SA discrimination against foreign ownership in security services
The controversial Private Security Industry Regulation Amendment Bill has been approved by Parliament and is waiting on the signature of President Zuma. The Bill is controversial as it requires that at least 51% of the ownership and control of security services companies must be exercised by South African citizens.
The Bill is controversial as it appears to be a clear violation of South Africa's commitments undertaken in terms of the General Agreement on Trade in Services (GATS) at the World Trade Organisation. In terms of South Africa's GATS commitments, the country undertook that it would never impose a market access barrier against foreign ownership in this industry nor would it ever discriminate against foreign ownership in this industry. Therefore the restriction on foreign ownership as contained in the Bill is in fact a violation of South Africa's WTO commitments and hence illegal.
Should the Bill be challenged, either at the WTO, in South Africa's courts or in arbitration (although if action is taken under a bilateral investment protection treaty the South African government may perhaps not even be able to access any justification for the violation), the South African government will bear the burden of proof to show that this violation is in fact one of the allowable exceptions contained under Article XIV of the GATS. To rely hereon, the South African government, depending on the reason it advances, will have to either prove that the restriction on foreign ownership is necessary for safety or necessary to maintain public order. As such the South African government would have to prove that the foreign ownership restriction is close to indispensible for safety or to maintain the public order. On the face of it, it would appear that it is unlikely that the South African government would be able to discharge its burden of proof.
It therefore remains to be seen whether other WTO members will challenge South Africa on this Bill or whether private sector participants will resort to litigation or arbitration. It may very well be that foreigners decide to act against the South African government given the seeming change in policy concerning South Africa's treatment of foreigners in recent times.
© Trade Law Chambers 2014