Briefing

November 18 2019

The Netherlands has commenced renegotiation of selected African bilateral investment treaties

Renegotiation of Dutch BITs with African States

In May 2018, the Dutch Government announced its intention to renegotiate its 78 BITs with non-European Union States based on a new model BIT which significantly narrows protections offered to Dutch investors (for further discussion of the Model BIT, please see our briefing ‘Dutch Government adopts New Model Investment Treaty’).

In May 2019, the Dutch Government obtained authorisation from the European Commission to commence renegotiations of its BITs with eight countries, including Nigeria, Tanzania, Uganda and Burkina Faso.

These eight countries were selected for the following reasons:

• their existing BITs with the Netherlands will expire soon or have been terminated;
• they have significant trade flows with the Netherlands; and/or
• they showed interest in the new Dutch model BIT.

So far, negotiations have commenced with Nigeria, Uganda and Burkina Faso although it is difficult to predict how long the negotiations will take. No further information is available about whether the Government of Tanzania will wish to renegotiate a fresh BIT with the Netherlands (for further details, see ‘New model BIT: negotiations to commence soon’).

Limitations on investor protection under Dutch Model BIT 

As explained in our previous briefings, the Model BIT represents a sweeping departure from existing investor-friendly Dutch BITs. Most significantly, the Model BIT:

• abolishes protection for Dutch ‘shell’ companies, by limiting the scope of protection to investors who have ‘substantial business activities’ in the Netherlands;
• circumscribes the substantive protections offered to investors by proposing more nuanced definitions of key standards such as fair and equitable treatment and expropriation, and by emphasising the right of contracting states to legislate to achieve legitimate policy objectives;
• makes a number of far-reaching changes to procedural and dispute resolution protections, including removing the right to party-appointed arbitrators and making provision for disputes to be resolved by a multilateral investment court rather than arbitration; and
• introduces new provisions addressing investor conduct and corporate social responsibility, including allowing arbitrators to limit or deny compensation in the case of an investor’s non-compliance with corporate social responsibility policies, with the aim of re-balancing the rights and obligations of investors and States.

Where existing BITs are unilaterally terminated (as has already occurred with the Netherlands-Tanzania and Netherlands-Burkina Faso BITs), pre-existing investors should continue to be protected for a period of ten or fifteen years pursuant to so-called “sunset clauses” .

However, if BITs are renegotiated without being terminated, there is a risk that foreign investors currently relying on Dutch “shell companies” may lose BIT protection if no transitional provisions are negotiated to protect such investors, or on expiry of such provisions.

In either scenario (termination or renegotiation) the protections afforded to Dutch investors are likely to be significantly more restricted than under the current Dutch BITs.

Alternative BIT options for foreign investors in Africa?

In order to optimise BIT protection, foreign investors in Africa relying on Dutch BITs should consider incorporating investment vehicles in other jurisdictions with more favourable BITs. 

Other countries with extensive networks of BITs in force with African countries include: Germany (43), Switzerland (38), France (22), the United Kingdom (19), Belgium-Luxembourg (15), and the Mauritius (9).

These BITs vary in their eligibility requirements. For instance, consistent with the current UK Model BIT, UK BITs typically protect qualifying investments of investors incorporated and /or constituted under the laws of the home state with no express requirement for investors to have ‘substantive business activities’ in their jurisdiction of incorporation.

A careful analysis of potentially relevant BITs would need to be undertaken on a case-by-case basis to identify the optimal BIT(s) for each investor in light of any jurisdictional, substantive or procedural limitations found in the applicable treaties, as well as corporate and tax planning considerations.

When should investors consider restructuring?

Although the timeframe for renegotiation of Dutch BITs remains unclear, it is important for foreign investors to undertake any BIT restructuring exercise before a dispute arises or becomes foreseeable in order to avoid it being regarded as an abuse of process  or ‘treaty shopping’ by a future arbitral tribunal.

A list of all Dutch BITs in force with African countries, highlighting those being renegotiated: