Author: Ben Schaare
The Investor State Dispute Settlement (ISDS) provisions leaked late last month have fueled TPP opponents, who claim that the agreement will undermine the government’s sovereign right to legislate. This comes after similar controversy surrounding the leaked Intellectual Property (IP) provisions, which opponents argue are designed to advantage US corporations at the expense of industry in other TPP countries.
However, the function of ISDS is often misunderstood. To successfully challenge and potentially be compensated for legislation, an investor must show that the offending law rises to the level of expropriation. Essentially the only laws that would satisfy the requirements for compensation are those that do not serve the public interest, are discriminatory, or were not formed following due process. Since the government is unlikely to enact discriminatory legislation, and should be able to justify laws on the broad grounds of ‘public interest’, it is likely investors will only invoke ISDS to redress egregious violations.
The Investor State Dispute Settlement (ISDS) provisions leaked late last month have fueled TPP opponents, who claim that the agreement will undermine the government’s sovereign right to legislate. This comes after similar controversy surrounding the leaked Intellectual Property (IP) provisions, which opponents argue are designed to advantage US corporations at the expense of industry in other TPP countries.
However, the function of ISDS is often misunderstood. To successfully challenge and potentially be compensated for legislation, an investor must show that the offending law rises to the level of expropriation. Essentially the only laws that would satisfy the requirements for compensation are those that do not serve the public interest, are discriminatory, or were not formed following due process. Since the government is unlikely to enact discriminatory legislation, and should be able to justify laws on the broad grounds of ‘public interest’, it is likely investors will only invoke ISDS to redress egregious violations.
Philip Morris’ challenge of the Australian plain packaging tobacco laws is a commonly cited example of a corporation challenging the proper exercise of a government’s policy and law-making powers. While the ISDS provision being used is similar to the TPP version, Philip Morris’ action is not about challenging a discriminatory law, but rather an attempt to dissuade other countries from enacting similar legislation. The Australian government has expressed confidence that it has a strong case and indeed the Australian law was crafted with such legal confrontations in mind. If it is found to comply with the relevant IP provisions in ISDS proceedings, far from having a deterrent effect, the Australian law will serve as a model for other countries to follow with respect to many issues beyond plain packaging.
The IP chapter, leaked in May last year, reveals some US positions that NZ, along with most other countries, opposes. Examples include the US push to allow ‘evergreening’ of pharmaceuticals (extending a drug’s patent life through minor chemical changes) and the patenting of plants, medical procedures, and new uses of existing products. Nonetheless, NZ has supported greater protection of geographical trademarks, which would allow our exporters to leverage NZ’s highly regarded international brand. Overall, IP protection cuts both ways, and the leaked TPP chapters demonstrate NZ negotiators have a clear-eyed view of NZ’s interests.
The secrecy surrounding the TPP negotiations has drawn fire from many NZ commentators. However, closely held discussions allow parties to negotiate in good faith. Other TPP members, more so than NZ, are facing immense pressure to make politically painful reforms – for instance Japan with respect to agriculture. Some level of secrecy is necessary so that negotiators can work towards compromises while avoiding political fire for positions they do not intend to maintain.
A strong economic case can and has been made for NZ’s involvement in the TPP. The Ministry of Foreign Affairs and Trade projects a boost to NZ’s GDP by 0.9% in 2025 and an increase in the value of exports by 6.8%. By participating in the TPP, NZ is also helping to craft what is likely to become the regional ‘rules of the road’. While the Chinese-led Regional Comprehensive Economic Partnership (RCEP) involves many TPP parties, including NZ, the TPP is set to contain stronger protections around issues such as the environment, labour, and digital commerce, and is thus more likely to become the de facto standard for trade in the region.
Overall it seems NZ stands to benefit economically and geo-politically from participation in the TPP. However, two key factors will determine the scope of these gains. First, NZ must receive greater market access for agricultural products in Japan, Canada, Mexico, and the US. Without this, the TPP’s economic benefits will not meet expectations. Second, NZ should hold firm on its IP interests in the face of pressure to quickly conclude the agreement should President Obama secure Trade Promotion Authority (TPA). TPA, which may be introduced in Congress this week, would allow the President to send the agreement to Congress for a vote with no amendments permitted. Once (or if) the US Congress approves TPA, the odds of which are currently slightly better than even, the clock starts ticking on the last chance to secure the agreement. Time pressure may incentivise the US to entrench their more controversial positions and attempt to force other countries to acquiesce at the eleventh hour. NZ should anticipate this play and work to ensure that the TPP delivers the promised benefits.
Ben Schaare is a Master’s student from New Zealand at the Johns Hopkins School of Advanced International Studies in Washington, D.C. He can be contacted at bschaar1@jhu.edu.
Photo credit: Neil Ballantyne.
The IP chapter, leaked in May last year, reveals some US positions that NZ, along with most other countries, opposes. Examples include the US push to allow ‘evergreening’ of pharmaceuticals (extending a drug’s patent life through minor chemical changes) and the patenting of plants, medical procedures, and new uses of existing products. Nonetheless, NZ has supported greater protection of geographical trademarks, which would allow our exporters to leverage NZ’s highly regarded international brand. Overall, IP protection cuts both ways, and the leaked TPP chapters demonstrate NZ negotiators have a clear-eyed view of NZ’s interests.
The secrecy surrounding the TPP negotiations has drawn fire from many NZ commentators. However, closely held discussions allow parties to negotiate in good faith. Other TPP members, more so than NZ, are facing immense pressure to make politically painful reforms – for instance Japan with respect to agriculture. Some level of secrecy is necessary so that negotiators can work towards compromises while avoiding political fire for positions they do not intend to maintain.
A strong economic case can and has been made for NZ’s involvement in the TPP. The Ministry of Foreign Affairs and Trade projects a boost to NZ’s GDP by 0.9% in 2025 and an increase in the value of exports by 6.8%. By participating in the TPP, NZ is also helping to craft what is likely to become the regional ‘rules of the road’. While the Chinese-led Regional Comprehensive Economic Partnership (RCEP) involves many TPP parties, including NZ, the TPP is set to contain stronger protections around issues such as the environment, labour, and digital commerce, and is thus more likely to become the de facto standard for trade in the region.
Overall it seems NZ stands to benefit economically and geo-politically from participation in the TPP. However, two key factors will determine the scope of these gains. First, NZ must receive greater market access for agricultural products in Japan, Canada, Mexico, and the US. Without this, the TPP’s economic benefits will not meet expectations. Second, NZ should hold firm on its IP interests in the face of pressure to quickly conclude the agreement should President Obama secure Trade Promotion Authority (TPA). TPA, which may be introduced in Congress this week, would allow the President to send the agreement to Congress for a vote with no amendments permitted. Once (or if) the US Congress approves TPA, the odds of which are currently slightly better than even, the clock starts ticking on the last chance to secure the agreement. Time pressure may incentivise the US to entrench their more controversial positions and attempt to force other countries to acquiesce at the eleventh hour. NZ should anticipate this play and work to ensure that the TPP delivers the promised benefits.
Ben Schaare is a Master’s student from New Zealand at the Johns Hopkins School of Advanced International Studies in Washington, D.C. He can be contacted at bschaar1@jhu.edu.
Photo credit: Neil Ballantyne.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License
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