TPP Stakeholders: Taxpayers and Citizens (Workshop by Sanya Reid Smith)

This article is of interest to taxpayers and citizens in Malaysia. Mainly it touches upon cases where investors from other TPP countries can sue the Malaysian government at an international tribunal under investor-to-state dispute settlement (ISDS), and the costs incurred; and also the effect that the TPP has on electoral promises which run counter to the TPP.

This series is brought to you by based on a recent NGO briefing on the Trans-Pacific Partnership (TPP) in Malaysia by Ms Sanya Reid Smith, an expert on Trade and Investment Rules. She has been monitoring the Trans-Pacific Partnership Agreement (TPPA) since 2011, and is also the resource expert for Bantah TPPA Malaysia. The entire talk is uploaded on YouTube in a seven part series and can be accessed here; this article is drawn mainly from Part 2 and Part 3 of the talk.The index of the series is attached at the end of the article.

Corporations can sue Malaysia with no maximum damages

The TPP’s investment chapter has another level of enforcement. Not just governments can sue each other, but the foreign investor, eg: Lynas in Malaysia, can sue the Malaysian Government at the international tribunal, for money. Unlimited monetary damages. No maximum in the TPP.

So one government lost a case, last year I think, and had to pay the foreign investor 50 billion USD. Lima puluh bilion US dollars. They had 180 days to find the money. Malaysia Government got or not? Spare US$50billion to spend like this? So, that’s the damages. In addition to that, pay the investor interest, and in the TPP, this interest can be compound interest, interest on the interest. Not compounded once a year, compounded every month. From the day the government took the action five years ago, at commercial borrowing rates, not government borrowing rates. So the interest alone can be 500 million USD. Just in interest.

Governments end up paying legal fees mostly

Then you pay the lawyers to defend you, right? You hire the international law firm, you pay them a thousand dollars an hour. The Philippine so far has spent 58 million US dollars defending one case. And usually you think, when I win the case, at least the other fellow pays my lawyers, right? By rights. Nooooo. In this ISDS system, when you look historically, when the governments win, 70% of the time when they win they still have to pay their own lawyers. Still out of pocket, 58 million dollars, just in defending the case, even though you won.

But if the investor wins, he only has to pay his own lawyers 40% of the time. So this is the ‘unbiased’ international ISDS tribunal, this is their track record of who has to pay the legal fees.

Americans sue a lot, and win most of the time

The American investors are the most litigious in the world. We all know that Americans like to sue, but we have these statistics. When you look at all the ISDS cases, American companies sue twice as often as next the most litigious country’s investors. And when they sue, when you look at the past cases, they have a 98% chance of a broad interpretation of their rights. So when they sue you are almost always going to lose.

But when the US Government is sued they never lose. Literally never lose. And one of the theories is because the arbitrators from all these tribunals, the judges, they are paid millions of dollars per case. They don’t have a salary. They just get paid when there is a case. So the US Government is doing very well in giving them business by signing these treaties. If the US Government loses, that would cause a big ruckus in the US and they wouldn’t sign these investment protection treaties anymore, the arbitrators would lose business, right? Less cases that are how many million dollars a case. So they don’t want to bite the hand that feeds them, it’s the theory.

Malaysia has a big stockpile of potential legal liabilities

Malaysia does have, and MITI has been saying, Malaysia has some of these investment treaties with these investment protections. But, not with America. You know the US has a lot of investment in Malaysia today, one of the biggest investors, right? And the TPP investment chapter protects all the existing investment in Malaysia by Americans and other TPP countries, as well as the stuff that comes into Malaysia after the TPP comes into force.

So that’s a big stockpile of potential legal liability, like Lynas shareholders, who can already sue Malaysia, much of it held by the most litigious investors in the world, who have a 98% chance of a broad interpretation of their rights. So giving these same rights to the Americans is a big deal, a big extra exposure of legal liability. Because who pays the ISDS award eg when it’s 50 billion USD? It’s the taxpayer. It’s all of you. It’s not magic money, it comes from your pockets.

