Some
Common Claims about the Trans-Pacific Partnership Agreement's Investment
Chapter and Investor-State Dispute Settlement (ISDS) - a Rebuttal
by Third World Network
CLAIM:
Malaysia already has ISDS provisions in the 74 bilateral investment
treaties (BITs) and 8 free trade agreements (FTAs) that it has signed.
Certain groups are making a big deal out of the small issue of ISDS
in the TPPA.
Yes,
there are ISDS provisions in a number of Malaysia’s FTAs and BITs
with other countries. However,
- ISDS
provisions was originally included to protect investors from arbitrary
expropriation and ensure non-discriminatory treatment for foreign
investments. It was a system to settle disputes between foreign
investors and governments, such as when a foreign investor accused
a government of directly taking away (expropriating) the business
of the investor – as when some governments (usually upon gaining
independence) nationalised enterprises or industries or the property
and other assets of foreign companies. Access to justice and/or
compensation was tricky as the judiciaries of these countries were
considered not fully independent nor developed. Thus, the international
arbitration court was considered a more neutral framework decades
ago to ensure a fair enforcement of the host state's obligations
towards investors.
- But
the ISDS system of international arbitration has come under heavy
criticism recently, because it departs from its original goal of
protecting the property and assets of foreign investors. It now
adjudicates complaints relating to an extraordinarily wide area
of measures, even matters that, many argue, may not even be considered
as the ‘property’ of the foreign investor – such as the ‘expected’
profits of such investors.
- Secondly,
the substance, structures and processes of the ISDS regime of international
arbitration as well as the impartiality of arbitrators hearing the
cases have all become lopsided. The way in which the international
tribunals have interpreted investor-state disputes has led to an
imbalance between the right of a state to regulate in the public
interest and the investor’s right to protection. The scope for investors’
protection under the TPPA has expanded greatly and now extends to
a complex variety of situations and governmental measures that investors
can face. The number of ISDS cases has thus rapidly increased
as foreign investors are empowered to challenge – and get compensation
for – an increasing range of government measures that they claim
has affected their investments.
- Thirdly,
the corporations of the 1950s and 1960s seeking to invest in Malaysia
are not the same corporations of today. Unlike in past decades,
individual multinational corporations today have revenues that far
exceed the GDP of nations – some MNCs have individual budgets that
exceed the GDP of whole regions. In other words, the powers that
MNCs had decades ago cannot compare to the immense powers enjoyed
by MNCs today. The current system of ISDS only tips the balance
in favour of these corporations’ power. Needless to say, ISDS is
not aimed at helping the small- or medium-sized enterprise to access
justice.
For
the above reasons – and more – a number of countries (such as Indonesia,
South Africa, and India, and a number of Latin American countries)
have embarked on a considerable rethink of their earlier support for
ISDS, which they had earlier thought was relatively harmless, but
are now discovering otherwise.
CLAIM:
Foreign investors in Malaysia can bring an ISDS claim against the
government, but that means Malaysian investors abroad also can sue
other governments under ISDS.
- Opposition
to being sued by foreign investors does not mean we support the
ability of Malaysian firms to sue other governments over public
interest policies under the current ISDS system of arbitration.
We are not in favour of firms suing governments in international
arbitration courts if that also means circumventing domestic judicial
and legal systems and taking advantage of arbitration courts that
do not have the transparency, conflict-of-interest, code of conduct,
and other forms of checks and balances against abuse of the system.
- The
TPPA’s investment chapter only protects investors from TPPA countries
in fellow-TPPA countries. Malaysia already has ISDS via its BITs/FTAs
with all TPP countries except Canada, Mexico and USA. So Malaysian
investors in the other 8 TPP countries already are protected via
ISDS in Malaysia’s existing BITs/FTAs. Malaysian investors in the
3 countries without ISDS - Canada, Mexico and the USA - can already
get the protection of these countries’ domestic law and courts.
In Canada and USA particularly, the courts are known to be impartial
and willing to give large awards to foreign investors, etc., so
it is unlikely that Malaysian investors in these countries would
need more protection than what their law and courts already provide.
- Furthermore,
there are number of ways to address the risks inherent in investing
anywhere in the world – risks that domestic businesses all have
to take – such as:
- taking
out political risk insurance the same way we pay for fire insurance
for our homes.
- signing
an investment contract with the government with the same (or more)
protection than under the TPPA’s investment chapter, including
ISDS. This would then protect the domestic company’s investments
without restricting our government’s ability to regulate and be
exposed to more legal liability.
CLAIM:
There are sufficient safeguards for health and environment in the
Investment Chapter, so we don’t need to fear that the government will
not be able to regulate or take measures in the public interest
- According
to the Investment Chapter, nothing prevents TPPA countries from
enacting measures to ensure that investment activity in its territory
is conducted in a manner sensitive to its environmental, health
and other regulatory objectives. But these measures must be consistent
with the investment chapter.[1] This effectively negates the value of this provision. Measures
to safeguard the public interest will very likely abridge the broad
rights of a foreign investor under the TPPA. Yet their enactment
could be threatened with an ISDS suit by a foreign corporation.
- While
the TPPA says that non-discriminatory regulatory actions (as required
by the TPPA) that are designed and applied to protect legitimate
public welfare objectives - such as public health, safety and the
environment – do not constitute ‘indirect expropriation’, the investor
can still challenge these “in rare circumstances”.[2] The international tribunal would then decide on a case-by-case
basis.
