Sorting out a trade dispute can be a tricky thing. Nations may want to advance their economic interests but are reluctant to upset relations with another country over a dispute with a private investor. Though there is the mechanism of state-to-state arbitration, it has divided opinions among scholars who have described it either as a dangerous development 'that threatens to infringe upon investors’ rights and to re-politicize investor-state disputes' or 'an important step towards a new third era of the investment treaty system in which the rights and claims of both investors and treaty parties are recognised and valued.'

As an alternative to this, the investment-state dispute settlement, which allows private companies to take on a country directly through an international arbitration process, was created. It was seen as a necessary concession, since the diplomatic protection implied in state-to-state arbitration could not always be relied upon by foreign investors.

An example of this is the dispute between Zimbabwe and South Africa where, prior to the signing of a bilateral investment treaty in 2009, South African investors had no recourse even when the Southern African Development Community tribunal ruled on expropriatory action by Zimbabwe in favour of South Africa investors forced off their land.

The Zimbabwean government simply said the tribunal had no authority over it and subsequently withdrew from its jurisdiction.

State-to-state arbitration has its shortcomings but investment-state dispute settlement is falling out of favour. South Africa, through the Promotion and Protection of Investment Bill (PPIB), wants state-to-state dispute settlement to replace international investor-state arbitration, which has been included in most of South Africa’s bilateral investment treaties signed during the 1990s and subsequently cancelled.

But doing away with investment-state dispute settlement could be a lost opportunity. State-to-state arbitration often involves interpretive disputes based on different interpretations of investment agreements. Such an arrangement will rob South African courts of the opportunity to learn from international best practice.

Having an investment-state dispute settlement system in place would have allowed South African courts the opportunity to immerse themselves in localising global international investment regulatory norms.

South Africa has a robust legal system and this would probably lead to investors choosing to settle their disputes in the local courts.

When an exceptional case goes to an international tribunal, this would allow our courts to be held to international standards. Importantly, foreign investors sometimes resort to foreign tribunals to avoid the backlogs in local courts.

South Africa should, therefore, consider establishing specialised investment courts to encourage the use of local courts. The country already has specialised commercial crimes courts, competition tribunals, labour courts, tax courts and land courts.

There are a number of countries from which South Africa can take lessons. Among them is Indonesia, which has so-called 'globalised localism', based on linking international investment law with its domestic legislation through inserting an investment-state dispute settlement system as an alternative to the use of local courts. In South Africa, this would have provided an 'oversight' mechanism for court decisions relating to the protection of foreign investment.

South Africa has a well-developed and respected judicial system, meaning that an investment-state dispute settlement would in all probability have allowed local courts to be used.

In effect, including a qualified settlement mechanism of this nature in the PPIB would recognise the importance of the host state regulating within the public interest.

Written by Lesley Wentworth, manager of SAIIA's Economic Diplomacy Programme, and Azwimpheleli Langalanga a visiting researcher at SAIIA. This article was first published in the Financial Mail.