5 November 2015

Government’s snow job on TPPA now exposed

‘As expected, access to the text of the Trans-Pacific Partnership Agreement reveals major holes in the government’s “fact sheets”’, says Auckland University law professor Jane Kelsey.

An initial review of the most controversial chapters confirms that New Zealand will have to comply with onerous new obligations and lose the future capacity to regulate in ways that an elected government thinks appropriate.

The investment chapter goes beyond New Zealand’s existing agreements in numerous ways. For example, a foreign investor from a TPP country that is party to a contract for oil exploration, a PPP contract for water, sewage or toll roads, or a mining or forestry concession with central government or an SOE exercising a delegated power, can use the controversial investor-state dispute settlement (ISDS) process if it wants to claim its rights are breached, even if the contract requires them to use NZ courts or some other dispute mechanism.

Foreign investors, notably from the US and Japan, gain special rights not available to New Zealand investors, which are commonly used to challenge new regulations that adversely affect their business. In New Zealand, where risk-tolerant light handed regulation is the norm, that poses major problems for a future government wanting to regulate in the public interest.

As the government conceded, the categories of investment where the rules can be tightened have been constrained, and existing regulation of various services and investments are locked in so they can’t be made more restrictive in the future.

Some of the so-called protections for environment, health and regulatory objectives in the investment chapter are a nonsense – they allow the government to do what the chapter allows the government to do. The wording of the annex on expropriation, which supposedly restricts the scope of indirect or regulatory expropriation – where regulations are challenged for eroding the value of an investment - is weaker than other New Zealand agreements.

The general exception provision, which provides only weak protection for public health or environment measures at best, does not apply to the investment chapter. Instead, there are highly contestable rights to adopt rules for ‘legitimate public policy’ reasons, but those apply only to some rules and will be interpreted by ad hoc investment arbitrators.

There are some attempts to rein in the ISDS process, but they do not address the major concerns. The arbitrators are still likely to be drawn from a small club (often referred to as the mafia) who are also investment lawyers; there are no conflict of interest rules, merely that they must be developed before the agreement comes into force; there is no appeal; compound interest can still be awarded; and the kinds of damages that be claimed are still extensive.

A further, fundamental problem is that investment tribunals have proved adept at reading down or circumventing attempts to constrain the adventurism of the tribunals, including provisions on which parties to the TPPA claim the right to make binding interpretations that the tribunals must follow.

The tobacco-specific exception applies only to disputes brought by investors under the investment chapter, where a country opts to exclude it. Unlike the proposed Malaysian carveout for tobacco control measures from the entire agreement, it does not apply to other chapters, such as labelling rules, intellectual property, or the investment chapter itself. (Australia’s plain packaging law is currently facing a dispute over labelling and intellectual property in the WTO).

There is at least some provision for countries to impose capital controls, which does not exist in standard US FTAs. But it is circumscribed by almost impossible conditions.

There are serious new constraints on financial regulation, including of cross-border financial transactions and data flows, which require further careful study.

The unprecedented State-owned Enterprises chapter has three complex principal rules, which will create major problems for SOEs that provide integrated services both within and outside the country or produce a mixture of goods and services. The procedural requirements are commercially intrusive and provide scope for harassment by other TPPA parties on behalf of their corporations.

The chapter will create particular problems for the creation of new SOEs that require a capital injection and subsidisation or other special treatment or the provision of guarantees – for example, the proposal to establish a new state-owned insurance company.

The intellectual property chapter has already been leaked and analysed. Copyright is extended by 20 years in two tranches; New Zealand is the only country that has to make changes immediately.

The highly sensitive area of biologics is far from secure. New Zealand’s negotiators say they consider our current process satisfies the obligation. But there is a very high risk that the US will demand that we adopt its interpretation of what is required and refuse to ‘certify’ our compliance (a pre-requisite for the agreement to come into force with the US) until we provider a longer effective monopoly on those new generation pharmaceuticals. In addition, the rule comes up for renegotiation in 10 years, by which time biologics will be a much more dominant part of the medicines budget.

The transparency annex that affects Pharmac’s processes will increase its administrative burden and a new review procedure provides Big Pharma with a new opportunity to challenge Pharmac’s decisions.

These comments confirm the predicted problems in the text. Full analysis of the different chapters will follow, with expert peer reviewed papers being released over the next few weeks.

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