the ambit of the exceptions to the protections. That is, it allows a State to be exempt from the obligations of the treaty in certain listed situations in which compliance would be incompatible with key policy objectives.
With one exception, the investment protections can be enforced directly by TPP investors through ISDS. The one exception is ISDS will not apply between Australia and New Zealand (by side letter). This is not a new scenario.2 There was a similar bilateral carveout under the ASEANAustraliaNew Zealand Free Trade Agreement; a recognition that each country has strong mutual trust and understanding of each other’s court system, demonstrated also by the TransTasman treaty on enforcing court judgments.3
The ISDS mechanism in the TPP is also fairly typical of modern international investment agreements, but it includes additional procedural safeguards which protect governments from unmeritorious claims, ensure transparency, and allow TPP member States to maintain control over the TPP’s interpretation (rather than the arbitral tribunal).
Critics who argue that there should be no ISDS at all in the TPP and other international investment agreements risk rendering investment protections virtually unenforceable. By relying solely on interstate dispute resolution measures, the affected investor must persuade its State to pursue a claim. It is also important to remember the historical justification for ISDS, which was to protect businesses that invested in foreign jurisdictions where there may not have been robust democracies, rule of law or effective enforcement systems. Although most of the TPP member countries are developed nations, concerns continue, because even in developed countries, States can, consistent with their own laws, breach the acceptable standards enshrined in treaties. Given that the treaties are designed to promote investment by providing clear statements of principle, it is appropriate that the final determination of whether that principle has been violated should be truly independent of the State which is the defendant. It would also be unsaleable for a treaty to stipulate that an investor from a developing country can only have recourse to the host State’s courts, while an investor from a developed country can prosecute its claim by independent arbitration. The agreement evidenced by the TPP is most unlikely, unless it is enforceable by investors from all countries in the same manner. That is, there must be reciprocity.
A blanket exclusion of ISDS in all international investment agreements is not the answer to concerns about a government’s right to regulate in the public interest. The answer lies in the drafting of the investment protections themselves and, we submit, the text of the TPP goes some way to achieving the necessary balance between investment protection and regulatory discretion.
2. The TransPacific Partnership
2.1 Introduction
The TPP is the world’s largest regional free trade agreement, between 12 countries who represent approximately 40% of the global economy-Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.4