- There
are a large number of performance requirements that a government
cannot impose on investors. And while the restriction on imposing
certain performance requirements does not prevent a party from adopting
or maintaining measures, including environmental ones, that are
necessary to secure compliance with a Party’s laws and regulations,
this is negated by the provision that it must not be inconsistent
with the TPPA Agreement.[3]
- Performance
requirements are also allowed by the TPPA when these are measures
necessary to protect human, animal or plant life or health[4]. This provision replicates Article XX(b) of the
General Agreement on Tariffs and Trade (GATT) 1947, an agreement
under the World Trade Organization. In fact, however, the GATT exception
is wider in scope. Furthermore, Art XX(g) of GATT allows parties
to take measures relating to the conservation of exhaustible natural
resources, a provision that is wider than comparable provision in
the TPPA.[5] In terms of the numbers, 43 out of 44 attempts
to employ Article XX in disputes before WTO panels have failed.
This does not bode well for the successful use of the more restrictive
TPPA exceptions.
CLAIM:
TPPA Parties can prevent ISDS claims over tobacco control measures[6]
- Yes,
TPPA governments can choose to do this for the tobacco control
measures listed in Footnote 13 of the Article. It is, however, not
a mandatory exception.
- Article
29.5 still allows ISDS challenges against governments for laws and
regulations over tobacco leaf (unless it is in a manufactured tobacco
product or in the possession of a tobacco manufacturer) or tobacco
farming.
- TPPA
governments can still be sued over their tobacco control measures
by other TPPA governments (under state-to-state dispute settlement
(SSDS)) under the TPPA Investment chapter.[7]
- Various
other TPPA chapters can still restrict governments’ ability to regulate
tobacco,[8] such as the chapters on tariffs, intellectual property,
technical barriers to trade, regulatory coherence, transparency,
and so on.
ท
In summary, while the voluntary and limited exception for tobacco
control measures from ISDS is a good start, it is not enough from
a public health perspective, and there remain many constraints to
effective tobacco control measures in the TPPA.
CLAIM:
TPPA countries have improved on weaknesses in the ISDS system by:
(i) expeditingreview and dismissal of frivolous claims; (ii) allowing
for the possibility that investors pay attorney fees and costs for
claims found to be frivolous; (iii) ensuring investors cannot make
a claim under ISDS if more than 3.5 years have passed from the time
of the action on which the claim is made; (iv) requiring Parties to
resolve claims via consultation and negotiation before elevating to
formal dispute
The
‘improvements’ to the ISDS system touted above by proponents of the
TPPA are minor changes that do not fix the fundamental problems with
ISDS (such as the lack of an appeals mechanism, the lack of a vigorououtheass
code of conduct for the ISDS judges comparable to most domestic judicial
systems, the broad scope and definitions that favour investors; problematic
concepts such as Most Favoured Nation, National Treatment, Indirect
Expropriation, Fair and Equitable Treatment, and so on.)
More
specifically,on each ‘positive’ touted about the procedural improvements:
- ‘expediting
review and dismissal of frivolous claims’: This doesn’t solve
the rest of the problems with the ISDS system itself.
- ‘allowing
for the possibility that investors pay attorney fees and costs for
claims found to be frivolous’: This applies only if an ISDS
tribunal finds claims to be frivolous and decides to award the costs
to the investor. An ISDS tribunal could also order the Malaysian
government to pay the investor’s lawyers’ fees and costs[9].
- ‘ensuring
investors cannot make a claim under ISDS if more than 3.5 years
has passed from the time of the action on which the claim is made’[10]: However, the rest of the TPPA’s investment
chapter allows broad legal liability by: a) protecting even investors
who entered Malaysia before the TPPA goes into effect (as well as
those who come afterwards);[11]b) a broad definition of the types of investment
which are protected;[12]c) broad rights of investors in Section A.
- Secondly,
under Malaysia’s Public Authorities Protection Act 1948 any action
brought against the government for an act done as part of its statutory
duty must be brought within three years. How is this slightly extended
period under the TPPA an ‘improvement’?
- ‘Requiring
Parties to resolve claims via consultation and negotiation before
elevating to formal dispute’[13]: This is unlikely to deter any investors from
going ahead with a formal ISDS claim. Moreover, this is only a ‘should’
obligation. Since the final TPP investment chapter text still allows
the ISDS tribunal to order the Malaysian government to pay compound
interest, compounded monthly at commercial interest rates from the
date the government took the action,[14] this interest can be compounding during any
consultation/negotiation period. Therefore consultation/negotiation
may end up prolonging the period during which interest is compounded,
if the Malaysian government loses the case.
[1]Article 9.15
[2]Annex 9-B.3(b)
[3]Article 9.9.3(d)(i)
[4]Article 9.9.3(d)(ii)
[5]Article 9.9.3(d)(iii)
[6]Article 29.5 of the exceptions chapter, http://www.mfat.govt.nz/Treaties-and-International-Law/01-Treaties-for-which-NZ-is-Depositary/0-Trans-Pacific-Partnership-Text.php
[7]E.g. see WTO’s tobacco disputes: https://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm#selected_subject
[8]See dispute settlement chapter of http://www.mfat.govt.nz/Treaties-and-International-Law/01-Treaties-for-which-NZ-is-Depositary/0-Trans-Pacific-Partnership-Text.php
[9]Article 9.22.6 and 9.28.3
[10]Article 9.20.1
[11]Article 9.2 and 9.1
[12]Article 9.1
[13]Article 9.17
[14]As this is how some past ISDS tribunals have interpreted ‘any
applicable interest’ in Article 9.28.1(a).
