* Twenty-year-old investment treaties being scrapped
* Europe concerned about cancellation of pacts
* South Africa needs to attract more foreign investment (Adds European, Goldman comment, background)
By Ed Cropley
JOHANNESBURG, Nov 4 (Reuters) - A new South African investment law should come into force next year to replace a raft of individual, 20-year-old treaties but foreign investors will be adequately protected and have nothing to fear, trade minister Rob Davies said on Monday.
Pretoria let bilateral treaties agreed with European nations shortly before the end of apartheid lapse last month, to the concern of investors and diplomats who say the replacement law does not offer the same protections.
The draft Promotion and Protection of Investment Bill, published last week, rolls over guarantees against state seizure of assets but analysts say it narrows the definition of expropriation and attaches caveats to compensation.
It also removes the option of international arbitration in the event of a dispute with a government decision.
"If you wanted to sue, you would have to sue them in the South African domestic courts or take them to domestic arbitration," said Peter Leon of Johannesburg-based law firm Webber Wentzel.
"International arbitration is a very important issue for investors. It gives one access to an independent forum which is not connected with the state."
European nations affected so far include Germany, Spain, Belgium and Switzerland.
However, Davies insisted the bill was fair in balancing the interests of the public with those of investors in Africa's biggest economy.
"The bill confirms that South Africa remains open to foreign investment. It does not impose any new obligations on investors," he told a media briefing.
He also said the international arbitration clauses inserted in the turbulent transition from white-minority rule to democracy in 1994 were no longer necessary given the quality and probity of South Africa's legal system.
"International arbitration was established to address situations where national court systems are weak, ineffective or biased against foreigners," he said. "This is not the case in South Africa."
However, the fact remains that South Africa desperately needs foreign investment to power an economy plagued by persistent 25 percent unemployment and creaking infrastructure, and so can ill-afford to ward off potential partners.
In a report released ahead of next year's 20th anniversary of democracy, Goldman Sachs said if South Africa wanted to lift its growth rate to 5 percent, it needed to attract $5-$10 billion a year in foreign direct investment from $1.9 billion over the last two decades.
"This will require a much more determined and coherent focus on improving the investment climate," Goldman country head Colin Coleman said. "This is not a time for finger pointing."
Although Pretoria has been pushing hard to attract capital from other big emerging markets such as China and Brazil, Europe still accounts for three-quarters of all foreign direct investment stock.
EU ambassador Roeland van de Geer, who has been a vocal critic of Pretoria's 'Look East' policy if it comes at the expense of established relations with Europe, came out strongly against the ending of the investment treaties.
"It must be noted that their unilateral cancellation remains of great concern," he said in a statement. (Additional reporting by Wendell Roelf; Editing by Ron Askew)