Home Civil Society Voices 2016 Civil Society Voices Beware hefty damages under ISDS, Bantah TPPA warns Mustapa

Beware hefty damages under ISDS, Bantah TPPA warns Mustapa

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Any action of introducing a policy or regulatory measure to safeguard public interest could be threatened with a billion dollar ISDS suit by a foreign corporation, says Bantah TTPA.

Some of the claims made by the International Trade and Industry Minister, Mustapa Mohamed in his speech to the Malaysian Parliament on 26 January 26, 2016[1] deserve a response, as follows:

All references to the TPPA text are to the version released here unless otherwise specified.

Miti minister’s claim

He listed some of Malaysia’s laws that have to be changed to comply with the TPP agreement.


To make a fully informed decision, the Malaysian Parliament should be given an exhaustive list of all Malaysia’s laws, regulations, circulars, directives, policies etc that have to be changed at all levels of government, what the changes will be and what the implications of those changes are for Malaysia’s economy, society, budget, etc.

These amendments do not affect the bumiputra agenda

The bumiputra agenda is harmed by:

  • the TPPA’s government procurement chapter where the government procurement of all federal ministries is opened[a] [2] to competition from other TPP countries and offsets[b] cannot be used (including current programmes) after the transition period[3] and only 30 per cent of construction contracts can be set aside for bumiputras[4]
  • the TPP agreement’s state owned enterprise (SOE) chapter where only 40 per cent of the procurement budget of SOEs caught by the chapter can be set aside for bumiputras (except for Mara, Teraju and Ekuinas)[5] and even the PwC Report on the TPP agreement commissioned by the Malaysian government admits that some GLCs are currently awarding 65-70 per cent of their annual spending to Bumiputras today[6] and this will be reduced to 40 per cent under the TPP agreement. And for the 60 percent of the SOE procurement that is opened, there is no minimum size, so even the smallest contracts for small and medium enterprises are opened to competition from other TPP countries.

There are also other TPPA chapters and provisions that harm the bumiputra agenda.

The amendments to Malaysia’s laws due to the TPP generally aim to adopt best practices in intellectual property

Best practices for who? The stronger intellectual property (IP) protection benefits the net IP exporters in the TPP which are the USA and Japan. All the rest (including Malaysia) are net IP importers and the statistical trend shows Malaysia will always be a net IP importer.[7]

Stronger IP protection is certainly not best for Malaysian patients (who need affordable medicines), farmers (who need affordable seeds and other agricultural inputs), students (who need affordable textbooks) and manufacturers (who need affordable inputs) etc.

Malaysia needs to trade and has signed many free trade agreements (FTAs)

The TPP agreement is not a typical trade agreement, nor is it only about trade. It is mostly not about trade as only 6 of the 30 TPP agreement’s chapters are about trade in products and even in those chapters, according to the PwC Report, Malaysia’s trade balance will worsen due to the TPP.[8]

So there are no benefits for Malaysia in the trade chapters to offset the costs for Malaysia in the other 24 chapters (eg re stronger IP protection, opening GP, foreign investment protection etc). Opposition to the TPP agreement does not mean opposition to all trade agreements; it means opposition to the 30-chapter TPP agreement, which is based on the US template and has no benefits for Malaysia to offset the costs.

If anyone thinks it would be beneficial (e.g. because it is believed that increased competition is good for Malaysia’s farmers and manufacturers), Malaysia could remove its tariffs on imports and open itself to foreign direct investment (FDI) without joining the TPP. Malaysia does not have to join the TPP agreement to do this; it could do it tomorrow unilaterally.

Of course, under the TPP agreement or without it, the US can keep subsidising its farmers (using domestic subsidies which have also been shown to make their exports cheap) [c] by more than US$100bn/year. It is these subsidised products that Malaysian farmers have to compete with, without any tariff protection under the TPP agreement.

TPP agreement is needed to do business in USA

All TPP countries are already in the World Trade Organisation (WTO)[9] and Malaysia already has free trade agreements (FTAs) with all TPP agreement countries except four[10]. Of these remaining four countries (USA, Canada, Mexico, Peru), their average tariffs on Malaysian exports are already locked at a low rate at the WTO, ie, they already cannot raise them above this rate on Malaysia’s exports, even if Malaysia does not join the TPP agreement.

These bound rates at the WTO are 3.5 per cent for the USA and 6.7 per cent for Canada. While Mexico’s average bound tariff is 36 per cent at the WTO, it is only actually applying an average tariff of 7.5 per cent. If it is such an important market, then Malaysia can sign an FTA with Mexico that is just about trade in goods (not the other 24 chapters of the TPP agreement which are even more disadvantageous for Malaysia).

