TPPA-11 negotiations: Not just about the housing speculators.

Corrected to restate the situation with respect to water management (21/11/2017)  lines have been struck out and added below.

On paper the new government’s policy on trade agreements is really pretty good.  Free trade is needed, says the Labour Party, but must involve more consultation with more parties across society and address concerns about reining in the impacts of Investor State Dispute Settlement (ISDS) cases as well as the risk of trade agreements causing social unrest here and overseas. The National Interest Analysis (NIA)  – the summary document that was released by MFAT to enable the Select Committee to discuss the TPPA and submitters to make comments on it without having to examine the whole TPPA – must be more realistic about benefits of any deal.

Given the policy I would have hoped the approach would be to bookend the TPPA-11negotiations with the kind of broad consultation the then Labour Government did when the precursor 4 country agreement was kicked off more than a decade ago. But the new government has so far only said that it will pass a law to stop foreign speculators from buying New Zealand houses before the TPPA comes into force and that there are ongoing concerns with ISDS clauses.

However there are plenty of  instances where there are potential traps for government and hence for New Zealanders in the TPPA-11 if the ISDS issue is not sorted out. Just one example – fresh water / bottled water replicates the same problem. If an urgent law is not passed prior to the TPPA coming into force it is debatable whether it can be successfully introduced afterwards.

The coalition agreement between Labour and  NZ First undertakes to “introduce a royalty on exports of bottled water”.  In fact the policy is common to all three parties now in government.  After the TPPA-11 comes into effect foreign bottling companies already in NZ or planning to come could seek compensation for the charges they would have to pay. They may even pressure to stop the law from being passed or seek exclusions if the water is not bottled till it reaches its destination and much of this could be done in secret.

This is because much of the protective legislation for people and the environment does not conform to how the TPPA-11 thinks laws should work. Every time that our sovereign legislation does not comply with  the TPPA-11 it is called a “non-conforming measure”.  The National government passed a raft of legislation to bring New Zealand’s legislation into compliance with the TPPA. What remains  is covered by a list of reservations for each country – these are  the exceptions that allow otherwise “non-conforming measures” to be retained in local law.

Water management and a series of other areas (including protections to ACC and EQNZ for example) are reservations listed in the original TPPA”s National Interest Analysis (NIA)  for NZ.  So far so good – if you accept that much of our protective legislation, as a whole, is regarded as non-conforming by the criteria set by the world’s biggest international corporations. However there are some serious additional traps which mean water is less protected than the reservations suggest.

Imagine if the new government aimed to pass laws or regulation to raise water quality standards following  Nick Smith’s lowering of them earlier this year.  These higher water quality standards could make NZ subject to a compensation claim by overseas investors if they could prove the cost of doing business might become higher.  (Of course they could also pressurise Ministers in secret to withdraw or weaken the legislation to prevent it being effective with just such a threat.)

Compensation cases would happen if there were additional costs incurred in reducing their trade or farming emissions to water to meet the new standard.  However the government could LOWER WATER QUALITY STANDARDS further without causing a problem. This is called the ratchet mechanism – once standards have been lowered they have to stay low or governments could face compensation claims or interference in any legislation process. The ratchet mechanism would see our protective legislation reduced over time.

<NEW>The ability to legislate for water is protected by water being in the TPPA’s annex II and this is reassuring but still the protection is lower than for measures to control tobacco – which though included implicitly in a parallel protection to protect public health measures also has its own addition “carve-out” from the TPPA<New>

But there is a wider and even more insidious problem that relates specifically to water for bottling  (and which could apply to any number of other issues). Despite the wording in the NIA on water saying that:

these reservations allow New Zealand to take non-conforming measures in respect of water, including the allocation, collection, treatment and distribution of drinking water.

It also  says that

the obligations that New Zealand reserves the right to breach (sic) vary for each set of sectors/activities, depending on the policy space required.

And sure enough not mentioned in the 280 page NIA but in the full TPPA appendix related to non-conforming measures  called Annex II – Cross-Border Trade in Services and Investment Non-Conforming Measures,  the section related to water the information is different. It adds:

This reservation does not apply to the wholesale trade and retail of bottled mineral, aerated and natural water.

so our negotiators decided that the “policy space required” would not allow the government to legislate with respect to bottled water even as the issue has become a live issue of concern across New Zealand. These actions must surely have been deliberate (both the exclusion of bottled water from the protected legislation and excluding the issue from parliamentary scrutiny by failing to include the exception in the NIA document). In a submission by Professor Jane Kelsey the impacts of this were made clear when she said in respect of the identical wording in the Korean Free Trade Agreement:

Recent revelations on Campbell Live show the windfall to foreign firms who are bottling free water for export and sale. Measures to protect that resource for local communities would not be protected by this entry – nor would it prevent an ISDS dispute claiming breach of fair and equitable treatment or expropriation.

How can it be right that this important information was excluded from Select Committee consideration?  How can it be right that foreign water bottling companies could claim compensation if NZ legislates to charge a royalty on bottled water – a policy that is part of the governing coalition’s policy platform going into government – if it does not get the legislation passed before the TPPA-11 comes into force?  How can the new NZ government ensure it passes the legislation in time for ratification?  What kind of audit is taking place to identify all of the other areas where new legislation is needed to fulfill the government’s agenda. Finally what will the government do to protect New Zealanders from novel issues (driverless cars, robots, other new technologies) where new legislation is needed but, because it would not be part of the existing exclusions to non-compliant legislation, could only be enacted with a fear of being sued for compensation by the companies seeking to profit from its use?

Addendum.

If you are already confused this next section may scramble your brain completely so I forgive you if you want to give up here.  But what follows takes you deeply into the Alice in Wonderland of madness that is the TPPA.

In another complication it appears that the Crown has also created further confusion over whether the government can charge royalties for bottled water. When it advised its counsel in the Treaty of Waitangi (see footnote on page 38) case about the TPPA it said that ‘processing and manufacturing’ of bottled water is covered by the TPPA, meaning ‘that you can take measures to limit the involvement of foreigners in bottled water production’.  This is confusing and counter-intuitive and takes the debate into new territory. Bottled spring  and natural water is neither processed nor manufactured in any meaningful sense and so it is not clear why the negotiators have excluded bottled water from the reserved legislation covering other aspects of water management only for the crown’s advocate (briefed presumably by the negotiators) to mount that argument that although the words have been added for some reason, they are contradicted elsewhere.

The means the TPPA-11 situation with water is entering the same territory that advocates of differential GST levels find themselves in when deciding if children’s clothes or fresh fruit should be exempt.  This is an endless muddle of legal interpretation and ample opportunities for companies to mount a threat of an ISDS case to see if the government will cave in. This is known as ISDS shopping!  The situation provides opportunities for commercial interests to press their advantage against our interests. To add more confusion there is in the TPPA NIA no clarity about what rules apply to water that is exported (as water) but not bottled. Would water that is eventually bottled where it is exported to face a royalty or not? Would a locally owned company exporting water face different charges to a foreign company doing the same thing? It seems that the government may be dancing on the head of a pin of confusion. Its counter-intuitive assessment may well not prove correct if a compensation case was taken.

If you are concerned that the new government is still proceeding with the TPPA-11 negotiations despite such serious concerns Action Station are writing an open letter to Jacinda Ardern the new PM, which you can sign.