permits the exclusion of certain investors from protection.
Other than a State Party, there are two types of investors under the TPP: a national or an enterprise of a Party.10
A “national” is a natural person who has the nationality of a Party according to Annex 1A or a permanent resident of a Party.11 Annex 1A provides for Partyspecific definitions of ‘nationality’. As with most investment treaties, the TPP bases nationality exclusively on the laws of the State of the claimed national. In Australia, a natural person who is an Australian citizen, as defined in the Australian Citizenship Act 2007, has Australian nationality.
An “enterprise of a Party” is an enterprise constituted or organised under the law of a Party or a branch located in the territory of a Party which also carries out business activities there.12 In respect of the inclusion of a “branch”, an enterprise of a Party need not be an enterprise constituted or organised under the law of a Party. It may be constituted and organised under the law of any State (including a nonState Party). However, in that case what is critical is that the entity carries out ”business activities” in a State that is a Party to the TPP.
However, this definition needs to be read with Article 9.14, a denial of benefits clause, which permits the exclusion of certain investors. Such a clause is not uncommon in modern treaties. It enables a TPP member country to deny the protections in the Investment Chapter to: • an investor, who is owned or controlled13 by a (natural or legal) person of a non-State party or the denying State party, who has no substantial business activities in the territory of any State party other than the denying State Party;
• an investor, who is owned or controlled by a (natural or legal) person of a non-Party and the denying State party has in place measures with respect to that non-Party (or a person of the non-Party) that prohibits transactions with the investor or that would be breached if the benefits of the Investment Chapter were accorded to the investor.
The first carveout gives TPP member countries the authority to carve out from the definition of “investor” shell companies owned by persons of a third country which do not have substantial business activities in the territory of a State Party. Its purpose is to stop treaty shopping. Unlike earlier treaties, it will not be possible for investors from nonParty States to structure their investment to take advantage of the treaty. While the principle of “abuse of right” prevented the late adoption of a nationality for the purpose of a treaty, that general principle of international law is much narrower than the denial of benefits clause in the TPP.
The second carve out relates to an entity which has a substantial business in a TPP member State but the State, which might otherwise have been the subject of a claim, has regulations in place which prohibit transactions with the investor. An example of such a regulation is the long standing US embargo[14] on almost all trade and investment involving Iran, prohibiting US persons[15] from engaging in transactions or dealings with Iran. On 16 January 2016, the US lifted the nuclearrelated “secondary sanctions” (directed towards nonUS persons for conduct involving Iran that occurs outside the US) but the domestic trade embargo remains in place.