Segmentation and Side Letters: New Zealand’s Experience with ISDS in the CPTPP

Abstract

Following the United States withdrawal from the Trans-Pacific Partnership (TPP) in 2017, the remaining states agreed to suspend a number of provisions and conclude the agreement between themselves. The new agreement was renamed the Compressive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and was signed in March 2018. One of the most controversial aspects of the agreement is the investor-state dispute settlement mechanism (ISDS), which allows investors to bring arbitration claims against contracting states. At the time the agreement was signed, New Zealand agreed to five bilateral ‘side-letters’ with certain member states agreeing to limit the application of the ISDS clause.

This paper explores New Zealand’s shift from a bilateral approach to international investment agreements to a multilateral approach, then back to a form of bilateralism within the multilateral CPTPP. The side letters can be characterised as subsequent agreements which modify a multilateral agreement between some of the parties, under art 41 of the Vienna Convention on the Law of Treaties. While this paper concludes that the mechanism is legally valid, the practical effectiveness is undermined by New Zealand’s overlapping previous agreements, the possibility of treaty shopping and the prospects of further countries acceding to the CPTPP.