Peru’s population is 31m; if that is such an important market for Malaysia’s exports, then Malaysia can sign an FTA with it, like with Mexico.[11]

US tariffs on Malaysian electronics are on average 5 per cent and these wil be removed in the TPP agreement. US tariffs on textiles and clothing are up to 32 per cent today and will be reduced by 70 per cent in the first year of the TPPA.

But the cost of complying with the rules of origin (changing the supply chain to source enough from the relevant countries, the paper trail, etc) to prove that the rubber gloves, cables, car parts etc are made in Malaysia costs on average 5 per cent,[12] so it raises the 0 tariffs under the TPPA back to 5 percent.

For textiles and clothing, a) the yarn forward rule of origin in the TPPA (which means that the thread onwards must come from a TPPA country (rather than China which is the cheaper source of thread that almost all textile and clothing manufacturers use) means that most textiles and clothing will have to use the more expensive US yarn as no other TPP country has a big enough population to have the economies of scale needed for all the yarn industries.

According to the Vietnamese Chamber of Commerce and Industry, that would make Vietnamese textiles/clothing even with 0 tariff into the USA, more expensive than the Chinese textiles and clothing which pays tariffs but starts with the cheaper Chinese thread and since Malaysia’s cost of production is presumably higher than Vietnam’s, it would be even harder for Malaysia’s textiles and clothing industry to compete. The cost of complying with textiles rules of origin was at least 12 per cent (as that was the most-favoured nation tariff Hugo Boss was willing to pay rather than have to comply with an FTA’s rules of origin).

As the PwC study points out, Malaysia’s imports will increase by more than its exports under the TPP agreement, ie a worsening of Malaysia’s trade balance.

Malaysia can withdraw from the TPP agreement if it is problematic

Although the TPP agreement does allow countries to withdraw,[13] some effects are difficult to reverse, eg any Malaysian patients who have died because they could not afford medicines cannot be brought back to life, etc and it may be politically difficult to withdraw

The TPP agreement is more democratic than the United Nations (UN), the International Monetary Fund, and the World Bank. Some countries in the United Nations are given a veto, while in the TPP agreement, decisions are made jointly or by consensus. Thus, the TPP agreement is a deal that is fairer and more democratic than the UN, the IMF and the World Bank.

Why then does the final TPP agreement text released by the Malaysian government still have provisions which were proposed by only the USA and Australia and opposed by nine other TPP countries[14]?

Why then are almost all the TPP agreement chapters still basically the US template which can be seen in their past USFTAs?[15]

How is it democratic when:

a) the TPP agreement cannot come into force without the US and Japan (ie either of them have a veto)[16]?

b) the US can still use its certification process to demand additional concessions from other TPP countries such as Malaysia and the US government can write Malaysia’s implementing laws for the TPP agreement and insist that the Malaysian Parliament pass them with no changes etc[17] (as certification is required under its law[18] and the US government has already indicated it will use it to extract additional concessions from other countries in the TPP[19]) according to the TPP agreement[20]?

Malaysia can keep its Muslim operating hours (eg if shops close on Friday etc)

Restricting opening hours can be a violation of the services chapter’s market access provision[21] which is strictly binding on all levels of government including state and local governments[22].

If Malaysia did not obtain the relevant non-conforming measures to allow these restriction on opening hours in the relevant sectors, it needs to rely on the exceptions chapter’s public morals exception[23] (which includes religion and applies to the services chapter).

But this general exception has only worked once our of 44 times in the history of the WTO[24] and this problematic jurisprudence must be considered by TPP tribunals[25].

Malaysia can continue its halal system

In 2011, Malaysia introduced a Protocol for the Halal Meat and Poultry Productions [26]. The USA complained (in the WTO’s technical barriers to trade (TBT) committee in June 2012, more than 18 months after Malaysia joined the TPP agreement negotiations in October 2010 [27]) that it would require production facilities to be dedicated exclusively to halal production.[28] (The USA did not want to have separate production facilities because they want halal and non-halal products to be able to use the same production facilities with merely cleaning in accordance with Islamic law between their uses).

a) Malaysia did not get a complete halal exception in the TPP agreement. It:

  • is only an exception to the sanitary and phytosanitary (SPS) measures chapter, not to the TPP agreement’s TBT chapter (even though the USA has been complaining about Malaysia’s halal standards in its annual TBT report[29] and in the WTO’s TBT Committee above, but did not mention it in the section on Malaysia in its SPS report[30]. There have been 19 halal regular notifications under TBT at the WTO including one by Malaysia[31] and some countries notify halal under SPS at the WTO[32]. Arguably other TPP agreement chapters eg the investment chapter could also affect Malaysia’s halal laws and regulations).
  • is only an exception for food, whereas Malaysia has halal systems for medicines, cosmetics, shampoo etc which do not get this exception
  • is an exception ‘in accordance with Islamic law’ (the TPP agreement text does not specify if it is the USA’s version of Islamic law which has much lower halal standards than Malaysia, or Malaysia’s).

b) it looks like the TPP agreement is more restrictive than the WTO rules in ways that can restrict Malaysia’s halal policy space. Eg TBT chapter Article 8.6.9 seems to allow a US meat industry export association to accredit a US slaughterhouse’s own laboratory to certify that their halal practices meet Islamic law (ie ignoring the conflicts of interest).

