The Investment Protocol to the CER, signed today between New Zealand and Australia, is an ambitious undertaking which adds a new dimension to trans-Tasman economic relations.
The Protocol is much more than a simple agreement to reciprocally raise screening thresholds for trans-Tasman investments (which have been increased to $477m for inbound Australian investments in New Zealand non-land business assets). Indeed, that change is found only in the detail of the Annexes to the Protocol.
Rather, the Protocol is a form of bilateral investment treaty (or BIT) which now accords trans-Tasman investors with a suite of broad international law rights in addition to those enjoyed by domestic investors of either country, including:
- the right to national treatment (Article 5);
- the right to most favoured nation treatment (Article 6);
- the right to “fair and equitable treatment” and “full protection and security” as thoseconcepts are understood in international law (Article 12);
- freedom from performance requirements (Article 7); and
- freedom from expropriation without full market compensation (Article 14).
The broad scope of those rights – which can be invoked with respect to any governmental measure – has been qualified by Annexes which exempt certain laws and sectors, by side-letters between the parties and by general exception provisions which permit governmental conduct pursued for social, security and environmental reasons and to fulfil obligations under the Treaty of Waitangi.
Nonetheless, these are powerful new international law rights, very similar in scope to those granted by New Zealand to Chinese investors in Chapter 11 of the NZ-China FTA.
What is different is the method of enforcement: a Chinese investor which considers its rights to be breached can sue the New Zealand government directly before an international arbitral tribunal. That option is not permitted in the Protocol. The only remedy is governmental consultations. Thus, in many respects (other than screening thresholds), a Chinese investor remains in a superior position to an Australian investor. In time, we can foresee innovative attempts by trans-Tasman investors to seek to invoke these powerful international law rights in some way before New Zealand and Australian courts.