São Paulo – The cooperation and investment facilitation agreement signed this week by Brazil and Mozambique open the way for the expansion of the Brazilian foreign policy in this area when leaving out clauses included in the traditional investment protection and promotion treaties. This Wednesday (1st), a similar document could be signed with the Angola government as part of the agenda of ministries Armando Monteiro Neto (Desenvolvimento, Indústria e Comércio Exterior) and Mauro Vieira (External Relations) in a visit to Africa.
“It’s a new model, which remove points that created problems in the past”, said to ANBA ambassador Carlos Marcio Cozendey, director of the Department of Financial and Services Affairs of the Ministry of External Relations (Itamaraty).
Brazil hasn’t signed an investment agreement since the 1990s. The reason is because the traditional treaties in the area signed by the country had two clauses that were never approved by Congress. One of them is the one that allowed foreign investors to directly take legal action against the state at international arbitration courts in case they felt harmed; the other is the one that regulated “indirect expropriation”, that is, the investors had the right to ask for a compensation due to changes in the country that, in theory, would make their business not viable, even if the changes didn’t have direct relations with them.
Besides, the government defended that it wasn’t necessary to include protection to foreign investments in agreements because the Brazilian legislation guarantees to foreign investors the same rights granted to domestic investors. In this regard, the treaty signed with Mozambique signals a change in Brazil’s foreign policy.
“It’s an important attitude shift by the government”, said Fabrizio Panzini, specialist in international negotiations and analyst of the National Confederation of Industry (CNI). The new model was devised by the ministries of Development, Industry and Foreign Trade (MDIC), External Relations and Finance, and had the support of CNI and the Federation of Industries of the State of São Paulo (Fiesp).
This change occurred due to a transformation of the economic and corporate reality of the country, which went from an almost exclusively receptor of direct foreign investments to also an important role as place of origin of these resources. “The government realized that Brazilian companies were going abroad and that it was important to give them political and economic support”, added Panzini.
Pillars
In this respect, the new treaty model is based on three pillars: political risk mitigation and controversies forecast, institutional governance, with the creation of dialogue mechanisms between the signatory countries, and the debate over an agenda of cooperation and investment facilitation issues.
In the first case, the text guarantees explicitly to foreign investments the same treatment given to domestic ones, and that there will be no favoring to an investor from a country in detriment of others. And this includes the guarantee for free profit remittances.
To avoid going into the same controversy of traditional investment protection agreements, the model provides for dialogue and arbitration between governments for the resolution of controversies – not between investor and the state – and ensures compensation only in the case of direct expropriation. “There was a huge effort in the issue of controversy prevention”, declared Cozendey.
The agreement defines also that each part will nominate a “ombudsman”, which will be serve the role of being a facilitator of bilateral business and a kind of “one-stop” that the investor will look for when dealing with government bodies of the receptor country. In the case of Brazil, this “ombudsman” will be the Foreign Trade Chamber (Camex), the agency that gathers the representatives of several ministries and that formulates foreign trade policies. “The investors now have direct access to authorities”, said the ambassador.
With the signing, the countries establish also a joint committee meant to monitor the application of the treaty, post investment opportunities, exchange information about regulatory issues and others. In this area, it’s planned the discussion and definition of sectors more appropriate or that have priority to receive foreign investments. “The existence of previous consultations between the public and private sectors in certain focal points make it easier, especially for large investments”, said the director of the Department of Foreign Trade and International Relations of Fiesp, Thomaz Zanotto.
In his assessment, however, the mechanisms created should also open the doors for smaller companies, which don’t have the same structure as the larger ones, especially to deal with bureaucracy. “The large companies go there [abroad] with their own staff [have their structure], but the medium-sized ones will get lost”, said Zanotto.
Panzini emphasized other aspects of the model, such as the facilitation of work visas issuance, and Cozendey also noted that the text go beyond purely corporate issues and contemplate, for instance, the social responsibility of the companies.
Besides Mozambique and Angola, the model is in negotiations with other African countries and has attracted the attention of Arab countries such as Algeria, Morocco and Tunisia, beside Latin American nations. It’s a type of agreement that, in general, tends to attract the attention of developing nations. “But also serves any interest”, said Cozendey.
*Translated by Sérgio Kakitani