On 22 October 2015 the NZ Herald published an extraordinary piece of contorted logic by Catherine Beard, who claimed the right of foreign investors to sue nation states through investor-state dispute settlement (ISDS) in the Trans-Pacific Partnership Agreement ‘protects New Zealand’s sovereignty’.
There are many puzzling things about this article. The Herald omitted to tell readers that Catherine Beard is the chief executive of Export NZ, which is among the cheerleaders of the TPPA and an offshoot of Business NZ. Ironically, Business NZ told an OECD consultation in 2011 that it saw no need for ISDS in agreements with countries that have sound legal systems. Evidently, that reasoned position is now an embarrassment and Business NZ has abandoned it in its quest to boost the TPPA.
Equally puzzling, an identical piece was published in the Dom Post on 22 September. It is almost unheard of for the same op ed to be repeated in the two competing papers.
In yet another quirk, it was impossible to see the comments on the Herald website, at least on my computer. As of yesterday, Beard’s article does not even come up on a search when the author’s name and the entire title is put into the search box. However, the original url still working
(http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11532902) and now shows 53 comments, 50 of which are critical.
Maybe these are just coincidences, and I am not suggesting some grand conspiracy by the Herald. What does worry me is that these cumulative quirks involve an article that is clearly pro-TPPA propaganda and is deeply flawed.
Beard depicts ISDS as the epitomy of the rule of law, protecting foreign investors against rogue decisions by corrupt and unpredictable governments to expropriate their assets, and says the vast majority of countries with good rule of law and strong institutions are not victims of these cases. That assertion is either breathtakingly ignorant or wilfully deceptive. Among the most celebrated abuses of ISDS at present involve domestic health and environmental regulation in Germany, Canada, and Australia.
ISDS faces a potentially crippling crisis of legitimacy internationally. There has been a massive surge in disputes brought by foreign investors using these offshore private tribunals to challenge domestic laws that undermine their profits. ISDS allows them to bypass and even challenge domestic judicial processes in a travesty of the ‘rule of law’.
Governments face massive costs in defending these disputes from a growing number of multi-million, and even billion, dollar awards for doing what governments are elected to do. The chilling effect on decisions by public bodies is now widely recognised, most recently by the dissenting arbitrator in the Bilcon decision where an ISDS tribunal ruled against a Canadian local environment panel’s decision to deny a US investor a permit for a quarry.
Some countries are withdrawing from these investment agreements and international arbitration facilities. Others have declared a moratorium on new agreements while they work out what to do with existing ones. Even its champions acknowledge there are flaws that need to be addressed.
None of that is mentioned by Beard in her Pollyanna world of rogue governments, victimised foreign investors, and anti-free trade extremists.
This context makes it even more worrying that Beard’s piece was based on a report commissioned from the NZ Institute for Economic Research published in September 2015 and entitled ISDS and Sovereignty. The NZIER’s six-page report is an embarrassment. Indeed, this once-respected think tank is in danger of becoming the government’s ‘independent’ apologist for the TPPA. (A previous NZIER analysis cautiously supported the hyperbolic projections of the likely economic impacts of the TPPA made in a report for the Peterson Institute and subsequently debunked by Geoff Bertram and Simon Terry in a report for the NZ Sustainability Council. Minister Groser has so far refused to release other economic analyses the NZIER prepared for the government that I requested under the Official Information Act in January 2015.) It would be totally unacceptable for MFAT to use NZIER as ‘independent consultants’ in the official evaluation of the TPPA, as Groser recently suggested (NBR, 10 October 2015).
The NZIER dismisses concerns of ‘strident opponents [who] raise spectres of evil multinational companies wanting to take New Zealand taxpayers for all that they can’, without referring to any of the leaked TPPA texts. Nor does it mention the more detailed commentaries from such conservative economic bodies, such as the Australian Productivity Commission and the Cato Institute in the US, that say the costs of ISDS outweigh any potential gains.
Instead, the NZIER repackaged a series of common myths and misrepresentations. Here are just a few.
Claim: ISDS will help NZ attract foreign direct investment is nonsense.
Truth: There is no convincing evidence that committing to ISDS attracts foreign investment, even in poor countries with lousy judicial systems. For example the Australian Productivity Commission cited a report from the World Trade Organisation’s research division showing it made no difference.
Claim: NZ investors find it hard to invest offshore and ‘it just gets harder if one day a foreign government decides to expropriate assets just because they feel like it’.