Annex 8F of the TBT chapter also may restrict the information Jakim can require from manufacturers of pre-packaged food (eg biscuits) as the ‘necessity’ test is very difficult to satisfy under WTO jurisprudence (if that is followed in the TPP agreement which is likely).

c) although Article 29.1 of the TPP agreement imports the Art XX GATT exception for some chapters including the TBT chapter, and Art XX GATT includes an exception for public morals (which includes religion), it is the difficult to use general exception which has succeeded once out of 44 times in the history of the WTO[33]

States’ rights are preserved by excluding states from the government procurement chapter and excluding badan berkanun kerajaan negeri dan anak-anak syarikatnya from the SOE chapter

Since the governemt procurement chapter requires negotiations to begin within three years of the entry into force of the TPP agreement with a view to liberalising more government procurement including at the subnational level (eg state and local governments),[34] does this mean the Malaysian government is giving the Malaysian Parliament a commitment that it will not open any subnational procurement at all in these mandatory future negotiations?

Unlike other TPP countries such as Japan, Malaysia has not excluded state owned enterprises (SOEs) which are owned/controlled by state or local governments from the obligations in Article 17.6.3 of the SOE chapter.

The importation and distribution of rice in Malaysia is not subject to the TPPA’s disciplines

This is not true because:

  • Malaysia’s rice tariffs are removed in the TPP agreement[35] while
  • the USA can continue its huge domestic subsidies of rice which can make US rice very cheap, and
  • it is not clear that Malaysia’s price controls and the role of Bernas in protecting Malaysia’s rice farmers can continue because of various TPP agreement chapters[36]

Malaysia can continue export taxes

Yes, but only for the products specified and to the amounts listed in the TPP agreement.[37] Eg:

  • Malaysia cannot raise its export taxes on crude palm oil (CPO) if Indonesia does in order to make sure the CPO is processed in Malaysia rather than exported to Indonesia.
  • Malaysia cannot impose export taxes on new products (eg to support a new processing industry)

Increased cooperation and the development of SMEs is part of the TPP agreement that is important to Malaysia

The TPP agreement’s SME and cooperation chapters have no hard/binding useful obligations (eg requiring the TPP developed countries to provide free-of-charge training to the companies in the TPP developing countries regarding how to meet the developed countries’ regulatory standards). Eg the SME chapter only requires the provision of some information. And both chapters are unenforceable.

So these chapters don’t help SMEs cope with these impacts from the TPP agreement:

  •  increased competition (in goods from tariff removal, in services from services liberalisation),
  •  high costs of inputs for longer due to stronger intellectual property protection,
  •  reduced demand for their products and services via the opening of government procurement and SOE procurement (for the 60 percent of the GLC procurement budget that is opened there is no minimum threshold, ie even the smallest contracts are opened to competition from other TPP countries and a number of GLCs currently allocate more than 40 percent of their procurement to bumiputras (eg 65 & 70 percent according to the PwC Report[38]) etc.

Malaysia already has investor-to-state dispute settlement (ISDS) with various countries

This fails to mention that for the first time in Malaysian history, investment protection of the type in the TPP agreement is being extended to US investors.

US investors are the most litigious, bringing 129 known ISDS cases, almost twice as many as the next most litigious country.[39] A study of all publicly available investment treaty awards to May 2010 found that tribunals gave US investors a broad interpretation of their jurisdictional rights 98 per cent of the time.[40]

Furthermore, there is a large stock of US investment already in Malaysia which gets the protection of the TPP (as well as US investments entering Malaysia after the TPP agreement comes into force).[41] So allowing the US investors to sue the Malaysian government for the first time is a significant increase in legal liability.

Unlimited amounts of monetary damages can be awarded under the TPP agreement.[42] Last year an investor won US$50bn in an ISDS award when a government violated an expropriation provision and the government was given 180 days to pay this.[43]

Under the TPPA, any applicable interest can also be awarded. [44] This has been interpreted as compound interest, compounded monthly, at commercial interest rates from the date of the government measure in a number of ISDS awards under the same wording as the TPP agreement in past USFTAs. The interest alone can be US$500m.[45]

Furthermore, not all bilateral and trade agreements are the same. Touted as a “gold-standard” agreement for the 21st century[46] , the TPP agreement’s investment chapter is certainly more far reaching than some of our previous BITS or FTAS and has stronger investor protection for investors.

Investment under Article 9.1 of the TPPA is defined much wider to include every asset that an investor owns – directly or indirectly and that “has the characteristics of an investment”. This includes the commitment of capital or other resources; the expectation of profit; or even the mere assumption of risk.

