Introduction
The CPTPP
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is the product of eventual evolution of the Trans-Pacific Partnership Agreement (TPP). The Trans-Pacific Agreement (TPP) was a trade agreement proposed between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam & the US signed on 4 February 2016. However, in January 2017, the US withdrew from the agreement at the behest of the Former President of the US Donald Trump. The other 11 countries revived & concluded a revised version of the same, called Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP) in May 2018. The goal of the initial agreement was to create a platform for the Asia Pacific region’s economic integration and collective growth. The CPTPP constitutes one of the world’s largest regional free trade and investment agreements, focusing on a combined GDP of US$10 trillion- a whooping estimate of 13.5 percent of the global GDP affecting 495 million people and over 15 percent of the global trade.[1]
The highlight of the CPTPP has to be its impact on the Investor State Arbitration scenario in the Asia-Pacific region. While there has been a constant back and forth on the subject of whether investor-state arbitration should have any correlation to the developing generation of the free trade and bilateral investment treaties (BITs). In contrast to Europe’s and America’s aversion towards investment treaty arbitration the Pacific Rim has shown inclination to an arbitration-based model of making investment adjustments.[2] On a similar note, the development of the RCEP constitutes the world’s largest trade bloc, dealing with an estimate of roughly 30 percent of global gross domestic product (GDP) and representing over 2 billion individuals.[3]
The RCEP
The RCEP (Regional Comprehensive Economic Partnership) which concluded in November 2020, observes Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand & Vietnam that shall be effective from 1 January 2022. In principle, it is an updated, modern and well formulated free trade agreement covering trade of goods, economic & technical cooperation, in services, investment while developing new procedures for the world of e-commerce, intellectual property, state assessments, competition & SMEs. RCEP has been recognised as a trade agreement with the capacity to shape not just global economies but also world politics. Specialists estimate that the CPTPP along with the RCEP will offset trade losses incurred in events such as losses from the U.S.-China trade war, although not for China and the United States. The new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources.[4]
It can be very well concluded that the CPTPP and the RCEP are significantly stake inducers in the multilateral investment agreements of recent times. In the Pacific Rim especially, incremental changes have been the major topic of discussion- the reasons vary from adjustment of scope of treaty provisions to ensure transparency, which has been the major criticism against investment treaty arbitration proceedings.[5] The essence of the arbitration as the standard mechanism is more widely accepted for resolving investor state disputes, despite the concerns raised in US and Europe.
Impact of the CPTPP and the RCEP on Investment Arbitration in India
Prime Minister Narendra Modi’s decision of withdrawal with respect to China and 14 other nations being part of the RCEP, namely the world’s largest free trade bloc, shook the world and led experts to term it as a colossal loss to the Indian economy causing a divide in the region. There are two important aspects of the issue that need to be addressed. Firstly, India’s role in the Asia Pacific trade scenario with regard to its investment arbitration system and secondly, what would have happened had India become a part of the same.
The Indian Investor-State Arbitration has seen a substantial shift and it acknowledges the possible consequences of the setup due to the old models of Bilateral Investment Treaties, which led to the development of the newly negotiated BITs with a new model. India also witnessed the review of Institutionalism of Arbitration Mechanism in India. Currently, with the BITs undergoing changes, the status of investment and its promotion along with investor security is non-existent.
This is reason enough to understand that the nation might spiral into a state of trade inconsistency and investment ambiguity. Therefore, in order to strike a balance between India’s right to control with investor security needs, an alternate mechanism is required. While policies to encourage investment can be a starting point, the deeper cause is to deter conflicts from arising and bring in effective handling of investor-State disputes settlements more effectively.
For a nation like India with a history of close to 25 investment arbitrations and developing trade relations in the global market, it becomes comparatively more important to ensure that the right concerns are raised at the appropriate platform and also, addressed. India was of the view that with China backing the agreement, these concerns were side-lined. The RCEP trade agreements were rather becoming equivalent to a threat against the rules of origin because of tariff differentials. Therefore, India sought a fair agreement on the points of trade deficit and services’ norms.[6] Had India chosen to not withdraw from the agreement, it would have compromised its economic integrity at the mercy of the Asian-Pacific Rim, despite its trade alignment with powerful states like the US and Europe. Technically, the deal would have led to import duties being brought down by 80-90 percent on various goods. Eventually, this would have led to a flood of imports causing a massive trade deficit.[7] It is evident that the RCEP is a triumph of the ASEAN’s middle power diplomacy and it will accelerate the Northeast Asian economic integration. The eventual premise is whether India’s participation had a positive outcome for India in light of its lukewarm Investor-state arbitration scenario.
