TPPA: The New Age of Foreign Corporations — Gurdial Singh Nijar

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Pic taken from FMT News

Pic taken from FMT News

TPPA: The New Age of Foreign Corporations
by Gurdial Singh Nijar
Professor, Faculty of Law, University of Malaya
16 November 2015

pdf

 

 

1.     Introduction[1]

The TPPA’s finalised chapter on investment and ISDS is out.[2] Sadly, it is not looking good for the country. It introduces a whole new system that gives extraordinary protection to the investments and profits of foreign corporations. It then empowers these corporations to sue governments if these rights are interfered with in any way – through an entire legal framework that is “fundamentally flawed” – known as investor-state-dispute settlement or ISDS, for short. The bounty of extensive rights are not (and, largely, have never been) accorded to citizens of the parties to the TPPA.

Malaysia’s Ministry of International Trade and Industry (MITI), which led the negotiations, has put on a brave face. In its web page it writes that the ISDS provision is not new. It appears, it says, in Malaysia’s Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs) with several other countries.

Two crucial aspects MITI does not disclose. First, the scope of the protected investments in respect of which an ISDS case can be brought is far wider than in any other of Malaysia’s previous trade treaties. Secondly, for the first time the US is a party. Its big corporations are notorious for pursuing all sorts of claims against other countries for millions if not billions. Let me elaborate.

2.     Broad scope

It is true that the ISDS provision is contained in several international investment treaties – perhaps more than 3,000. But it has been heavily criticised recently. Because it departs from its original goal, it now adjudicates complaints relating to extraordinarily wide investment protection provisions and the impartiality of arbitrators hearing the cases has come into serious question. Critically, the way in which the international tribunals have interpreted the investment provisions creates an imbalance between the right of a state to regulate in the public interest and the investor’s right to protection. A UN Experts group lamented that “the experience of decades related arbitrations conducted before ISDS tribunals … demonstrates that the regulatory function of many States and their ability to legislate in the public interest have been put at risk.”[3]

An ISDS provision was originally included to protect investors from arbitrary expropriation and ensure non-discriminatory treatment for foreign investments. This was in countries considered risky – because, for example, its judiciary was considered not fully independent from government. Hence in a dispute involving a national or the government, arbitration was considered a more neutral framework to ensure a fair enforcement of the host state’s obligations towards investors.

Two developments make this provision unnecessary. First countries’ judicial systems have developed and matured and now provide fair adjudication hinged on universally established procedures. Secondly, there is a right of appeal with the case proceeding through several judicial tiers.

Significantly, the scope for investors’ protection under the TPPA has expanded greatly. Originally it was for the direct taking away (expropriation) of the business of the investor – as when a new government (usually after freeing itself from the shackles of its colonial master) nationalised an enterprise or industry.

Now it extends to a complex variety of situations. The “investment” that is protected (‘covered investment’) – whether it existed before or after the coming into force of the TPPA and binds national, state and local governments – is defined very broadly. It covers every conceivable endeavour under the sun – no matter how remotely connected to the investment.  It means every asset that an investor owns – directly or indirectly and that “has the characteristics of an investment”. [4]

This includes the commitment of capital or other resources; the expectation of profit; or even the mere assumption of risk.

A list gives examples of the form an investment may take. It’s non-exhaustive – meaning that other kinds of investments may also be included. The examples include: an enterprise, shares stocks and other forms of equity; bonds and the like and loans; futures, options and other derivatives; contracts in the nature of turnkey, construction, management, production, concession, revenue-sharing and such like; intellectual property rights; grants under a party’s laws of permits, licences, authorisations and such like; and ‘other tangible or intangible’, movable or immoveable property, and related property rights, such as leases, mortgages, liens and pledges.

The ‘investment agreement’ which can be litigated under the ISDS clause covers a whole range of items which the US succeeded in securing for its investors.[5] It even includes claims relating to contracts made with the government granting rights (which were resisted by many parties, but the US finally prevailed)

  • To a country’s natural resources[6] – such as oil, gas, rare earth minerals, timber, gold, iron ore and such like; and to exploring, extracting, refining, transporting, distributing or selling these;
  • To supply services on behalf of the party for public consumption for – power generation or distribution, water treatment or distribution, telecommunications or such like;
  • To undertake infrastructure projects – such as construction of roads, bridges, dams, pipelines – predominantly for a public purpose.

It applies to agreements that are concluded and take effect after the entry into force of the TPPA – unlike all other investments which can predate the TPPA’s entry into force.

It appears that even a non-party to the TPPA can sue if it can show that its enterprise has ‘substantial business activities’ in the territory of a party.[7] If past decisions are an indicator, this only requires it to station some staff in rented premises of a party.[8] This means that a non-party investor can quite easily channel investments through a party to take advantage of the extensive rights accorded to party-investors.

Any enterprise that is a ‘juridical person’ can submit a claim. This is defined as ‘any entity constituted or organised under applicable law’.[9] This allows for companies to incorporate themselves in a party and sue under the ISDS provision. This in fact happened when Philip Morris (PM), the US tobacco giant registered its company in Hong Kong which had a treaty with an ISDS provision with Australia; and launched a suit against Australia alleging expropriation of its IPR.[10] The undefined and weak ‘substantial business activity’ requirement can so easily be satisfied. The arbitral tribunal decided very recently to reject the claim on the ground that it had no jurisdiction.[11] Although the grounds for the decision are not available for reason of confidentiality, the objection by Australia must have succeeded on any one or more of the following submissions it made to challenge the tobacco giant’s right to institute the action. Much of its arguments rested on the fact that at the time PM Asia acquired its shares in PM Australia, the government had publicly committed to introduce the legislation by 2012.   In particular, it argued that:

  • an investor (PM Asia), could not buy into a dispute by making an investment in full knowledge. that a dispute is either existing or highly probable;
  • the Australia-Hong Kong (A-HK) – bilateral investment treaty (BIT) did not confer jurisdiction on any arbitral tribunal to determine pre-existing disputes that have been repackaged as BIT claims many months after the relevant governmental measure had been announced;
  • the A–HK-BIT extends protection to indirect investments only where companies incorporated in a third state qualify as investors under the A–HK-BIT. The assets of PM Australia and PML – two Australian-incorporated companies – do not constitute “investments” for the purposes of the A–HK-BIT; and
  • the A–HK-BIT does not extend to obligations owed by Australia to other states under multilateral agreements and that the arbitral tribunal is precluded from determining breaches of agreements under the auspices of the World Trade Organization (WTO) and under the Paris Convention since these treaties do not establish rights for private parties and contain their own dispute settlement procedures.

Challenges concerning Australia’s tobacco plain packaging requirements have also been brought before the WTO.  Following unsuccessful dispute consultations with Australia requested by Ukraine, Honduras and the Dominican Republic in 2012, and Cuba and Indonesia in 2013, each state filed a request with the WTO Secretariat for the establishment of a WTO dispute settlement panel to address the tobacco plain packaging measure. As a result, dispute settlement panels have been established by the WTO Dispute Settlement Body. Some 40 WTO members have also reserved their third-party rights to join the dispute on either side of the debate (or as a neutral party). In May 2014, the same panellists were appointed in all five disputes (although the Ukraine proceedings have since been suspended), and are expected to issue their final report to the parties not before the first half of 2016.[12]

Can a claimant re-litigate a claim already decided by a domestic court? It appears that the investor cannot initiate or continue an ISDS claim because when he submits an ISDS claim he must provide a written waiver of any right to initiate or continue before any court or tribunal of a party or any other dispute settlement procedures.[13] Note that this still allows it to initiate and then discontinue the case at any stage of the national judicial adjudication process. This implies that an investor can bring a claim in a domestic court, and appeal if a decision goes against it; and then at some stage of the judicial process, file an ISDS claim with a ‘discontinue’ waiver, thus snubbing and bypassing any national court decision already rendered.

