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*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment**
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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* Formerly the Vale Columbia Center on Sustainable international Investment.

“The negotiations of the United Nations Code of Conduct on
Transnational Corporations: Experience and lessons learned” and K. P.
Sauvant and F. Ortino, *Improving the International Investment Law and
Policy Regime: Options for the Future are* available at
http://www.works.bepress.com/karl_sauvant/.




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*From: * Karl Sauvant <[log in to unmask]>
*Sender: * "Karl Sauvant" <[log in to unmask]>
*Date: *Mon, 9 Nov 2015 17:40:49 +0000
*To: *<[log in to unmask]>
*ReplyTo: * Karl Sauvant <[log in to unmask]>
*Subject: *The Trans-Pacific Partnership investment chapter sets a new
worldwide standard (Columbia FDI Perspective No 160)


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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 160   November 9, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Maree Newson ([log in to unmask])
*The Trans-Pacific Partnership investment chapter sets a new worldwide
standard*
<http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=cf2060d092&e=dd153d6a25>
by
Mélida Hodgson*** <#150edab8a1e7a651__edn1>

The Trans-Pacific Partnership (TPP) investment chapter released on November
5, 2015 heralds the emergence of a new standard for international
investment agreements (IIAs), building on the post-NAFTA United States (US)
experience. The chapter has widened the regulatory space reserved to
states, but exhibits some perplexing changes. This *Perspective* focuses on
developments having a broader systemic effect.

Given the strong objections to investment protections from some labor,
environmental and civil society groups, it is not surprising to see
provisions addressing fears of regulatory chill in the areas of
environment, public welfare and health (Art. 9.15, 9.16), and with respect
to financial regulation (Art. 29.3, Annex 9-G). Key in this respect is the
“tobacco exception” that allows states to prevent or stop claims based on
tobacco regulations under the denial-of-benefits provision.[1]
<#150edab8a1e7a651__edn2> In addition, the long-controversial coverage of
investment authorizations and agreements has been restricted, both in
substance and with respect to investor-state dispute settlement (ISDS). The
chapter provides that actions taken to enforce competition, environmental,
health, and other laws are not to be mistaken for authorizations,[2]
<#150edab8a1e7a651__edn3> and states may bring counterclaims.[3]
<#150edab8a1e7a651__edn4>

Perhaps most surprising is the explicit direction in the
minimum-standard-of-treatment (MST) provision that “actions inconsistent”
with investors’ expectations are not covered.[4] <#150edab8a1e7a651__edn5>
In addition, with an eye to investors’ current target, the MST provision
excludes subsidies from its scope,[5] <#150edab8a1e7a651__edn6> and a tweak
of the expropriation provision seems aimed at preserving states’ discretion
to grant or modify subsidies.[6] <#150edab8a1e7a651__edn7>

Then there is a provision in the General Exceptions chapter allowing
temporary financial safeguards in “exceptional circumstances.”[7]
<#150edab8a1e7a651__edn8> Clearly, the shadow of the Argentina investment
jurisprudence looms large – various Asian-Pacific countries themselves had
to deal with a scarring financial crisis around the same time.

From a US policy perspective, the “demotion” of the appellate mechanism is
an inexplicable backtrack. Post-2000 US IIAs have either required or
strongly aspired to establishing an appellate mechanism. But if a review
mechanism is established somewhere else, the TPP parties “shall consider”
whether to subject TPP awards to that mechanism. Perhaps the parties are
awaiting ICSID’s current efforts to draft such a mechanism, but given the
assault ISDS is under today, and the possibility that an appellate
mechanism could appease some legitimate concerns about ISDS, it seems
questionable to divorce it from TPP. As a negotiator I did not like this
Congressional requirement, but there are now sufficient US-based provisions
in multiple IIAs requiring an appellate mechanism to ensure uniformity in
the interpretation of those US agreements. Further, with the Transatlantic
Trade and Investment Partnership pending, and Europe clearly expressing a
preference for some kind of review, it would seem a political necessity.[8]
<#150edab8a1e7a651__edn9>

Moreover, considering that US IIAs contain provisions instructing tribunals
to interpret regulatory measures in the context of customary international
law standards, it is surprising that the TPP interpretation of
expropriatory measures no longer refers to those standards (Annex 19B).

Other interesting TPP features include:
·         The definition of “in like circumstances” under the national
treatment and most-favored-nation provisions (Articles 9.4, 9.4, footnote
14) and the direction to consider legitimate public welfare objectives in
assessing a claim under this provision.
·         Australia’s consent to ISDS (not really a surprise).
·         The agreement to develop a code of conduct for arbitrators
(Article 9.21(6)).
·         Limitations on pre-establishment claims (Article 9.28).
·         US submission to the Queen’s English.
TPP sets the new standard for IIAs by incorporating a number of provisions
protecting state discretion – the question is, will it be enough for the
doubters and for Europe?

------------------------------
* <#150edab8a1e7a651__ednref1>Mélida Hodgson ([log in to unmask]), a
partner at Foley Hoag LLP, is a former Associate General Counsel at the
Office of the United States Trade Representative, where she participated in
the development of the 2004 US Model bilateral investment treaty and
negotiated investment chapters of various recent US FTAs.  The views
expressed here are solely the author’s own. This *Perspective* refers to
the final text of the Trans-Pacific Partnership investment chapter,
available at
http://www.mfat.govt.nz/Treaties-and-International-Law/01-Treaties-for-which-NZ-is-Depositary/0-Trans-Pacific-Partnership.php
<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=568489d336&e=dd153d6a25>.
The author is grateful to Julien Chaisse, Daniel Kalderimis and one
anonymous reviewer for their helpful peer reviews. *The views expressed by
the author of this Perspective do not necessarily reflect the opinions of
Columbia University or its partners and supporters. Columbia FDI
Perspectives (ISSN 2158-3579) is a peer-reviewed series.*
[1] <#150edab8a1e7a651__ednref2> Art. 29.5. However, the invocation of a
denial of benefit is itself subject to ISDS under the chapter.
[2] <#150edab8a1e7a651__ednref3> *See* Art. 9.1, footnotes 5-11. Agreements
concerning land, water or radio spectrum are not covered.
[3] <#150edab8a1e7a651__ednref4> Art. 9.18(2); Annex 9-L directs that, if
the agreements provide for contractual arbitration under the ICC, LCIA or
ICSID, those clauses should be respected, but also provides for
consolidation of contractual and investment disputes.
[4] <#150edab8a1e7a651__ednref5> Art. 9.6(4), even if there is loss or
damage to the covered investment as a result. Despite the NAFTA
interpretation, at least one NAFTA tribunal recently has ignored the
direction to apply customary international law, and other tribunals have
argued that customary international law had evolved to include
expectations. In addition, in Art. 9.22(7), there is a clear statement
that, in alleging a violation of the MST, the investors bears the burden of
proof on all elements.
[5] <#150edab8a1e7a651__ednref6> Art. 9.6(5) (the “mere fact that a subsidy
or grant has not been issued, renewed or maintained . . . does not
constitute a breach . . . even if there is loss or damage to the covered
investment as a result.”) This is subject to a caveat of a specific
commitment.
[6] <#150edab8a1e7a651__ednref7> Art. 9.7(6)(a)(b). But these provisions
are circumscribed by ISDS provisions
[7] <#150edab8a1e7a651__ednref8> Art. 29.3. The provision is subject to the
national treatment, most-favored-nation and expropriation and compensation
provisions.
[8] <#150edab8a1e7a651__ednref9> The European Union recently disclosed an
“investment court” proposal. While it is unlikely that the US will agree to
such a framework, it seems clear that the current system of ad hoc
tribunals without any review will not work in an agreement with Europe.
Previously, there seemed to be consensus that the solution was an appeals
mechanism.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Mélida Hodgson, ‘The Trans-Pacific Partnership
investment chapter sets a new worldwide standard’ Columbia FDI
Perspectives, No. 160, November 9, 2015. Reprinted with permission from the
Columbia Center on Sustainable Investment (www.ccsi.columbia.edu
<http://www.ccsi.columbia.edu>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>. *
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Maree Newson, [log in to unmask]

*Most recent Columbia FDI Perspectives*
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   - No. 159, Nicolás M. Perrone and Gustavo Rojas de Cerqueira César,
   “Brazil’s bilateral investment treaties: More than a new investment treaty
   model?” October 26, 2015.
   - No. 158, Blerina Xheraj, “A reading of intra-EU BITs in light of
   recent developments of EU law,” October 12, 2015.
   - No. 157, Kathryn Gordon, Joachim Pohl and Marie Bouchard, “Investment
   treaty law, sustainable development and responsible business conduct: A
   fact-finding survey,” September 28, 2015.

*All previous FDI Perspectives are available at *
*http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/*
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*. *

*Other relevant CCSI news and announcements*

   - CCSI's Fall 2015 International Investment Law and Policy Speaker
   Series, co-sponsored by Crowell & Moring LLP and Baker & McKenzie LLP,
   continues with a talk by *David Gaukrodger* on *“*“Investment Treaties
   as Corporate Law: Shareholder Protection and Shareholder Claims for
   Reflective Loss” on *November 12, 2015* at Columbia Law School, Jerome
   Greene Hall, Room 546 (435 W 116th Street, between Amsterdam and
   Morningside Avenues) from 12:10pm-1:00pm.* For more information and the
   full schedule of talks, please see our website
   <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=0c14cfaa3d&e=dd153d6a25>.*
   - *The Yearbook on International Investment Law and Policy 2013-204* was
   recently published and features a chapter by CCSI’s *Lise Johnson* and*
   Lisa Sachs*, “International Investment Agreements, 2013: A Review of
   Trends and New Approaches
   <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=7fcca48424&e=dd153d6a25>
   .” *The Yearbook*, published by Oxford University Press, monitors
   current developments in international investment law and policy. For more
   information, to view the front matter, or to purchase the book, please go
   here
   <http://columbia.us6.list-manage2.com/track/click?u=ab15cc1d53&id=5dbfd0668b&e=dd153d6a25>
   .
   - *On November 10-11, 2015*, CCSI will host the 10th Annual Columbia
   International Investment Conference: “Investment Treaty Reform: Reshaping
   Economic Governance in the Era of Sustainable Development,” at Columbia
   University in New York. In light of the Sustainable Development Goals
   (SDGs) and multilateral efforts to catalyze Financing for Development, this
   year's Conference will look at steps countries have taken to reshape their
   International Investment Agreements (IIAs). *Registration is free, but
   required. Please register **here
   <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=2647b19975&e=dd153d6a25>.*
   * Please **check **our website
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for
   more information**.*

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2015 Columbia Center on Sustainable Investment (CCSI), All
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