1. Investor-State Arbitration and the TPP: assessing the final deal Daniel Kalderimis, Partner, Chapman Tripp LEANZ SEMINAR, AUCKLAND, 22 MARCH 2016

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4. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 4 TPP – quick facts 12 signatory countries: ―Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam Legally verified text released 26 January 2016 TPP to come into force when ratified by 85% of GDP (effective US and Japan veto) Agreement contains 30 chapters Full text available here, here and herehere

5. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 5 Two reflections on globalisation “Globalization so pervades our economic lives that it is hard to have a political debate ‘about’ it” (Peter Mandelson, 2012) Underlying principle of post-WWII international economic order = “the compromise of embedded liberalism”: economic integration embedded in social and political autonomy (John Ruggie, 1982)

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8. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 8 Fighting for the rust belt “I am the only candidate in this race who will bring our manufacturing jobs back. I have been warning for decades what would happen if we didn’t confront foreign trade cheating. […] Under a Trump administration, we will finally stand up for American workers and make America great again.” (Donald Trump)

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15. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 15 Problems with ISDS? Source: http://thewireless.co.nz/articles/the-pencilsword-who-s-afraid-of-the-tppa

16. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 16 Source: http://thewireless.co.nz/articles/the-pencilsword-who-s-afraid-of-the-tppa

17. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 17 Global opposition to ISDS Argentina cases Withdrawals from ICSID: Bolivia (2007), Ecuador (2010), Venezuela (2012) Philip Morris case Bilcon case Australian Productivity Commission UNCTAD

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19. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 19 Hold on: what is ISDS exactly? “Arbitration without privity” State A Investor A State B Investor B

20. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 20 Int’l investment law: a brief history International adjudication of investment disputes has been around for over a century Early history: ―Development of international legal standards for the treatment of foreign investors ―Political resolution of disputes (gun-boat diplomacy) ―Diplomatic protection (state/state) Post-WWII: decolonisation lead to an increase in international investment disputes A mechanism was needed…

21. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 21 Rise of IIAs MAI 1998 failed… …but now over 3,200 international investment agreements (IIAs), and 600 cases ―standalone bilateral investment treaties (BITs) ―embedded FTA investment chapters ICJ Diallo (2007): “… in contemporary international law, the protection of the rights of companies and the rights of their shareholders, and the settlement of the associated disputes, are essentially governed by bilateral or multilateral agreements…”

22. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 22 A disaggregated regime

23. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 23 Source: Wolfgang Alschner and Dmitriy Skougarevskiy “The new gold standard? Empirically situating the TPP in the investment treaty universe” (Graduate Institute of International and Development Studies: Center for Trade and Economic Integration, November 2015) at 15

24. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 24 What does an ISDS hearing look like? http://livestream.com/ICSID/events/3954046

25. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 25 How do you find the decisions? http://www.italaw.com/ https://icsid.worldbank.org UNCITRAL Rules on Transparency in Treaty- based Investor-State Arbitration (2014)

26. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 26 How would EU-proposed investment court system work? First instance tribunal (from panel of 15) and appeal tribunal (from panel of 6) Judges’ qualifications comparable to members of ICJ and WTO Appellate Body Now in place as part of EU-Canada CETA (2013) Still up for discussion in TTIP Appointments still to be worked out Note EU-New Zealand FTA negotiations now underway (since October 2015)

27. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 27 NZ and ISDS New Zealand has already signed up to ISDS mechanisms with 13 countries: ―China (1988 BIT, 2008 FTA) ―Hong Kong (1995 BIT) ―Malaysia (2009) ―every ASEAN country (including Singapore, Vietnam, Thailand, Indonesia) (2009) ―South Korea (2015, still to be ratified) ISDS does not apply between Australia and New Zealand

28. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 28 Main investor protections in the TPP Freedom from discrimination: ―National Treatment (NT) ―Most Favoured Nation treatment (MFN) Minimum Standard of Treatment (MST) Freedom from uncompensated expropriation Also rules on local performance, governance and management requirements and free fund transfers

29. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 29 TPP modifications/innovations Investor-government contracts – ISDS to apply for breach of some investment agreements and authorisations WTO-style general exceptions do not apply to investment. Approach is to build deference into substantive rights TPP generally applies to pre-establishment measures, subject to non-conforming measures annexes Highly transparent dispute settlement process Mechanisms to put onus and risk on investors (burden of proof, denial of benefits and cost shifting provisions, summary dismissal power, counterclaim mechanism, rules against parallel proceedings, time bars) Binding joint interpretation power

30. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 30 General right to regulate? “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives” (Art 9.16)

31. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 31 What general exceptions apply? Security exceptions Temporary safeguard measures (but must be consistent with specified investor protections) Specific exceptions relating to: ―parties may deny protection to challenges to tobacco control measures ―specific Treaty of Waitangi exception ―decisions under Overseas Investment Act (OIA) to grant/decline consent (excluded from ISDS)

32. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 32 Traditional standards ProblemsTPP solution Fair and equitable treatment (FET) Vague, open-textured and unpredictable Define in terms of CIL minimum standard of treatment (MST) ExpropriationRegulatory or creeping expropriation notoriously hard to define Indirect expropriation = effect equivalent to direct expropriation Non-discriminatory regulation to protect legitimate public welfare objectives ≠ indirect expropriation “except in rare circumstances” Most favoured Nation (MFN) Extension of rights under other BITs/FTAs Clause excludes procedural rights “Like circumstances” side letter Umbrella ClausesRisk of parallel proceedings; undermines contractual mechanisms No traditional umbrella clause. But ability to bring some types of government contracts and authorisations to ISDS. However, investor rights do not automatically attach National Treatment (NT) Restricts policy flexibility“Like circumstances” side letter Restricted through NCM Annex Main TPP investor rights

33. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 33 Can the Government stop foreigners buying houses? Compare: ―Korea-NZ FTA: Article 10.5 ―TPP: Annex II – NZ – 7 New Zealand reserves the right to adopt or maintain any measure that sets out approval criteria to be applied to categories of transactions requiring approval under the OIA… …but not to change the categories of overseas investment that require approval But see also Annex II – NZ - 32

34. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 34 Why did NZ agree to ISDS in the TPP? To increase domestic FDI? To assist outbound foreign investors? FTAs are negotiations – without the give, there is no get We didn’t, actually, have much to trade – remember stalled Korea-NZ FTA? ISDS best understood as part of the price

35. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 35 Returning to globalisation… International treaties necessarily constrain national sovereignty Problem is not choices that restrict action, but choices that restrict action without sufficient balance, and political and institutional legitimacy Stiglitz: “Globalization entails not only the integration of markets, but also the emergence of a global civil society” Global community is still experimenting Challenge unchanged after 70 years: still seeking global governance without global government

36. LEANZ Seminar: Investor-State arbitration and the TPP 22 MARCH 2016/ 36 …and to the TPP TPP is huge economic opportunity for the Asia- Pacific region ISDS is no conspiracy – but a precocious mechanism growing up fast Question is whether risks adequately mitigated Significant counterfactual risk in New Zealand not being part of TPP, should it enter into force