International dispute settlement mechanisms

An interesting op-ed from Deborah Hart of the Arbitrators’ and Mediators’ Institute of New Zealand.

Opponents of the Trans Pacific Partnership have been conducting a brisk trade in criticising the Investor State Dispute Settlement mechanisms in the recently concluded 12-nation deal. The term refers to the critical aspect of the agreement that allows parties to take a case against governments they believe aren’t playing ball.

What isn’t so clear is how familiar these critics really are with this aspect of the fine print when they hyperbolically dismiss it as the deal’s most “chilling” feature, which could also yet result in loss of national sovereignty, supposedly secret hearings and other unspecified hardships for New Zealand.

Investor State Dispute Settlement (ISDS) is actually as chilly as a typical summer’s afternoon in Auckland. The warmth is partly in its transparency, but also in the fact that what we’re talking about is a form of arbitration and something New Zealand is not only good at but has already shown itself to be practical, efficient and in the country’s interests.

A dispute settlement provision represents nothing new. In one form or another it has been around internationally since the mid-1960s. New Zealand is already party to a half-dozen trade or investment treaties containing such arbitral provisions.

In 2010, for example, the value of such mechanisms to New Zealand was memorably put to the test when this country petitioned the World Trade Organisation to successfully get access to the Australian market for our apples, which had been barred as a result of restrictive quarantine measures.

Yep we used their provisions to stop Australia using bogus science to block our apple imports.

The intervention of these international tribunals, sited in a neutral venue, comprising independent specialists in international law, often retired judges, and appointed by the parties, is better than the alternatives.

Certainly, they’re much better than litigation in the courts of the home state. It provides a consistent system of justice across member states. If such disputes are left to domestic legal systems, investors are left to deal with the vagaries of local courts, which can be interminably slow, unpredictable, biased or even corrupt.

Chilling indeed would be to contemplate a New Zealand company trying to enforce its rights, say in a Mexican or Malaysian court.

Again the provisions are most liked to be used by NZ companies, not used against NZ.

“Generally speaking,” Simon Foote, an Auckland-based arbitration expert, explains, “the investor protections in the TPP are narrowly drafted, meaning that it would require egregious conduct on the part of a state for an investor to have a meritorious claim.”

Protections for investors, for example, an obligation not to expropriate without compensation, have been part of international law for decades, Mr Foote notes. “They are fundamental and beneficial to investors prepared to invest outside their own backyard. And what ISDS provisions do is provide a workable means to enforce these fundamental protections.”

And there are carve outs for education, health etc.

Mr Foote also points out that this is not an insurance scheme to protect investors against all changes to the law. The Government’s right to regulate on matters concerning public health, safety and the environment are not subject to ISDS. And the TPP does not apply to measures required to fulfil the Government’s Treaty of Waitangi obligations and permits measures favourable to Maori as exceptions to the obligations otherwise owed to investors. Notably, states have the right to deny claims relating to tobacco-control regulation.

Investor-state dispute settlement is therefore not something to be afraid of. It’s part of being a trading nation in a globalised world. Access to markets comes with obligations. ISDS is to be celebrated, for it means our corporates won’t be ending up in foreign courts, and nor will our country’s trading partners end up in ours. This is how arbitration works best. There isn’t a better alternative.

Much fuss about nothing.