Towards a Model Investment Contract Making Agricultural Investment Work for Africa, 4-5 October 2012, Cotonou, Benin Carin Smaller, IISD

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

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

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  : 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

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

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!

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 (

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)

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

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

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

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