Compare this with the Philippe Gruslin case an ISDS challenge which Malaysia won under one of its existing treaties with ISDS. Under Article 1(3) of the Intergovernmental Agreement in Philipe Gruslin, types of investment that can amount to an approved investment to found a claim is limited.

An investment in stock and shares would only amount to an “approved investment” under the agreement if it was invested in a project classified as an “approved project” by the appropriate ministry in Malaysia, in accordance with the legislation and the administrative practice, based thereon. There it was held that the mere fact that the investment was made in stocks and shares in companies listed on the KLSE was not in fact an approved investment on which a claim could be based.

Under the TPP agreement any shares, stock and other forms of equity participation in an enterprise would be protected.[47]

ISDS does not restrict the right of the government to regulate the matters related to public health, safety and the environment

The government frequently quotes Article 9.15 of the TPP agreement to claim that governments still have regulating space. In fact, Article 9.15 states that all regulatory objectives which are implemented must be consistent with the chapter on investment (i.e. it must be consistent with the rights of the investor in the chapter).

This effectively negates the value of the provision as it cannot override the TPP agreement’s investment chapter provisions which have been used by foreign investors under other treaties to successfully challenge health and environmental etc laws, eg see below.

Societal measures to safeguard the public interest will most certainly impact upon the broad rights of a foreign investor under the TPP agreement. Hence, as shown above, any action of introducing a policy or regulatory measure could be threatened with a billion dollar ISDS suit by a foreign corporation.

Miti may be referring to the expropriation Annex 9B(b) which states that non-discriminatory health, safety, environmental and other public interest regulatory actions do not constitute indirect expropriations but even these can indeed be challenged as expropriations in “rare circumstances”.

This opens up the possibility of such regulatory actions to challenges by the investor which ad hoc tribunals will decide on a case to case basis. Furthermore, this does not apply to the most successful way of suing under US investment protection treaties: fair and equitable treatment: [48]

  • 74 per cent of the time when investors win, there has been a violation of fair and equitable treatment (FET)
  • FET has been found to have been violated in 81 per cent of the cases won by investors when they allege a violation of FET.

If Miti is referring to the TPPA’s corporate social responsibility (CSR) provision,[49] this only reaffirms the importance of TPP countries encouraging their investors to voluntarily incorporate CSR principles into their internal company policies. ie it is not mandatory and no sanctions are proposed for their failure to do so or to implement any policy it declares.

In the past, States’ action against hazardous industries under various FTAs have resulted in major awards of damages or threats of action that have resulted in further regulatory action being chilled as a result. Further, legal fees can be high with law firms charging US$1,000 an hour; for example, the Philippines has spent US$58m defending itself against one investor.

One study found that even when governments win, they still have to pay their own costs in 70 percent of the cases. However when investors win they only have to cove r their own costs in 40 per cent of the cases. Some governments find the legal fees so unaffordable, they are willing to settle the dispute by dropping their proposed law, as Uruguay was going to do for its tobacco control measures until Bloomberg funded their defence.

Despite the ISDS cases which have successfully challenged health and environmental measures (see below), the TPP’s (difficult to use) health and environment exceptions do not apply to the TPP agreement’s investment chapter.[50]

Due to the issues pertaining to ISDS, South Africa has started terminating existing bilateral investment treaties (BITs) with countries like Belgium, Luxembourg, Germany, and Switzerland.[51] In March 2014, Indonesia announced its plans to terminate more than 60 BITs with countries such as China, France, Singapore and the UK – and it has in the meantime terminated its BIT with The Netherlands, taking effective force from July 2015.[52]

ISDS case examples include:

  • Germany had to dilute its environmental standards – in the face of a US$2bn action against it by a Swedish energy giant – restricting the use and discharge of cooling water for a coal-fired power plant on the banks of River Elbe, which would result in serious negative impacts on the river and its wildlife. [53]
  • Indonesia was forced to water down regulations to ban open-pit mining in protected forest areas.[54]
  • In Guatemala, internal government documents, obtained through the country’s Freedom of Information Act, show how the risk of one of these cases weighed heavily on one state’s decision not to challenge a controversial gold mine, despite protests from its citizens and a recommendation from the Inter-American Commission on Human Rights that it be closed down. Such an action, the documents warned, could provoke the company, owned by Canadian mining giant Goldcorp, to activate the ICSID or invoke clauses of the Central America Free Trade Agreement (CAFTA) to gain “access to international arbitration and subsequent claims of damages to the state”. The mine was allowed to stay open.[55]

Other ISDS cases pertaining to health or the environment include:

