Credit: Original article can be found here
On February 21, 2023, the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) formally entered
into force for Chile, after undergoing an intense, four-year
legislative process. The CPTPP covers the full range of modern
trade agreements, including market access for goods and services,
public procurement disciplines, temporary entry, and investment
protection, among others. Despite the CPTPP’s entry into force,
the future of investor-State dispute settlement (ISDS) in Chile
remains a point of controversy.
Chile and the CPTPP
Eleven countries signed the CPTPP in Santiago, Chile, on the
March 8, 2018, after they, all members of the original
Trans-Pacific Partnership (TPP), regrouped and relaunched the TPP
as the CPTPP following President Trump’s withdrawal of the
United States. The CPTPP entered into force on December 30, 2018
for the six countries that ratified it by that date (Australia,
Canada, Japan, Mexico, New Zealand and Singapore). It entered into
force for Vietnam on January 14, 2019, for Peru on September 19,
2021, and for Malaysia on November 29, 2022.
The Chilean Senate approved the CPTPP on October 11, 2022. The
Chilean Government deposited its instrument of ratification
notifying the conclusion of internal legal procedures on December
22, 2022. The CPTPP formally entered into force in respect of Chile
on February 21, 2023 (pursuant to Supreme Decree No. 318 of
2022).
Following Chile’s ratification, Brunei is now the only
signatory to the CPTPP whose ratification process is still ongoing.
At the same time, several countries, including the United Kingdom,
China, Ecuador, Costa Rica, and Uruguay, have expressed their
desire to accede to the CPTPP. The United Kingdom’s accession
process is currently under examination pursuant to the CPTPP’s
“high standards,” with the 7th meeting of the
CPTPP Commission due to take place in New Zealand in 2023.
The CPTPP is a comprehensive trade, investment, and economic
integration agreement. It incorporates by reference the provisions
of the TPP (itself not in force), with the exception of a targeted
subset of suspended provisions that had originally been U.S.
“asks” and that the remaining members decided to set
aside in light of the U.S.’s withdrawal. The CPTPP
incorporates, for example, detailed rules from the TPP concerning
market access for goods and services, rules of origin, sanitary and
phytosanitary measures, and the protection of the environment. It
also provides for rules on financial services, intellectual
property, labor, the temporary entry of business persons,
telecommunications, electronic commerce, government procurement,
competition, and investment. By signing the CPTPP, its signatories
have expressed their dedication to maintaining open markets,
increasing world trade, and creating new economic opportunities for
people of all incomes and economic backgrounds.
The Protection of Foreign Investors in Chile Under the
CPTPP
The CPTPP incorporates a chapter from the TPP dedicated to the
protection and promotion of foreign investment. The chapter is
essentially an update of the original investment chapter in the
North American Free Trade Agreement (NAFTA) that incorporates
innovations in the updated Canadian and U.S. model bilateral
investment treaties (BITs) that were elaborated since NAFTA came
into force in 1992. These rules are intended to provide greater
certainty and legal protection for investors competing on an equal
footing with other investors, while balancing the rights of
governments to legislate and regulate in the public interest. For
instance, following the example of NAFTA, the CPTPP ensures that
foreign investors shall receive treatment no less favorable than
accorded to domestic or other foreign investors in like
circumstances. Moreover, foreign investors are entitled to fair and
equitable treatment and full protection and security in accordance
with customary international law principles and are protected in
case of direct or indirect expropriation of their investment. The
CPTPP also incorporates rules on the transfer of funds, performance
requirements, and rules on senior management and boards of
directors of companies, all part of the original NAFTA text.
Crucially, the CPTPP provides that, in the event of a dispute, a
foreign investor may bring a claim against a CPTPP Contracting
Party before an international arbitral tribunal. As a result, a
foreign investor coming from another CPTPP country and with a
dispute with Chile may rely on these provisions to resolve the
dispute before a neutral forum created specifically for these types
of dispute.
