Foreign lawsuits already a threat

JASON KRUPP
Last updated 14:09 25/06/2012

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As activists and the Government clash over the alleged inclusion of investor protections in the Trans Pacific Partnership agreement, a legal expert says many foreign investors already have that right.

New Zealand has signed six trade deals over the past 17 years which allow disgruntled international investors to take the New Zealand government to the World Bank's International Centre for the Settlement of Investment Disputes, said Silvana Schenone, a partner at Auckland law firm Minter Ellison Rudd Watts. (see below for agreement details)

While the arbitration tribunal is designed to avoid the costly liabilities from a full scale court case, countries can still be locked in litigation for years and rack up millions in fees, she said.

In a case Schenone was personally involved in, the Republic of Chile was embroiled in a four-year trade dispute with a group of Malaysian investors in 2003, in which the country was ordered to pay US$5.9 million (NZ$7.4m) in compensation. But Schenone, who represented Chile, said the costs didn't end there.

She and a team of two other lawyers worked full time on the case for about six months, at an hourly rate of about $800, as well as a significant amount of work on an occasional basis.

Chile also hired a specialist lawyer from White & Case, a leading US law firm, to help tackle
the complicated morass of international trade law. Then there were transport and accommodation expenses for all witnesses and legal representatives in Washington DC, where the case was heard. The tribunal ordered both parties to bear the arbitration tribunal's costs equally.

"I would think these costs ran well into seven figures (US$)," she said.

Perhaps an even more alarming part was the fact that Chile's bilateral investment treaty with Malaysia did not explicitly contain investor protection clauses, but instead a "Most Favoured Nations" clause.

These are common parts of free trade agreements that automatically upgrade the terms of a deal should one of the parties sign a more favourable one with another country at some point down the line.

"Each agreement is a balance of give and take, but everything you give in one treaty applies in every other treaty," Schenone explained.

That means that if the final TPP agreement contains a "Most Favoured Nations" clause, firms in Australia, Brunei, Chile, Japan, Malaysia, Peru, Singapore, the US, and Vietnam that do business in New Zealand are able to take the Government to the World Bank over an investment dispute.

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Despite theses fish hooks, Schenone believed New Zealand also cannot afford to not make these trade pacts, especially given the increasingly interdependent nature of the global economy.

But she said New Zealand's negotiators need to go into these agreements fully aware that the deal signed today may have far ranging consequences, and potentially costly ones, for the country down the line.

Additionally, Schenone said that while governments are right to be wary of these costs, they also need to be prepared to pay them to defend their positions.

"You will have a big issue around reputation if you don't defend yourself firmly," she said. "It was a lot of money for the Chilean government but it was more important for the Chilean government to defend themselves."

Kiwi free trade
A network of investor protections

NZ-Hong Kong Investment Promotion and Protection
-    Signed 1995
-    Foreign investors have equal rights
-    Disputes settled by World Bank

NZ-Singapore Closer Economic Partnership
-    Signed 2001
-    Foreign investors have equal rights
-    Disputes settled by World Bank

NZ-Thailand Closer Economic Partnership
-    Signed 2005
-    Foreign investors equal have rights
-    Contains "Most Favoured Nations" clause
-    Disputes to be settled by World Bank

NZ-China Free Trade Agreement
-    Signed 2008
-    Foreign investors have equal rights
-    Contains "Most Favoured Nations" clause
-    Disputes to be settled by World Bank

NZ-Australia Free Trade Agreement
-    Signed 2010
-    Foreign investors have equal rights
-    Disputes to be settled by World Bank

NZ-Malaysia Free Trade Agreement
-    Signed 2010
-    Foreign investors have equal rights
-    Contains "Most Favoured Nations" clause
-    Disputes to be settled by World Bank

- BusinessDay.co.nz

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