Ethyl Corp vs Canada:[56] ban of dangerous chemical: “in 1997, the government of Canada had introduced a ban on the import of the additive methylcyclopentadienyl manganese tricarbonyl (MMT). The government justified the ban primarily on the ground that it had not adequately assessed toxic qualities of MMT. Ethyl Corp, the only manufacturer of the substance in the world, commenced proceedings against the government of Canada including a claim that the introduction of the ban was an expropriation of its investment or, alternatively, that it was “tantamount” to expropriation of its investment. The parties subsequently settled the proceedings and the Canadian government withdrew the legislation, paid US$13m for costs and lost profits while the legislation was in place and gave Ethyl Corp a letter authorising the use of MMT, stating that there was no scientific evidence of any health risk or any impact on car exhaust systems”.[57]

SD Myers vs Canada: Toxic Chemical Bans in Canada: In 1995, Canada banned the export of polychlorinated biphenyl, or PCB, wastes to the United States in order to assess its compliance with the Basel Convention. PCBs are a group of man-made chemicals that were found to pose serious risks to human health and the environment. In response to the ban, SD Myers, Inc., an Ohio-based corporation that processes and disposes of PCB waste, filed an investor-state claim against Canada under Nafta. While Canada defended its measures as justified by environmental considerations, and despite the fact that Canada – as a signatory of the Basel Convention, the multilateral environmental treaty on toxic-waste trade – was committed to banning the trade of toxics, the tribunal ruled in favor of SD Myers finding a violation of minimum standard of treatment, among other provisions and ordered Canada to pay US$5.6m for the lost profits the investor would have made during the 16 months of the ban.[58]

Metalclad vs Mexico: Toxic Waste Facility: When a municipal government in Mexico refused to grant a construction permit for a toxic waste facility unless US firm Metalclad cleaned up existing toxic waste problems, Metalclad launched an investor-state dispute under Nafta in 1997. The tribunal ruled that the denial of the construction permit and the creation of an ecological reserve were tantamount to an “indirect” expropriation and that Mexico violated Nafta’s obligation to provide foreign investors with a “minimum standard of treatment,” because the firm was not granted a “clear and predictable” regulatory environment. The Mexican government was ordered to pay Metalclad US$16.2m.[59]

Lone Pine vs Canada: Fracking in Quebec: In September 2013, Lone Pine Resources, a US oil and gas firm, sued Canada for US$250m under the North American Free Trade Agreement (Nafta).[60]The case involved a bill passed by Quebec’s National Assembly that instituted a moratorium on shale gas exploration and development, including fracking, under the St Lawrence River.[61] According to Lone Pine representatives, the Quebec government’s action violated the enterprise’s “valuable right to mine for oil and gas under the St Lawrence River”, despite the fact that the fracking process is known to contaminate drinking water, pollute the air, and cause earthquakes.[62] Lone Pine argues that its loss of a “stable business and legal environment” violated its minimum standard of treatment and should be counted as expropriation.[63]

Renco vs Peru: metal smelter pollution: In 1997, Doe Run Peru – a Peruvian subsidiary of the US-based company, Renco Group Inc – took control of a metallic smelter and refinery complex in La Oroya, Peru. The pollution in La Oroya is so bad that 99.1 per cent of La Oroyan children had lead poisoning – cadmium levels that exceeded WHO recommendations by as much as 40 times. “Cadmium damages the lungs, kidneys, and digestive tract and is considered a possible carcinogen”, sulfur dioxide levels are up to 10 times WHO’s recommended limits and “Peru’s Constitutional Court ordered the health ministry to declare a state of emergency in La Oroya”.[64] As part of its contractual and legal obligations, Doe Run was required to implement a series of environmental clean-up projects in La Oroya, including the installation of new sulfuric acid plants to help combat the pollution produced by its complex. The company, however, had twice failed to meet its contractual deadlines and had twice been granted extensions by Peruvian authorities to complete its environmental remediation obligations. When the Peruvian government failed to give Doe Run a third extension, Renco Group Inc. retaliated on behalf of its subsidiary by initiating an investor-state case against Peru under the US-Peru FTA. The corporation claimed that the government’s failure to grant Doe Run yet another time-consuming extension violated provisions in the US-Peru FTA, including minimum standard of treatment and indirect expropriation protections. Instead of fulfilling its legal obligations to clean up the pollution caused by its metallic smelter and refinery complex, Renco Group Inc. is demanding US$800m from Peruvian taxpayers.[65]

Vattenfall vs Germany: nuclear energy and coal fired power plant: Following Japan’s Fukushima Daiichi nuclear disaster of 2011, and in the midst of significant public pressure, the German Parliament made a decision to phase-out its nuclear power programme and shift toward cleaner renewable energy sources. In response, Vattenfall, a Swedish energy firm with investments in German nuclear energy, sued Germany under ISDS. Citing the fair and equitable treatment provisions of the Energy Charter Treaty, a trade and investment agreement for the energy sector, Vattenfall is now seeking US$4.6bn in damages from the German government for future losses that it may sustain during the nuclear phase-out.[66] It is important to note that this is Vattenfall’s second investor state case against Germany. In 2009, Vattenfall challenged environmental restrictions (including for climate change reasons) on coal fired power plants.[67] The dispute was settled in 2011 when the environmental requirements were weakened and Vattenfall was granted a modified water-use permit.[68]