This waiver provision does not apply when the investor is charged in a national court for violating a law; or is sued by others,[14] as happened in a suit brought by Lago Agrio villagers in Ecuador against an oil giant, Chevron, for massive contamination of the Amazon. To avoid paying damages awarded by Ecuador’s highest court, Chevron filed various actions in the US and finally an ISDS claim – which seeks to overrule the Ecuador court decision.[15] This resurrects the serious constitutional and other objections about the serious undermining of the defining role of national courts in a democracy which vests power in three separate branches of government – the executive, the legislative and the judiciary. In this case the three member panel  in effect ordered the government of Ecuador to transgress its own Constitution, interfered with the independent judiciary, stopped the court’s ruling in what would amount to a breach of Ecuador’s constitutionally enshrined “separation of powers,”  – a legal concept that was probably not foreign to the panellists, a commentary states. Imagine, it continues, if a foreign extrajudicial tribunal ordered President Obama to suspend a U.S. Supreme Court ruling.[16] Many commentators have deprecated this vast power of the ISDS as unconstitutional.[17] A case has been filed in Malaysia alleging that this violates the basic structure of the constitution.[18]

The foreign investor is given an added advantage as it can, in any event, use the national court to issue orders in the nature of interim injunctions to preserve its position while its ISDS tribunal case is pending.[19]

2.1 Procedural advantages to foreign investors

Foreign investors are given up to three and a half years to make a claim.[20] 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. Strangely, MITI refers to this extended period under the TPPA as an ‘improvement’ (section 3).

Unlike a local investor, a foreign investor does not have to pursue a claim in the national courts and thus exhaust its remedial rights before initiating an action. The investor can skirt the national court system or use it up to a convenient point and then resort to an international tribunal to sue the government – by merely filing a waiver, as discussed earlier. As several (139) key US law professors declared in their letter of March 2015 to Congress and the US President: ‘ISDS threatens domestic sovereignty by empowering foreign corporations to bypass domestic court systems and privately enforce terms of a trade agreement. It weakens the rule of law by removing the procedural protections of the justice systems and using an unaccountable, unreviewable system of adjudication.’[21] This followed a letter to similar effect signed by former judges, law professors and prominent lawyers.

2.2 Expropriation, minimum standard of treatment

A government can be sued by a foreign investor for direct and indirect expropriation.[22] ‘Indirect expropriation’ arises when government action interferes with ‘distinct, reasonable investment-backed expectations’ of the investor.[23] The tribunal decides what is ‘reasonable’. It does not require any takeover or seizure of an investment. The tribunal decides on a case by case basis. The factors to take into account include such matters as ‘the character of the government action, the extent the government action interferes with distinct, reasonable investment-backed expectations, the economic impact of the government action.[24] Other factors not set out in the TPPA may also be considered – an open-ended unregulated charter for the tribunal to act in its absolute discretion. Efforts by some countries during the negotiations failed to limit ‘indirect expropriation’ to situations when the alleged expropriation is either severe or for an indefinite period; and disproportionate to the public purpose.

Even if the expropriation is justified under the national law and is non-discriminatory (as required by the TPPA) and applied to protect legitimate public welfare objectives – such as public health, safety and the environment – the investor can still challenge these “in rare circumstances”.[25] The international tribunal then decides the claim on a case-by-case basis.

The investor can also file a claim when a new government institutes policy changes that affect the investment – on the ground that he no longer enjoys ‘minimum standard of treatment’ (MST). This has to be interpreted in accordance with customary international law. An Annex explains this as ‘that general and consistent practice followed by states from a sense of legal obligation’.[26] Yet a similar requirement to adhere to customary international law was ignored in favour of examining the actual practice of a state to honour an investor’s expectation: Railroad Development Corporation v Guatemala;[27] Teco Guatemala Holdings v Guatemala.[28]

Some have touted as an improvement the protection given by article 9.6.4 to governments dealing with an investor’s expectations. It states that the fact that a party takes or fails to take an action that may be inconsistent with an investor’s expectation does not constitute a breach of this MST article even if loss or damage results. It has been suggested that this really addresses an irrelevant question.  Robert Howse, a professor of international law at New York University who is currently writing a book on ISDS, said the problem with the new provision is that no finding of a violation of the MST obligation has ever rested solely on the fact that an investor’s expectations were not met. He argued that “a better approach would have been to further define what constitutes a government representation that can be reasonably relied upon, and what is simply a communication representing current circumstances that are subject to change”.[29]

The provision on subsidies and grants has also been criticized as being of minimal value. Howse argues that it would have been “better for the provision to have included wording to the effect that if a subsidy or grant were not renewed, that would only amount to a breach if there was a lack of due process or unfair selectivity in the decision not to renew a grant or subsidy”. Instead the article deals with when this might not constitute a breach of the article.[30]

The mere adverse effect on the economic value of an asset suffices to ground a claim – even if the physical investment is intact.[31] The action is then deemed to have an effect ‘equivalent to direct expropriation without formal transfer of title or outright seizure’ – an outcome that would be struck down in most jurisdictions and notably a violation of the US Constitution’s Fifth Amendment.

By far the most successful investor claims (74%) under U.S. BITs and free trade agreements are based on findings of ‘minimum standard of treatment’ which requires ‘fair and equitable treatment’ of investors.[32] And these have been the source of some startling decisions jeopardising national regulatory policy space.

Such tribunals have interpreted the requirement that foreign investors receive this “fair and equitable treatment” as grounds for striking down new government regulations – even if they are non-discriminatory and are adopted simply to protect citizens from newly discovered egregious harms.

‘Reasonable expectations’ of the fair and equitable treatment requirement under the US-Ecuador bilateral investment treaty was adjudicated as “an obligation not to alter the legal and business environment in which the investment is made”. This decision, which resulted in an order for Ecuador to pay US$2 billion to an oil giant, has been said to “perpetuate and expand on the alarming pattern of investor-state tribunals generating increasingly imaginative interpretations of FET and the related minimum standard of treatment (MST) obligation to hold governments liable for an array of actions that do not contravene the customary international law standard of denial of justice”.

Actions by governments inconsistent with investor expectations alone do not breach the requirement to give “fair and equitable treatment” to investors.[33] But tribunals have interpreted this to find that a company refused permission to expand a quarry on grounds that it was against national environmental regulations did not receive fair treatment (Bilcon v Canada case).[34] This provision is thus open to a wide range of interpretations by tribunals. Bilcon is now seeking US$300 million in damages.[35]

Under the TPPA any policy change after an investment is established or even attempted to be made (by some initial concrete steps) that an investor alleges affects his investment can be challenged. This allows the use of the MST to freeze a country’s laws to the time when the investor made (or concretely planned to make) the investment.  In short, there can be no new laws nor changes to existing laws, adverse to the foreign investor.

The most recent case filed by TransCanada against the US illustrates the vast reach of ISDS to challenge national measures taken in the wider public interest. The corporation’s claim for US$1.5 billion for the cancellation of the Keystone pipeline which would have connected Canada’s oil sands to American refineries on the US Gulf coast under an ISDS process under NAFTA. The plan got caught in a regulatory and legal struggle, as the US State Department environmental review dragged on amidst citizens’ objections as to the polluting oil sands. In November 2015 President Obama rejected the plan saying that the pipeline would undercut the country’s leadership on climate change.

