Tag Archives: transpacific partnership

TPP: Acting USTR Submits Withdrawal Letter

Alicia Nicholls

On January 30, 2017, upon the instructions given by President Donald Trump in his January 23rd executive order, the Office of the US Trade Representative (USTR) submitted a letter to the 11 other Trans-Pacific Partnership (TPP) signatories officially withdrawing the US from the Agreement. This is according to a press release on the USTR’s website.

The letter was also submitted to the TPP Depositary and signed by Acting USTR, Maria Pagan. In addition to indicating the US’ withdrawal, the letter further stated, that “the United States remains committed to taking measures designed to promote more efficient markets and higher levels of economic growth, both in our country and around the world.We look forward to further discussions as to how to achieve these goals.”

Withdrawal from the TPP, which he had denounced as detrimental to American jobs, had been one of President Trump’s least controversial campaign promises during the election campaign. The US had signed the agreement via executive action on February 4, 2016 by then President Barack Obama but the Agreement had never been ratified.

The Agreement’s 11 remaining signatories are Australia, New Zealand, Canada, Singapore, Vietnam, Malaysia, Japan, Mexico, Peru, Brunei, and Chile.

The future of the Agreement sans the US remains uncertain. In the wake of the US’ withdrawal, Malaysia has signaled that it will refocus on trade with fellow ASEAN and Asian countries. According to Reuters’ reporting, Chile has indicated its interest in pursuing an FTA with China which is not a TPP party, and has reportedly invited remaining TPP members, China and South Korea to a summit in March on how to proceed. Australia’s Prime Malcolm Turnbull had initially indicated his interest in salvaging the agreement.

There has also been some speculation that China, which potentially stands to benefit geopolitically from the collapse of the TPP, may accede to the Agreement but Beijing has not confirmed whether it will pursue this option. Alternatively, there are some who argue that the Regional Comprehensive Economic Partnership (RCEP) which involves China provides a realistic alternative to the TPP.

Further information is available on the USTR’s website here.

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. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Advertisements

President Trump signs executive order pulling US out of TPP

Alicia Nicholls

With the stroke of a pen, newly inaugurated United States president, Donald J. Trump, today made good on one of his least controversial campaign promises; withdrawing his country from the 12-country Trans-Pacific Partnership (TPP) agreement via an executive order.

The Agreement, which was signed by the US and eleven other Pacific-rim participants in February 2016, was intended to be a high standard agreement and was significantly WTO-plus in its provisions. While hailed by big business for its ambitiousness, several aspects made the agreement significantly unpopular with civil society groups and increasingly some politicians which criticised the secrecy under which the negotiations took place, the implications of its intellectual property rights provisions for access to medicines, the choice of the longstanding investor-state dispute settlement mechanism for settlement of investor claims against states, inter alia.

Another criticism was that in absence of significant progress in the WTO Doha Round (which is now all but declared dead) it would set new standards and rules for 21st century global trade given that the parties account for 40% of the global economy and a third of global trade. It would turn the non members into standard-takers without having the chance to have been at the negotiating table. Mr Trump’s criticism of the agreement,however, was simply that it would kill American jobs.

Although President Barack Obama had championed the agreement and had pushed unsuccessfully for its ratification by congress, TPP was a rare point on which there was consensus by then candidates Republican, Donald Trump and Democrat, Hillary Clinton who both criticised its possible implications for US manufacturing and jobs. During the campaign, Mr. Trump had likened the agreement to rape of the country. Previously Mrs. Clinton had called it the “gold standard” but later said she was against the final outcome.

The move is a politically beneficial one for President Trump as it ticks off one of his most popular campaign promises and makes him look like a hero for American workers. It also gets him bipartisan support and will likely improve his approval ratings which have been the lowest for an incoming president.

Mr. Trump’s move also signals that he aims to stick to his “America first” trade policies. In upcoming days Mr. Trump also signalled his intention to start renegotiation of the North American Free Trade Agreement with partners Canada and Mexico to secure a better deal for American workers. Among other proposals, Mr. Trump has restated his threat to impose a border tax on imports from US companies which outsource jobs overseas. The withdrawal of the US from the TPP also raises questions about the future of yet another mega regional trade agreement, the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP) currently under negotiation between the US and the EU.

