Investment and ISDS in the CPTPP
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will improve access for New Zealand investors and investments in the region covered by the Agreement.
While the CPTPP includes investor-state dispute settlement (ISDS), these provisions do not apply to Australia – our major source of investment, are more limited in scope than in TPP, and retain robust safeguards to protect the Government’s right to regulate and prevent unwarranted claims.
ISDS is a dispute resolution mechanism that allows foreign investors to pursue remedies directly against a CPTPP Party in relation to breaches of CPTPP investment provisions.
Consistent with our Closer Economic Relations agreement with Australia and the Australian-ASEAN-New Zealand Agreement that New Zealand has with Southeast Asia, New Zealand and Australia have agreed that the CPTPP investor-state dispute settlement will not apply between us. This excludes 80% of foreign direct investment into New Zealand from CPTPP parties from investor-state dispute settlement.
Overall, inward foreign direct investment (FDI) from CPTPP countries to New Zealand amounts to 65% of all FDI in New Zealand. New Zealand’s outward foreign direct investment (ODI) in CPTPP countries represents about 60% of total investment abroad. CPTPP will support these investors by ensuring that the investment environment is certain, stable and transparent, particularly where there is no existing free trade or investment agreement.
Under CPTPP, ISDS claims must relate to the breaches of the investment chapter itself and limited aspects of the financial services chapter
Decisions under the Overseas Investment Act are not subject to ISDS under the CPTPP. Nor is the interpretation of the Treaty of Waitangi subject to the dispute settlement mechanisms under CPTPP.
Claims cannot be brought for breaches of investment agreements, investment authorisations, and investment-related provisions in the financial services chapter. This significantly limits the scope of ‘investment provisions’ that a claim may relate to and therefore reduces the risk of a claim against New Zealand.
CPTPP retains robust safeguards to protect governments’ right to regulate and prevent the abuse of ISDS by corporations include:
Governments retain control over the ISDS procedure:
- CPTPP governments can issue interpretations that bind tribunals.
- New Zealand can rule out cases relating to tobacco control measures.
Clear commitments and robust protections limit the scope of ISDS
- New Zealand-specific exceptions in important policy areas such the overseas investment screening regime, health and other public services.
- Provisions that confirm government action to implement legitimate public welfare measures is very unlikely to constitute indirect expropriation.
- Confirmation that government action that is inconsistent with an investor’s expectations will not in and of itself lead to a breach of the investment rules.
- Confirmation that government decisions not to issue/renew subsidies or grants will not in and of itself lead to a breach of the investment rules
Safeguards limit the costs of potential proceedings:
- Procedures for throwing out frivolous claims or claims manifestly without legal merit.
- Limits to the monetary awards a tribunal may grant and no punitive damages.
- A 3-and-a-half year limitation period for claims to be taken.
- Requirements for investors to waive their right to bring other legal proceedings, including in domestic courts.
Procedures and rules that ensure ethical and responsible tribunals make robust decisions:
- Transparency requirements for public hearings and the ability for the public and experts to make submissions.
- Requirement for investors to initially enter consultations and negotiations to resolve the claim.
- CPTPP parties commit to provide guidance on a Code of Conduct for ISDS arbitrators and to consider future any future appellate mechanism for ISDS claims.
The CPTPP investment chapter will provide certainty for New Zealand investors by protecting their investments from actions of other governments that are grossly unfair or unjust, including expropriation of assets without compensation, or that involve discrimination based on nationality (except where exceptions apply).
Investors will also benefit from an obligation that requires CPTPP Parties to provide New Zealanders with the same treatment afforded to other foreign investors (except where exceptions apply).
Once an investment is underway, the investment chapter will also help ensure that investors retain the ability to exercise control over their investments and to obtain the benefits of their investments.
The CPTPP is the first time New Zealand will benefit from these types of investment commitments with Canada, Japan, Mexico, and Peru. New Zealand will also benefit from enhanced market access commitments in Brunei, Chile, Malaysia, Singapore, and Viet Nam. The full region will provide increased investment opportunities for many sectors, including our agricultural, manufacturing and natural resource industries.
Four CPTPP Parties (including New Zealand) operate investment screening regimes for significant or sensitive acquisitions. All have agreed to retain their preferential screening thresholds to CPTPP Parties above their existing policy.
Under the CPTPP, the threshold above which an investor must get approval to invest in New Zealand will increase from $100 million to $200 million for investors from CPTPP Parties. No changes will be made to the way New Zealand approves investments relating to ‘sensitive land’ or fisheries quotas.
New Zealand also retains the flexibility to make the approval criteria under the Overseas Investment Act more or less restrictive.