A new era for investment in the Trans-Pacific region

We are entering an important new phase in the push for the liberalisation of trade in goods and services – one which highlights the importance of the Asia Pacific region as a driver of economic progress and welfare and may finally bring long promised benefits to Australia.

At this month’s summit of the APEC leaders in Honolulu, the nine current negotiating states of the Trans-Pacific Partnership Agreement (TPP) have issued a joint statement outlining the key objectives and features of the proposed free trade agreement between the USA, Chile, New Zealand, Singapore, Australia, Peru, Vietnam, Brunei Darussalam and Malaysia.

This joint statement, which is also endorsed by the Australian Government, announces that “[t]he investment text will include provisions for expeditious, fair, and transparent investor-State dispute settlement subject to appropriate safeguards, with discussions continuing on scope and coverage. The investment text will protect the rights of the TPP countries to regulate in the public interest.

This announcement appears to be a significant shift in attitude by the Australian Government. In April 2011, the Gillard Government published its trade policy, stating that Australia would discontinue the practice of including investor-state dispute resolution mechanisms in trade agreements with developing countries. There is no comment available on the Government’s website as to how to reconcile the two statements.

If agreed, the inclusion of investor-state dispute settlement procedures into the TPP is a good development for Australian investors abroad, giving them a direct right of recourse against the foreign state in an international arbitration forum in the event that that state has enacted measures negatively affecting the investment.

The participating states have indicated a wish to finalise the legal text of the TPP within 2012, and it remains to be seen which precise form the investor-state dispute settlement mechanisms will take. With the announcement of Japan, Canada and Mexico to join the negotiations, the TPP has gained new momentum making it the largest free trade agreement world-wide. President Obama is highly supportive of the TPP announcing that the United States “are a Pacific nation and … are deeply committed to shaping the future security and prosperity of the Trans-Pacific region, the fastest-growing region in the world”. The ultimate aim is to create a Pacific Free Trade Area. Such a bloc – one which would counterbalance the European Union and other free trade areas – would significantly change the dynamics of trading relations in goods and services, to the benefit of all. This trend of an increased focus on free trade in the Asia-Pacific region is further highlighted by Indonesia’s ratification of the ASEAN-Australia-New Zealand free trade agreement last week.

For further background on the importance and effect of investor-state dispute settlement mechanisms in bi- and multilateral investment agreements for Australian cross-border investments, please see http://www.freehills.com.au/7589.aspx and http://www.freehills.com/7649.aspx.