Going forward, the CPTPP will provide a robust dispute
settlement mechanism to foreign investors from other CPTPP
countries who make investments in Chile for their investment
disputes. Based on recent developments, this ISDS mechanism may
appeal to foreign CPTPP investors in Chile should a dispute with
the Chilean state arise. Since the beginning of 2023, it has been
reported that Chile has been put on notice by a U.S. investor under
the Chile-United States Free Trade Agreement (FTA) and by a
UK-based company under the Chile-UK BIT. It was also threatened
with another investment claim by a Canadian investor under the
Canada-Chile FTA. Two more disputes brought by French and Colombian
investors against Chile under the Chile-France BIT and the
Chile-Colombia FTA, respectively, are currently pending.
Mind the Fine Print: Chile’s Proposed “Side
Letters” on ISDS and Other Declarations
Notwithstanding the entry into force of the CPTPP in respect of
Chile, foreign CPTPP investors in Chile must be mindful of the
“fine print” that may prove to play a crucial role in the
scope of their protection.
For example, Chile attempted to modify some of the provisions of
the CPTPP prior to its entry into force through the signing of
“side letters.” These side letters were aimed at
modifying the provisions of the CPTPP for the signatory CPTPP
Contracting Parties.
This has also happened in the past with other CPTPP countries.
On March 8, 2018, New Zealand signed similar side agreements with
five CPTPP partners that either excluded ISDS completely (as was
the case between New Zealand and Australia and Peru) or severely restricted access to ISDS
(as was the case between New Zealand and Brunei, Malaysia, and Vietnam).
Chile’s strategy, however, produced few results. On February
17, 2023, Chile and New Zealand reached an agreement to exclude recourse to ISDS against
Chile or New Zealand by investors of their respective countries.
Given the contradictory reports in the press, it is unclear whether
Chile has signed similar “side letters” with Mexico and
Malaysia (see here, here, and here).
Other CPTPP Contracting Parties declined to accede to
Chile’s proposed side letters. In other words, this means that
the general ISDS provisions in the CPTPP will apply between Chile
and the CPTTP Contracting Parties, with the sole exception of New
Zealand.
Apart from these “side letters,” several CPTPP
countries have signaled their intention to monitor and adapt ISDS
in light of evolving practices in the ISDS field. For example, on
November 17, 2022, Canada and Chile issued a Joint Declaration on Investment Treaty
Practice, announcing their intention to work together on
matters relating to the “evolving practice” of
international investment agreements and ISDS as part of their
ongoing review and implementation of the CPTPP and the Canada-Chile
FTA.
This bilateral declaration mirrors the language of a previous Joint Declaration between Canada, Chile, and
New Zealand on ISDS. Even though the Joint Declaration reaffirms
the right of those countries to regulate in their territories to
achieve legitimate policy objectives, it nonetheless recognizes
“the strong procedural and substantive safeguards that are
included in the Investment Chapter of the CPTPP,” as well as
the need to ensure that small and medium-sized enterprises are able
to fully benefit from these investment protections at a reduced
cost. Moreover, the Joint Declaration signals their intent to
“consider evolving international practice and the evolution of
ISDS including through the work carried out by multilateral
international fora”. This may be a reference to the ongoing
work of Working Group III on the Investor-State Dispute Settlement
Reform of the United Nations Commission on International Trade
Law.
None of these declarations reflects an intention to do away with
ISDS entirely. To the contrary, as things currently stand, the
CPTPP provides robust investment protection under a modernized
framework to a broad and likely increasing cross-section of
countries around the Pacific (and beyond, given the UK’s
current efforts to accede to the Agreement).
Foreign investors operating in Chile therefore should be mindful
of the current developments and the new substantive and procedural
rights the CPTPP accords them, while carefully considering the
“fine print” of Chile’s specific carve-outs targeting
selected CPTPP Member States.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.