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

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 (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...