Last but not the least, the TPPA contains a Most Favoured Nation Clause (MFN). As Joseph Stiglitz points out: a “most favoured nation” provision ensures that corporations can claim the best treatment offered in any of a host country’s treaties (unless the country got a non-conforming measure exception). That sets up a race to the bottom – exactly the opposite of what US President Barack Obama promised.[69]

ISDS protects Malaysian investors overseas

  • the TPPA only protects Malaysian investors in the other TPP countries (not in Africa etc).
  • Malaysian investors already have the protection of the domestic law and courts in other TPP countries. In addition, Malaysia already has bilateral investment treaties/free trade agreements with investment protection chapters with all TPP countries except Canada, Mexico and USA. In Canada and USA, the courts are considered to be fast, independent and give generous damages (eg triple damages in USA). So no additional protection for Malaysian investors is presumably needed in Canada and the USA.
  • that leaves Mexico. If i) there are lots of Malaysian investors in Mexico and ii) domestic courts and law are not enough to protect Malaysian investors in Mexico, then Malaysian investors in Mexico can:

1) negotiate an investment contract with the Mexican government that can have the same or better protection than they get under the TPP (eg can use ISDS to get unlimited damages with compound interest etc) as governments are desperate for FDI and so are likely to be willing to agree to strong protection of the investor in an investment contract (but at least an investment contract only protects the Malaysian investor in Mexico and does not restrict the Malaysian government’s ability to regulate and expose it to the legal liability under the TPP agreement’s investment chapter),

2) if that’s not enough, the Malaysian investor can take out political risk insurance (the same way people insure their house against theft),

3) if that’s not enough, the Malaysian investor can do its due diligence and if Mexico is too risky, then it can invest somewhere else that is less risky. It is not the Malaysian government’s job to be providing free political risk insurance so that the losses are socialised (to the Malaysian taxpayer) and the profits are privatised.

There is a consultation and negotiation process before ISDS begins

  • this just delays the start of the ISDS by six months, it does not discourage or stop investors from suing the Malaysian government, and
  • if the Malaysian government is found liable by the ISDS tribunal, the TPP agreement allows the tribunal to order Malaysia to pay compound interest (see above) which can be calculated from the date the Malaysian government took the action which violates the TPP agreement’s investment chapter; so the interest can be accruing and compounding throughout the consultation and negotiation period before the ISDS proceedings begin.

TPP governments determine the interpretation of the TPPA and any ISDS tribunal must follow this

  • TPP governments may not agree on what the interpretation of the TPP agreement should be.
  • even if TPP governments agree, it is not clear the ISDS tribunal will follow it. For example even when the USFTA text specifies how FET should be interpreted (ie via the same annex as is in the TPPA) and the home and host governments tell the ISDS tribunal that is how it should be interpreted, two out of two times, the ISDS tribunal has ignored the actual text of the FTA and interpreted it more broadly so the foreign investor wins.[70]

Frivolous claims are not allowed under ISDS

Tribunals already had this power. Data shows however that tribunals have been reluctant to use this authority. Typically, tribunals order each side – the investor and the state – to bear its own costs (which on average amount to roughly US$4.5m for each side), irrespective of who wins or loses. In some cases, such as when a claim or defence is obviously frivolous, the tribunals have ordered the losing party to pay the legal fees and costs of the winning party.

Tribunals, however, have been more likely to require losing states to cover the costs of winning investors, than to require losing investors to cover the costs of winning states. Simply reiterating the power of tribunals to award costs in favor of states is not likely to change these trends.[71]

Investors can only sue under ISDS in the TPP agreement for 3.5 years after they become aware/should have become aware of the alleged violation by the government.

This is actually six months more than the three years period given under our domestic law for citizens to sue the government.[72]

These minor safeguards do not address the fundamental problems with the:

a) substantive rules of the TPP agreement’s investment chapter (eg that FET can be a standstill on laws and regulations preventing all levels of the Malaysian government from adopting new laws/regulations or amending them if they harm investors from other TPPA countries), or

b) procedural rules of the TPP agreement’s investment chapter (eg allowing unlimited damages and compound interest etc).

[a] For the products and services specified, for contracts above the minimum threshold value, with the exceptions in Section G and subject to certain transition periods

[b] Offsets can be:

– direct (eg if no Malaysian company can supply a helicopter, the Malaysian government can award the contract to a US company but specify that 25 per cent of the parts eg the steel and rubber tyres and copper wiring etc must come from Malaysian suppliers) or

– Indirect (eg if no Malaysian company can supply a helicopter or any helicopter parts, the Malaysian government can award the contract to a US company but specify that the US company must buy 1,000 tonnes of rice. This helps with balance of payments and local jobs).

