Some things should not be traded. When it comes to deals about trade, governments should not give foreign investors the right to sue them in offshore tribunals.
Yet the US is demanding that New Zealand grant this right under the proposed Trans Pacific Partnership (TPP).
Such rights would have a pernicious effect on the government’s willingness to regulate in the public interest and would undermine our sovereignty.
Moreover, providing for ‘investor state dispute settlement’ (ISDS) is simply unnecessary to secure gains from trade.
The TPP is to be a treaty between governments. It already provides for one government to take a dispute against another. It does not have to provide parallel rights for foreign investors.
If foreign companies want guarantees before investing in New Zealand, let them contract for those specifically with the government under New Zealand law.
And if New Zealand companies are worried that other governments will not play fair, let them get insurance. There are standard products for this.
In any case, the absence of ISDS rights does not put off foreign investors, according to the Australian Productivity Commission – which recommends against them.
Australia initially registered that it wished to stand aside from any such provisions in the TPP.
New Zealand failed to do the same although it probably has the most to lose of any TPP country. It has granted few similar rights through other trade deals, and none to US corporates – the most litigious.
The government says New Zealand’s ability to regulate in the public interest is not at risk because this will be specifically protected in the TPP text.
But a leaked draft of this chapter uses wording that has proven unreliable in defending other governments. Tribunals have far too much discretion and can broadly interpret that text as protecting the expected future profits of foreign investors.
Although tribunals can impose huge financial penalties, that is not the biggest threat. The deeper significance of ISDS is how it changes the way governments think: how it ‘chills’ their willingness to make change.
Nobel prize winning economist Joseph Stiglitz argues that: “The real goal is to restrict governments’ ability to regulate and tax corporations: that is, to restrict their ability to impose responsibilities, not just uphold rights.”
Key to this is uncertainty over what the tribunals will decide and the high cost of just participating – an average of US$8 million a case.
Other TPP chapters also force governments to route reform proposals through central points and to consult on them with foreign investors in advance.
The end result is big incentives for the government to self-censor and to avoid even proposing reforms that would hurt foreign investor profits.
Local authority actions could also be challenged in these offshore tribunals and would be even more vulnerable as the costs of defending a dispute would be too great for many councils.
Along with public health, one of the ultimate casualties is the natural world. In cases where governments have been successfully sued under US trade agreements, it is natural resources and the environment that are most often at stake.
The pressures on New Zealand to raise environmental standards and live up to its clean green brand are only going to increase. Those changes are difficult enough to get agreement on without foreign investors threatening to sue.
ISDS cases could be triggered if the government, for example, reduced the water available from a river, set stricter logging rules, banned a pesticide, or changed the conditions of a mining licence.
Opinion polling undertaken for the Sustainability Council showed 61% of those surveyed believe that New Zealand should not sign the TPP agreement if it contains any clauses that allow foreign investors to sue the government in an offshore tribunal over new laws intended to protect the environment.
Perhaps the most galling aspect of the ISDS process is that it can usurp New Zealand’s judicial system and there is not even a right of appeal.
If the dispute overlaps with a local court case, ISDS litigation can effectively take the dispute to an offshore tribunal – one that can overrule our Supreme Court.
This amounts to a direct attack on New Zealand’s sovereignty. Yet not even Parliament gets to vote on whether to commit New Zealand to the TPP – cabinet can sign before even making the text public. Parliament then considers only consequent changes to domestic legislation.
Interestingly, the Australian Senate last week voted that the TPP text be made public before Australia signs up.
While the Australian government is currently resisting this, the move will help put pressure on our government to release the text before signing, and to provide space for an independent public assessment of the TPP.
Such scrutiny is badly needed because ISDS under the TPP could be a choke on New Zealand’s self-determination and its potential.
Simon Terry is Executive Director of the Sustainability Council
An article based on this text was first published in the New Zealand Herald on December 11 2013.