China Free Trade Agreement Speech by Russel Norman (sorry bout the formatting)

Green Party of Aotearoa New Zealand

China FTA Third Reading Speech - Dr Russel Norman MP

Dr RUSSEL NORMAN (Co-Leader-Green) :

This trade agreement between NewZealand and China fails to protect the sovereignty of the democratically elected Government of New Zealand, and it placessignificant restrictions on the future ability of the New Zealand Governmentand Parliament to pass regulations to protect the people and environment of Aotearoa New Zealand.There are many reasons why the New Zealand Government should not have signedthis preferential trade agreement with China, not least of which is the factthat New Zealand signed this agreement whileChina was involved in the murderous oppression of the people of Tibet. It isalso of grave concern that this agreement has no binding labour or environmental standards. The lower wages and standardsin China will effectively be a non-tariff barrier to fair trade, giving corporations that pollute or pay inhumane wages a competitive advantage overthose that do not.However, here I wish to focus on the investment provisions and expose the risks to our people, our environment, and our sovereignty. The investment chapter of the agreement, chapter 11, takentogether with the annex defining expropriation, annex 13, effectively formsa bilateral investment treaty between our two countries. This bilateral investment treaty inhibits the ability of the twoGovernments to regulate the businesses of foreign investors without compensating those investors for the cost of those regulations.The investment treaty means that a Chinese corporation operating in New Zealand can sue the New Zealand Government if the Government changes regulations, resulting in a loss of value for thatcorporation. And if there is a dispute between a Chinese investor and theNew Zealand Government as to whether the Government should compensate the investor, and to what extent, then the dispute is tobe resolved in an international forum established under the auspices of the World Bank or the United Nations.The effect of this investment treaty will be to place a chill over theability or willingness of the New Zealand Government and Parliament to regulate the business activities of Chinese corporationsoperating in New Zealand, for fear of facing binding claims for compensationin international tribunals. This will make it much harder for our Governmentto carry out its duty to protect and advancethe well-being of the people and environment of Aotearoa New Zealand.Bilateral investment treaties have received an increasing amount ofattention in the international law literature. This is for the simple reason that moreand more bilateral investment treaties arebeing signed, and more and more cases are ending up in international courtsor tribunals of one description or another. Corporations are suing Governments in international judicial hearings on aregular basis. In Canada, the University of Victoria's Faculty of Law has aninvestment treaty arbitration website that provides access to all publicly available investment treaty awards, and listsover 200 cases since 1996.It was long standard fare for treaties to protect corporations from expropriation; from the direct acquisition of a company by a Government without compensation. What is new is that now corporationsare successfully suing Governments for what they call "indirect expropriation". Indirect expropriation is where a Government changes laws orregulations, or acts in some way that impacts on acorporation's activities, resulting in loss of profits and hence value for that corporation. In these cases the owner's title to an asset is protected but the value of that asset declines.The New Zealand - China preferential trade deal contains two components thattogether constitute a bilateral investment treaty between New Zealand and China. Those are chapter 11 and annex 13. Thecore of chapter 11 is article 145, which, I imagine, almost none of the members of this House have read, except me. It says that the New Zealand Government cannot expropriate Chinese investors unlessthe expropriation is fully compensated, and vice versa. If there are any disputes between a Chinese investor and the New Zealand Government, the investor can seek redress at the International Centrefor Settlement of Investment Disputes or through the United NationsCommission on International Trade Law.Central to such disputes is the definition of "expropriation". Thisdefinition has been of critical importance to bilateral investment disputes overseas. There have been several cases wherearbitrators have deemed that measures taken to protect the environment have expropriated investors, and that is extremely and directly applicable tothis treaty. For example, in the case of Metalcladv Mexico, an international trade tribunal ruled that Mexico had violated theNorth American free-trade agreement in preventing Metalclad Corporation fromopening a hazardous waste treatment anddisposal site in Mexico. The tribunal found that local government oppositionto the project amounted to expropriation of the company's profits.Public protest against Metalclad's approval for the waste treatment led to local authorities investigating the potential