Six deals give foreign investors protections

JASON KRUPP
Last updated 05:00 27/06/2012

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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 that allow disgruntled international investors to take the New Zealand Government to the World Bank's International Centre for the Settlement of Investment Disputes, says Silvana Schenone, a partner at Auckland law firm Minter Ellison Rudd Watt.

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

In a case Schenone was involved in, Chile was embroiled in a four-year trade dispute with a group of Malaysian investors in 2003, and ordered to pay US$5.9million (NZ$7.4m) in compensation.

But Schenone, who represented Chile, says the costs didn't end there.

She and 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 its costs equally.

"I would think these costs ran well into seven figures," she says.

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 says.

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.

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

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

Additionally, Schenone says that though 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 says.

"It was a lot of money for the Chilean Government, but it was more important for the Chilean Government to defend themselves."

- BusinessDay.co.nz

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