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TPP faces fresh crisis over New Zealand opposition to ISDS

Asia / 01-11-17 / by
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TPP

The future of the Trans-Pacific Partnership (TPP) has been thrown into doubt once again after the new government of New Zealand lobbied for the removal of a controversial investor protection mechanism.

The remaining 11 members of the TPP met in Japan this week, with the New Zealand Prime Minister Jacinda Ardern saying her government would “to do our utmost to amend the investor-state dispute settlement (ISDS) provisions of TPP”.

Ardern’s Labour Party formed a coalition government with the support of the New Zealand First Party and the Green Party, both of which are opposed to the TPP, especially the ISDS chapter, which opponents say grants foreign investors capability to sue local governments if policy changes affect their investments.

Recently in Australia, the government won an ISDS case brought by tobacco giant Philip Morris International (PMI) over its decision to introduce plain packaging legislation for tobacco products. The dispute was possible because of a trade agreement between Australia and Hong Kong, where PMI has its Asian headquarters.

TPP negotiators are set to meet again at summits in the Philippines and Vietnam, with proponents of the agreement hoping that a conclusion can be reached at one of these venues.

“I think it is realistic,” Deborah Elms, CEO of lobby group the Asia Trade Centre tells GTR of the plans. “Mostly because if you don’t do it now, you don’t do it at all. There really is no better time. Time doesn’t favour the TPP. If you don’t do it in Da Nang there’s no other decision-forcing event that will propel the TPP, but there are many things that can disrupt it, as you can see with the New Zealand elections.”

Another U-turn

New Zealand, along with Australia and Japan, had been one of the biggest supporters of the TPP and free trade in general, under the previous Prime Minister, Bill English. After the U-turn undertaken by the US under Donald Trump, New Zealand’s about-face represents another blow for the TPP-11.

The country is also to introduce a ban on foreign buyers purchasing residential properties in a bid to cool the overheating housing market. Provided this is implemented before the TPP is finalised, it can be applied to this agreement under a carve-out in its investment chapter.

Removing ISDS, on the other hand, will prove to be much more problematic. “They have an elegant way of doing that [the property purchase ban] . With ISDS, it’s more complicated. They say they will try to convince others not to include ISDS in TPP-11. I think that’s an unlikely task,” says Stephen Jacobi, executive director of the NZ International Business Forum and former trade commissioner.

He tells GTR that while he supports the inclusion of ISDS, the business community would be willing to sacrifice it if it meant getting the TPP over the line, given the access to markets it would create for exporters.

“Clearly ISDS would benefit our companies but of much greater benefit to us are the trade aspects of the deal. Although we support ISDS in FTAs, it’s not crucial to our interests in the deal, it’s more what we have to do to abide by market access permissions,” he adds.

The Labour Party is generally viewed as being pro-trade and has negotiated multiple FTAs when in office. Its stance on ISDS arguably stems from a combination of opposition from its own support base and agreements with its coalition partners. The party has vowed to exclude it from all future trade agreements it negotiates, which will also move the goalposts of the Regional Comprehensive Economic Partnership (RCEP), another pan-Asiatic trade deal involving China.

Jane Kelsey is a professor of law at the University of Auckland and a longstanding opponent to the TPP. She claims that New Zealand could yet force a change in ISDS provisions if it can secure support from one or two other TPP-11 members.

“If they were on their own they wouldn’t make it a red line and a basis for not being part of the final deal. However, if there are other countries in the TPP-11 who take a similar position, for example Vietnam, Canada, possibly Malaysia, then you have more of a critical mass to argue for some kind of shift in relation to ISDS,” she tells GTR.

If New Zealand was to negotiate a carve-out it would not be without precedent. The Australia-New Zealand investment treaty of 2011 has no investor or state to state protection mechanism.

The Singapore-New Zealand FTA, meanwhile, has a clause which states an investment dispute can be referred to arbitration, but that the state being sued can withhold its consent on a case-by-case basis.

However, according to Elms at the Asia Trade Centre, it is a “non-starter”.

She says: “There’s no way at this point that you’re going to get rid of ISDS from the TPP, particularly if you’re going to sign in two weeks. If New Zealand was serious, I suspect the reaction of the rest would be: fine, you can come in at a later date.”

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