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Leaked investment chapter confirms CAP’s fears

June 20, 2012

FMT LETTER: From S M Mohd Idris, via e-mail

Malaysia has since October 2010 been negotiating a Trans-Pacific Partnership Agreement (TPP) with the United States and seven other countries. The other countries involved in the negotiations are Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam.

On June 13, the proposed investment chapter for the TPP was leaked and posted online by the Washington-based non-governmental organisation Public Citizen. After perusing the leaked document, the Consumers Association of Penang (CAP) feels compelled to express its grave concern at some of its provisions.

The leaked text shows that Malaysia has agreed to provisions that give extended rights and privileges to foreign investors and private corporations and limit the power of our government to regulate how those firms operate within our borders. This is tantamount to placing foreign corporate interests above the welfare and interests of our own citizens.

The leaked investment chapter confirms the fears expressed by CAP in a letter to the press in December 2011 that the TPP would create a two-track legal system that would empower foreign firms to skirt our domestic courts and directly sue our government in foreign arbitration tribunals for taxpayer-funded monetary compensation if they deem that the domestic financial, health, environmental, land use and other laws put in place to regulate their investments have harmed their investments.

This means the Malaysian government has agreed that if an investor feels his/her rights have been violated by a law, regulation, policy or programme, even if it were put in place in the interests and welfare of the citizenry, the investor can sue the Malaysian government at an international tribunal, for unlimited monetary compensation and interest.

As revealed in Section B of the leaked text, furthermore, these tribunals would not meet standards of transparency, consistency or due process common to any of the TPP countries’ domestic legal systems or provide fair, independent or balanced venues for resolving disputes between sovereign nations and private investors.

The tribunals would be staffed by private sector lawyers that rotate between acting as ‘judges’ and as advocates for the investors suing the governments. It is instructive to note that while all the other TPP countries agreed to this oppressive provision, Australia refused to do so. If the Australian government could reject this provision, why could not the Malaysian government have done the same?

The leaked investment chapter reveals that Malaysia has already agreed to give foreign companies a number of extensive rights including:

  • A broad definition of ‘investment’ that includes protecting: existing investments in Malaysia, shares and derivatives, public-private partnerships, intellectual property rights, mining and manufacturing licences and permits and expected future profits of other TPP investors.
  • Abiding by the principle of ‘fair and equitable treatment’ (FET), which has been interpreted by these international tribunals to mean that regulations cannot be changed and no new regulations can be imposed on investors from TPP countries for as long as they are in Malaysia. This would greatly restrict Malaysia’s ability to continue developing its regulations including in response to new threats such as climate change and financial crises or to new information (on, for example, the toxicity of a chemical or food ingredient).
  • An ‘expropriation’ provision which requires governments to give fair market value compensation and interest for any government actions that have been found to reduce the value of the investment from other TPP countries, including reducing the investor’s profits.
  • A ‘Most-Favoured Nation’ provision that requires Malaysia to provide the protection it has given foreign investors in other treaties to TPP investors as well, unless TPP governments including the US agree to allow it as an exception. This would circumvent any exceptions that are put into the TPP by allowing other treaties which do not have these exceptions to override the TPP.
  • Binding state and local governments and authorities to the commitments made by the Malaysian government.

The above means, for example, that in the area of tobacco control (an area where CAP has been active for many years), tobacco companies could challenge Malaysia’s regulations (as they have already been doing, using equivalent treaty provisions to sue Uruguay and Australia for their tobacco control measures).

Other than the damages an international arbitral panel may award against Malaysia that may amount to hundreds of millions of dollars, even just the prospect of such suits would have a ‘chilling effect’ on regulations including tobacco control measures seeking to regulate the production, distribution, marketing or consumption of tobacco- and tobacco-linked products.

Given all the above, CAP calls for:

  • The TPP negotiations to be suspended until the texts and all relevant documents have been disclosed for public scrutiny by the Malaysian public, and a publicly-disclosed and comprehensive cost-and-benefit analysis has been carried out over the areas covered by the TPP.
  • The investment chapter to be removed from the TPP. However, if the government persists in negotiating an investment chapter in the TPP, CAP calls on the government to:
  • Insist on being exempted from investor-to-state dispute settlement, as Australia has in the TPP
  • Not agree to the investment chapter until the issues above have been effectively fixed in the main text of the investment chapter.
  • The Ministry of International Trade and Industry to clarify whether it is asking for:
  • Restrictions on performance requirements to apply to all investments, even those by non-TPP countries
  • Restrictions on performance requirements to extend to services; and
  • Restrictions on technology transfer requirements.

The writer is president of the Consumers Association of Penang


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