IELP Blog | 11 November 2017
The "Ardern Clause" in TPP: A novel approach to curbing investment-state dispute settlement
by Rob Howse
New Zealand’s impressive new Prime Minister, Jacinda Ardern, is on the record as stating that investor-state dispute settlement (ISDS) must not be a part of any future trade agreements signed by New Zealand. In the case of the Trans-Pacific Partnership (TPP, which is apparently now renamed clumsily CPTPP) Ardern has been caught in the difficult situation that New Zealand’s partners have already agreed, more or less, to ISDS, as reflected in the detailed text of the draft provisions on investment. Ardern and her advisers (or someone!) have come up with a truly ingenious solution-a way for New Zealand or effectively any TPP country that takes certain domestic legal steps to opt out of ISDS.
According to the agreement announced yesterday ISDS will be suspended in TPP with respect to investment authorization, and also with respect to investment agreements between the host state government and the investor. New Zealand already has a investment screening mechanism for all investments worth more than NZ $100,000,000. It is possible to block or impose conditions on such investments. In the case of investment agreements between the investor and the host state, New Zealand will have the policy of requiring the applicability of domestic law and domestic settlement.
If one takes together the carve out from ISDS both for investment authorization and for investment agreements, the result is that New Zealand, in any given case, could, without risking an ISDS claim against it for the very act of doing so, impose as a condition for authorization for an investment that the would-be investor sign an investment agreement with New Zealand that waives ISDS altogether, stipulating that all disputes between the investor and the host state be resolved under domestic law and through domestic courts. New Zealand could adopt that approach for investments in areas that are sensitive from a pubic policy point of view, i.e. where the government doesn’t want to risk an attack on its regulatory autonomy through ISDS. Or it could adopt it as a general policy on investment authorization On the other hand, in instances where it is particularly important to the investor to be protected by ISDS, I would think rather rare in the New Zealand context particularly, New Zealand would simply authorize the investment without any such conditions.
I’m by no means an expert in New Zealand law, and I don’t know whether New Zealand would need to change its legislation on foreign investment, or regulations, in order to have a viable means to use the Ardern Clause to protect against ISDS in the way I’m describing. These are doubtless matters that will be widely discussed and debated in the country in the coming weeks and months. Other TPP countries might in the future, if ISDS skeptic politicians come into power, find that they can set up a similar approach to conditional investment authorization. And, even above and beyond this, New Zealand has suggested it may seek collateral letters of understanding with specific TPP counterparties, curbing consent to ISDS. In any case, with her "Ardern Clause" on ISDS, New Zealand’s Prime Minister may well be entitled to her claim that now TPP is "a damned sight better."