[c]Eg see http://unctad.org/en/PublicationsLibrary/ecidc2014misc1_bp10.pdf, http://www.twn.my/title2/briefing_papers/No41.pdf. These domestic subsidies are so bad the WTO Appellate Body has held four times – in the «Dairy products of Canada» case of December 2001 and December 2002, in the «US Cotton» case of March 2005 and in the «EU sugar» case of April 2005 – that domestic subsidies are to be taken into account in assessing dumping, https://www.wto.org/english/thewto_e/minist_e/mc10_e/roppappmc10_e.pdf

[1] http://fta.miti.gov.my/miti-fta/resources/auto%20download%20images/56a75556660b4.pdf

[2] Section A of Annex 15A Malaysian Schedule

[3] Article 15.4.6

[4] Section G of Annex 15A Malaysian Schedule

[5] Malaysian Annex IV page 1

[6] Page 256 of http://fta.miti.gov.my/miti-fta/resources/TPPA_PwC_CBA_-_Final_Report_021215_FINAL_%28corrected%29.pdf

[7] http://data.worldbank.org/indicator/BM.GSR.ROYL.CD/countries and http://data.worldbank.org/indicator/BX.GSR.ROYL.CD

[8] Page 65 http://fta.miti.gov.my/miti-fta/resources/TPPA_PwC_CBA_-_Final_Report_021215_FINAL_%28corrected%29.pdf

[9] TPP countries: http://fta.miti.gov.my/index.php/pages/view/tppa, WTO Members: https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm.

[10] http://fta.miti.gov.my/?mid=49

[11] All this data from https://www.wto.org/english/res_e/publications_e/trade_profiles15_e.htm).

[12] page 9 of http://library.fes.de/pdf-files/iez/global/11114.pdf

[13] Article 30.6

[14] Eg QQA6.4, http://keionline.org/sites/default/files/Wikileaks-secret-TPP-treaty-IP-chapter.pdf

[15] www.ustr.gov

[16] Article 30.5.2. To reach 85% of the TPP’s GDP, Japan and the USA must be included

[17] http://tppnocertification.org/wp-content/uploads/2014/08/Certification-memorandum.pdf

[18] https://www.congress.gov/bill/114th-congress/house-bill/2146/text?q={%22search%22%3A[%22\%22hr2146\%22%22]} : s106(a)(1)G:

[19] Eg Inside US Trade, Daily News, ‘Vetter Signals TPP Implementation May Be Used To Address Lawmakers’ Objections’, January 19, 2016.

[20] Article 30.5

[21] Article10.5 and 10.2.2a) and http://www.turanga.org.nz/sites/turanga.org.nz/files/Kelsey%20Trade%20Law%20Tobacco%20Control%20Report.pdf.

[22] Article 10.1

[23] Article 29.1

[24] http://www.citizen.org/documents/general-exception.pdf

[25] Article 28.11.3

[26] https://members.wto.org/crnattachments/2011/tbt/MYS/11_0992_00_e.pdf

[27] http://dfat.gov.au/trade/agreements/tpp/news/Pages/news.aspx

[28] WTO document G/TBT/M/57.

[29] http://www.ustr.gov/sites/default/files/2014%20TBT%20Report.pdf,

[30] https://ustr.gov/sites/default/files/FINAL-2014-SPS-Report-Compiled.pdf. (there don’t seem to be US Government TBT/SPS reports in 2015: https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2015).

[31] http://tbtims.wto.org/web/pages/search/notification/BasicSearch.aspx

[32] http://spsims.wto.org/web/pages/search/notification/regular/Search.aspx

[33] http://www.citizen.org/documents/general-exception.pdf

[34] Article 15.24.2

[35] http://fta.miti.gov.my/miti-fta/resources/ISIS_The_Grand_Finale.pdf

[36] Eg see http://www.malaysiakini.com/news/328010

[37] Annex 2C

[38] Page 256 of http://fta.miti.gov.my/miti-fta/resources/TPPA_PwC_CBA_-_Final_Report_021215_FINAL_%28corrected%29.pdf

[39] Fig III.9, http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf.

