US and Canada to drop ISDS from NAFTA. NZ should insist on the same for TPPA-11

Canada and the US are set to agree on withdrawing the controversial investor-state dispute settlement (ISDS) mechanism from the North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico, according to reports from the US overnight.[‘Sources: Canada to propose eliminating ISDS at NAFTA meeting this week; USTR to agree’, Inside US Trade, February 21, 2018 (paywalled)]

‘That would signal the death knell for its inclusion in future US deals, and presumably make the removal of ISDS a red-line were the US to re-engage with the TPPA-11’, says Auckland University law professor Jane Kelsey.

‘The rationale for suspending, rather than removing, provisions from the TPPA was to make it easier for the US to re-join. Logically, they should now drop the ISDS mechanism. Yet the core investor protections and the right to enforce them through controversial ISDS tribunals have not even been suspended in the TPPA-11. They remain fully intact.’

Professor Kelsey points to these developments with NAFTA as a prime opportunity for our government to take the lead, consistent with its principled position against ISDS, and to provide stronger protections for New Zealand.

‘The Labour-led government tried to have the ISDS process suspended in the TPPA-11, after the Prime Minister declared it was “a dog” and that officials were instructed to exclude it from future agreements. Unfortunately, they failed.’

‘Instead, New Zealand is left in the unacceptable position of relying on side letters with an undisclosed number of countries who promise not to allow ISDS claims against New Zealand.’

Noting that ‘time is of the essence, with signing of the TPPA-11 scheduled for 8 March’, Professor Kelsey urged the government to immediately go back to the other parties and insist that ISDS is removed from the agreement before it is signed.

Background

When NAFTA was signed in 1993 it was the first ‘free trade’ agreement to enshrine far-reaching protections for foreign investors and allow them to be enforced directly against governments through offshore arbitral panels.

Since then, the investment arbitration regime has faced a growing crisis of legitimacy. A number of countries have withdrawn from stand-alone investment treaties and excluded ISDS from broader economic integration agreements. Researching these developments is part of Professor Kelsey’s Marsden-funded research project on countries’ retreat from such agreements.

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