Trans-Pacific Partnership Calls for International Arbitration of Disputes 

November, 2015 - Gustavo Membiela; Tom Goodhue

The Trans-Pacific Partnership, or TPP is a free-trade agreement among the members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.On Nov. 5, the full text of the TPP trade agreement was released to the public for the first time. While, as reported, an agreement on the TPP was reached Oct. 5, each of the members must still enact it.An important component is the chapter on investments, which protects investors. Generally speaking, investors are nationals or enterprises of one TPP member that attempt to make or make an investment in the territory of another TPP member. For example, a U.S. corporation that operates a factory in Malaysia would likely be considered an investor.The TPP's protections for investors include: according treatment no less favorable than that accorded to a TPP member's own investors, according treatment no less favorable than that which a TPP member accords to other foreign investors, granting a minimum standard of treatment in accordance with customary international legal principles, and prohibitions against expropriation except in limited circumstances where appropriate compensation is paid. The provisions apply to both existing and future investments.

Dispute Resolution

The TPP includes dispute resolution provisions that call for international arbitration. Accordingly, if a TPP member breaches any of the protective provisions provided in the TPP—for example by expropriating an investment—the investor may submit a claim to arbitration.In submitting the arbitration, the investor can avail itself of several alternative forums and rules depending on its nationality. For example, if the investor is a national of a country that is a party to the Washington Convention, which may govern the settlement of international investment disputes, and the expropriating TPP member is also a party to the Washington Convention, the claim may be brought before the International Centre for the Settlement of Investment Disputes under the ICSID Rules of Procedure.If either the investor's country or the TPP member is a party to the Washington Convention, the claim can be brought under the ICSID Additional Facility Rules. Alternatively, the investor may bring an ad hoc arbitration pursuant to the arbitration rules of the U.N. Commission on International Trade Law. The investor and the TPP member can mutually agree to any other arbitral institution arbitration rules.The TPP's dispute resolution provisions had been controversial. Opponents of investor-state dispute settlement, including U.S. Sen. Elizabeth Warren, had argued that ISDS undermines U.S. sovereignty by allowing large multinationals to challenge health and environmental regulations before secretive panels of corporate lawyers rather than in national courts.The TPP includes provisions that appear to address at least indirectly some of the concerns of ISDS opponents. First, the TPP has a transparency clause under which all pleadings, awards and decisions of an arbitral tribunal must be publicly disclosed, as well as minutes and transcripts of hearings except for the portions designated confidential.Second, unlike most other investment treaties, the TPP requires the creation of a code of conduct for arbitrators. Although that code has yet to be worked out, it will likely address the concern that arbitrators may be biased by including strict conflict of interest provisions.Third, the TPP has a carve-out stating that nothing in the investment chapter should be construed to prevent a TPP member from enforcing a measure otherwise consistent with the investment chapter that it considers appropriate to ensure that investments comply with environmental, health and other regulatory objectives.

Extended Protection

As disputes with TPP members unfold, choosing the appropriate arbitration forum and rules will become key strategic considerations for investors, as each has its own advantages. For example, the Washington Convention calls for member states to recognize and enforce an award as if it were a final judgment of a member state's own courts. Awards rendered pursuant to the UNCITRAL Rules and the AdditionalFacility Rules may be recognized and enforced under the New York Convention, which creates additional steps in the recognition and enforcement process.The TPP is part of a broader landscape of multilateral and bilateral trade agreements that protect international investors by providing for international arbitration before a neutral arbitral tribunal. The North American Free Trade Agreement, for example, protects U.S. investors who invest in Mexico and Canada from expropriation, unfair treatment and denial of justice and provides for arbitration. The TPP promises to extend such protections to U.S. investors in other markets.As free trade agreements have proliferated across the world, ISDS has become an important tool for investors to resolve disputes with foreign states. Only three arbitrations were registered at ICSID in 1994 compared with 38 in 2014. The TPP promises to accelerate that growth.




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