Document Type

Article

Disciplines

International Law

Abstract

On January 8, 2007, Finstone Ltd SA ("Finstone")--an Italian-owned, Luxembourg-based holding company that controls three granite production operations in South Africa-instituted formal legal action against the South African government at the International Centre of Settlement of Investment Dispute ("ICSID").' Finstone alleges that South Africa's Black Economic Empowerment ("BEE") policies, which aim to advance the rights and opportunities of the group Historically Disadvantaged South Africans ("HDSA"), discriminate against foreign investors.2 Finstone claims that BEE policies violate the "fair and equitable treatment" and "national treatment" provisions of two bilateral investment treaties ("BITs"), specifically the SA-Italy and SA-Belgium-Luxembourg BITs, by treating foreign investors and investments less favorably than HDSA investors and investments.' Finstone further alleges that South Africa's new system of mining rights established under the Mineral and Petroleum Resources Development Act ("MPRDA"), which requires existing mining right holders to convert their rights into a "new form of state-owned mineral rights" that are "less valuable," constitutes an expropriation of Finstone's existing mining rights.' As a result, Finstone is suing for €266 million (- US$372 million) in compensation under the pending arbitration.

When the Apartheid formally ended in 1994, the new South African government considered affirmative action6 measures as necessary social policies to achieve "equality" and explicitly provided for them in both the 1993 (Interim) and 1996 (Final) South African Constitutions.7 While South Africa's affirmative action policies have rarely been challenged in the past, its legitimacy is now increasingly subject to international scrutiny due to the Finstone allegations.8 The outcome of the pending arbitration will have significant implications for South Africa because the country is party to thirty-seven such BITs.' These instruments, which have traditionally drawn little attention, now have the potential to become powerful weapons through which foreign investors can use to claim damages from the South American government and to undermine South African government's right to regulate its domestic affairs.

In order to understand the root of the conflict, Part II of this Article provides a historical overview of the concept of "equality" under South African law and the concept of "non-discrimination" under international law, and discusses how their historical differences have resulted in dissimilar definitions and interpretations of the term "equality." Part III explores South Africa's motives behind entering into BITs, the process by which the terms were negotiated and critically analyzes the content of thirteen BITs that South Africa entered into between 1994 and 2000 to observe and reveal the trends among these instruments. Part IV discusses the facts and allegations of the pending arbitration and concludes by examining the possible outcomes of the case.

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