The RCEP contains 20 chapters dealing with a variety of matters ranging from including trade, investment & competition. It does appear to be an opportunity to eventually progress the investment liberalisation, promotion and regimes to protect as applicable to the RCEP parties, many of which had international investment agreements (IIAs) among themselves.[8] However, on closer look, the Investment chapter has not made major refinements to parties’ existing international investment arbitration (IIAs), forcing parties to work on a lowest common point amongst parties, which shall technically pull back certain nations in their trade exercises.
While the CPTPP allows for a so called ‘modernised’ form of investment arbitration, which has provided investors with the capacity to initiate arbitration without referrals to domestic resources.[9] The CPTPP therefore, allows investors to exercise multiple options when it comes to commencing arbitration against host states. Meanwhile, the RCEP Investment chapter also does not contain an investor-state dispute settlement (ISDS) mechanism, as the agreement provides that the parties failed to reach a consensus on the subject.[10] Therefore, if a RCEP party breaches an obligation under the agreement, the investor would have to make a request to the home state for the claims to be escalated. It is the home state which would then institute a claim under the RCEP.
Although the agreement has Chapter 19 which specifies an all-purpose state to state dispute settlement mechanism. This leaves parties at the liberty to exercise the option of resolving their dispute based on individual IIAs based on the rights and obligations as stated in the RCEP. For India, this in no way, is a solution. While India is in the process of revamping the trade standards when it comes to investment-state disputes based on the treatment of old BITs and the onset of the new BITs, it will only lead to the country eventually suffering from the lack of regulations and individually catered reforms. India may have lost massive investments by opting out of the agreement; however, it can also be concluded that the opt-out has protected its vulnerable sections’ consumers from paying for goods.
Need for a better Mechanism
The cost and benefit analysis of the impact of regional agreements like the CPTPP and the RCEP depends on the amount of the trade creation in comparison with respect to trade diversion. Addressing whether India missed out on being part of a global value chain is at par with whether the RCEP would have made a significant impact based on the fact that India has bilateral agreements with 11 out of 15 countries of the RCEP. A multilateral agreement with ASEAN countries was in place, so trade between India and 12 of the RCEP member countries would not have changed much due to India’s inclusion.[11] Therefore, the RCEP in the truest sense would not have had a major impact on the nation’s trade trajectory and with its lack of dispute redressal mechanism, the investor-state dispute scenario would have also not been much different. At present, India needs to focus on developing a stronger dispute resolution mechanism using legislative and trade influences.
As tribunals constituted under the CPTPP’s ISDS mechanism may only award, standalone i) monetary damages & interest thereon, ii) restitution of property or punitive damages.[12] The RCEP provides remedies limited to particular findings by the panel resulting in a report stating the failure of the home state in its obligations under the RCEP.[13] Therefore, for India to access its standpoint between these two trade agreements, there is a revival of investment arbitration mechanisms required.
The attribution of key long-standing arbitration proceedings which had been initiated by foreign investors against India under international investment treaties called for global attention.[14] These disputes had led to the investors’ states to challenge the measures taken by Indian Government & states which led to adverse impact on investment proceedings.
As discussed, by introducing a shift in the Bilateral Treaty Framework the need for a global trade agreement could be disposed of. As per the data from Indian Dept. of Economic Affairs website, since 2016, 69 out of 84 BITs have been terminated on several dates.[15] On January 25, 2020 India signed the Investment Cooperation and Facilitation Treaty with Brazil.[16] It is important that India witnesses the impact of the treaty on the status of its varying trade deficits with other nations, before signing trade agreements.
Reports of proposed National Legislation for Investor-State Disputes in January 2020 had been brought up, suggesting that India is considering domestic law enactment for protection of foreign investments in India, based on a robust dispute resolution mechanism & unequivocal investment protection guarantees.[17] The Finance Ministry has also stepped in with recommendations to develop mediation & establishment of special fast-track courts to resolve investor-State disputes, while also considering the jurisdiction to be with the National Company Law Tribunal (NCLT).
Unless these developments are given the right space and time to pan out, India shall remain in the position of constant tussle between increasing global investment opportunities and the possibility of lack of proper legislation to deal with the consequences thereof.
