New Zealand: Investor-state arbitration not deal breaker for TPP negotiations

Brief Counsel

Investor-state arbitration is a mechanism whereby foreign investors can directly enforce minimum international investment standards against host states through international arbitration proceedings.

Australia, after signing numerous investor-state treaties, has now taken a strong stance against investor-state arbitration in the Trans-Pacific Partnership (TPP) negotiations.

Prime Minister John Key last year dismissed any concerns that foreign investors could get special treatment in New Zealand as " far-fetched". This is questionable, as New Zealand is already party to several investor-state treaties.

Especially with the threat of litigation by tobacco companies, it is timely for New Zealand to focus on the trade-offs inherent in investor-state arbitration as it negotiates the TPP. This should be done, however, with a good grasp of the facts and a sense of perspective.

Concerns about investor-state arbitration

This issue has been stirred up by the release of an " Open Letter from Lawyers to the Negotiators of the Trans-Pacific Partnership Urging the Rejection of Investor-State Dispute Settlement" on 8 May 2012.

The letter is backed by well-meaning, and several well-known, signatories; most of whom are not especially well-informed about investor-state arbitration. The fact of the letter is welcome, as the issues are important. But the letter itself contains several overstatements and does not make a balanced contribution to the debate.

Signatory Bryan Gould, Vice-Chancellor of Waikato University and sometime New Zealand Herald columnist, fears that under cover of darkness New Zealand will sign up to an agreement that might "stop our Government (or any future government) from changing New Zealand law" while riding roughshod over our court system. His main concern, reflected in the letter, is that the investment arbitration system prioritises investor interests over the sovereign rights of states to regulate.

Putting concerns about investor-state arbitration into perspective

Professor Gould's concern should not be dismissed out of hand. The investor-state arbitration system is de-centralised, evolving and far from perfect. The key question, however, is whether its imperfections can be addressed by careful drafting, or whether the system is beyond repair.

Before approaching that question, it is important to emphasise that the TPP would not constitute New Zealand's initiation into the system. New Zealand included investor-state dispute resolution in its 2008 FTA with China, and did so again in its 2009 FTA with the 10 ASEAN countries (as well as separately with Malaysia). New Zealand also has historic investment treaties with China and Hong Kong. Foreign investors from those countries already have investment rights against New Zealand, and New Zealand investors have investment rights in those countries. Such rights could, especially in the event of political crises overseas, prove valuable to New Zealand investors.

To date, no investment claims have been filed against New Zealand (let alone succeeded). As in many other contexts, doomsday arguments should be taken with a grain of salt.

Techniques to reduce the risks of investor-state arbitration

The drafting techniques needed to reduce the risk of unwelcome decisions are well known to New Zealand's trade negotiators, who through the China FTA were careful to preserve New Zealand's regulatory discretion and autonomy, and to permit unmeritorious claims to be weeded out at an early stage.

Some further drafting improvements were made in subsequent FTAs. There is room for still further improvements. In particular, New Zealand's negotiators will be seeking to:

  • craft the investor-state obligations so that arbitrators are constrained from adopting surprising and expansive interpretations of substantive rights. Examples include a restricted most-favoured nation clause, the use of an expropriation annex (such as in the China-NZ FTA), and a more elaborate and narrow definition of the fair and equitable treatment obligation
  • negotiate safeguards to ensure that New Zealand retains the ability to make regulatory decisions to pursue public objectives, for example, by including exceptions clauses for matters such as public health, environmental protection and the Treaty of Waitangi (as was also done in the China-NZ FTA)
  • address the scope of measures to which investment rights attach, the identity of parties who may invoke those rights, and range and nature of interim and final orders which can be made by arbitral tribunals, and
  • ensure that investor-state arbitration remains an exceptional system, perhaps by requiring the exhaustion of local remedies before permitting access.

Conclusion

With appropriate safeguards in place, the fiscal risk represented by investor-state arbitration is not uncontrollable, and its magnitude should not be overstated. Accordingly, while there are reasons for caution in the TPP negotiations, it does not follow that the investment chapter must be a deal-breaker.

If successfully concluded, the TPP will drastically increase the international market access of New Zealand businesses, particularly in the United States. New Zealand businesses will also gain from the acquisition of investment rights in the TPP countries. To those who claim such rights can be of no importance, consider that Argentina only last month openly expropriated 51% of a massive Spanish oil concession contract. For our flagship export companies such as Fonterra, managing political risk in Asian and Pacific Rim countries is important, and enforceable investment rights are an important insurance policy.

A sense of perspective is needed at this juncture. The TPP represents an important opportunity for New Zealand. New Zealand's negotiators should be given the time and space to negotiate the best overall agreement they can. In doing so New Zealand must listen to what all stakeholders have to say, and can afford to have some bottom lines. At this stage, however, the case has not been made that rejection of investor-state arbitration must be one of those bottom lines.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions