The TPP is a free-trade agreement between 12 pacific nations – Australia, Brunei Darussalam, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – which reportedly represent around 40 per cent of global GDP and one third of world trade.

The text of the TPP is still being finalised by the TPP states and is not yet available. Any analysis of the content of the TPP is so far restricted to summaries and reports provided by the TPP states, such as the comprehensive summary provided by the US Representative (USTR).

Reports confirm that the TPP includes an Investment Chapter with basic investment protections and a "modern" investor-state dispute settlement (ISDS) mechanism.

Investment protections

A draft of the Investment Chapter that was leaked and released on Wikileaks was very similar to the 2012 US Model Bilateral Investment Treaty (US Model BIT). Reports indicate that while the TPP Investment Chapter may have included some provisions that are different to the US Model BIT, this model may still form the basis of the TPP Chapter.

According to the USTR summary of the TPP, the Investment Chapter provides protection to investors of one TPP state that are investing in another TPP state. These investment protections include:
• minimum standard of treatment in accordance with customary international law;
• national treatment;
• most favoured nation treatment; and
• prohibition of expropriation that is not for the public purpose, without due process, or without compensation.

This means that investments made by Australian companies in any of the TPP states will be entitled to these protections. Investments made in some of these states, such as Chile, Singapore and Vietnam, may already be entitled to protection under an existing bilateral investment treaty or a free trade agreement (for example, Australia-Chile Free Trade Agreement and the Australian (ASEAN) New Zealand Free Trade Agreement (AANZFTA)).

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However, Australian investments made in other states, such as the US and Japan, are not entitled to protection under existing agreements.

Investor-state dispute settlement

The USTR summary reports that ISDS has been included in the TPP.

The ISDS mechanism provides that an investor may bring a claim in international arbitration against the TPP State in which it has invested if that state fails to provide the investment protections. For example, an Australian company makes an investment in a TPP state. If that state then interferes with the investment by, for example, cancelling approvals or a licence, or unilaterally changing the law, then the Australian investor will be able to bring a claim in international arbitration for breach of one of the protections provided for in the TPP Investment Chapter. That will be a claim for damages for losses suffered as a result of the state's failure to provide the necessary protections.

The USTR summary indicates that there are substantive safeguards to ensure that governments may continue to regulate in the public interest, including on health, safety and the environment. It also indicates that the TPP states may specifically exclude the application of the Investment Chapter to certain industries (which may include, for example, the tobacco industry).

In addition, the USTR summary describes procedural safeguards included in the ISDS mechanism to, for example, prevent "abusive and frivolous claims", ensure transparency of arbitral proceedings, impose time limitations on the commencement of claims and rules to prevent parties from pursuing the same claim in parallel proceedings. It is also reported that the TPP will conclude a binding code of conduct for arbitrators appointed to tribunals in investment arbitrations.

Next steps

The TPP is reported to open up markets for trade and investment across the 12 TPP states. The conclusion of the negotiations is the first step. The TPP parties continue to finalise the text of the TPP. Once it is finalised, it is hoped that it will be released to the public. It may yet be some time before the TPP enters into force.

Jo Delaney is a special counsel at Baker & McKenzie.

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