Mr. Trump will be meeting with UK Prime Minister Theresa May on Friday to discuss, inter alia, UK-US post-Brexit trade relations. Unlike his predecessor, President Trump has indicated that the UK will not be at the back of the queue for a free trade agreement with the US. However, in contrast to Mr. Trump’s neo-mercantilist views, Mrs. May has enthusiastically reiterated her support of free trade and free markets, indicating last week her intention for the UK to become a global leader of free trade.

President Trump has indicated he will seek to negotiate bilateral agreements with those individual TPP countries with which the US does not yet have an FTA. With regard to the future of TPP, the views of the other countries are mixed. Japanese Prime Minister Shinzo Abe previously indicated that TPP without the US was meaningless. Malaysia indicated it would go the bilateral route while Australia indicated it would try to salvage the agreement. A major geopolitical concern raised by foreign policy analysts about the US’ withdrawal is that it misses an opportunity for the US to increase its influence in the Asia-Pacific region, leaving an opening for China which was not a party to TPP. However, negotiations on RCEP, to which China is party and seen as a rival to TPP, have also been slow.

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. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Trans-Pacific Partnership Agreement in Review Part I: The Investment Chapter

Alicia Nicholls

The Trans-Pacific Partnership Agreement is the largest regional free trade deal concluded to date, creating a free trade area which encompasses 12 Pacific-rim countries and which accounts for 40% of global GDP. The TPP in its preamble speaks of the goal to establish a comprehensive regional agreement that promotes economic integration to liberalise trade and investment, bring economic growth and social benefits, among other things. However, like NAFTA over two decades ago, the TPP Agreement has been mired in controversy from its embryonic stages, with opinion sharply divided on whether it truly advances global trade or whether it sets the clock back on development issues such as labour rights and the environment. This article attempts a sober look at some of the main provisions of the investment chapter of the TPP and is the first in a series of articles which will examine some of the key aspects of the Agreement.

Framers of International Investment Agreements (IIAs) have to play a delicate balancing act between protecting the rights of investors while at the same time preserving the right of host states to regulate in the public interest and in the interest of fulfilling policy objectives.

The TPP’s investment chapter shares many striking but unsurprising similarities with the US Model Bilateral Investment Treaty (BIT) 2012. It includes a long list of definitions followed by substantive provisions detailing investor rights and finally a separate section on procedural provisions providing for Investor-State Dispute Settlement (ISDS).

Definition of “investment”

The definition of “investment”  in the TPP Agreement is broad akin to that in the US Model BIT 2012. It defines an investment as “every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk”. It outlines some of the forms which an investment for the purposes of the Agreement may take. The definition of “investor” is standard and does not merit much discussion for present purposes.

Treatment

The TPP includes national treatment and Most Favoured Nation treatment clauses, which are standard clauses in nearly all IIAs. The National treatment provision (Article 9.4) provides that parties are to accord to investors of another Party and their covered investments treatment no less favourable than that they accord in like circumstances, to their own investors and their investors’ own investments with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. It establishes pre-establishment rights, which is typical of US BITs and US-modelled IIAs.

In recent years the inclusion of the Most Favoured Nation clause in IIAs has been controversial as it allows for treaty shopping. Investors who are claimants in disputes have sought to rely on these clauses to benefit from more favourable treatment provided by the respondent state in treaties with third parties. In Maffezini v Spain, a precedent was established where an investor was able to benefit from more favourable dispute settlement provisions in a treaty which the respondent state had entered into with a third party state. As a result, a few IIAs have opted to omit MFN clauses.

One of the criticisms which have been levelled at the TPP is that the MFN clause 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 safeguards. Firstly, at section 9.5(3) a carve-out is made exempting procedural provisions such as those in Section B (ISDS) from applicability of the MFN clause. Secondly, it uses the qualifier term “in like circumstances”, although a broad interpretation by an arbitration tribunal may still be possible.