Truth: Recent claims brought by US investors against Canada including moratorium on fracking, a court’s ruling on medicine patents, and a local environment panel’s rejection of a quarry license. These are nothing to do with expropriation. In any case, if the New Zealand government really wants to help New Zealand companies invest overseas, there are ways to do it that don’t compromise our sovereignty, such as political risk insurance.
Claim: ISDS tribunals use the rules of international bodies and FTAs to guide their analyses of law and facts.
Truth: there is no consistency or predictability in how ad hoc tribunals decide cases. They don’t even have to take any notice of what other tribunals have ruled.
Claim: Each tribunal is comprised of three international experts, one chosen by each party and an agreed chair.
Truth: A small number of individuals and boutique firms dominate the treaty arbitration business in what some have dubbed a ‘mafia’, with endemic conflicts of interests when arbitrators are also investment lawyers in other disputes.
Claim: Launching claims isn’t cheap and investors only win on average 3% of what they ask for.
Truth: The NZIER figure is based on a 2007 report that doesn’t account for the mounting value of recent awards. More importantly, as senior investment lawyer George Kahale points out, such figures ignore the common practice for investors to make hugely inflated claims, excludes settlements whose results are usually confidential, and ignores cases where the dispute is withdrawn after a government backs off. Nor does it recognise the costs to governments that seek to defend themselves – Australia’s costs on the plain packaging tobacco case is reportedly running over $50 million with the substantive legal arguments yet to come.
Claim: Investors have limited other options to protect themselves.
Truth: Risk is part of the cost of doing business. NZIER ignored the obvious market mechanism of political risk insurance to address this risk. In New Zealand they have New Zealand’s court system which they can and do use.
Claim: Concerns that foreign investors receive privileged treatment could be removed by giving domestic investors the same protections.
Truth: This is a backdoor way of reviving ACT’s Regulatory Responsibility Bill that sought to give private property owners rights to compensation for resource management decisions, re-regulation of minimally regulated industries, new taxes, and other sound public policy measures.
Claim: NZ hasn’t been sued yet under an investment treaty.
Truth: That’s true, but Australia could say the same until the plain packaging case and the number of disputes has blown out exponentially in the past five years. As a footnote acknowledged, NZ doesn’t have ISDS with any of the top 12 countries whose investors bring these disputes – and the US tops that list. The TPPA therefore makes us much more vulnerable.
Other problems with ISDS are cutely finessed. ‘Interested parties may participate by amicus curiae briefs’ – but only with permission of the tribunal on specific matters, and of course assuming they have the resources to do so.
There is ‘usually only limited opportunity of appeal’; actually there is usually zero opportunity to appeal, and limited grounds for annulment due to improprieties.
Perhaps the most misleading statement is that ‘ISDS retains governments’ ability to regulate as they please, but with the clear understanding that actions that expropriate investors’ private property in a discriminatory or unjustified way have consequences. This sounds like sensible public policy to us’. Whoever wrote the NZIER’s paper must know the most common basis of claims is not expropriation or discrimination, it is an infinitely malleable concept of ‘fair and equitable treatment’. Investors use the uncertainty, cost, lack of appeals, pro-investor bias of the rules and often the arbitrators to scare governments into backing off regulation that is in the public interest. Private property trumps the public good.
Much, much more could be said about the flaws in the NZIER’s short paper, let alone Catherine Beard’s flossy version of it. It reminds us, if we needed it, that the TPPA’s cheerleaders will continue to peddle their tripe until the text finally becomes public and we can categorically debunk their spin.
It is crucial to stress that it’s not too late for us to stop this happening. The TPPA is far from being signed, sealed and delivered.
The political trade-offs on the TPPA were concluded at the ministerial meeting in Atlanta, but it will be at least 3 more months before the text can be signed. Under US law, the President must give 90 days’ notice before doing so and he hasn’t given that notice yet. The text will be publicly released at least 30 days into that 90 days.
There is a lot of work to be done to counteract the pro-TPPA spin machine, especially around ISDS. Expert analyses will be published as the text is available. But New Zealanders also need to send the government and Labour a resounding message that they don’t want the TPPA.
Bring your whanau, workmates, and local community to protests planned in Auckland, Wellington, and a growing number of towns around the country, on Saturday 14 November. For details see www.itsourfuture.org.nz and