From a group of economists:
We, the undersigned economists, write to you regarding the capital transfers provisions in the proposed Trans-Pacific Partnership Agreement (TPPA). We are concerned that if recent U.S. treaties are used as the model for the TPPA, the agreement will unduly limit the authority of participating parties to prevent and mitigate financial crises.
Nearly all U.S. free trade agreements (FTAs) and bilateral investment treaties (BITs) strictly limit the ability of trading partners to deploy capital controls – with no safeguards for times of crisis. A few recent U.S. trade agreements put some limits on the amount of damages foreign investors may receive as compensation for certain capital control measures. They also extend the “cooling off” period before investors may file claims in international tribunals.[1] However, these minor reforms do not go far enough to ensure that governments have the authority to use such legitimate policy tools.
Authoritative research published by the National Bureau of Economic Research, the International Monetary Fund, and other institutions has found that limits on short-term capital flows can stem the development of dangerous asset bubbles and currency appreciations, and grant nations more autonomy in monetary policy-making, and protect nations from the dangers of abrupt capital flight.[2]
The U.S. government’s rigid opposition to capital controls does not reflect the global norm. According to an IMF report, “Most BITs and FTAs either provide temporary safeguards on capital inflows and outflows to prevent or mitigate financial crises, or defer that matter to the host country’s legislation. However, BITs and FTAs to which the United States is a party (with the exception of NAFTA) do not permit restrictions on either capital inflows or outflows.”[3] Indeed, other TPP countries typically allow more flexibility in their trade and investment treaties.[4]
From a group of business leaders:
As the 11th Round of negotiations is set to open in Melbourne, Australia, we want to highlight the importance of securing a strong and enforceable agreement with all the TPP partners. While agreeing to robust enforcement tools – a priority of your Administration and the business community – would seem to be an issue on which all TPP negotiators would have already reached a consensus, that is unfortunately not the case, given Australia’s ongoing refusal to agree to one of the most widely-adopted core enforcement tools in international commerce – investor-state dispute settlement.
Australia, like the United States and the other TPP countries, has already agreed to investor-state dispute settlement mechanisms in numerous other agreements. Indeed, Australia has binding investor-state commitments with every other TPP partner, except the United States and New Zealand (with which it has a special economic and legal relationship). Included in over 2,700 instruments worldwide and supported by Democratic and Republican Administrations alike, these provisions promote the rule of law and serve as an important backstop to ensure that investors who risk their capital, property and talent in foreign countries will be able to enforce due process, non-discrimination, basic property and related protections in a neutral, balanced and objective forum.
The reasons for Australia’s refusal to accept this basic enforcement tool in the TPP are less than clear. It has been suggested that Australia may be concerned about retaining its ability to regulate in the public interest. Yet, the United States, Australia and other governments have worked carefully to address this issue both through substantive provisions and procedural mechanisms. In the United States, its recent trade and investment agreements reflect core legal principles based on our Constitution and laws that protect each government’s basic right to regulate in the public interest, while also providing, as in the U.S. legal system, that such regulation is subject to impartial review to ensure that it meets basic principles (including due process, non-discrimination and disciplines on expropriation). Other provisions provide mechanisms to limit frivolous claims and ensure transparency. Australia’s own recent investment agreements include similar provisions ensuring governments’ right to regulate, while also providing for impartial review to ensure that government action meets basic core principles.
I'm still not convinced there is ever going to be a TPP (and disagreements about investor-state are one reason for my skepticism), but if the agreement does get signed eventually, it may be that whichever way they go on investor-state will be a strong indicator of its future more generally.
