The European Union’s (EU’s) frustrations with South Africa boiled over in July when European Commissioner for Trade Karel De Gucht used extremely strong language to criticise South Africa’s decision to terminate the bilateral investment treaties (BITs) it has with a number of European countries. However, when De Gucht meets Trade and Industry Minister Dr Rob Davies (the target of his “bad policy” attack) again in November it is likely that relations will be considerably less strained.

Partly as a result of communication channels having been properly opened to deal with its concerns, the EU appears to have materially softened its stance regarding South Africa’s move to cancel the BITs in favour of a comprehensive investment law. This is a significant development, given that the EU’s 28 member States still account for about 70% of South Africa’s current stock of foreign direct investment and given the initial unhappiness with South Africa’s handling of the matter.

EU ambassador to South Africa Roeland van de Geer says diplomats were taken aback by the heavy-handed manner in which South Africa initially communicated its decision. He, therefore, defends the EU’s “robust” handling of the issue, saying that the concerns could have been offset had South Africa’s announcement been accompanied by a “consultative procedure” and explanation as to the nature of the legislation being proposed as a replacement. “What happened, literally, is that ambassadors were called in the morning and received, in the afternoon, a note stating: It’s over.”

Anxiety levels were already elevated, he explains, by the fact that the announcement coincided with the efforts of a number of European diplomats, including Van de Geer, to mollify potential investors about South Africa’s stability in the wake of the Marikana shootings. In addition, there were concerns about a perceived move by South Africa towards greater protectionism across a diverse range of sectors – a move that the EU opposes, arguing that it will divert attention away from key domestic constraints to higher levels of competitiveness

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Since then, however, consultations have been initiated between the Department of Trade and Industry (DTI) and the EU, as well as between the DTI and several individual European countries.

Van de Geer stresses that the EU accepts that South Africa has a right to make adjustments to its legal framework. He also concurs with the notion that there are already safeguards in place to protect investors in South Africa. Nevertheless, the EU still maintains that specific protection measures are required to offer foreign investors further comfort.

Davies has indicated that a draft Investment Act should be released for public comment before the end of the year and that the proposed legislation will not seek to lower protection, but rather to ensure that a better balance is struck between such protection and South Africa’s own policy objectives. The proposed law will also be canvassed with the diplomatic community and be subjected to the normal Parliamentary oversight and scrutiny.

Van de Geer agrees there is no need for “panic”, but he and his delegation will continue to underline the importance of “close consultations” on the redesigned legal framework. Such consultations are required, the EU asserts, to avoid any further misunderstandings that could lead to investor uncertainty.