2.3 IPRs

IPRs are defined as investments. Private foreign corporations can now allege expropriation if government policies (for example, to ensure affordable medicines) affect their IPRs.[36] Without this provision, any violation of IPRs under the WTO/TRIPs could not be instituted by private corporations against governments. Now huge monetary claims can be made by pharma companies. The danger lurks of the tribunal restricting the flexibility available to governments under the TRIPs agreement of the WTO.

Eli Lilly instituted an ISDS action against Canada for revoking its patents on the ‘fair and equitable treatment’ provision (for US$100million per patent revoked now totalling US$500 million) under the North American Free Trade Agreement (NAFTA) investment chapter.[37] Canada relied upon the TRIPs flexibilities. A beneficial provision in the TPPA exempts compulsory licences (CLs) issued in accordance with TRIPS from being considered as an expropriation under the TPPA.  But an investor can still sue on the ground that the compulsory licence violates the fair and equitable treatment or on other grounds, as the Eli Lilly case shows.

2.4 Performance requirements

Subject to the sectors and activities that Malaysia has listed in the schedule to Annex II, and the limited exceptions under Article 9.9.3 and 9.9.4[38], there are a large number of performance requirements that a government cannot impose on an investor of a party as well as a non-party.[39] These include: transferring a particular technology, a production process or other proprietary knowledge to a national. Technology transfer is the lynchpin for the innovation so necessary for a country’s future growth; it is entrenched in several international treaties to which Malaysia is a party – for example the grand bargain reflected in the he Convention on Biological Diversity (Articles 15. 5 and 16); and its progeny – the 2010 Nagoya Protocol on Access to Genetic Resources and their Utilisation – is the grant of access to mainly biotechnology western companies to a country’s genetic resources and associated traditional knowledge in return for technology transfer. This TPPA provision not only reverses the existing obligations of a party but stultifies as well the future development of the country.

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. But this is negated by the provision that it must not be inconsistent with the TPPA Agreement.[40] Also allowed are measures necessary to protect human, animal or plant life or health.[41] MITI lists this as a reaffirmation of the sovereign rights of governments. This provision is a replication of Art XX(b) of GATT 1947, an agreement under the WTO. In fact the GATT exception is wider in scope. Malaysia has been a member of the WTO for more than a decade. A GATT provision[42] also applies to the right of parties to take measures relating to the conservation of exhaustible natural resources. Again this provision is wider than that in the TPPA.[43]

2.5 Narrow commercial interest versus vital public interest

Huge awards made in cases decided under similarly worded ISDS provisions in trade treaties illustrate the extensive, and almost oppressive, reach inhibiting governments from enacting laws and policies in the public interest.[44]

  • Germany had to dilute its environmental standards in the face of a US $2 billion action against it by a Swedish energy giant restricting the use and discharge of cooling water for a coal-fired power plant on the banks of River Elbe. The consequence? Serious deleterious effects on the river and its wildlife.
  • The same company launched a $4.6 billion action when Germany phased out nuclear power plants following the Fukushima disaster – although its 2 power plants were not in operation when the phase-out was decided.
  • Gabriel Resources, another Canadian company, is suing the Romanian government after it blocked a mining development that risked contaminating inhabited areas with cyanide used in the mining process.
  • An extraordinarily high award of some $2.3 billion to Occidental, an oil company, against the government of Ecuador, over its (apparently lawful) termination of an oil-concession contract. The award was made even though the tribunal held that Oil Company had effected an assignment in violation of Ecuadorian law, since it was not approved by the Ecuadorian government. But it said that the termination was a disproportionate response!
  • Russia was held liable to pay the biggest award ever of US$50 billion to the oil company Yukos, which the Russian government nationalised. The case was brought under an investor-to-state arbitration clause in the Energy Charter Treaty (ECT) in 2005 relating to indirect expropriation.[45]
  • Argentina was forced to pay out over a billion dollars in compensation to international utility companies – for freezing the high energy and water bills to protect its people.
  • In El Salvador, local communities achieved a victory for democracy after getting the government to refuse permission for a gold mine that would have contaminated the water system. But now the Canadian company owners are suing the government for US$315 million (RM1.34 billion) – for the loss of its anticipated future profits, albeit not on the basis of an ISDS provision in a treaty.[46]
  • Canada itself is being sued for US$500 million by pharmaceutical company Eli Lilly for revoking its patent on the grounds that there is insufficient evidence of the beneficial effects it claimed. Lilly also wants the government to change its patent laws.
  • The Canadian government is facing a $215 million suit over a moratorium on fracking in Quebec as part of more than 20 publicly known cases brought against it – most in relation to environmental regulations, since ISDS provisions were included in the North American Free Trade Agreement (NAFTA) in 1994. The US is a key party to the tripartite agreement.
  • In 2012, Railroad Development Corporation (RDC), a private US firm, was awarded around $12 million against the Guatemalan government under ISDS clauses in a Central American trade deal. RDC had secured a contract to run Guatemala’s state railway in 1997. In the ensuing years, the American company denounced the government’s failure to evict squatters from around rail lines. In 2006, the Guatemalan government declared that RDC’s use of state-owned rolling stock and railway equipment was “harmful to the state” and demanded a renegotiation of the contract—which RDC refused.

2.6 Approving or not foreign investment

A government’s decision whether to approve or not a foreign investment can be subject to an ISDS challenge by an investor. Only four countries have successfully excluded themselves from this serious impediment to a country’s decision-making process: Australia, Canada, Mexico and New Zealand.[47]

2.7 Transfers and capital controls

The TPP requires all parties to permit all transfers relating to a covered investment – freely and without delay into and out of the country. The transfers are listed in a non-exhaustive list.[48] Essentially there cannot be any interference with the repatriation of any moneys related directly or indirectly to the investment by foreign investors. Only Chile is exempted and can adopt measures to ensure currency stability with some conditions. It can establish restrictions or limitations on capital movements to or from Chile as well as related transactions.[49] Malaysia cannot do so, subject to the safeguards (see below).

It has been suggested that this free capital movement provision restricts the use of capital controls of financial transaction taxes. This is perceived to have a negative impact. Even the International Monetary Fund no longer opposes capital controls[50] and now endorses it as a legitimate policy tool for preventing or mitigating financial crisis of the kind Malaysia faced in 1997. Just early last year (2014) US Federal Reserve economists publicly supported capital controls as they can “lead to significant welfare improvement”. Many heavyweight economists worldwide have declared their open opposition to such controls[51] – it appears to no avail as the TPPA still embeds it in its provisions.

3.     Safeguards

3.1 Capital flows

Capital flows have been regulated by 2 safeguards. But these are restrictive. The controls are restricted to remedying balance of payment and external financial difficulties crises or ‘exceptional’ macroeconomic problems; and no other policy objectives such as to prevent destabilizing asset bubbles. Even the former remedial measures cannot apply for foreign direct investment.[52] In any event the safeguards are temporary and must be phased out progressively. Anything requiring a more permanent resolution (capital inflows designed to avoid balance of payments and other macroeconomic problems) are prohibited. Significantly, the permitted controls must be terminated within 18 months. Extensions may be secured for additional periods of a year; but one half of the parties can overrule this request.[53] Malaysia was lucky in extricating itself from the 1997 financial crisis by maintaining such controls over a few months – although its exchange control rate extended to 10 years!

