Gordon Campbell on opposing investor-state dispute measures   3 Aug 2015

Even in this dark hour for the TPP, the secrecy farce continues. On RNZ this morning, Trade Minister Tim Groser said he looks forward to the day when he can take the covers off, and show New Zealand what a good deal we’ve won. Oh, good grief. What is left to hide? Every single negotiator went into those talks in Maui knowing exactly where everyone else stood, what the TPP texts are, and what the bracketed bits of problematic text were in every single chapter. By week’s end they knew even more clearly what level of offer was unacceptable, what alliances had emerged, and which bits of the TPP were being held to ransom by which countries in order to jack up the offers in the parts relevant to them.

Meaning: inside the negotiation tent, the TPP isn’t wearing any pants. It never has been. The whole exercise of secrecy has been about hiding the content from public opinion, not about negotiating the text. Secrecy simply enables Tim Groser to avoid responding to what the Greens or Labour or New Zealand First are saying about the deal. End of story. Plainly, there would be a lot less suspicion about this deal if the Trade Minister – and the PM – showed more respect for the New Zealand public, and explained the trade-offs that are currently on the table.

So what happened in Maui? As mentioned in this column last week, RNZ has repeatedly pointed the finger of blame at Canada, for failing to open up its dairy markets to the extent that New Zealand wanted and needed. Just why the Canadian government – on the eve of an election it might well lose – should ever have been expected to sacrifice its dairy farmers in vote-rich provinces for no immediate economic gain, remains unclear. Right now, the Japanese press is blaming New Zealand.

Negotiators failed to strike an agreement in the latest round of talks over the Trans-Pacific Partnership free trade pact because New Zealand adopted an unexpected hard-line stance in pressing its demand for more dairy exports at the last minute, observers say. New Zealand’s uncompromising attitude apparently dashed hopes by Japan, the United States and other TPP countries for an end to the multilateral negotiations. They were convinced that New Zealand could somehow be persuaded to give in as TPP ministerial negotiators nearly reached an accord.

Classic. Once again, the rest of the world has misread our national penchant for passive aggression as being a gesture of compliance. In fact, the reasons for last weekend's breakdown in Hawaii were about as entwined as a bowl of spaghetti. Briefly… New Zealand had wanted the North Americans (US and Canada) to significantly open their dairy markets as compensation for the costly concessions being asked of us on intellectual property in general, and on the patent terms for medicines in particular. Therefore, and in tandem with Australia – which wanted inroads into the heavily protected US sugar market – New Zealand stalled on medicine patents in order to pressure the Americans to lean on Canada, Japan and its own farmers over dairy (and sugar) access.

Yet in turn, Japan felt it had already made politically difficult concessions on farm trade (on rice, pork and beef) and wasn’t willing to deliver on dairy unless the US accepted ‘rules of origin’ changes that would allow Japan to outsource the manufacture of its auto industry parts to Thailand, a non-TPP member. Uh oh. But if the US gave Japan a green light to do that, the US Congress would almost certainly vilify the TPP as a back door way of undermining the troubled US auto industry. Moreover, if the US caved into New Zealand, Australia and Chile and shortened the highly lucrative patent terms for new medicines, would the big pharmaceutical companies then dial back their political donations to the US presidential campaign next year?

In other words, it was complicated. Everyone had a point, everyone was to blame, and everyone – hopefully - walked away from the meltdown on Maui with an enriched understanding of human nature. Don’t tell Tim Groser, but the details of the compromises that are still on the table are being widely published elsewhere. On the patent terms for the new cutting edge ‘biologics’ medical treatments? As we all know the US came in wanting 12 years data exclusivity on biologics, while the Australians were holding our for five years – so seven or eight year patent terms were being mooted as compromises. According to the authoritative US website Inside Trade, what’s now on the table is a basic five year patent period for biologics extending for three more years under certain conditions. Moreover though, from the Melbourne Age:

Public health advocates are concerned about a US proposal to include a broad definition of biologic drugs that would basically capture any pharmaceutical product that is a protein. The definition would lock up data on a wide range of biologic medicines and all vaccines. They want the definition to be decided by domestic law… Australia is holding firm on its demand that Medicare and the Pharmaceutical Benefits Scheme be excluded from investor-state dispute settlement procedures that would allow overseas-owned companies to sue Australian governments in offshore tribunals.

Right. Now, should New Zealand also be loudly voicing its concerns over whether Pharmac’s access to vaccines may be similarly put at risk by this same US proposal? Moreover, if the Australians can be utterly up front about what they are seeking to exclude from investor-state dispute settlement procedures why can’t we do the same? Have we for instance sought and got an explicit carve out from ISDS for Pharmac, or for Treaty of Waitangi related matters? So far, by making unilateral concessions on ‘transparency’ we seem instead to have rendered Pharmac more liable – and not less liable – to legal challenge.

