Towards a Model Investment Contract

1. Towards a Model Investment Contract Making Agricultural Investment Work for Africa, 4-5 October 2012, Cotonou, Benin Carin Smaller, IISD csmaller@iisd.org

2. Agenda • Introduction • Contracts in context: The relationship between the sources of applicable law • Good contracts: the scope of issues • Implications and Recommendations

3. Three Relevant Sources of Law • Domestic law of host state • Investment contract • Investment treaty

4. Introduction • IDEAL: comprehensive national laws that make investment contracts unnecessary • IISD not trying to promote investment contracts or bad investments • BUT… facing reality: • Frequent use of contracts in developing countries • 2000-2009: 1,217 projects covering 83 million ha of land • Scope of the study: 60 investment contracts, including 58 from Africa (most are problematic) • IISD Objective: Improve the quality of contracts

5. The Problematique: Treaties and Contracts can prevail • Domestic law generally not comprehensive in this field in developing countries • Land rights; water rights; environmental; health and safety; labour rights; indigenous rights; investment rights, incentives, taxation; community rights and benefits; food and water security policies • Therefore, both treaties and contracts can: • Guarantee right of investor to all resources necessary to fulfill investment goals • restrict scope of changes that can be made to domestic law applicable to the investment

6. Stabilization provisions • Def’n: a provision that freezes all or part of the domestic laws for the duration of the contract • Consequences: changes to existing laws or introduction of new laws is either forbidden or investor compensated Two types: • Fiscal issues: only fiscal laws are frozen (e.g. taxes and royalties). Often tolerated! • Non-fiscal issues: Environmental, worker health and safety, human health, water management, etc…). Unacceptable!

7. GOOD CONTRACTS PRINCIPLES: • Use global and regional initiatives as a benchmark • Must be inclusive of all actors in process • Must interact carefully with domestic law in host state, set floors, not ceilings for obligations • Example: Model Mining Development Agreement, International Bar Association, Mining Law Committee, April 2011 (www.mmdaproject.org)

8. Good Contracts SCOPE: • Pre-contractual/pre-operational obligations of investors • Impact assessments (resulting conditions form part of contract) • Environmental impacts and management plan • Social impact • Human rights impact • Business feasibility study and plan • Community agreement (free, prior and informed consent)

9. Good Contracts SCOPE: • Water rights for investor • Domestic water laws versus investment treaties and contracts • Periodic reviews of water rights and allocations, including obligation to reduce water use • Water fees and levies

10. Good Contracts SCOPE: • Economic and social obligations of investor • Transform principles to specific obligations; legally-binding and annual reporting • Minimum levels of local employment and skills training • Local economic linkages: goods and services suppliers, value-added industries • Technology transfer • Contribution to local community • Gender and indigenous peoples issues

11. Good Contracts IMPLEMENTATION: • Capacity building for negotiations • Evaluation and monitoring needs • Community engagement and review • Transparency of contracts and annual reporting

12. Helpful resources • IISD, Model Investment Treaty • IISD, Model Agriculture Contract • UN Special Representative, Principles for Responsible Contracts • International Bar Association, Model Mining Development Agreement • For contracts: Liberia, Grain BUT…no perfect model or blueprint, depends on domestic context, laws and regulations