Further the ISDS tribunal decides when such safeguards will apply, taking the power away from central banks. The only concession made is for a limited number of narrow innocuous situations (relating to application of bankruptcy, securities, criminal, financial reporting, compliance with court orders);[54] and for the application of a party’s laws relating to social security, public retirement or compulsory savings programme.[55]

3.2 Safeguard for environmental, health and other regulatory objectives

Parties are not prevented 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.[56] This effectively negates the value of this provision. These societal measures to safeguard the public interest will most certainly abridge the broad rights of a foreign investor under the TPPA. Yet their enactment could be threatened with a billion dollar ISDS suit by a foreign corporation.

Can the government, for example, take action against a foreign company that is now shown – on new scientific evidence – to be polluting the environment and harming health? The case cited earlier of a Swedish company suing the German government will make it precarious for the government to do so. Recall that the Swedish company has launched a $4.6 billion action because Germany phased out its nuclear power plants following the Fukushima disaster. The same company succeeded in its cases against the German government for restricting the use and discharge of cooling water for a coal-fired power plant on the banks of River Elbe – which was seriously jeopardising the river and wildlife.

3.3 Corporate Social Responsibility (CSR)

And what do the corporations have to return to a country after being granted these extensive unlimited powers? Parties to the TPPA are told to merely encourage these investors to voluntarily incorporate into their internal company policies principles of corporate social responsibility (CSR). No sanctions are proposed for their failure to do so or to implement any policy it declares. Nor does a country have similar reciprocal rights under the TPPA to sue the corporation for investments that have gone bad or that compromise the rights of people and the environment of the country.

  1. Other issues

4.1 US corporations’ most cases

ISDS cases have mushroomed in this last decade. In 1994 there were a mere 10 known cases. In 2014 there were 608 according to an article on the Australian Broadcasting Corporation’s Drum web site.[57] And here’s the rub. US corporations – the new player in the TPPA – launched the most cases under ISDS provisions, according to a UN trade and development report of February this year (2015).[58] Companies have learnt how to exploit ISDS clauses and even buy up firms in jurisdictions where ISDS provisions apply simply to gain access to them and sue governments.

Indeed ISDS clauses have been the beachhead for corporations, especially in the most oppressed countries. About 60 percent of cases in 2014 were brought against “developing and transition economies.”[59] In 2012 alone a record 54 were started; in 2013 – 59. The list of the most frequent respondents to ISDS cases featured austerity-ravaged Spain, Costa Rica, the Czech Republic, India, Romania, Ukraine and Venezuela. The countries that faced their first ISDS cases last year included Italy, Sudan and Mozambique.

Why should Malaysia buy into this litigious US spree?

3.5 Most Favoured Nation Treatment (MFNT) and National Treatment (NT)

A foreign corporation is entitled to treatment ‘no less favourable’ than that accorded to a national institution or person – under the ‘national treatment’ principle of the TPPA.[60] The foreign corporation is also entitled to treatment ’no less favourable’ than that accorded to investors of any nation under the ‘most favoured nation treatment’ (MFN) provision.[61] The MFN has been described as a ‘wipe-out move’ by the chairman of the world’s leading legal arbitration firm deeply involved in ISDS cases, George Kahale III. Because, he says, it would enable foreign corporations from TPP states to make a claim against a party based on the ISDS provisions in any other trade deal that the party has signed, no matter which country it was signed with. That means it does not matter how carefully the TPP is drafted: foreign investors can cherry-pick any other treaty the party has signed, and sue the government based on the provisions included in that treaty. Kahale described MFN as “a dangerous provision to be avoided by treaty drafters whenever possible” because it can turn one bad treaty into protections “never imagined for virtually an entire world of investors”.[62]

It is noted that Article 9.5.3 clarifies that the MFN treatment does not encompass the ISDS procedures or mechanisms. This merely means that the procedures and mechanisms as in the ISDS section B will not apply. The investor’s right to submit an ISDS claim remains intact vide article 9.18.

There is no such qualifier in respect of a violation of the national treatment provision.

4.2 Non-conforming measures and exceptions

The TPPA provides flexibilities to countries to loosen the tight grip of the other provisions. These were a concession to enable parties to ‘sell’ the agreement to certain stakeholders; examples in the Malaysian context include: bumiputra reservations and the activities of Petronas. These had to be agreed to by all TPPA parties. Countries specified the sectors and activities they wished to exclude from the obligations. These are referred to as ‘non-conforming measures (NCM)’.[63] (Exceptions also appear in the substantive provisions, for example under ‘safeguards’, which was examined earlier.)

The NCMs are placed in 2 separate annexes:

  • Annex I which allows the continuation of existing NCMs (local government measures do not have to be listed);[64] and
  • Annex II which allows new NCMs to be adopted in the sectors listed or existing ones to be modified in a way that would otherwise violate the obligations even more.

Each country’s NCMs are set out in a schedule to Annex I and Annex II.[65] Malaysia’s Annex II schedule is appended as Appendix 1 of this article (see page16 of this article).[66]

Generally, in the context of the investment chapter, the obligations which a party may be excused from fulfilling in the sectors listed are specified. These relate to one or more of the following provisions: national treatment’ most favoured nation treatment, performance requirements (or part) and appointments of senior management and board of directors. Significantly it does not excuse from some critical provisions, namely: minimum standard of treatment, expropriation and free capital flows.

The exemption is also circumscribed by its precise wording; anything else not provided for (perhaps, because it was not contemplated or foreseen) is excluded. This is the effect of a ‘negative list’ approach of the TPPA – anything not specifically excluded (negatived) remains part of the TPPA rubric. This has serious implications as any new sector or activity will automatically be included in the TPPA’s obligations. The fact that certain areas – like tobacco – need to be specifically excluded implies that the general safeguards will not prevent cases from being pursued in respect of other public interest areas not specifically excluded.

Take the bumiputra exemption in the context of the investment chapter, for example. The government can adopt or maintain measures that provide assistance to bumiputera for the purpose of supporting bumiputera participation in the Malaysian market through the creation of new and additional licenses or permits for bumiputera eligible to receive such assistance. But there is a proviso: “provided that such measures shall not affect the rights of existing license and permit holders or future applicants for licenses and permits in sectors where foreign participation is permitted”.[67]

First, the exemption is only for the creation of new and additional licences and permits.

Secondly, any future applicants for licences and permits relating to investments cannot be made subject to this requirement as foreign corporations are allowed to participate in virtually all sectors.

Thirdly, and most significantly, the exemption only relates to exemption from the TPPA obligations relating to national treatment and performance requirements. The government must still adhere to the minimum standards, expropriation and the fair and equitable treatment (FET) requirements. This can easily negate this bumiputra NCM.

For example, an ISDS case was taken against South Africa under a bilateral investment treaty (BIT) for its black empowerment policy measure.  The government was sued under the expropriation and FET provision – when it ordered 26% of the shares to be sold to black South Africans at fair market value. The government finally settled the case by watering down its affirmative action policy.[68]  The key point is that NCMs could be held not to apply to the FET and expropriation clauses.

Additionally, the exemption only relates to issuing of licences and permits and the government cannot require the appointment of a bumiputra (or any other particular nationality) to a senior management position of a covered investment. Appointment to the board of directors of a particular nationality or resident is permitted provided it does not ‘materially impair the ability of the investor to exercise control over its investment’.[69] This seems to imply mere token appointments.

