promotion and Protection of Investments between the United Republic of Tanzania and the Kingdom of the Netherlands’ (“the Tanzania-Netherlands BIT”) came hot on the heels of gigantic legal reforms for managing Tanzania’s natural resources. The reforms include, among others, the enactment of the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act, 2017; the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017; and the Public Private Partnership (Amendment) Act, 2018—which requires all PPP agreements to be subject to local arbitration under the arbitration laws of Tanzania and/or conclusively dealt with by Tanzanian courts. Consequently, the Tanzania-Netherlands BIT became incoherent with these reforms. In the context of bilateral investment treaties, coherence is a key feature interpretation as it helps in avoiding further complications arising from contradictory arbitral awards. It seems that the efforts by the Government of the Netherlands to start a renegotiation of the Tanzania-Netherlands BIT became futile because the treaty lacked provisions on how it could be amended or renegotiated while still in force, meaning that unless it was terminated upon expiry (as it was on April 1, 2019), it could not be legally tenable to amend or renegotiate it. Moreover, the decision came in the aftermath of intense lobbying by both Tanzanian and Dutch civil society organizations aimed at having the Tanzania-Netherlands BIT revised, to provide for, inter alia, the right of the host country to introduce new laws and regulations on investment which would apply to every investor, including those protected under the BIT.

Other countries that have terminated BITs

Tanzania is not the only country in Africa that has chosen to terminate a bilateral investment treaty with the Netherlands; eight years or so ago, South Africa issued notices to terminate its BITs with the Netherlands and with Germany and has been ending or renegotiating other BITs as they reach termination date. Given this precedent and the recent legal reforms in Tanzania highlighted above, the termination of the Tanzania-Netherlands BIT does not come as a surprise.

Implication on existing Dutch investments

The provisions of the Tanzania-Netherlands BIT typically survive for an additional period of 15 years for investments made before its termination. So, the treaty, which terminated upon Tanzania’s request as of April 1, 2019, will remain in force until April 1, 2034, for investments made before April 1, 2019.

Model Treaty blueprint  

It’s not clear yet if Tanzania has crafted its own Model BIT as the blueprint for future investment treaties. Nonetheless, such a move would not surprising as many governments in the world are rethinking and reviewing their BITs. As a member of the East African Community (EAC) regional economic bloc, Tanzania can take guidance from the EAC Model Investment Treaty which was adopted by the EAC partner states in 2015 to guide negotiation of investment treaties with third parties. Incidentally, the Tanzania-Netherlands BIT is also incoherent with some of the provisions of the EAC Model Investment Treaty.

The hope is that the Government of Tanzania and the Government of the Netherlands will start a renegotiation of a new BIT consistent with their respective interests. But the process to renegotiate and ratify a new BIT may take up to a decade shy of four years. 

Paul Kibuuka is the managing partner of Isidora & Company Advocates. Email: paul.kibuuka@isidoralaw.co.tz Twitter: @tzpaulkibuuka This Q&A was first published in The Citizen on Saturday, 13 April 2019.

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