TPP Investment Chapter: Turning Back or Advancing the Clock on Promoting Investment for Development?

Alicia Nicholls

Outside of the Intellectual Property Chapter, no other chapter of the Trans-Pacific Partnership Agreement has been subject to as much scrutiny or criticism as its Investment Chapter. Framers of investment agreements have a delicate balancing act to make; balancing investor rights and protection on the one hand, with the host state’s right to regulate and pursue sustainable development goals on the other. Does the TPP’s investment chapter turn back the clock on development as critics say? Or do the provisions of this twenty-first century investment chapter advance the clock’s hands?

To be sure, the TPP is no standard bearer for an IIA with strong sustainable development provisions. Indeed, the agreement bears the marked footprint of the US’ Model Bilateral Investment Treaty (BIT) 2012, with a similar format and largely similar provisions and wording, with some exceptions. That being said, to say that the TPP turns back the clock on balancing investor rights and sustainable development ignores the fact that it generally offers no greater investor protections than many standard bilateral investment treaties (BITs). Indeed, to the TPP’s framers’ credit, there is a noticeable attempt to address some of the flaws and loopholes which have been problematic in BITs.

– Minimum Standard of Treatment. The vagueness of the fair and equitable treatment clause in many BITs has caused pain for many a state which has found itself the subject of an investor dispute. The framers of the TPP seek to address this by stipulating that FET means nothing more than the minimum standard of treatment afforded to aliens under customary international law. It goes further to define FET and full protection and security and also defines several instances which cannot be deemed to be breaches of this article.

– NT/MFN. Typical of IIAs, the TPP includes both a national treatment and Most Favoured Nation (MFN clause). The inclusion of this clause is controversial as it potentially negates any progress made on rebalancing the rights of investors with states’ rights to regulate by allowing investors to cherry pick from provisions in older and more investor-friendly agreements. To their credit, the drafters of the TPP have sought to build in several safeguard, including excluding procedural provisions from applicability of the MFN clause.

– Performance Requirements. Although the TPP speaks of recognizing the differences in levels of development, the prohibition of all forms of performance requirements, including non-trade performance requirements,could have an effect on those developing countries members of the Agreement as their ability to ensure investors make a contribution to their economies through the use of non-trade related performance requirements will be compromised.

– Carve-outs for Special Requirements & Formalities. There are carve-outs for registration requirements , as well as for requiring the provision of information for informational and statistical purposes, provided such information is kept confidential from any disclosure which would prejudice the competitive position of the investor or the covered investment.

– Environmental, Health and Other Regulatory Objectives. The TPP attempts to make a carve-out for environmental, health or other regulatory objectives. However, the inclusion of the phrase “otherwise consistent with this Chapter” is a loophole which potentially negates the efficacy of this carve-out.

– CSR. The provision on CSR is weak. It is drafted in best endeavour language and is not enforceable. It simply reaffirms the importance of each Party to encourage enterprises operating in its territory or subject to its jurisdiction to voluntarily incorporate internationally recognised CSR principles into their internal policies.

– ISDS. Similar to the majority of BITs in existence, the TPP provides for investor-state dispute settlement. The ISDS, though efficient, has had some well documented flaws and the TPP’s framers made some attempts to address some of the main criticisms of the ISDS by including requirements for parties to the dispute to attempt consultation and negotiation, requirements for transparency by open proceedings and making documents public, provisions on frivolous claims, consolidation of claims and prohibition of parallel proceedings on the same matter.

The verdict? The investment provisions in the TPP are generally no more generous to investors than those found in most standard BITs, including the US Model BIT 2012 which had a strong influence on the final text of the TPP’s Investment Chapter. Indeed, it is better than many older BITs in that it attempts to close some of the problematic loopholes like the FET clause. However, the TPP also falls into the same trap many IIAs do in that strong investor protections are not matched by strong obligations on the investor to adhere to local laws, follow environmentally sustainable practices or labour standards. Perhaps the framers missed a chance here to advance investment treaty practice on this. In summary, while the TPP does not set back the clock on balancing investors’ rights and development, it missed the opportunity to advance the clock’s hands much further in incorporating stronger provisions to ensure investment promotes sustainable development.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. A longer, more detailed version of this article may be accessed here. You can also read more of hercommentaries and follow her on Twitter @LicyLaw.