The tobacco NCM is another example.  Malaysia reserves the right to adopt or maintain any measures relating to wholesale and distribution services for, among others, tobacco and cigarettes products (see Appendix 1 at page 21). The weakness of this NCM has been pointed out by the senior policy advisor of the Southeast Asia Tobacco Control Alliance.[70] She says that the CSR provisions[71] in the investment chapter when applied to the tobacco industry would violate all the seven principles of the ISO26000 Guidelines on CSR – as the WHO tobacco treaty, FCTC, requires governments to ban CSR activities by the industry. This is especially so in the context of the massive increase in CSR activities in Malaysia by the industry to promote tobacco products, despite a ban on tobacco advertising, sponsorship and promotions. “The TPPA is an arsenal in the hands of the tobacco industry to oppose a ban on such activities”, the advisor concludes.

Finally, the special and differential treatment principle enshrined in the World Trade Organization (WTO), which allows developing countries to take on less obligations than developed countries, has been jettisoned to a large extent.

5.     The process

The ISDS claim and adjudication process has serious setbacks. A claim is submitted to arbitration if it is not resolved within 6 months through consultation and negotiations.[72] Parties are deemed to have consented to the arbitration.[73] The claimant must waive the right to initiate or continue its claim before any court or administrative tribunal under the law of a party or any other dispute settlement procedures[74] (See discussion earlier).

An international tribunal of three arbitrators hears the claim; one each chosen by the respective parties and the final one by agreement of both parties.[75] This is of little comfort. A 2-1 majority decision is plausible as demonstrated in the Bilcon v Canada case; and the US$2 billion award in the Occidental v Ecuador case; The strong scathing dissent condemned the majority for giving 100% award to an oil giant for illegally selling unauthorized rights under a contract that explicitly stipulated that doing so could cause forfeiture of the investment. In the Bilcon case a dissenting member of the tribunal – University of Ottawa law professor Donald McRae – warned that the ruling represents a “significant intrusion” into domestic jurisdiction and will “create a chill” among environmental review panels that will be reluctant to rule against projects that would cause undue harm to the environment or human health.[76]

Notable is the fact that the arbitrators are private sector lawyers unaccountable to anyone. Based on the existing practice under ISDS-type clauses, a revolving door operates such that a person acts for a party one day, and for another (including an opposing) party on another. This has, according to commentators, infected the process; the arbitrators generate future business for themselves by taking a broad view of claims! (The average cost of bringing a case approximates $8 million, a major proportion of which is for lawyers’ fees.) The lawyers thus far have been from specialised trade-related firms, mainly from developed countries, and they bring along their trade-centric biases. The ugly spectre of ambulance chasers and vulture funds has emerged to fuel cases which otherwise would not be pursued.[77]  The conflict of interest of arbitrators is not effectively addressed by a commitment to “provide guidance” on a future voluntary code of conduct for arbitrators.[78] It must be stressed that the independence of a judiciary is the hallmark of all legal systems in functioning democracies. It is the essence of the rule of law. While arbitrations are an accepted feature in specific contractual commercial matters, the ISDS system replaces an entire judicial system with regard to a broad range of social, economic and legal matters with wide implications for a country and its people.

The international tribunal is invested with the power to review and impliedly ignore national laws and regulations. There is no rule of binding precedent[79] – which is again a critical component of a mature judicial system. A tribunal can usurp the power of law-makers and thumb its nose at the decisions of national courts. There is no appeal from its decision. Such vast and unbridled panoply of ‘judicial’ power in favour of foreign corporations constitutes a major reversal of the fundamental tenets of a functioning democracy.

One arbitrator of such a tribunal, quoted in the Guardian, pointed to the anti-democratic character of the proceedings:

Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament”.[80]

These fundamental threats are not being seriously evaluated. Instead they are touted as substantial ‘improvements’ to the ISDS process. These however relate to procedural matters that are almost always included in court rules, including Malaysia’s – such as expedited adjudication of frivolous claims, consolidation of claims arising from the same events or circumstances and mediation (‘consultation and negotiation’) before filing a claim. The TPPA consolidation provision actually detracts from most court rules as it must be done with the agreement of all the disputing parties,[81] unlike normal court processes, where the court has the final say.  The MITI note also fails to mention the additional requirement that the claim must first have a question of law or fact in common.

There is a provision for the establishment of a TPP Commission which may seek to resolve differences or disputes that may arise regarding the interpretation or application of the Agreement; as well as issue interpretations of the provisions of the Agreement.[82] This provision refers to disputes between parties and does not deal with ISDS adjudication by arbitral tribunals between foreign corporations and the host government, as MITI suggests.

5.1 Transparency

ISDS cases have almost always been conducted in complete secrecy. Now there appears to be a concession to transparency. The government sued must make the relevant documents available to the public.[83] But if a party claims protection for certain information and the tribunal agrees, there will be no disclosure to the public.[84] Further, at the hearing – which must be open to the public – this information will not be divulged.

6.     Conclusion

The TPPA marks the ultimate triumph of a foreign corporation – it is entitled to sue a government if the national treatment or most favoured nation treatment is violated; its investments interfered with; its expectation of profits affected; or it is required to perform in a particular way; or the repatriation of its profits hindered. The list goes on. And there are hardly any serious and effective countervailing safeguards. Some of these that have been squeezed from the US negotiators are few and far between; and severely limited in scope.

It is well to remember that mainly developing countries have been sued successfully by these corporations for millions and billions of dollars. And by a tribunal that is not accountable and severely conflicted, comprising mainly of trade-oriented western lawyers and other professionals who happily rotate roles – one day a judge, the next a counsel!

Even the fact that a party has the right to choose one of the three arbitrators provides little comfort as shown in the earlier discussion of the Occidental v Ecuador case. The dissenting arbitrator called the reasoning of the award “so egregious in legal terms and so full of contradictions, that I could not but express my dissent.”[85]

The Chief Justice of Australia’s High Court, Robert French, cautioned that: “Arbitral tribunals set up under ISDS provisions are not courts, nor are they required to act like courts, yet their decisions may include awards which significantly impact on national economies and on regulatory systems within nation states.”[86]

A UN Experts group highlights the anomaly of the ISDS chapters which provide “protection for investors but not for States or for the population. They allow investors to sue States but not vice-versa”. The ISDS problem, the Experts group says, has been aggravated by the “chilling effect” that intrusive ISDS awards have had, when States have been penalized for adopting regulations, for example to protect the environment, food security, access to generic and essential medicines, and reduction of smoking, as required under the WHO Framework Convention on Tobacco Control, or raising the minimum wage.[87] The TPPA has mitigated some of these effects, but only marginally, leaving intact the concerns expressed.

Should Malaysia go where angels fear to tread?

In return what do we hope to get? An increase in trade?

The WTO has recently warned that “international trade for TPP members could fall into negative territory as import growth is expected to outpace export growth”. A local economist was quoted as saying that the tariff relaxation which the TPPA is all about could result in import growth outpacing export growth, “eventually it will result in a trade deficit”.[88] Joseph Stiglitz the Nobel laureate economist cites the forecast by economists at the United Nations Conference on Trade and Development (UNCTAD), that Malaysia would actually be a net trade loser as a result of joining TPP, with difference between the value Malaysia produces for export and the value it imports – the trade balance declining by US$17 billion (RM75 billion) per year as a result of the agreement. In other words, the TPPA would make Malaysia worse off by the most straightforward of economic measures. The sectors that will be hurt include iron and steel, aluminium, mineral fuels, plastics, and rubber.[89]

What about ISDS provisions encouraging increased foreign investment? This argument hardly holds water. Foreign investors can protect themselves by purchasing political-risk insurance, says Terra Lawson-Remer, an economist at the Brookings Institution.[90] Notably Brazil continues to receive lots of foreign investment, despite its long-standing refusal to sign any treaty with an ISDS mechanism.  South Africa says it intends to withdraw from treaties with ISDS clauses. India is mulling the same. Indonesia plans to let such treaties lapse when they come up for renewal.[91]

You may say that foreign investors deserve ‘additional’ protection from expropriation or discriminatory regulations. But, as Joseph Stiglitz says, ISDS goes much further: The obligation to compensate investors for losses of expected profits can and has been applied even where rules are non-discriminatory and profits are made from causing public harm.[92]

So where does that leave the touted benefits of ISDS? This is how the conservative publication, The Economist responds.

