The Economic Partnership Agreement between the EU and Southern African states has come into effect, providing for state-to-state dispute resolution, but excluding any investor-state dispute settlement procedures.

The European Union’s latest trade agreement promises free trade between Southern Africa and Europe and provides a dispute resolution safety net for nations that fall into disputes between the trading bloc and its members, but leaves unchanged the existing investor-state dispute settlement (ISDS) systems.

The Economic Partnership Agreement between the EU and the six states of the Southern African Development Community EPA Group (SADC EPA) came into effect on 10 October, having been signed on 10 June, and is one of a series of such agreements between the EU and countries in Africa, the Caribbean and Pacific.

The agreement grants extensive access to the EU trade market to Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland, in most sectors, free from duties and quotas, but the EU retains the ability to protect domestic European markets if they are at risk from competition.

The region is a prominent exporter of diamonds to the EU, but it also provides beef, fish, sugar, oil and aluminium. Meanwhile, South Africa exports a more diverse array of products to the EU including fruit, platinum, wine, and manufactured goods.

Angola, another SADC EPA country, could exercise an option to join the agreement at a later date, and the six remaining countries of the SADC which are outside of the EPA group, Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe are part of other regional groups which are negotiating their own agreements with Europe.

Dispute resolution is also covered by the EPA, although only in a limited capacity. The agreement contains a state-to-state dispute resolution procedure of consultation, followed by mediation and arbitration.

This mechanism is “largely identical to dispute resolution mechanisms set out in other EU trade agreements, for instance the EPA between the CARIFORUM (Caribbean) states and the EU”, explains Andrew Cannon, a Paris-based international arbitration and public law partner with Herbert Smith Freehills.

However, Cannon does not expect these to be used much, despite being included in EU trade agreements since 2000: “These provisions are not often invoked in practice. This is perhaps unsurprising given that states will generally prefer to seek alternative, amicable mechanisms to resolve disagreements. Moreover, it is possible that potential disputes would be pursued within the WTO dispute resolution regime.”

The agreement totally excludes any provision for ISDS, at a time when “ISDS has also become quite controversial in certain states following a number of high-profile claims”. Both the Transatlantic Trade and Investment Partnership (TTIP) between the EU and US, and Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada have faced delays due to disagreements over the inclusion of ISDS provisions, although CETA has now been signed, while South Africa has begun reviewing andcancelling its bilateral investment treaties (BITs), which include ISDS provisions.

However, Cannon says the lack of ISDS in the EPA is consistent: “The inclusion of ISDS in EU agreements is a relatively recent phenomenon, since it is only since the Lisbon Treaty that the EU acquired competence over foreign direct investment. Further, ISDS will generally only be included in agreements which contain an investment chapter,” he explains. “The fact that the EPA does not include ISDS is therefore unsurprising, given that the EPA does not contain a specific investment chapter.”

European countries will have to protect investors themselves, as provided for under existing BITs which are unaffected by the EPA, and through the EU’s own proposed Investment Court System(ICS), which is included in CETA and the EU-Vietnam free trade agreement, and has been proposed, controversially, for use within TTIP.