Investor-state mechanisms

With our Trade Minister missing in action when it comes to any meaningful public debate on the TPP, we have been left with the likes of Fonterra lobbyist (and former US Trade Representative) Clayton Yeutter. According to Yeutter , New Zealand has nothing at all to worry about when it comes to ISDS procedures which – according to him – are there mainly to stop corrupt governments from seizing the assets of honest foreign investors.

Yeah, right. Well, here’s a reality check. It has cost Australia $50 million so far because the Philip Morris cigarette company has used ISDS measures (via a bilateral trade deal between Hong Kong and Australia) to sue Australia over its plans to pursue plain cigarette packaging. To avail itself of this legal mechanism, Philip Morris even relocated its offices to Hong Kong so that it could file the case.

Similarly, Philip Morris has (ab)used a bilateral trade pact between Switzerland and Uruguay to sue Uruguay after its prime minister – a former oncologist – tried to increase the size of the health warnings on cigarette packets..

In that Uruguay case, Philip Morris is suing not for actual loss of profit but for losing the profits it expected to make. A binding ruling will be issued later this year by an arbitration panel based in Switzerland. (BTW, two former lobbyists for Philip Morris are MPs in the current National caucus.) Here’s how John Oliver dealt with the ISDS threats on tobacco regulation, in an episode of his show in February.

Within the TPP, compromises have been mooted – unsuccessfully to date – that would exempt tobacco regulation from ISDS procedures. Belatedly in the Maui talks, the US also floated a clause that would exclude ‘frivolous’ ISDS claims from getting traction. Both measures – while better than nothing – obscure the wider concern. Namely, that foreign investors are bringing ISDS cases with marked frequency. As the Financial Times noted in a survey of ISDS trends, investor-state disputes did increase markedly (as one might have perhaps expected) in the wake of the Global Financial Crisis. Since then however as economic growth has rebounded, ISDS cases have still continued to increase, regardless – both in sheer numbers and in the amounts of money at stake. US Senator Elizabeth Warren drew attention to this trend earlier this year:

From 1959 to 2002, there were fewer than 100 ISDS claims worldwide. But in 2012 alone, there were 58 cases. Recent cases include a French company that sued Egypt because Egypt raised its minimum wage, a Swedish company that sued Germany because Germany decided to phase out nuclear power after Japan’s Fukushima disaster, and a Dutch company that sued the Czech Republic because the Czechs didn’t bail out a bank that the company partially owned. U.S. corporations have also gotten in on the action: Philip Morris is trying to use ISDS to stop Uruguay from implementing new tobacco regulations intended to cut smoking rates.

So… regardless of the nonsense being spouted by the likes of Clayton Yeutter, New Zealanders need to be aware that the use of ISDS arbitration panels by foreign investors is markedly on the rise - whenever and wherever the laws and regulations of sovereign governments affect their bottom lines. As noted in Werewolf back in 2012, these international arbitration panels tend to be secretive closed shops:

The arbitration panels tasked with resolving such disputes can be very cosy affairs. They do things that judges would never be allowed to do. The panels are commonly comprised of trade lawyers who sometimes serve as the arbitrators, and sometimes as the advocates for the claimants engaged in suing member governments. Chronically, there is a risk of capture by the most well-heeled litigant.

Basically, ISDS procedures enable bigger countries to shop around for jurisdictions and for sympathetic arbitration panels in trade disputes, with all the potential for capture (mentioned above) that this entails. With good reason, critics talk of the “international arbitration mafia.” Finally, and on top of all this…if critics are currently worried that there is too much secrecy about the TPP, similar secrecy applies to the arbitration findings in ISDS disputes. Routinely, disclosure is dependent upon the full agreement of all parties.

Ultimately then… New Zealanders may not only have their laws and regulations over-ridden (under the ISDS procedures we signed up to in the TPP) by foreign investors seeking compensation for the loss of profit – or profit expectation - they feel they may have suffered here. Yet once such disputes head off to Switzerland or Milan or Hong Kong for some unelected panel of lawyers to decide, the reasoning behind the conclusions reached by these roving bands of legal guns for hire may still remain hidden from the taxpayers left to foot the bill for compensation.

Where To, Now ?

Clearly, time is running against a satisfactory conclusion to the TPP. Canada faces an election in October, and its leaders can hardly make binding commitments in the interim. As for the Americans… any final TPP deal would still need Republican support to get through Congress, and if a Congressional vote gets kicked out into 2016, the deal would very likely become an early casualty of presidential campaign politicking.

No one knows what might happen in the next few weeks. But on balance, it is hard to see New Zealand waking up anytime soon with a great new offer on dairy access to Asian and North American farm markets tucked under its pillow. And without a sizeable gain on dairy… the rest is all just spin and moonshine on one hand, with major and measurable losses to this country on the other.

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