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Trans-Pacific Partnership Negotiations: Notes on Investment

by Amokura Kawharu, Faculty of Law, University of Auckland


The current P4 agreement requires the parties to commence negotiations on an investment chapter, meaning the investment negotiations will effectively start from scratch.  That said, there are several bilateral and regional agreements in place between the TPP negotiating parties covering investment, and the TPP is likely to be viewed by them as a way of expanding and improving on these.  These notes describe some of the investment related interests of Australia, the United States, and New Zealand, and comment on specific ‘legal’ issues such as investor-state dispute settlement.

 

A. Australia

(i) Background

  • Australia has investment commitments with TPP negotiating parties under FTAs with Singapore (2003), the US (AUSFTA, 2005), and Chile (2009), and under the more limited ASEAN-Australia-New Zealand FTA (AANZFTA, 2009)
  • the national treatment commitments under the AANZFTA are subject to agreement on reservations
  • from Australia’s perspective, the TPP could address other parties’ reservations under these agreements (e.g. US reservations on mining, Singapore’s limitations on financial services), and secure further general commitments to liberalise (e.g. the Chile FTA only locks-in existing regimes), or could be more limited given ‘mixed’ AUSFTA experience

 

(ii) Trans-Tasman investment and the TPP

  • there is nothing in the CER on investment except in relation to services (since 1988), so Australian investment in New Zealand is subject to New Zealand’s general investment policies and screening, and vice versa in relation to New Zealand investment in Australia
  • trans-Tasman investment is also excluded from AANZFTA investment chapter
  • in 2008, New Zealand was 4th largest source of FDI in Australia (especially in dairy), and Australia the largest source of FDI in NZ (especially in banking and transport)

 

CER investment protocol or TPP?

  • there is informal political agreement to ensure trans-Tasman investment is subject to minimum restraint, and in practice, the OIO and the FIRB are aware of bilateral importance of trans-Tasman relationship
  • there has been pressure from Australian side to add an investment protocol to CER, which is becoming harder to resist given New Zealand’s concessions to ‘lesser’ trading partners such as China (although it is unclear to what extent Australia actually wants New Zealand’s rules liberalised in its favour) – appears to be some recent movement towards agreement on a protocol by the end of 2009
  • removal of double taxation on dividends by Australia has been mentioned as a trade-off for New Zealand
  • Australia offered AUSFTA level thresholds to New Zealand in 2006, i.e.:
  1. screening thresholds lifted to A$800m (indexed to A$953m) on most sectors
  2. A$50m (A$110m) in certain sensitive sectors such as transport, defence and telecommunications

 

B. United States

(i) Background

  • the United States has investment commitments with TPP negotiating parties under FTAs with Singapore (2003), Chile (2004), Australia (2005), and Peru (2007)
  • as above, TPP could address reservations and limitations under existing agreements
  • for example, USTR has highlighted particular issues with US foreign investment in telecommunications sector relevant to TPP parties regarding use of networks in Australia and Singapore, foreign operator surcharges in Peru
  • the US’ negotiating interest has been in the TPP as a model agreement for the region
  • no New Zealand specific concerns identified by USTR in its general 2009 investment climate statement on New Zealand (compare Australia, Chile, Singapore)

 

C. New Zealand

(i) Background

  • of the TPP negotiating parties, New Zealand has entered into investment commitments under the NZ-Singapore Closer Economic Partnership (CEP, 2001) and the AANZFTA
  • investment abroad has occurred mainly in Australia, the United Kingdom and the US, but Singapore has become an increasingly significant FDI source and destination
  • inflows from Australia as above
  • in 2008, the United States was the 3rd highest source of FDI after Australia and the UK (mainly telecomms, forestry, transport, food processing, IT, energy and financial services)

 

(ii) TPP negotiations

  • negotiating interest of New Zealand government is to attract more US investment, seems to be concerned with possible diversion of investment to Australia under AUSFTA
  • possible negotiating issues:
  1. lowering of screening thresholds under the Overseas Investment Act
  2. removal of foreign ownership caps in specific businesses
  3. scope for general reservations e.g. for “strategic assets” and “sensitive sectors” as under existing agreements between TPP negotiating parties may be limited if TPP negotiated as a “high quality” agreement

 

Overseas Investment Act general review

  • review announced in March 2009; aims to clarify rules on foreign investment
  • terms of review include examining how investments thresholds for significant business assets and sensitive land can be adjusted to promote investment, refinement of “sensitive land” definition to cover land of significance only, clarification of “benefit to NZ”
  • policy changes following the review may be offered or ‘locked-in’ in the TPP

 

D. ‘Legal’ issues

(i) Most favoured nation

  • commitments by New Zealand will have to be extended MFN to Thailand (except dispute settlement),[1] and China (except dispute settlement and obligations specific to existing FTA partners)[2]; the same general issue applies to other TPP negotiating parties
  • query the possible scope of the TPP MFN commitment

 

(ii) Expropriation

  • issues in recent investor-state dispute settlement practice over what types of investment interest are entitled to expropriation protection (whether economic interests are covered in addition to property rights) and whether regulatory takings are compensable
  • definite trend in recent treaty making practice to explicitly exclude non-property interests and regulation “reasonably justified in the protection of the public welfare” from expropriation protection in new treaties, except in circumstances where discrimination, or breach of a commitment, is involved – “reasonably justified”?
  • limitations in US FTAs with Singapore, Chile, Australia, and Peru
  • limitations in Australia-Chile FTA and AANZFTA, but not Australia’s earlier FTA with Singapore
  • no expropriation protection in the NZ-Singapore CEP; limitations in the more recent NZ-China FTA (2008)[3]

 

(iii) Dispute settlement

  • different levels of agreement to investor-state dispute settlement under the existing investment agreements between the TPP negotiating parties
  • the agreements to which the United States is a party all incorporate investor-state dispute settlement apart from the developed-developed country agreement, AUSFTA (compare earlier NAFTA)
  • Australia’s FTAs with Singapore and Chile both include unambiguous consent to investor-state dispute settlement
  • conditional consent to investor-state dispute settlement under the NZ-Singapore CEP (and the CEP with Thailand), although comprehensive investor-state dispute settlement provisions are included in the more recent NZ-China FTA
  • the AANZFTA includes comprehensive investor-state dispute settlement provisions but the Australia / New Zealand relationship is excluded
  • query the appropriateness of investor-state dispute settlement in the TPP in respect of Australian / United States / New Zealand relationships?

 

Transparency of dispute settlement proceedings

  • the general trend in BITs and FTAs is to improve transparency of investor-state dispute settlement process although practice varies considerably
  • broad transparency obligations are included in the US Model BIT and its FTAs with Singapore, Chile and Peru (and require information disclosures and public hearings)
  • the FTA between Australia and Singapore is silent on transparency but the more recent FTA between Australia and Chile includes broad transparency obligations
  • there are no transparency provisions in the NZ-Singapore CEP, and only very limited transparency obligations in the NZ-China FTA (under which the state party can disclose non-confidential information about the proceedings)
  • disclosure of awards and other tribunal decisions is permitted under the AANZFTA

 



[1] See art 9.8 NZ-Thailand Closer Economic Partnership (2005).

[2] See art 139 NZ-China FTA (2008).

[3] See Annex 13 New Zealand-China FTA (2008).

Last Updated on Tuesday, 16 March 2010 02:06
 

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