Investment Treaty Arbitration Review, The Trans-Pacific Partnership
- Andrew Stephenson and Lee Carroll
This article was first published in The Investment Treaty Arbitration Review, 1st edition (published in April 2016 by Law Business Research Ltd) and is reproduced with permission from the authors. To access the article visit Corrs Chamber Westgarth website.
The Transpacific Partnership: Does it achieve the necessary balance between investment protection and regulatory discretion?
1. Introduction
The inclusion of investor state dispute settlement (ISDS) provisions in international investment agreements, including the recently disclosed TransPacific Partnership, has become contentious around the world. In Australia, at least, the concern intensified after Philip Morris Asia sued the Australian Government in 2011 under the Hong KongAustralia Bilateral Investment Treaty challenging Australia's tobacco plain packaging legislation. Critics believe the inclusion of ISDS in international investment agreements compromises a government’s sovereignty by enabling foreign corporations to sue a government for passing new laws or implementing new policies-effectively, domestic regulation in the public interest.
The authors consider that there is a real issue to be addressed, but properly understood, it is not ISDS clauses that give rise to this issue, but rather the vague nature of the substantive rights created by treaties which contain ISDS clauses. Those rights are intended to promote investment and therefore growth for the States entering into the treaties. If the advantage of growth through investment is real and the price of that investment is the creation of substantive rights stipulated in the treaties, then there must be a way for an investor to enforce those rights. Absent a proper mechanism for enforcement, the rights granted are hollow and will be unlikely to promote the investment sought.
The vague nature of the rights created by old treaties has been directly considered in the TPP. The TPP is part of a new generation of international investment agreements which, by its terms, better achieves the balance between investment protection and regulatory discretion. In our view, the TPP is unlikely to restrict a government of a member State from legitimately regulating in the public interest. We discuss below the key provisions of the TPP’s Investment Chapter (Chapter 9) which, we say, supports our argument. We concentrate on the expropriation protection in Article 9.8 primarily because it is this standard that has engendered particular concern about the potential to limit a State’s right to regulate in pursuit of noninvestment policy objectives.
The protections afforded to investors in the TPP’s Investment Chapter are typical protections (such as fair and equitable treatment), which, as drafted, appear to be derived from US investment treaty practice, and can be found in similar terms in many of Australia’s modern free trade agreements. However, the TPP incorporates language that clarifies the protections, particularly the protection against expropriation. It thereby instructs the arbitrators to conduct a balancing exercise between investment protection and regulatory discretion, rather than leaving the protections open to different interpretations by different arbitrators.1 The TPP also enlarges