IF you wanted to convince the public that international trade agreements are a way to let multinational companies get rich at the expense of ordinary people, this is what you would do: give foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever a government passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe. Yet that is precisely what thousands of trade and investment treaties over the past half century have done, through a process known as “investor-state dispute settlement”, or ISDS. (The Arbitration Game, October 11 2015)[93]

There seems to be no compelling reason for Malaysia to help usher in a New Age of Foreign Corporate Rule.

­­——————————–

 

Appendix 1

Malaysia’s Annex II? Non-Conforming Measures (NCMs)

A party can list the activities or sectors (and subsectors) it does not wish parts of the TPPA to apply to (Article 9.11.2). Then it can take measures that need not comply with any one or more of the following provisions it specifies relating to: the national treatment, most favoured nation treatment, performance requirements and the provision on appointment of senior management and board of directors and a few more. These are known as non-conforming measures (NCM).

Malaysia’s list of NCMs as set out in the Schedule to Annex II of the TPPA is as follows:

1.         Investment: Land and Real Estate sector

Exempted from: National Treatment (Article 9.4)

Acquisitions or dealings of land by non-citizens and enterprises owned by foreign nationals must be approved by the relevant State Authority, subject to such conditions and restrictions as may be imposed by that Authority.

2.         Cross-Border Trade in Services and Investment: Oil and Gas

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Senior Management and Board of Directors (Article 9.10)

Prohibition of Performance Requirements (Article 9.9)

Market Access (Article 10.5)

Local Presence (Article 10.6)

PETRONAS and its successor are vested with the entire ownership in, and the exclusive rights, powers, liberties and privileges, which shall be irrevocable, in exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia.

PETRONAS in its role as the exclusive owner of the petroleum resources, decides on the form and conditions of contractual arrangements available for foreign participation and selection of the contract parties.

3.         Cross-Border Trade in Services and Investment: all sectors

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Prohibition on Performance Requirement (Article 9.9)

Senior Management and Board of Directors (Article 9.10)

Market Access (Article 10.5)

Local Presence (Article 10.6)

Malaysia reserves the right to maintain or adopt any measures affecting the:

(a) full or partial devolvement to the private sector of services provided in the exercise of governmental authority;

(b) divestment of its equity interests in, and/or the assets of, an enterprise that is wholly or partially owned by the Malaysian government; and

(c) privatisation of government owned entities or assets.

The description above pertains only to the initial transfer or disposal of such interest, and for subsequent transfers or disposals that are for strategic sectors announced through the Malaysia Plan.

For greater certainty, the transfer of any interest in an existing state enterprise to another state enterprise shall not be considered to be an initial transfer or where the transfer or disposal of an interest in an existing state enterprise is undertaken either partially or sequentially, the same shall apply.

4.         Cross-Border Trade in Services and Investment: all sectors

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Prohibition of Performance Requirements (Article 9.9)

Market Access (Article 10.5)

Malaysia reserves the right to adopt or maintain any measures that provides assistance to Bumiputera for the purpose of supporting Bumiputera participation in the Malaysian market through the creation of new and additional licenses or permits for Bumiputera eligible to receive such assistance, provided that such measures shall not affect the rights of existing license and permit holders or future applicants for licenses and permits in sectors where foreign participation is permitted.

5.         Investment: all sectors

Exempted from:

National Treatment (Article 9.4)

Malaysia reserves the right to adopt or maintain any measures relating to National and State unit trusts.

6.         Cross-Border Trade in Services and Investment: all sectors

Exempted from:

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Most-Favoured-Nation treatment may not be accorded to foreign investors and their investments with respect to preferential treatment granted under any existing free trade area agreements.

Malaysia reserves the right to adopt or maintain any measure that accords differential treatment to ASEAN member states under any ASEAN agreement open to participation by any ASEAN member state, in force or signed after the date of entry into force of this Agreement.

With regard to the sectors listed below, Malaysia reserves the right to adopt or maintain any measure that accords rights, preferences and differential treatment to countries under any international agreement in force or signed after the date of entry into force of this Agreement involving:

(a) Aviation matters;

(b) Maritime and Port;

(c) Broadcasting;

(d) Space transportation; and

(e) Fisheries.

7.  Investment: Manufacture, assembly, marketing and distribution of explosives, weapons, ammunitions, as well as military-related equipment/ devices, and similar products

Exempted from:

National Treatment (Article 9.4)

Prohibition of Performance Requirements (Article 9.9)

Senior Management and Boards of Directors (Article 9.10)

Malaysia reserves the right to maintain or adopt any measures affecting the arms and explosives sector.

8.         Cross-Border Trade in Services and Investment:  Gaming, Betting and Gambling including supply and suppliers of betting and gambling equipment, wholesale and retail of gambling equipment

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Market Access (Article 10.5)

Local Presence (Article 10.6)

Performance Requirement (Article 9.9)

Senior Management and Board of Directors (Article 9.10)

Malaysia reserves the right to adopt or maintain any measures relating to the provision of gaming, betting and gambling including supply and suppliers of betting and gambling equipment, wholesale and retail.

9.         Cross-Border Trade in Services and Investment: Non-medical utilization/application of atomic energy for:

– Electric power plants based on fossil fuel/materials;

– Nuclear power generation including nuclear fuel cycle; and

– Electric power generation

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Market Access (Article 10.5)

Local Presence (Article 10.6)

Senior Management and Boards of Directors (Article 9.10)

Performance Requirements (Article 9.9)

Malaysia reserves the right to adopt or maintain any measures relating to non- medical utilization/application of atomic energy for:

– electric power plants based on fossil fuel/materials;

– nuclear power generation including nuclear fuel cycle; and

– electric power generation.

10. Cross-Border Trade in Services and Investment: Cultural Services

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Market Access (Article 10.5)

Senior Management and Boards of Directors (Article 9.8)

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Performance Requirement (Article 9.9)

Malaysia reserves the rights to review the following products following their importation and distribution in the Malaysian market to ensure their consistency with Malaysia’s decency standards: books, magazines, periodicals or newspapers, works of art and films imported into Malaysia, programming licensed for broadcast on television, cable and satellite stations.

In addition, prior approval is required for any arts, filming and performances by foreign artist and such activities shall comply with the Central Agency for Application for Filming and Performance by Foreign Artistes (PUSPAL) Guidelines.

Such review and pre-approval shall be administered in an objective, transparent and impartial manner, and consistent, where applicable, with Article BB.3 (Goods National Treatment) and consistent with the Communications and Multimedia Act of 1998.

11.       Cross-Border Trade in Services and Investment: Wholesale and Distribution Services

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Local Presence (Article 10.6)

Malaysia reserves the right to adopt or maintain any measures relating to wholesale and distribution services for rice, sugar (other than refined sugar for food and beverage manufacturers), flour, liquor and alcoholic beverages, tobacco and cigarettes products.

