TPP & Investment
By: Steve Craven
Few parts of the Trans Pacific Partnership are less understood, and often willfully misunderstood, than Chapter 9 on Investment. It has been portrayed by critics as unduly favoring big companies and allowing them to run roughshod over sovereign governments and, by implication, the people of those countries. Many appear to imagine that TPP will allow foreign companies to come into the United States and virtually ignore federal, state or local law. Nothing could be further from the truth.
At the risk of oversimplification, if you like the way foreign investment is presently handled in the United States, you are going to like TPP’s investment rules. That’s because Chapter 9 largely invokes the same requirements for foreign investment that we already apply for ourselves. You won’t see big changes in U.S. practice, but you will see some huge changes in some of the other TPP countries’ investment regimes. Essentially, TPP requires that in-bound investment be treated in a non-discriminatory way (i.e., equivalent to domestic investment) and on a most-favored nation basis (all TPP parties must be treated the same way). This amounts to a vast simplification and standardization of investment rules across the TPP member economies. Over the last 50 years, 180 countries have negotiated over 3,200 agreements with investment provisions, so you can imagine there is scope for simplifying things.
Critics tend to highlight the TPP rules that allow foreign investors to sue sovereign governments if they feel their rights have been abridged, imagining that big companies can simply tear up national laws they don’t like. In fact, the language of Chapter 9 reiterates that governments lose none of their powers to protect the public welfare and underscores that countries can regulate
in the public interest, including on health, safety, financial stability, and environmental protection. Foreign companies can challenge such rules if they can prove that they are being discriminated against in comparison to domestic companies. The TPP provisions on investor/state dispute settlement are essentially unchanged from rules we have been using for decades.
Critics often charge that arbitration is carried out by business people who will, of course, side with the complaining companies. Actually, it doesn’t work out that way. Arbitration has been used in investment disputes since at least 1959 and, since 1996, most cases have been handled in neutral fashion by the International Center for the Settlement of Investment Disputes (ICSID), housed in the World Bank (the means TPP will use). Yes, ICSID often includes business people in its arbitration panels, but as neutral experts in the fields in the dispute. Critics ignore that, out of nearly 500 cases brought by companies, 36% were settled before arbitration began, 16% were declined by the arbitrators because they didn’t feel they had jurisdiction, and 19% of the cases were thrown out as frivolous. Only 29% of the cases brought by companies resulted in actual arbitration and judgments.
Critics also like to claim that the United States has been a “victim” of arbitration by ICSID. It’s tough to see that. Only 13 cases against the United States have actually gone as far as reaching a judgement – and the United States has won every one of those cases! Why? Because U.S. rules on foreign investment are already non-discriminatory and treat foreign investors just as if they are domestic companies. TPP’s investment rules largely copy U.S. practice, so I see no danger of America becoming a victim.
The big changes coming from TPP’s investment chapter will be a huge improvement in transparency and non-discrimination in some of the other TPP markets, which will encourage foreign investment to jump-start economies and provide employment and income. That can only help all of us.
Steve Craven advises companies on international business strategies and how to overcome problems encountered in foreign markets. He is a former consultant, American diplomat and a U.S. trade negotiator. He served as a Career Diplomat and Senior Foreign Service Officer, member of the U.S. Commercial Service, U.S. Department of Commerce. Mr. Craven also previously served as Chair of the Hawaii Pacific Export Council.