The parties to the Trans-Pacific Partnership (TPP), which include the United States and 11 other Pacific nations, concluded negotiations on the text of a multilateral trade and investment agreement on Oct. 5, 2015, and released the text of the agreement on Nov. 5, 2015. As anticipated, the agreement contains investor-state dispute settlement (ISDS) provisions that will provide substantial protection and dispute-resolution options for investors from the TPP countries once the agreement is ratified by the TPP states.
Under the ISDS provisions, an investor from one TPP country will be able to initiate arbitration proceedings directly against the host government of another TPP country for violations of certain substantive protections set forth in the TPP or for breaches of investment authorizations or agreements. According to the provisions, an investor will be able to initiate arbitration at the International Centre for Settlement of Investment Disputes (ICSID), based in Washington, D.C. or through ad hoc arbitration.
While the specific contours of the substantive protections in the TPP agreement will involve a nuanced interpretation of the text in the context of international law, these substantive protections can be briefly summarized as follows:
- national treatment – a host state must afford treatment to a covered investor and its investments that is no less favorable than that provided to domestic investors and their investments in like circumstances;
- most-favored-nation treatment – a host state must afford treatment to a covered investor and its investments that is no less favorable than that provided to investors and investments from third states in like circumstances;
- minimum standard of treatment (including fair and equitable treatment and full protection and security) – a host state must treat covered investments in accordance with the customary international law minimum standard of treatment of aliens, including the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with fundamental principles of due process, and to provide the requisite level of police protection to covered investments;
- compensation for expropriations – a host state may expropriate a covered investment only if prompt, adequate, and effective compensation is paid by the state to the investor, and the expropriation occurs in a non-discriminatory manner, in accordance with due process of law, and for a public purpose;
- free transfer of funds related to investments – a host state must permit covered investors to make financial transfers related to a covered investment freely and without delay, into and out of the territory of the host state; and
- prohibition of performance requirements – a host state may not impose performance requirements in relation to a covered investment such as requiring a given level of exports, requiring a given level of domestic content, or transferring technology or other proprietary knowledge to domestic entities.
The TPP agreement does contain language intended to preserve the ability of TPP states to adopt, maintain, and enforce measures to ensure that covered investments are “undertaken in a manner sensitive to environmental, health or other regulatory objectives,” as well as certain carve-outs, including, most notably, Australia’s reservation of rights relating to tobacco products.
ISDS provisions already appear in various other investment treaties to provide protection against the impairment of foreign investment by host governments. Claims have recently been brought against states under such treaties involving investments in a variety of sectors, including the energy, renewable-energy, mining, finance, and pharmaceutical sectors, among others. For example, several arbitrations have recently been initiated by investors against Spain, the Czech Republic, and Italy stemming from changes that these countries made to their renewable-energy policies that reduce or eliminate subsidies that had been guaranteed under long-term contracts with renewable-energy producers known as feed-in-tariffs.
The ISDS provisions in the TPP agreement place an emphasis on the transparency of arbitral proceedings. The written submissions and awards in any arbitration initiated under the TPP agreement are to be made public, and any hearings are to be open to the public. Arbitral tribunals are also allowed to accept and consider written amicus curiae submissions from third parties on questions of law and fact after consultation with the disputing parties.
The text of the TPP agreement specifically affirms that the existing rights and obligations in other international agreements between TPP parties will remain in force. Accordingly, the ISDS provisions in other investment treaties between TPP parties, including, most notably, the ISDS provisions in the North American Free Trade Agreement, will continue to be available to covered investors when the TPP enters into force.
The parties to the TPP are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. These parties account for nearly 40 percent of global gross domestic product, which will make the TPP one of the most far-reaching investment treaties to date. In some circumstances, investors from non-TPP countries may also be able to take advantage of the agreement’s ISDS mechanisms by structuring their investments in TPP countries through a subsidiary incorporated in another TPP country.
Foreign investors should manage and monitor their investment protection options as an integral part of any planned foreign investment project from the planning stages through execution, so as to not be caught off guard when problems arise. Greenberg Traurig has an experienced team that advises clients on investment protection and investor-state disputes at ICSID and other international arbitration venues.