Conclusion
India, in the glory of its trade integrity and progression of self-created opportunities, heavily depends on foreign investment.[18] It, therefore, becomes imperative that the nations allow proper assessment of how these agreements turn out for the other nations in the Asian-Pacific Rim. The essential aim of these agreements is to pinpoint a common ground for the countries to seek out global investment opportunities while encouraging investment state dispute redressal to have a uniform setting over the whims of domestic laws, which eventually cause investors to pull out from the setup. The lack of framework to deal with BITs issues in India, is already acting as a hindrance to investors showing interest in the aspect of dealing with India on the trade front. While the CPTPP and RCEP aim at bringing in uniformity and developing a set of standards for the nations to follow, allowing Asian-Pacific region to actually compete in the global trade standoff and increase investment capacity, however, the same shall not pan out in the way intended based on the discrepancies in the way the agreements deal with issues, especially investment dispute redressal. While some may term India’s decision to withdraw from RCEP, a political manoeuvre, it cannot be denied that India is not in the capacity to deal with the wrath of foreign investors without a legal framework backing it. With the RCEP, being entirely focused on the home-state’s acknowledgment of the dispute, the same shall in any way, hinder investors from considering India to be part of their venture.
In conclusion, India is not missing out on a lot of opportunities, considering its relations with the RCEP nations, and with no bar existing on India’s control of exercising its trade option, without having to worry about import surges leading to trade deficits is an additional benefit. In light of the developing status of investor-state dispute arbitrations in India, along with the changes surrounding the trade mechanisms of the nation, need to be taken into deep consideration, despite the initial benefits of the CPTPP & RCEP. As with RCEP, the economic concessions offered by CPTPP are not a leap of faith India is ready for.
[1]Ministry of International Trade and Industry of Malaysia, https://fta.miti.gov.my/index.php/pages/view/71.
[2] Peter Baker, Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal, THE NEW YORK TIMES (January 23, 2017), https://www.nytimes.com/2017/01/23/us/politics/tpp-trump-trade-nafta.html.
[3] Joint Leaders’ Statement on the Regional Comprehensive Economic Partnership (RCEP) (15 November 2020), https://www.meti.go.jp/press/2020/11/20201115001/20201115001-1.pdf.
[4] RCEP: A new trade agreement that will shape global economics and politics, https://www.brookings.edu/blog/order-from-chaos/2020/11/16/rcep-a-new-trade-agreement-that-will-shape-global-economics-and-politics/
[5] Singapore sees “strong political will” to finish China-backed trade talks by end-2018, REUTERS (March 2, 2018), https://www.reuters.com/article/us-asean-singapore-rcep/singapore-sees-strong-political-will-to-finish-china-backed-trade-talks-by-end-2018-idUSKCN1GE1FM;
[6] 15 Asian nations sign China-backed RCEP; here’s why India withdrew from the world’s biggest trade pact, MONEY CONTROL, (November 17, 2020, 03: 36 PM), https://www.moneycontrol.com/news/business/15-asian-nations-sign-china-backed-rcep-heres-why-india-withdrew-from-the-worlds-biggest-trade-pact-6123061.html
[7] Id at 6.
[8] Michael Ewing-Chow & Junianto James Losari, The RCEP Investment Chapter: A State-to-State WTO Style System for Now, KLUWER ARBITRATION BLOG, (December 8, 2020) http://arbitrationblog.kluwerarbitration.com/2020/12/08/the-rcep-investment-chapter-a-state-to-state-wto-style-system-for-now/
[9] Stephan W Schill and Geraldo Vidigal, ‘Cutting the Gordian Knot: Investment Dispute Settlement à la Carte’, RTA Exchange, Section 4.1 (November 2018), https://uncitral.un.org/sites/uncitral.un.org/files/rta_exchange_-_investment_dispute_settlement_-_schill_and_vidigal.pdf.
[10] Art 10.18 of RCEP.
[11] Jain M, Was India Right in Not Joining RCEP? A Cost–Benefit Analysis, INDIA QUARTERLY. 2021;77(4):542-559. doi:10.1177/09749284211047728.
[12] TPP/CPTPP, Art. 9.29(6).
[13] RCEP, Art. 19.15.
[14] Bhavana Sundar & Khsayama A Loya, Investment Arbitration and India: 2020 Year in Review, THE NATIONAL LAW REVIEW, (Feb 25, 2021) https://www.natlawreview.com/article/investment-arbitration-and-india-2020-year-review.
[15]Department of Economic Affairs, Bilateral Investment Treaties (BITs)/Agreements, https://www.dea.gov.in/bipa.
[16] Department of Economic Affairs, Bilateral Investment Treaties (BITs)/Agreements, https://dea.gov.in/bipa?page=8.
[17] Aditi Shah & Aftab Ahmad, Government plans new law to protect foreign investment, THE MINT, (Jan 15, 2020) https://www.livemint.com/news/india/government-plans-new-law-to-protect-foreign-investment-11579084078405.html.
[18] Bhavana Sundar & Khsayama A Loya, Investment Arbitration and India: 2020 Year in Review, THE NATIONAL LAW REVIEW, (Feb 25, 2021) https://www.natlawreview.com/article/investment-arbitration-and-india-2020-year-review.