environmental impacts of the treatment site. An environmental impactassessment revealed that the site was on top of an ecologically sensitive underground alluvial stream. As a result, the governor refused to allow Metalclad to operate the facility, and later declaredit part of an ecological zone.Metalclad claimed that this action effectively expropriated its future expected profits, and although it was awarded less than the $90 million in damages it sought, its claim was successful. Thereare more cases like this in international tribunals, and it is clear that measures taken by States to protect human health or the environment can be found by international arbitrators to beexpropriation, resulting in large financial penalties. The key question is whether State action to regulate is considered a form of indirect expropriation. The definition of expropriation is addressedin annex 13, which I cannot imagine many other people here have read. Thisis really at the core of the agreement and what it might mean for the abilityof the New Zealand Government to regulatewithout compensation.I will assess annex 13 from the perspective of its relationship to theability of a State to regulate when such regulation results in the partial loss of value to a Chinese investor's asset. Annex13 has five paragraphs. Paragraph 1 states: "An action or a series ofactions by a Party cannot constitute an expropriation unless . . . it interfereswith a property right". This is a simple testto meet. Most State actions would interfere with property investment whenthe State is trying to regulate, and it costs something. Paragraph 2(b) states that indirect expropriation occurs "when astate takes an investor's property in a manner equivalent to direct expropriation, in that it deprives the investor in substance of the use of the investor's property,". The kind of State actionwhere State regulation costs money to a corporation protecting theenvironment is exactly the kind that would be caught by paragraph 2.Paragraph 3 states: "In order to constitute indirect expropriation, the state's deprivation of the investor's property must be: (a) either severe orfor an indefinite period; and (b)disproportionate to the public purpose." Clearly, if the State was trying toregulate to protect the environment it would be permanent, and the question of whether it would be disproportionate wouldbe decided by an international panel. Whether the Government's judgment was allowed would be determined by an international disputes panel. Paragraph 4 states that if one targets a particular classof investor, one is very likely to get caught up in expropriating. That isan easy provision to meet if, for example, one targets a bunch of agricultural producers or dairy farmers and tries to cleanthem up.Paragraph 5 states-and this is probably what the Government is hoping will protect it-"such measures taken in the exercise of a state's regulatory powers as may be reasonably justified in theprotection of the public welfare, including public health, safety and the environment, shall not constitute indirect expropriation." Paragraph 5 givesthe appearance of protecting State action. Itsays that State actions to protect public welfare do not constitute indirectexpropriation. But there is an important exemption and an important qualifier. The exemption is that it does not cover thekinds of actions where any particular industry or class of investors is targeted. The qualifier is the term "reasonably justified". Even if theState action does not meet the terms of paragraph4-that is, targeting a class of investors-it must still be reasonably justified, and an international panel will decide whether the actions of theGovernment are reasonably justified. There is noteven any guidance.Once the exemption and the qualifier in paragraph 5 are included, the protection to State action looks weak. This is why Professor Matthew Porterfield from Georgetown University, an internationalexpert in trade law, said that in our agreement with China we are actually exposing ourselves to greater risk of legal action than the US Government faces under its investment clauses. So a closereading of chapter 11 and annex 13 makes it clear that any kind of NewZealand Government regulatory action that negatively affects the value of Chinese investors' assets is wide open to actionbeing taken against the New Zealand Government by the Chinese investors.Where the New Zealand Government action particularly affects a class of investors, then the Government's only defence is to show that its actions were proportionate to the public purpose intended.It will be up to an international panel to decide whether the action was proportionate, regardless of the view of the people or Government of New Zealand. Where a State action does not affect aparticular class of investors or is not in breach of a contract, then the Government has a better opportunity to win its case, but only if thetribunal agrees that the Government's action wasreasonably justified to protect public welfare. Thus, the New Zealand Government will have two lines of defence, but both of them involve convincing a non-elected, international panel that the actionsof the Government were proportionate or reasonable to achieve the public purpose desired.