The Power of Perspectives

The Canadian Bar Association

Josh Scheinert and Michael Woods

TPP and the evolution of investor rights, part I

December 8 2015 8 December 2015

As Canada’s new government has begun the process of reviewing the text of the Trans-Pacific Partnership (TPP) it is inviting comment and promising wide consultations. International Trade Minister Chrystia Freeland has indicated that she wants to “engage with Canadians”. Her officials have posted the text of the TPP and very useful background material.

Practitioners should take note.

This is no run-of-the-mill trade agreement. It is a massive free-trade pact involving Canada, our NAFTA partners – the United States and Mexico – economic powerhouse Japan and eight other Asia-Pacific countries. If all the parties ratify the agreement it will cover a market of almost $800 million and a combined GDP of $28.5 trillion.  A little over 80 per cent of Canada’s total exports are sent to the TPP countries.

More than that, legal practitioners, especially those practicing international investment law and arbitration, will feel the agreement’s impacts for some time to come. The TPP, which contains many important elements featured in earlier trade agreements – including a chapter on investment that includes an investor state dispute settlement (ISDS) mechanism, has the potential to lessen the availability of protections that international investors have come to look for and rely on. It presents a challenge going forward for lawyers and arbitrators to define traditional provisions against new standards.

ISDS has become a regular feature of Canadian trade and investment agreements since NAFTA, but has grown controversial over the fact that it affords foreign investors the opportunity to bring claims against the government. Speaking out against ISDS in the TPP, one Australian MP suggested it presented “a sovereign risk” to states by allowing corporations to skip domestic processes and go right to international arbitration.

The TPP investment chapter is an attempt to address that controversy. The result is a departure from past practices. Its text represents an effort to continue extending important protections to investors seeking to invest in new, foreign markets, while affording states a measure of proactive regulatory flexibility, and potentially undermining the certainty of the level of protection traditionally afforded to investors.

This should not be surprising given the context in which the TPP was concluded and the growth of criticism that ISDS precludes states from adequately responding to environmental, health, and labour needs because of preexisting obligations owed to investors. That claim itself is controversial and recently some arbitrators have attempted to use their awards to demonstrate that such criticisms are ill founded.

Even if that may be the case, the negotiating states wanted to leave as little as possible to chance. Australia is currently defending its tobacco plain packaging laws against Philip Morris, which has brought a suit under Australia’s bilateral investment treaty with Hong Kong. Learning from this experience, under the TPP all state parties would be immune from such claims. The agreement contains a provision, known as denial of benefits that precludes tobacco companies from bringing claims that challenge a state’s tobacco control laws.

Beyond Australia’s specific experience, the TPP’s twelve parties are of varying degrees of development. The potential for international trade and investment to have positive and adverse consequences for Vietnam and Peru’s environmental and labour standards is greater than for Japan and the United States. As such, there was a move by the parties to ensure that the TPP’s investor protections did not prevent governments in instances concerning legitimate objectives over the health and growth of their states and populations.

Part two of this analysis will look at the effects of this new attempt by states to gain more control over the direction and set parameters over ISDS. It will examine specific provisions within the TPP, demonstrating how it maintains and modifies traditional protections states guarantee to investors in trade and investment agreements as it seeks to strike a balance between the priorities of investors and states.

Josh Scheinert is a Toronto lawyer with a specialization in international investment and human rights. Michael Woods is a founding partner of Woods, Lafortune LLP, an Ottawa based international trade law firm. He previously practiced trade law as a partner at Heenan Blaikie LLP and Gottlieb & Pearson. He started his international career with the Department of Foreign Affairs and International Trade as counsel and trade negotiator as well as at postings abroad. The authors wish to thank Ghislaine Murango, a third year law student at the University of Ottawa (Civil Law Faculty) and intern with Woods, LaFortune LLP as part of the University’s program designed to give students an opportunity to gain experience working with law firms.

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Josh Scheinert is a Toronto lawyer with a specialization in international investment and human rights. Michael Woods is a founding partner of Woods, Lafortune LLP, an Ottawa based international trade law firm. He previously practiced trade law as a partner at Heenan Blaikie LLP and Gottlieb & Pearson. He started his international career with the Department of Foreign Affairs and International Trade as counsel and trade negotiator as well as at postings abroad. The authors wish to thank Ghislaine Murango, a third year law student at the University of Ottawa (Civil Law Faculty) and intern with Woods, LaFortune LLP as part of the University’s program designed to give students an opportunity to gain experience working with law firms.

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