BY MELISSA CHI
NOVEMBER 7, 2013
KUALA LUMPUR, Nov 7 — The financial fallout facing taxpayers that could hit Malaysia in a potential trade dispute with foreign investors far outweigh the economic benefits posed by the Trans-Pacific Partnership Agreement (TPPA), three international trade and law experts cautioned today.
In a briefing in Parliament, the trio cast doubt over the controversial arbitration mechanisms that would come into play between corporations and sovereign nations under closely-watched free trade proposal, with Canadian Dr Gus van Harten, a professor at York University, likening it to a “ticking time bomb”.
Van Harten, who teaches administrative law, international investment law and governance of the international financial system, noted that the mechanisms of arbitration are important because of how they limit the policy space of sovereign governments to make decisions on matters such as health, environment, and local development.
“There is a lack of evidence of the economic benefits, and on the other hand, there is mounting evidence of financial risks that states undertake when they agree to the mechanisms.
“These arbitration mechanisms are like ticking time bomb for taxpayers because you never know if the decision your government is going to make will be dissuaded by a US investors,” he said, and added, “As researchers, we don’t know where this system is going”.”
He explained that there have been “surprising” developments in the past few years concerning arbitration methods, pointing to Ecuador, which was last year ordered to pay over US$2.3 billion to a US oil company, which he claimed to have been based on very dubious legal reasons.
The Canadian said there were an increasing number of third-party financiers, speculators, hedge firms and law firms that were funding the claims against the state and creating “a very explosive environment”.
“To proceed assuming that liability on behalf of the country and with all the risk that comes with it without clear evidence of economic benefit, raises the question of not economically and financially responsible decision for governments to take,” van Harten said.
The controversial TPPA, which involves Malaysia, the US and nine other countries, has come under fire from various activist groups concerned about the impact on the Malaysia’s economy.
Putrajaya has given an assurance that it will consult all groups before inking the deal.
He pointed out that under the current TPPA, foreign investors would be the priority, while the interests of local investors sit on the backburner.
“There are cases where the award is in the favour of the state, that means the state will not pay the compensation, that’s the best can happen to a state, if the state loses they pay to pay compensation.
“For the foreign investor, if he wins the case, he gets money, when the state wins, the only thing you have is you will not pay the compensation but they lose money because it is very expensive… we are speaking about something between US$3 million to US$8 million,” Solon said.
Cecilia Olivet, a political scientist specialising in international investment from Uruguay, said there is a need for an external, neutral body to resolve disputes between investors and states as she cast doubt on the strength of Malaysian courts to handle such conflict.
“Malaysian courts are not robust and solid to manage this dispute. Beyond that we have found research that question the alleged neutrality of the international arbitration,” said Olivet, who is currently with the Transnational Institute (TNI) and is also a member of the Ecuadorian setup to audit the country’s bilateral investment treaties and investment arbitration cases.
“We found that 15 arbitrators have resolved more than 50 per cent of the investment disputes worldwide. This is a tremendous concentration of powers,” she said.
She said a large number of arbitrators came from a commercial background and were not equipped to handle public interest cases as such disputes would attract, as it concerned taxpayers.
She also pointed out that some of the people who sat on the arbitration panel actually represented investor interests, which could lead to a lop-sided outcome.
“The bottom line it has become a very lucrative industry, as the arbitrators would earn up to $3,000 per day. You have to remember these trials go up to years so the amount surpasses millions. So there is a very strong incentive to keep the cases coming and the lawyer earns $250 per hour,” Olivet said.
The three experts had been called by Malaysia’s opposition lawmakers to back their lobby for Putrajaya to axe a controversial investment clause in the TPPA that would allow private companies to sue the government.
Klang MP Charles Santiago, said only five chapters in the TPPA involved trade; the remaining chapters concerned labour, the environment, government procurement and investment, with the latter drawing the most heated debates as it allowed private companies to sue governments.
As an example, the opposition lawmaker cited a lawsuit initiated by tobacco company Philip Morris case against the governments of Uruguay and Australia, which have imposed health warnings on smoking.
The corporation is taking both countries to the international arbitration court (ICSID) to remove the warning as it would impact their profits.
“If [the countries] lose, they have to pay a compensation which can run into billions of dollars.
“It is the responsibility of the government to ensure that their people are healthy, so the government says we legislate or regulate in the interest of people but because that ad impacts of the profitability of the company, it is suing the government,” Santiago said.
Lembah Pantai MP Nurul Izzah Anwar said the Malaysian government should not sign the agreement as long as it is not amended.
“If we allow the agreement to go through without knowing the consequences and the impact to the country, we will burden the future generation and Malaysia’s economy.
Consisting of Malaysia, the US, Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore and Vietnam, the TPPA aims to boost trade in the region by removing present barriers.
http://www.themalaymailonline.com/malaysia/article/tppa-arbitration-a-ticking-time-bomb-for-taxpayers-trade-and-law-experts-wa
