A surprising clause in the TPP investment chapter

Article 9.6bis: Treatment in Case of Armed Conflict or Civil Strife
1. Notwithstanding Article 9.11.6(b) (Non-Conforming Measures), each Party shall accord to investors of another Party and to covered investments non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.

I was a bit surprised to find this one.  Presumably this refers to cases where the state is not bound to provide compensation, but does so discretionarily?  Why would countries sign up to a policy in which they have to treat the losses of citizens/residents the same as the losses of foreigners?  And why only for cases of “armed conflict or civil strife” –  but not, say, earthquakes, bank failures, or other vicissitudes of life?    London was badly bombed in the blitz in 1940.  Is this seriously suggesting that the British government, if it offered any compensation to any of the victims, had to treat, say, the owners of Swiss banks or factories the same as the owners of British banks or factories.  Why would they want to pre-commit to that, in respect of ex gratia measures?

There might be plenty of occasions when a country might want to treat these two groups of people equally, but why should it sign up to committing in advance to such equality of treatment?

Public policy should be made primarily in the interests of the citizens (and perhaps residents) of the country concerned.  In all manner of areas, we treat residents different from non-residents (eg access to public schools and the public health system, let alone voting).  In some cases, we even treat citizens differently from non-citizens: both might go prison for a crime, but the non-citizen can be deported too.  It isn’t always obvious where the lines should be drawn, but draw them we do.  And sometimes we revise them in light of specific circumstances.  But why pre-commit to treat any compensation for this particular class of losses equally between New Zealanders and others?

PS.  On the off chance that “non-discriminatory treatment” only refers to how different countries’ overseas investors are treated, it still seems an odd and inappropriate thing to pre-commit too.  In any “armed conflict”, some other countries will have been allies, other perhaps very friendly, and others neutral or perhaps mildly hostile.  Why would we pre-commit to treating investors from each of those countries equally, in offering discretionary compensation for any losses resulting from armed conflict (or civil strife)?

3 thoughts on “A surprising clause in the TPP investment chapter

  1. The point you make about residents and non-residents is a little wrong. The clause is not necessarily talking about how residents are treated, but how the investments are treated. An investment could be owned by an individual, but could also be owned by a company, and that company could be owned by residents and/or non-residents. Treating investments consistently could get quite messy.

    The general gist of TPP is to treat internal and external groups equally whether it be trade, investment or whatever. As an example a maker of widgets in NZ will pay the same sales taxes as a foreigner (as long as the widgets aren’t dairy products). Playing devils advocate, why would you treat domestic and foreign manufacturers differently just because there is a war?

    Having said all that it is a bit surprising that this was agreed as war time will probably be a very stressful time for the economy and anything could happen, and that could easily include abandoning all trade agreements.

    One good thing, at least it is a single clause. Can you imagine how complicated it would be if they wanted to put some conditions on it, and all the permutations that are possible between domestic/foreign (in or out of TPP) investors and the warring parties?

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    • Thanks – loose language re residents and non-residents, but I think the point still holds.

      I agree that for routine taxes and regulation, who owns a company/investment should not matter, to provide a stable and efficient business environment (tho I’m not sure that is something we should be committing to by treaty), but this is a case of discretionary payments (or at least it sounds as though it is). In my World War Two example, Britain (quite reasonably in my view) taken a different approach to losses by British firms, NZ firms (close ally), Swiss firms (genuine neutral) and Spanish firms (technically neutral but distinctly pro-German.

      What would should actually do, in respect of discretionary compensation seems likely to be very circumstance specific, and not that amenable to advance domestic legislation let alone international treaty commitments, justiciable before a private foreign panel.

      But re your general point about war, I agree totally. Altho I guess a US perspective may be one of having been at war pretty constantly for the last 15 years, whereas I suppose I use the World Wars as my frame of reference.

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  2. Actually I think it means you break it you pay for it.

    For example if we burnt a field of GMO corn in protest, or burnt down a corporate headquarters, or targeted Monsanto in general for protests that reduces the value of it’s brand – it’s trademark, then the government would have to pay compensation for that.

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