[40] Gus Van Harten,’ Arbitrator Behaviour in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration’, (2012) 50 Osgoode Hall Law Journal, http://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1036&context=ohlj

[41] Article 9.2 and 9.1

[42] Article 9:28

[43] http://www.iisd.org/itn/wp-content/uploads/2014/09/iisd_itn_yukos_sept_2014_1.pdf see para 1827 of http://www.pca-cpa.org/showpage.asp?pag_id=1599

[44] Article 9.28.1

[45] See for example www.citizen.org/documents/oxy-v-ecuador-memo.pdf

See, e.g., Trade Representative Kirk Outlines Asia-Focused Trade Agenda at East-West Center’s USAPC Washington Conference, E.-W. CENTER, http://www.eastwestcenter.org/newscenter/web-articles/trade-representative-kirk-outlines-asia-focused-trade-agenda-at-east-west-centersusapc-washington-conf (last visited Feb. 24, 2013).[46]

[47] [47] Award and BIT can be found at http://www.italaw.com/cases/515

[48] http://www.citizen.org/documents/MST-Memo.pdf

[49] Article 9.16

[50] Article 29.1

[51] http://www.iisd.org/itn/2014/08/11/aron-broches-and-the-withdrawal-of-unilateral-offers-of-consent-to-investor-state-arbitration/

[52] http://www.lexology.com/library/detail.aspx?g=2a596886-3ad2-464b-a510-ab3b0cff503b

[53] International Institute for Sustainable Development. Background Paper on Vattenfall v. Germany Arbitration. vhttp://www.iisd.org/sites/default/files/pdf/2009/background_vattenfall_vs_germany.pdf 710International Institute for Sustainable Development. News in Brief. July 19, 2012. http://www.iisd.org/itn/2012/07/19/news-in-brief-8/

[54] file:///C:/Users/Owner/Downloads/Socialising%20losses-%20privatising%20gains.pdf


[56] http://www.italaw.com/documents/Eureko-PartialAwardandDissentingOpinion.pdf

[57] E/CN.4/Sub.2/2003/9

[58] Sources: Public Citizen. “NAFTA chapter 11 investor-to-state cases: Bankrupting democracy.” September , 2001. Accessible at: http://www.citizen.org/documents/ACF186.PDF; Public Citizen. “The ten year track record of the North American Free Trade Agreement: Undermining sovereignty and democracy.” Public Citizen’s NAFTA at Ten Series. Accessible at: http://www.citizen.org/documents/NAFTA_10_democracy.pdf

[59] For more information see Public Citizen, Table of Foreign Investor State Cases. http://www.citizen.org/documents/investor-state-chart.pdf

[60] Notice of Arbitration Under the Arbitration Rules of the United Nations Commission on International Trade Law and Chapter Eleven of the North American Free Trade Agreement (NAFTA). September 6, 2013. http://www.italaw.com/sites/default/files/case-documents/italaw1596.pdf

[61] The formal notice of intent submitted by Lone Pine Resources Inc. on November 8, 2012, can be found here: http://www.italaw.com/sites/default/files/case-documents/italaw1156.pdf. For a summary of the legal conflict, also see: Solomon, Ilana. “Fracking causes friction between trade and environment.” Huff Post Green, November 16, 2012. Accessible at: http://www.huffingtonpost.com/ilana-solomon/fracking-causes-friction-_b_2146939.html

[62] Segall, Craig. “Look before the LNG leap: Why policymakers and the public need fair disclosure before exports of fracked gas start.” Sierra Club Policy Brief, 2012. Accessible at: http://content.sierraclub.org/naturalgas/content/new-report-look-lng-leap

[63] Ibid 7.

[64] http://www.citizen.org/documents/renco-memo-03-12.pdf

[65] Sources: Waren, Bill. “Pay the polluter $800 million! Trade deal injustice for the children of La Oroya.” Friends of the Earth New Releases and Updates, April 16, 2012. Accessible at: http://www.foe.org/news/archives/2012-04- pay-the-polluter-800-million-trade-deal-injustice-fo; Tucker, Todd. “Renco group uses trade pact foreign investor provisions to chill Peru’s environment and health policy, undermine justice.” Public Citizen Brief, March, 2012. Accessible at: http://www.citizen.org/documents/renco-memo-03-12.pdf

[66] “Vattenfall seeks recompense for German nuclear phase-out.” DW, December, 2012. Accessible at: http://www.dw.de/vattenfall-seeks-recompense-for-german-nuclear-phaseout/a-16473507

[67] International Institute for Sustainable Development. Background Paper on Vattenfall v. Germany Arbitration. vhttp://www.iisd.org/sites/default/files/pdf/2009/background_vattenfall_vs_germany.pdf

[68] International Institute for Sustainable Development. News in Brief. July 19, 2012. http://www.iisd.org/itn/2012/07/19/news-in-brief-8/


[70] 13 http://www.citizen.org/documents/RDC-vs-Guatemala-Memo.pdf and TECO v Guatemala in http://www.citizen.org/documents/investor-state-chart.pdf.

[71] Lise Johnson, Lisa Sachs, The TPP’s Investment Chapter, Entrenching, Rather Than Reforming, A Flawed System, CCSI Policy Paper, November 2015

[72] Section 3, Public Authorities Protection Act 1948

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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