A new report on the Trans Pacific Partnership concludes that it would not allow foreign control over New Zealand’s law-making ability.

ExportNZ commissioned ISDS and sovereignty, a report on investor-state dispute settlement provisions in the Trans Pacific Partnership and other free trade agreements. The report, by NZIER, concludes risks from investor disputes have been overstated.

Investor-state dispute settlement (ISDS) provisions allow arbitration if investors are unfairly discriminated against by a government and suffer damage as a consequence.

ExportNZ Executive Director Catherine Beard says it’s common for investors to request the ability for arbitration in the countries where they invest, and common for countries to provide that assurance, as ISDS provisions ensure investors are treated fairly and also uphold the ability of countries to make laws in their own interests.

“Arbitration is usually only needed in the case of rogue decisions by unpredictable governments,” Catherine Beard said.

“ISDS arbitration is primarily designed to stop extreme actions such as illegally confiscating or nationalising business assets. New Zealand is not an extreme government. We have good rule of law, strong institutions, a global reputation for fairness and lack of corruption and a strong interest in encouraging foreign investment. These factors combined mean New Zealand is unlikely to be targeted in investor-state disputes.”

NZIER Deputy CEO John Ballingall says ISDS provisions in the TPP are unlikely to put New Zealand’s sovereignty at risk.

“Modern ISDS provisions explicitly provide for countries’ ability to regulate in the public interest, such as in health and the environment,” Mr Ballingall said. “In the TPP negotiations for example, all 12 countries will want to retain their power to regulate appropriately, and will not be trading that power away.”

Catherine Beard said it was important to remember the significance of the TPP opportunity.

“TPP represents around 40% of world GDP – and our businesses need equal access to those huge markets. New Zealand has more to gain from TPP than most countries, because the highest tariffs apply to primary products, which are around two-thirds of our goods exports.

“Our recent trade agreements have been great for New Zealand business – the agreement with Taiwan delivered a 20% increase in exports after one year, and the China trade agreement quadrupled our exports in seven years. That is the sort of relationship we want with all our trading partners.”

Key points in ISDS and sovereignty include:

ISDS clauses are not new – New Zealand has included them in trade and investment deals with 13 economies over the last 27 years

• No company has ever sued the New Zealand government under an international treaty
• ISDS clauses are in trade agreements to protect investors from having their investment stolen or illegally misappropriated
• ISDS relates to the investment chapter of agreements only, and does not extend to intellectual property, copyright or tariffs etc
• ISDS protects New Zealanders making investments in overseas countries, and lets overseas investors know they can invest safely in New Zealand
• Most ISDS claims overseas have been taken against countries that would be described as ranking lowly on “ease of doing business” indexes – e.g. regulatory flip-flops, tendency to expropriate investors’ property, low rankings in bribery and corruption indexes, protectionist policies etc
• Investors have won only about 1 in 4 of these claims, and won compensation of around 3 cents in the dollar relative to what they claimed
• Modern ISDS arbitration hearings are transparent and publicly accessible
• Modern trade is as much about global investment and trade in services as it is about trade in goods
• New Zealand’s biggest export earners benefit from ISDS because they are increasingly investing in partnerships in other countries, allowing them to service overseas customers more efficiently, be more competitive and earn more export dollars for New Zealand
• ISDS is about countries treating each other’s investors fairly – New Zealand benefits from overseas investment and from fair treatment for our companies when they invest overseas