12.       Investment: Sewage and Refuse Disposal, Sanitation and other Environmental Protection Services

Exempted from:

National Treatment (Article 9.4)

Malaysia reserves the right to adopt or maintain any measures relating to the collection, treatment and disposal of hazardous waste (excluding carbon gases).

13.       Cross-Border Trade in Services: Air Transport Services

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Market Access (Article 10.5)

Senior Management and Board of Directors (Article 9.10)

Local Presence (Article 10.6)

Malaysia reserves the right to adopt and maintain any measures affecting:

(a) Airport operation services;

(b) Aircraft repair and maintenance services;

(c) Ground handling services;

(d) Specialty air services; and

(e) Air transport services covering passenger and freight transportation frequencies and routing by air.

14.       Cross-Border Trade in Services and Investment: Passenger road transportation services covering taxi services and scheduled passenger road transportation

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Performance Requirements (Article 9.9)

Local Presence (Article 10.6)

Malaysia reserves the right to adopt or maintain any measures relating to passenger and scheduled passenger road transportation services covering urban and suburban regular transportation, railway, taxi services; and bus, taxi and rail station services.

15. Cross-Border Trade in Services and Investment: Legal Services covering mediation and Shari’a law

Exempted from:

Concerned: National Treatment (Article 10.3) (Article 9.4)

Market Access (Article 10.5)

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Performance Requirement (Article 9.9)

Senior Management and Boards of Directors (Article 9.10)

Local Presence (Article 10.6)

Malaysia reserves the right to adopt or maintain any measures relating to mediation and Shari’a law.

16. Cross Border Trade in Services and Investment: All sectors

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Malaysia reserves the right to adopt or maintain any measures related to the non-internationalisation of ringgit which includes:

  1. a) the requirement for international settlement to be made in foreign currency
  2. b) limitation on the access to ringgit financing by non-residents for use outside Malaysia
  3. c) limitation on the use of ringgit in Malaysia by non-residents

17. Cross Border Trade in Services and Investment: Social services

Exempted from:

National Treatment (Article 10.3) (Article 9.4)

Most-Favoured-Nation (Article 10.4) (Article 9.5)

Performance Requirement (Article 9.9)

Senior Management and Boards of Directors (Article 9.10)

Local Presence (Article 10.6)

Malaysia reserves the right to adopt or maintain any measure with respect to the provision of law enforcement and correctional services, and the following services to the extent they are social services established or maintained for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health, and child care.

 

APPENDIX 2:

Trans-Pacific Partnership – Malaysia Side Letters[94]

 

    Side Letter | Automotive : Malaysia – US

    Side Letter | Automotive : Malaysia – Canada

    Side Letter | False Trade Descriptions : Malaysia – US

    Side Letter | Registered Textile and Apparel Enterprises : Malaysia – US

    Side Letter | Electronic Payment Services : Malaysia – Vietnam

    Side Letter | Labour Consistency Plan : Malaysia – US

    Side Letter | Malaysia Customs Programme : Malaysia – US

    Side Letter | Customs Cooperation Agreement : Malaysia – Mexico

    Side Letter | Relationship between TPP and Existing Agreements : Malaysia – New Zealand

    Side Letter | Traditional Knowledge and Establishment of National Committee : Malaysia – US

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Australia

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Brunei

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Canada

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Chile

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Japan

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Mexico​

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – New Zealand

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Peru

    Side Letter | Biodiversity and Traditional Knowledge : Malaysia – Vietnam

 

[1] Caveat: This analysis has not taken into account the cross-referencing of this chapter 9 on Investments and ISDS with the remaining 29 chapters of the TPPA. It sets out but does not analyse fully the detailed implications of the non-conforming measures and the side letters. [The author gratefully acknowledges the feedback by Sanya Reid Smith.]

[2] http://mfat.govt.nz/Treaties-and-International-Law/01-Treaties-for-which-NZ-is-Depositary/0-Trans-Pacific-Partnership.php.

[3] ‘UN experts voice concern over adverse impact of free trade and investment agreements on human rights – 2 June 2015, http://www.ohchr.org/FR/NewsEvents/Pages/DisplayNews.aspx?NewsID=16031&LangID=E#sthash.dD0pXgOr.dpuf.

[4] Article 9.1.

[5] Article 9.1.

[6] Excludes land, water and radio spectrum.

[7] Article 9.14.

[8] See http://www.italaw.com/sites/default/files/case-documents/ita0030.pdf.

[9] Article 9.1.

[10] Andrew Probyn ‘Tobacco giant sues Australia’, July 28, 2015, https://au.news.yahoo.com/thewest/a/29064155/tobacco-giant-sues-australia/.

 

[11] Hutchens, G., ‘Australian government wins plain packaging case against Philip Morris Asia’, Sydney Morning Herald, Dec 18 2015 (http://www.smh.com.au/federal-politics/political-news/australian-government-wins-plain-packaging-case-against-philip-morris-20151218-glqo8s.html#ixzz3wv3mgeAP).

 

[12] See preceding footnote.

[13] Article 9.20.2(b).

[14] See: http://fdslive.oup.com/www.oup.com/academic/pdf/13/9780199678648_annexes.pdf. 71/162 ISDS cases involved a judicial measure.

[15] The Chevron Ecuador Lawsuit, The Huffington Post, http://www.huffingtonpost.com/news/chevron-ecuador-lawsuit/. See: http://www.italaw.com/cases/257. The case is pending.

 

[16] Public Citizen, Ecuador’s Highest Court vs. a Foreign Tribunal, December 2013,  http://www.citizen.org/documents/Chevron-decision-2013.pdf.

[17] Laura H., ‘Investor-state dispute settlement (ISDS) is unconstitutional’, https://stop-ttip.org/blog/investor-state-dispute-settlement-isds-unconstitutional/; Morrison A., ‘The Investor State Dispute Settlement Provisions in the Trans-Pacific Partnership Agreement Violate Article III of the United States Constitution’, June 10 2015. http://www.citizen.org/documents/Alan-Morrison-ISDS-letter.pdf.

[18] Anbalagan V., ‘Abim, NGOs file suit to stop Putrajaya from signing TPPA’, http://www.themalaysianinsider.com/malaysia/article/abim-ngos-file-suit-to-stop-putrajaya-from-signing-tppa#sthash.xKiw1fyP.dpuf.

 

[19] Article 9.20.3.

[20] Article 9.20.1.

[21] ‘Law professors’ letter opposes potential trade agreement provisions that could allow multi-national corporations to bypass U.S. courts’, A copy of the letter is available at http://bit.ly/1KX6WYB.

[22] Article 9.7.1.

[23] Annex 9-B.3.

[24] Annex 9-B.3(a).

[25] Annex 9-B.3(b).

[26] Annex 9-A explaining MST in Article 9.6.

[27] ICSID Case No ARB/07/23, 29 June 2012, http://www.italaw.com/cases/documents/1486.

[28] ICSID Case No ARB10/23, Dec 19 2013, https://icsid.worldbank.org/apps/icsidweb/cases/Pages/casedetail.aspx?caseno=ARB/10/23.

[29] ‘TPP Investment Language Aims To Tighten Standard For MST Breach’, November 12, 2015, http://myinforms.com/en-gb/a/19063593-tpp-investment-language-aims-to-tighten-standard-for-breach/.

[30] See the preceding footnote. Article 9.6.5 states that the mere fact that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced by a party does not constitute a breach of the article even if loss or damage results.

