CER Investment Protocol – a bit more extensive than one might think?

This article first appeared in Australasian Legal Business Online on 1 March 2011.

The Investment Protocol to CER (Protocol), signed on 16 February 2011, is a wide ranging treaty which adds a new dimension to trans-Tasman economic relations, the significance of which has not been fully grasped in the media.

One would be forgiven, based on the official announcements and recent commentary, for thinking that the Protocol is a short agreement to reciprocally raise screening thresholds for trans-Tasman investments.  It does do this1 but only in the Annexes, as a qualification to new rights extended in the substantive part of the Protocol.

The arguably more significant development is that the Protocol is a bilateral investment treaty (or BIT) and – as such – accords trans-Tasman investors a suite of international law rights distinct from and additional to those enjoyed by domestic investors.  ​

New rights extended by the Protocol

The Protocol now gives trans-Tasman investors the following new rights:

  • the right to national treatment (Article 5), including no discrimination by nationality as to composition of senior management and boards of directors of any enterprise
  • the right to most favoured nation treatment (which does not extend to dispute settlement procedures) (Article 6)
  • the right to “fair and equitable treatment” and “full protection and security” as those concepts 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 these 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 fulfill obligations under the Treaty of Waitangi. 

Nonetheless, these are powerful new rights, very similar in scope to those already granted by New Zealand to Chinese investors, and by Australia to United States investors.  The important difference is that – as explained below – Chinese investors are able to enforce those rights, but trans-Tasman and United States investors are not.

What is a BIT?

BITs are specialized investment treaties, of which over 3000 have now been executed globally, most since the 1990s.  BITs are either executed on a stand-alone basis, or as chapters of free trade agreements (FTAs)Traditionally, they have been entered into between developed and developing countries, with a main purpose of providing a special layer of stability and protection for foreign investors.  That protection is bound at international law, and thus cannot be altered by changes to domestic law. 

Although there is drafting variation between BITs, they are based on a conventional template which gives foreign investors a menu of defined rights and, usually, an enforcement mechanism to vindicate those rights through direct arbitration proceedings against the host state. 


The most well-known BIT is probably Chapter 11 of the North American Free Trade Agreement (NAFTA)The evolving arbitral case law under NAFTA has proved controversial on occasion.  Both Canada and Mexico have lost NAFTA cases and been ordered to pay substantial compensation to investors.  In October 2010, the Canadian government settled with a foreign investor (AbitibiBowater Inc) for CA$130m, after Newfoundland legislation removed water and timber rights which had been vested in that company.  The United States has not yet lost a NAFTA case. 

New Zealand has recently stepped gingerly into the BIT world, including fully effective BITs in its FTAs with China (2008), the ASEAN countries (2009) and Malaysia (2009).   Australia has fully effective BITs in its FTAs with Chile (2008), the ASEAN countries (2009), Singapore (2003) and Thailand (2004), as well as separate BITs with India, Peru, Vietnam and 15 other countries.

Chapter 11 of Australia’s 2005 FTA with the United States (AUSFTA) included the usual menu of BIT rights, but did not include a direct enforcement mechanism.  In making this policy decision, the state parties agreed that the Chapter 11 rights could not be invoked by an investor either internationally or before either party’s domestic courts.  Thus, Article 21.15 of AUSFTA requires that: “[n]either Party may provide for a right of action under its domestic law against the other Party on the ground that a measure of the other Party is inconsistent with this Agreement”.  This approach, whilst insulating against potential state liability, also renders the treaty rights practically ineffective.

Are the Protocol’s new rights illusory?

Prior to the Protocol, New Zealand and Australia had not negotiated BIT rights with each other.2   An important question for both countries was whether to follow the approach of the NZ China FTA and render the new BIT rights enforceable, or the approach of AUSTFA and provide for no enforcement mechanism.

The latter option was selected.  A direct enforcement mechanism is not included in the Protocol.  The only recourse is governmental consultations (see Article 25). 

Accordingly, as matters stand, investors in New Zealand from China and the ASEAN region, and investors to Australia from India and the ASEAN region, can initiate proceedings to seek compensation for alleged breaches of their BIT rights.  But trans-Tasman investors, even though they have been accorded the same essential rights, cannot. 

This is a rather surprising result, given the warm words exchanged between Prime Ministers Gillard and Key about ensuring closer economic integration.  No investor-state cases have yet been brought against Australia or New Zealand.  If and when such cases are commenced, controversy is likely to arise not only around the substantive rights given to foreign investors, but also around the enforcement and compensation rights not given to trans-Tasman investors.   

It may be that in time we will see innovative attempts by trans-Tasman investors to seek to invoke these international law rights in some way before New Zealand and Australian courts.  Unlike AUSFTA, the Protocol does not contain any express prohibition on extending domestic law remedies for a breach of the Protocol.  Any attempts to obtain a domestic remedy would engage the case law on the enforcement of unincorporated treaties before domestic courts.  Techniques which have been tried before, and may be tried again, include treating the international treaty as creating a relevant consideration for governmental decision-making (e.g. Tavita v Minister of Immigration [1994] 2 NZLR 257 (CA)) or even a legitimate expectation (e.g. Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 (HCA). 

It may also be that the Trans-Pacific Partnership negotiations, involving the United States, Australia and New Zealand, will result in a new investment chapter which contains its own enforcement and compensation mechanism.  This remains to be seen. 

For further information, please contact the lawyer featured.
Daniel Kalderimis is a principal at Chapman Tripp specialising in international arbitration, trade and investment law.


1.   Australian investment in New Zealand non-land business assets is now screened at NZ$477m (rather than NZ$100m), and New Zealand
      investment in non-sensitive sectors of the Australian economy is now screened at A$1004m (rather than A$231m).  This is a significant
      practical change, and gives New Zealand investors into Australia the same preference extended by Australia to United States investors.

2.   Indeed, whilst both countries were party to the 2009 FTA with ASEAN countries, they exempted the investment chapter of that FTA from
      trans-Tasman application through an exchange of side-letters. 

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