The Investment Chapter and ISDS in the TPP: Lessons from Southeast Asia

Abstract

The investment chapter and investor-state dispute settlement provisions in the Trans-Pacific Partnership attracted significant media and public attention. This paper shows that ISDS-backed investment treaty commitments, aimed to liberalising and protecting FDI, are already widespread across Southeast Asian countries. However, these countries have been subjected to comparatively few ISDS claims and (very recently) two adverse treaty-based arbitration awards. Meanwhile, investors from Malaysia and Singapore have initiated claims. This backdrop partly explains not only why those two states and the other existing TPP signatories (Vietnam and Brunei) were willing to agree to ISDS-backed commitments in that FTA. It also makes it quite likely that ISDS provisions are not likely to become deal breakers for countries such as Thailand, the Philippines and even Indonesia in future trade agreements. This paper also demonstrates that the TPP's investment chapter is already quite similar to the substantive and procedural (ISDS) investment treaty commitments entered into by Southeast Asian states, especially under FTAs over the last decade or so, including four ASEAN+ FTAs. Like recent treaties agreed by other Asia-Pacific states, these draw significantly on contemporary US-style treaty drafting containing features more protective of host state interests. This provided the platform for agreeing on the TPP. Its ratification also offers an opportunity to displace older more pro-investor standalone bilateral investment treaties (and revisit such BITs more broadly, like Indonesia since 2014). Nonetheless, this paper raises the question whether and how a further recalibration in favour of host states might occur, along the lines recently proposed by the EU with the US, and agreed already in FTAs with Canada and Vietnam.