Push for ISDS change presents TPP hurdle

TPP critics have raised concerns about the ISDS provisions, but may find it difficult to win changes. Photo: Lynn Grieveson.

The Labour-led government may have found a way to create a ban on foreign home buyers without breaching the TPP, but its opposition to the ISDS may present a higher hurdle, as Sam Sachdeva reports.

One surprise about the Government’s confirmation of its plan to ban foreigners from buying existing houses was how effortlessly it seemed to sidestep its trade obligations.

Making the announcement, Prime Minister Jacinda Ardern and Trade and Export Growth Minister David Parker said the policy would not breach the TPP or any of its other existing trade deals, with the exception of Singapore.

However, an area where the Government will face greater difficulty is in its proposal to renegotiate the Investor State Dispute Settlement (ISDS) clauses in the TPP.

The ISDS provisions, which allow foreign investors to take action against a TPP country if they believe it has breached its investment rules, have proved controversial.

Labour’s coalition partners, New Zealand First and the Greens, have both explicitly opposed the ISDS provisions, and Ardern said the Government would “do our utmost” to amend the TPP accordingly in time for the Apec summit next week, while opposing ISDS provisions in any future FTAs.

ISDS changes a high hurdle

Stephen Jacobi, the executive director of the New Zealand International Business Forum, says he is more concerned about the Government’s opposition to the ISDS than its ban on foreign home purchases.

“They’re going to have to make a big call…[the ISDS] is something that’s a core aspect of the agreement, it’s one that would benefit New Zealand companies.”

Jacobi says the intent of the ISDS is not give foreign companies greater rights than New Zealand companies but the same rights, and vice versa overseas, given judicial systems in some countries often discriminate against foreign companies.

“That wouldn’t be the case in New Zealand, I understand that, but it is often the case overseas.”

Jacobi is sceptical that New Zealand could win any meaningful changes, given the advanced stage of talks and the fear that the deal could fall over if exceptions start to be made.

“I’m very doubtful, because nobody will want to open up the negotiation and indeed it wouldn’t be in our interest to do so.”

One potential option for New Zealand is to write to each of the other TPP members, asking them to agree that the ISDS provisions would not apply between them.

That was what the previous Government did with Australia: a side letter between the two countries, signed at the same time as the main TPP deal, agreed that investors from either Australia or New Zealand would not be able to use the ISDS against their respective countries.

With Ardern and Parker indicating other countries may share New Zealand’s concerns, that may the best route to win carve-outs without requiring a full renegotiation.

However, Jacobi says it is far from clear whether other countries may be willing to follow in Australia’s footsteps.

“I just don’t know the answer to that - it’s conceivable they may, but it’s probably unlikely.”

Protection or problem?

National finance spokesman Steven Joyce on Tuesday defended the previous government’s approach to the ISDS, saying the mechanism was as protective of Kiwi companies as it was of foreign companies.

“In fact, New Zealand is probably the least of other countries’ concerns in some way because we have good strong jurisdictions, good law courts, all those sorts of things that are very independent sorts of things that investors look for.

“Ultimately investor state dispute resolution is about when you have a state which acts in a way that is not telegraphed to look forward to, so those resolution processes are actually of more benefit to New Zealand companies operating in other countries, which perhaps don't have the same level of independent judiciary and so on.”

Stephen Parry, the spokesman for anti-TPP group It’s Our Future, is less charitable about the provisions, praising Ardern for taking a tough line.

Parry says the TPP should be “put on ice” until the Government’s concerns can be addressed, rather than rushing ahead.

“The ISDS concerns are probably the sharp end of the TPPA as far as affecting the ability of governments to respond directly to public policy concerns.”

He says concerns about “unaccountable” tribunals making rulings, while putting corporations “on the same footing as the state”.

While the TPP’s ISDS provisions do provide exceptions for the Government to regulate on the grounds of public policy, Parry says there is concern they are not strong enough.

Then there is the “chilling effect”, where the ISDS provisions may weigh in policymakers’ minds as they consider potential legal action.

Stay or walk away?

Exactly what the Government will do it if it cannot secure changes to the ISDS are unclear, with Ardern saying she was “not going to expose our negotiation position” by confirming whether or not it would walk away from the TPP if it remained unchanged.

However, she seemed to foreshadow the challenges of securing change, saying: “I do acknowledge it will be difficult this late stage to achieve this outcome, but that will not stop us from trying.”

If the Government does move ahead with a TPP containing the ISDS, that seems likely to disappoint critics like Parry. If it pulls out, that will anger some exporters and free trade advocates.

It’s a difficult position to be in, but it seems unlikely the Government will spike the deal over the ISDS. Instead, it may have to claim it did the best it could, even if that does disappoint some of its supporters.