Minimum Standard of Treatment

The minimum standard of treatment provided for under the TPP is similar to those found in bilateral investment treaties (BITs) and IIAs in general. Per Article 9.6, each Party must accord to covered investments treatment in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security.

The FET provision in many BITs has been the cause of headache for many states due to its vagueness. This has made it open to interpretation by tribunals which have tended to expand the scope of FET to encompass rights beyond customary international law standards. The proliferation of FET cases brought by investors under NAFTA’s ISDS prompted the NAFTA Commission to release an interpretative note which declared definitively that fair and equitable standard of treatment was no more than the minimum standard of treatment afforded to aliens under customary international law. This language was also included in the US and Canada model BITs.

The TPP drafters sought to mitigate this in several ways. Article 9.6(2) clearly states that the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. For greater certainty, the framers go further to define what they mean by “FET” and “full protection and security”.

The framers also go to lengths to define what does not constitute a breach. Article 9.6(3) states that determination of a breach of another Article does not establish a breach of Article 9.6. Furthermore, neither the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations nor that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced, by a Party, do not constitute breaches of this Article, even if there is loss or damage to the covered investment as a result.

Expropriation and Compensation

One of the most pervasive threats posed to foreign investors in a foreign country is direct or indirect expropriation of their investment by the host state without compensation being paid. Similar to standard BITs, the TPP provides that state parties may take measures which directly or indirectly expropriate a covered investment but only in the circumstances outlined under Article 9.7(1) and with compensation.

Performance Requirements

In its preamble, the framers of the TPP talk about recognising the differences in the levels of development and diversity of economies of member states. However, how has this been borne out in the provisions? Performance requirements have been typically used by countries to ensure that investors add value to the local economy. These include requirements on the investor to buy local goods and services, set levels of exports of goods and services, technology transfer and domestic content requirements. The TRIMS Agreement prohibits trade-related performance requirements. However, it has been common practice for US-based FTAs to include prohibitions against all performance requirements. The TPP follows this approach. Four of the twelve parties to the TPP are developing countries.  This therefore will 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.

Free Transfer

One of the basic assurances investors look for is the ability to move their assets, such as repatriated profits, freely and without delay into and out of the host country. A standard provision in BITs, Article 9.8 of the TPP protects this right and is subject to the exceptions in 9.8(4). Of concern is that no exception is included for where the host state is encountering exceptional economic or financial challenges, such as currency and balance of payments difficulties. The omission of an exception for financial and economic difficulties is typical of US treaty practice but some treaties such as some UK BITs allow a carve-out for this. Such a provision would be particularly useful for developing countries which are generally more vulnerable to balance of payments difficulties.

Special Formalities and Information Requirements

Article 9.13 of the TPP provides carve-outs from National Treatment and MFN for special formalities and information requirements. It includes a carve-out from the National Treatment provision, allowing a Party to adopt and maintain measures which prescribes special formalities in connection with a covered investment, such as residency requirements for registration and requirements that a covered investment be legally constituted under the laws or regulations of the Party, provided that these formalities do not materially impair the protections afforded by the Party to investors of another Party and covered investments under the Chapter.

It also makes a carve-out from the National Treatment and MFN provisions allowing a Party to require an investor of another Party or its covered investment to provide information concerning that investment solely for informational or statistical purposes. However, such information is to be kept confidential from any disclosure which would prejudice the competitive position of the investor or the covered investment.

Carve-outs for Regulatory Objectives

Investment Agreements are a balancing act between the rights of investors and the rights of host states to regulate in the public interest and in the interest of fulfilling policy objectives. Article 9.15 attempts to make a carve-out by providing that nothing in the Agreement should be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives. However, what happens if the measure in question is not consistent with this Chapter. The inclusion of the phrase “otherwise consistent with this Chapter” is a loophole which potentially negates the efficacy of this carve-out.

Corporate Social Responsibility

The provision on CSR in Article 9.16 is rather 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. A stronger CSR provision would have been ideal here, particularly a requirement that investors comply with all applicable laws in the host State, comply with international labour standards and adopt environmentally sustainable practices.

