TPP Investor state – keeping governments honest

Those concerned about investor rights in trade agreements might well reflect on the appropriateness of the New Zealand Super Fund seeking to sue the Government of Portugal about retrospective regulations it has made to protect the interests of a government-owned bank.

Of course this is not the same as investor-state dispute settlement (ISDS) through UN-mandated arbitration as is provided for already in New Zealand’s FTAs with China, ASEAN and Korea and is proposed in TPP. The Super Fund is seeking redress through domestic courts, as a major Japanese corporation did recently (unsuccessfully) in respect of New Zealand’s earthquake compensation legislation. In the case of Portugal and New Zealand it is to be hoped that the courts in question will decide impartially and without undue influence of governments. Such independence of the judiciary is not always the case especially in developing countries which are often out to attract foreign investors. That is why ISDS is important, particularly in an age where trade is giving way to investment – not unduly to restrict government actions but to ensure compensation to foreign companies is made available when governments expropriate property rights.

The question remains whether sovereign governments should be able to be sued at all? Surely the answer is yes. In fact principles of independent arbitration and compensation are not all that foreign to many jurisdictions, including here in New Zealand.

As it is, New Zealand’s existing FTAs and we expect TPP also have safeguards to lessen the risk of adventuresome litigation and to prevent the ‘freezing out’ of government action. No government should be prevented from taking action to protect public health, the environment or in New Zealand’s case, the Treaty of Waitangi. The grounds under which ISDS can be taken need to be carefully prescribed and negotiators need to be very aware of the risks to legitimate government policy making in this area.

Those opposed to TPP claim ISDS provides “for foreign investors to sue our government in overseas tribunals if their profits are cut by legitimate government actions”. No New Zealand Government would be foolish enough to sign up to something so ill-defined and open-ended, without necessary protections. Meantime go ask the Super Fund if the Government of Portugal can be trusted at all times to do the right thing by foreign investors.

This post has been written by Stephen Jacobi, Executive Director of the New Zealand International Business Forum (