Investor vs state interests debate heats up
Ahead of the 23rd round of negotiations for the Regional Comprehensive Economic Partnership (RCEP) which will kickstart tomorrow in Bangkok and end on July 27, there has been growing concern over its investment chapters that will let foreign investors' benefits overrride public interests. The concern centres on the RCEP's inclusion of the controversial Investor-State Dispute Settlement (ISDS) mechanism which has prompted criticism and scrutiny worldwide.
The investment protection chapters is an alarming sign for taxpayers whose governments are at risk of being sued by foreign investors and forced to pay huge sums of compensation if one day the state is at a crossroad to choose between private and public interest and it chooses the latter.
RCEP is a proposed multinational trade agreement negotiating among 16 countries -- 10 members of Asean, China, Australia, South Korea, Japan and India. Started in 2013, RCEP negotiations were set to be concluded by 2015. However, the negotiations have been delayed due to its "comprehensive" nature since it covers trade, services and investment. As participating countries have a varying degree of readiness, negotiations have been tough and time-consuming. India in particular has still refused to cut import tariffs to zero for many types of product.
RCEP is one of the two major trade agreements being negotiated in the region. The other one is the Trans-Pacific Partnership (TPP) which has been re-named as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after the US, under President Donald Trump, pulled out from the negotiations early this year. Led by China, RCEP is an alternative to the then TPP.
While Thailand has participating in RCEP negotiations, it is still considering whether to join CPTPP negotiations.
RCEP represents a large economic bloc. The 16 RCEP members cover half of the world's population and account for 29% of the global GDP. All three RCEP countries, China, India and Japan, which play a major role in the negotiations, account for a total GDP in 2016 of US$18 trillion or 77.3% of the total GDP of all RCEP countries.
In 2016, Thailand's trade with other RCEP countries accounted for $240 billion or 59% of the country's total external trade. As a result, the Commerce Ministry sees the RCEP bloc as an important partner. The ministry has tried to push for China, India and Japan to cut their import tariffs for Thai goods such as processed seafood products, processed tapioca, sugar cane, rice, petrochemicals, rubber products and furniture.
Early this year, Deputy Commerce Minister Chutima Bunyapraphasara said there had been no significant progress on RCEP negotiations among Asean members and India on key pending issues. In addition, Asean countries expect to open their markets by reducing import tariffs to zero for 92% of products traded among all RCEP countries.
However, some RCEP countries need to keep the zero tariff to a range of 70%-80%. This stance reflects a varying level of economic development and different types of sensitivity issues among the negotiating members.
The Thailand Development Research Institute estimates Thailand stands to gain $27 billion in social welfare value from the RCEP if the negotiations result in the reduction of import tariffs to zero without exemptions imposed on sensitive products and highly sensitive products, a reduction of trade barriers in services by 33% and a reduction in non-tariff trade barriers by 35%. Benefits for Thailand will come from increased investment, enhanced technology, a 13.5% increase in GDP, a 14.1 increase in exports and a 13.3% increase in imports.
While the reduction in import tariffs and non-tariff barriers will bring about benefits to Thai exporters and Thailand's economic expansion, RECP's investment protection chapters stand as a nightmare for the public.
Bilateral or multinational free trade agreements made with major economies usually include provisions for a Investor-State Dispute Settlement (ISDS) mechanism which enables foreign investors to sue the host country at international arbitration tribunals and demand compensation. The RCEP negotiations, which remain largely secret, have chapters on the ISDS, according to leaked documents revealed by civil society groups.
The ISDS mechanism is a hangover from the colonial era. It was first applied in late 1950s as appeared in treaties between governments of colonisers and colonised countries as an effort to prevent the ownership of physical assets by multinational companies converting to the host states.
Nowadays, ISDS mechanism empowers multinational corporations to bring lawsuits against the host country in secret international tribunals in cases the country introduced laws, policies and regulations that obstruct their business operation.
Many ISDS cases filed by multinational companies have been pursued with the intention to avoid taxes, obstruct pubic policies, punish host governments who restricted intellectual property rights or terminated the privatisation policy or applied laws on the protection of the environment, consumers and public interests which are deemed by investors as violations of their rights.
Data from the United Nations Conference on Trade and Development reveals there has been an increase in ISDS cases during a period of 1987-2016. Among them are concluded and pending cases pursued by foreign investors from RCEP countries against host countries -- five cases filed by Chinese firms, four by Australian companies, four by Korean companies and three by Japanese ones.
The most recent case took place in Thailand. Kingsgate Consolidated Ltd, the parent company of Akara Resources Plc which operated the Chatree gold mine in Phichit and Phetchabun, filed a statement of claim against Thailand with international tribunals on May 31. It claims the government's order last year, which ceased its operations for the sake of an environmental impact assessment, violates the Thailand-Australia Free Trade Agreement's provision on investment protection. It claims compensation of up to $750 million, or 30 billion baht.
There have been many cases in other regions. For example, US-based Ethyl Corporation had sought compensation from Canada for its ban on import and transportation of fuel additive MMT in 1997. The case was settled in which the Canadian government paid a US$ 13 million compensation and also ended the ban.
Even though there are chances for both sides to win ISDS cases, a host government will have to pay for huge attorney fees during the arbitration process. For example, the Philippine government spent $58 million on fighting a ISDS case filed by a German company, Fraport -- money which is equal to annual salaries of 12,500 teachers.
Late last year, Thai civil society led by FTA Watch called for RCEP countries to exclude the ISDS mechanism from their negotiations as well as any chapters that enable foreign investors to file lawsuits against host governments via international arbitration tribunals. "ISDS cases have challenged state policies on health, the environment, taxation and finance. There have been 696 cases filed against 107 governments," said Chalermsak Kittitrakul, a FTA Watch representative.
"These cases are mainly ruled based on interests of investors while restricting [consideration on] authority of the state in issuing law and measures. They have prompted governments in developed and developing countries to reconsider whether they should support investment protection which include this [ISDS] measure in their multilateral investment treaties", said Mr Chalermsak who has also called for disclosure of contents of the RCEP negotiations.
Moreover, it has been revealed that a number of RCEP countries have been expressing concerns over other trade agreements which include ISDS provisions and even considered to retreat from them.
Mutita Chuachang is an independent journalist. Suluck Lamubol works for the Asia Pacific Forum on Women, Law and Development. This is the translated and abridged version of the article originally published on the website of Prachatai news agency (www.prachatai.com).