ISDS

The most disdain for the TPP’s investment chapter has been targeted at the ISDS provisions. ISDS systems allow an investor to bring a claim directly against the host state. A feature of investment law, they are an innovation in public international law as there is no requirement for the exhaustion of local remedies and the investor can bring the claim directly without having to go through its state of nationality.

Critics argue that ISDS provisions only serve to give investors the ability to sue host States for introducing public policy legislation deemed to hurt their investment. The truth is that the majority of BITs have ISDS provisions. In this regard the TPP is neither unique nor more onerous. ISDS systems are more efficient, while the use of an arbitration tribunal instead of the local courts ensures that decisions are rendered fairly and free of political bias.

That withstanding, the ISDS has many well-documented flaws. ISDS cases are a costly exercise and have been a painful experience for those States which have found themselves on the wrong end of an arbitral award. However, UNCTAD data shows that of the 356 known cases concluded, 37 percent were won by the State, 25% by the investor and 28% were settled. Therefore, it is not an automatic case that the investor wins.

The TPP provides several options of arbitral forum and includes several provisions which attempt to address some of the criticisms made about the ISDS. There is the requirement that the parties to the dispute attempt to resolve the dispute through consultation and negotiation. Claims cannot be made after more than three years and six months have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged.

Lack of transparency has been one of the biggest criticisms leveled at the ISDS system as many arbitral proceedings and awards are not made public. Article 9.23 which deals with transparency in arbitral proceedings, provides that certain documents are to be made public “promptly”. What constitutes “prompt” is not defined and will likely depend on the circumstances. The tribunal is to conduct hearings in public, a marked departure from what is provided in most IIAs. However, Article 9.23(3) makes exceptions for protected information and information that may be withheld under the articles on security exceptions and disclosure of information. The TPP’s ISDS allows for the consolidation of claims arising out of the same set of events or circumstances.

In determining whether to make an award to the prevailing disputing party of reasonable costs and attorney’s fees incurred in submitting or opposing the objection.is warranted, the TPP provides that the tribunal is to consider whether either the claimant’s claim or the respondent’s objection was frivolous, and is to provide the disputing parties a reasonable opportunity to comment. If the tribunal determines such claims to be frivolous, the tribunal may award to the respondent reasonable costs and attorney’s fees.

My verdict on the Investment Chapter

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. Indeed, in several cases the TPP’s framers have attempted to close some of the loopholes which have been so troublesome in older BITs, such as with the FET clause. There are some weaknesses and grey areas in the Agreement. The biggest concern is the MFN clause which if a liberal interpretation by an arbitral tribunal is given may ultimately undo a lot of the improvements made in the TPP by allowing investors to rely on more favourable provisions in other agreements concluded by the host state. While there are some exceptions and additions, the influence of the US model BIT 2012 on the language and content of the TPP’s Investment Chapter is quite strong. 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. While the TPP is not as development-friendly as one would wish, its investor protections are generally no more generous than most traditional BITs. However, the real test will be in the Treaty’s operation once it comes into force.

More articles in this TPP article series are available here.

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. You can read more of her commentaries and follow her on Twitter @LicyLaw.

Trans-Pacific Partnership Agreement Text Finally Online!

Alicia Nicholls

At long last, the full text of the Trans-Pacific Partnership Agreement has finally been revealed. The TPP creates a free trade area encompassing 12 Pacific-rim countries. It has been mired in controversy due to the secrecy of the negotiations and concerns by civil society groups about its intellectual property and investment provisions, as well as their potential impact on the environment, labour, access to medicines etc. In spite of this, several countries, including Indonesia, the Philippines and Colombia have expressed interest in acceding to the TPP. The agreement includes rules on new and emerging trade issues like e-commerce, the environment, telecommunications, financial services, investment, government procurement, state-owned enterprises,small and medium sized enterprises, and competition law.

A full month after the agreement’s completion on October 5th, the full text of the Agreement may now be accessed on the official website of the US Trade Representative.

For more in this TPP Article series, click here.