[31] Annex 9-B.3(a)(i).

[32] Public Citizens Memorandum, September 5 2012, https://www.citizen.org/documents/MST-Memo.pdf.

[33] Article 9.6.4.

[34] http://aftinet.org.au/cms/sites/default/files/AFTINET%20summary%20ISDS.pdf#overlay-context=users/editor.

[35] http://www.citizen.org/documents/investor-state-chart.pdf

[36] This is subject to Article 9.7.5 which includes an exception for revocation and imitation as well, but is unnecessarily limited: Sanya Reid Smith, Potential Human Rights Impacts of the TPP, 2015, Third World Network, pp. 129 – 131:  http://www.twn.my/title2/FTAs/General/TPPHumanRights.pdf

[37] Eli Lilly v. Can., UNCITRAL, Notice of Arbitration (Sept. 12, 2013), available at http://italaw.com/sites/default/files/case-documents/italaw1582.pdf.

[38] See Appendix 1 to this article.

[39] Article 9.9.

[40] Article 9.9.3(d)(i).

[41] Article 9.9.3(d)(ii).

[42] Article XX(g).

[43] Article 9.9.3(d)(iii). Note that 43 out of 44 attempts to employ Article XX in disputes before the WTO panel failed (http://www.citizen.org/documents/general-exception.pdf). This does not bode well for the successful use of the more restrictive TPPA exception.

 

[44] See further on this: Eberhardt P, & Olivet C., Profiting from Injustice, 2012, Corporate Europe Observatory and the Transnational Institute available at https://www.tni.org/en/briefing/profiting-injustice. More cases involving the environment and health can be sourced at: http://www.twn.my/title2/FTAs/General/TPPHumanRights.pdf.

[45] http://www.iisd.org/itn/wp-content/uploads/2014/09/iisd_itn_yukos_sept_2014_1.pdf.

[46] http://www.citizen.org/documents/investor-state-chart.pdf.

[47] Annex 9-H.

[48] Article 9.8.

[49] Annex 9-E.

[50] Reddy S., ‘IMF Eases Its Blanket Opposition to Capital Controls, Wall Street Journal, Dec. 3, 2012.

[51] These include: Jagdish Bhagwati of Columbia University, former IMF officials Olivier Jeanne of Johns Hopkins University and Arvind Subramanian (formerly of the Peterson Institute for International Economics, now chief economic adviser to the government of India), Nobel laureate Joseph Stiglitz, Harvard economics professors Ricardo Hausmann and Dani Rodrik (formerly at Harvard University, now at the Institute for Advanced Study), and José Antonio Ocampo (a former executive secretary of the UN Economic Commission on Latin America and the Caribbean, and Colombia’s former Minister of Finance). Public Citizen, Secret TPP Investment Chapter unveiled, pp. 13-14, available at http://www.citizen.org/documents/analysis-tpp-investment-chapter-november-2015.pdf.

[52] Public Citizen, Secret TPP Investment Chapter unveiled, p. 14, available at http://www.citizen.org/documents/analysis-tpp-investment-chapter-november-2015.pdf.

 

[53] Article 30.3(e).

[54] Article 9.8.4.

[55] Article 9.8.4 as clarified by footnote 22.

[56] Article 9.15.

[57] See http://unctad.org/en/PublicationsLibrary/webdiaepcb2015d1_en.pdf.

[58] Oscar Grenfell, ‘TPP ISDS clauses allow corporations to sue governments’, 3 August 2015, https://www.wsws.org/en/articles/2015/08/03/isds-a03.html.

[59] See preceding footnote.

[60] Article 9.4.

[61] Article 9.5.

[62] Jess Hill, TPP’s clauses that let Australia be sued are weapons of legal destruction, says lawyer, 3 August 2015, http://www.theguardian.com/business/2015/nov/10/tpps-clauses-that-let-australia-be-sued-are-weapons-of-legal-destruction-says-lawyer.

[63] Article 9.11.

[64] Article 9.11.1(a).

[65] Article 9.11.2.

[66] For Malaysia’s Annex I NCMs see: http://www.mfat.govt.nz/downloads/trade-agreement/transpacific/TPP-text/Annex%20I.%20Malaysia.pdf.

[67] See Appendix 1 to this article, item 4, p. 18.

[68] Chapter 2: Investment treaty disputes: Big business for the arbitration industry, November 27th 2012, http://corporateeurope.org/2012/11/chapter-2-investment-treaty-disputes-big-business-arbitration-industry.

[69] Article 9.10.2.

[70] Mary Assunta, ‘TPPA vs tobacco control – the devil is in the details’. She also points out various other chapters that will dilute any measures that the government may seek to adopt under this NCM: http://www.malaysiakini.com/letters/319167.

[71] As noted earlier, however, the CSR provision is entirely exhortatory. There are other TPPA provisions that more clearly directly violate the WHO’s FCTC (example: requirements to allow the tobacco industry to comment on proposed laws).

[72] Article 9.18.1.

[73] Article 9.19.

[74] Article 9.20.2(B)(i).

[75] Article 9.21.1.

[76] Shawn McCarthy, ‘NAFTA ruling in Nova Scotia quarry sparks fears for future settlements’, http://www.theglobeandmail.com/report-on-business/nafta-ruling-against-canada-sparks-fears-over-future-dispute-settlements/article23603613/.

 

[77] See further: http://corporateeurope.org/sites/default/files/publications/profiting-from-injustice.pdf.

[78] Article 9.21.6.

[79] The ‘rule of precedents’ refers to binding precedents that are the hallmark of a mature legal system replete with an accountable and non-conflicted adjudication panel, the right of appeal and other established processes in the context of the rule of law.

[80]  George Monbiot, ‘This transatlantic trade deal is a full-frontal assault on democracy’, 4 November 2013, http://www.theguardian.com/commentisfree/2013/nov/04/us-trade-deal-full-frontal-assault-on-democracy.

 

[81] Article 9.27.1; Annex 9-L, A.3.

[82] Article 27.2.2(e) and (f), Chapter 27.

[83] Article 9.23.1.

[84] Article 9.23.2.

[85] See earlier footnote 69.

[86] Robert French, Investor State Dispute Settlement —A Cut Above the Courts? Paper delivered at the Supreme and Federal Courts Judges’ Conference, 9 July 2014, Darwin, available at http://www.hcourt.gov.au/assets/publications/speeches/current-justices/frenchcj/frenchcj09jul14.pdf.

[87] UN experts voice concern over adverse impact of free trade and investment agreements on human rights

http://www.ohchr.org/FR/NewsEvents/Pages/DisplayNews.aspx?NewsID=16031&LangID=E#sthash.thKlW7Zf.dpuf.

[88] the SunBiz 9 November 2015, www.thesundaily.my/news/business.

[89] Stiglitz J & Hersh A., ‘Don’t let TPP jeopardise Malaysia’s future’,  2 October 2015, http://www.themalaysianinsider.com/malaysia/article/dont-let-tpp-jeopardise-malaysias-future#sthash.vFL9lJhf.dpuf.

[90] ‘The Obscure Trade Provision Everyone Is Talking About’, 16 May 2015, http://www.huffingtonpost.com/terra-lawsonremer/the-obscure-trade-provisi_b_7297342.html.

[91] See preceding footnote.

[92] See earlier footnote 80.

[93] http://www.economist.com/news/finance-and-economics/21623756-governments-are-souring-treaties-protect-foreign-investors-arbitration.

[94] A side letter expresses an understanding between parties to the letter. On general principles, they would have no effect on other parties.