TPP’s broad definition of investment will expose Malaysia further

In the past, Malaysia’s investment treaties were quite careful, they didn’t protect all the investments, they just protected investments approved in writing. So then at least you have a list, you know who you could be liable to, right? But remember the TPP definition of investment. It’s almost everything under the sun, the bricks and mortar factory, the patents, the shares, the licenses, the permits, it’s not only investments approved in writing.

So last time when Malaysia was sued in the Asian financial crisis, 1997, kan Mahathir put capital controls, you couldn’t take your money out of the country. So there was a Belgian stock broker who had shares in the KL Stock Exchange, and he wanted to take his money out during the crisis, and he could not. So he sued the Malaysian Government under one of these existing treaties, but he lost, because his shares on the stock market were not an investment approved in writing. So he lost. Similar case today, under the TPP, of course he could win, because it protects everything, including shares that are not approved in writing.

Election promises could not be fulfilled: New Zealand

For those of you who are interested in what happens if a government is elected, and they want to carry out the platform on which they were elected, this is exactly what happened in New Zealand:

In New Zealand, the left wing Labour Party government was elected, on a platform of keeping New Zealand’s culture strong, by having local content on TV. This means a certain number of hours per day of New Zealand-made programs. And they have the same policy in Australia. Even though they are English-speaking countries, they don’t want the American programs 24 hours a day. Even though it’s the same language, they say ‘we want our own accent, our own indigenous people, our own history, our own stories.’

And the reason they have to do this is because an American-made program, like Friends, they sell it in America with its 300 million population or something, right? By the time they sell in America, they have covered the cost of production, right? So they can export it to Australia, New Zealand for very cheap. The program is cheaper than the New Zealand-made sitcom, or drama, or documentary, and the same for Australia.

So both Australia and New Zealand wanted to have how many hours per day locally-made programs, actually Malaysia also has, for radio and TV and advertising. New Zealand did not have. The Labour Party was elected on a platform ‘New Zealand culture, we will put back local content on TV.’ But the New Zealand Government, the previous government, the right wing neo-liberal one, had locked open this sector in the World Trade Organization, and so they couldn’t have local content, because they had said ‘we give market access in the relevant service sector, so you can have as many foreign programs on New Zealand TV as you want.’

So even though the New Zealand Labour Party was elected on a platform of local content, when they got into government, they asked for an opinion from the government lawyers, ‘can we do it this way, can we do it that way?’ All four options: were illegal. And they couldn’t change their WTO commitment. Because to change it you must get the consent of all the other countries.

Polish government tried, and got sued

And so this has happened in a number of places. I think there was a Polish privatization that was very unpopular. After the end of the Cold War, everything was being privatized. They got half way through the privatization of something very sensitive, I think health insurance, and then the people said ‘Alamak, it’s a bad idea. We don’t want to sell this off.’

And so the party was elected on ‘don’t privatize the rest of it’. They got elected, they said ‘we will stop it,’ and they got sued under ISDS, for the lost profits the invesetor would have made if the privatisation continued.

Malaysia could be sued by foreign investors like Lynas

For those of you who think a new government elected will stop Lynas, kick them out – Lynas has shareholders from TPP countries. If you kick them out, if they had a license say for 20 years, and every year they were going to make a million dollars, and now you stop them, eg a newly-elected government on a platform to stop Lynas: ‘Democracy, in action, I kick out Lynas since I’ve been elected’. Lynas can say ‘well I would have made a million dollars for each of the remaining 20 years of my permit. Now I can’t make my million dollars a year, I have lost profits of 20 million dollars, you pay me back the 20 million dollars I would have made, because you canceled my permit.’

Further information can be found in the ISDS article. For those who are interested in past US FTA ISDS cases, click here.

Index of the Series

This series contains 20 articles on the TPP, and can be read in any order:

Transcriptions are kept chiefly ad verbatim, with some minor edits for readability. The text has also been checked by Ms Smith for accuracy.

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