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TPPA could empower rejected foreign investors in legal challenges

Stuff, New Zealand

TPPA could empower rejected foreign investors in legal challenges

By Andrea Fox

22 September 2015

Lochinvor Station near Taupo [Photo: Richard Parsonson]

Under a Trans Pacific Partnership deal, foreign investors in New Zealand could be able to take international legal action against a government decision such as that which rejected a Chinese company’s bid for Lochinver Station, says an Auckland Law School senior lecturer.

Amokura Kawharu said leaked TPPA drafts suggested an investor from a country that was party to the proposed TPPA, for example an American, Canadian or Mexican investor, could challenge a decision that went against them through international proceedings as well as, or instead of, seeking a judicial review in a New Zealand court.

However, it appeared New Zealand’s TPPA negotiators had sought an exemption from such dispute settlement measures, though whether that would be accepted or not was unknown because the draft was still secret, she said.

Shanghai Pengxin, whose $88 million agreement to buy the 14,000 hectare Lochinver sheep and beef farm has been vetoed by Government ministers, could seek a judicial review in a New Zealand court of the decision, but has no protection to challenge under the China-New Zealand Free Trade Agreement, Kawharu said. China is not a party to the TPPA.

The Government decision went against the recommendation of New Zealand’s Overseas Investment Office (OIO) that the purchase be approved, although the office said it was a borderline case. Ministers said the benefits to New Zealand of Pengxin’s purchase of Lochinver were "not substantial and identifiable."

Pengxin already has significant agricultural investments in New Zealand, including the 16 former central North Island Crafar farms.

"In the context of all the discussions happening around TPPA, one of the interesting points to note is that recourse (to arbitration proceedings such as in the TPPA draft) wouldn’t be available to Pengxin because the FTA completely excluded the [OIO] screening process," Kawharu said.

"Investment treaties or free trade agreements with investment chapters in them provide a whole range of different protections to foreign investors and those protections can be actioned through arbitration proceedings. One of the protections relates to establishment of investments (before the investment is made).

"That protection is not in the China-New Zealand FTA but it will be in the TPPA agreement."

If so, it would make "quite a difference" for New Zealand, Kawharu said.
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It would mean an investor from a country party to TPPA could take international proceedings against an unfavourable decision, as well as seek a judicial review here.

Kawharu said from the leaked drafts it was obvious that protection under the establishment phase of a foreign investment was covered, but that was no surprise.

"It would be extraordinary if it wasn’t. It’s been long standing US practice. They’ve never agreed not to have the establishment phase covered (in their treaties) so everyone was expecting it to be there.

"But it looks like New Zealand has sought an exemption from dispute settlements. In other words we will provide protection but we don’t agree to back it up with dispute settlement protections. So it’s a bit of a nonsense really. We say on one hand, yes, we agree to protect foreign investors including during the screening phase, but on the other hand we’re not prepared to accept arbitration proceedings against adverse decisions.

"There is precedent for this. Australia had done that in a couple of its recent treaties. But whether it will be accepted or not we don’t know because the draft is still secret."

Meanwhile, Kowharu said Pengxin could ask a New Zealand court to assess if Government ministers had applied their minds to the benefit factors in the Overseas Investment Act and whether they had made a reasonable decision in view of those factors.

Lochinver seller the Stevenson Group could participate in these proceedings, she said.

"With the Crafar farms purchase, the (Act) test was clarified by the court so in some respects it can be useful to go to court because the fairly vague standards in the Act can be given some substance to make it easier for the OIO and ministers to properly apply the Act.

"So proceedings aren’t a bad thing."