Kobe SALAD 2014ISDS and TPP
From the Viewpoint of Japan
Dai TAMADA
Professor of International Law
Graduate School of Law, Kobe University11. Basic terms used in the lecture
・TPP: Trans‐Pacific Partnership Agreement
・ISDS: Investor‐State Dispute Settlement
・SSDS: State‐to‐State Dispute Settlement
・ICSID: International Centre for the settlement of investment disputes
・FTA: Free Trade Agreement
・EPA: Economic Partnership Agreement (= FTA)
・BIT: Bilateral Investment Treaty
・IIA: International Investment Agreement【usage】
・NAFTA is one of FTAs. NAFTA contains the investment chapter (Chapter 11), thus it
is one of IIAs (but not BIT).
・TPP, one of FTA, will contain an investment chapter. So it will become IIA.
・TPP will contain an ISDS clause (probably the ICSID clause) and an SSDS clause.

22. Mechanism of dispute settlement
Home‐State [A]Host‐State [B][a’][a][b]1) International (commercial) arbitration→ Company [a] vs. Company [b]2) ISDS: Investor‐State Dispute Settlement→ Company [a] vs. State [B] → ex. ICSID, ICC, SCC
3) SSDS: State‐to‐State Dispute Settlement→ State [A] vs. State [B] → ex. ICJ, PCA

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3. How does an investment disputearise?
【Ex】 Japanese electricity company vs. State [B]1) [a] obtained a license from [B] to create a nuclear power
plant in [B]2) [a] and [B] concluded an agreement (= investment contract)which regulates the supply price of electricity in [B] and so on.
3) [a] established a power plant (=[a’] = investment) in [B].
4) [B] changed its electricity policy and decided to prohibit theestablishment and operation of all nuclear power plants in [B]and enacted a new law to that end.
5) [a] cannot operate the power plant any more
→ investment disputes!!
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【point】
・dispute between private companies (=investors) andpublic authority (=State, normally Government)【what advice can you give to [a] as a lawyer?】・negotiate with State [B]?
・sue [B] before the court in State [B]?
→ Notwithstanding the new law?
・abandon the power plant?
→ Withdraw from State [B]?
→ huge damage !!
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4. Why is ISDS needed?
1) It can avoid the [B]’s domestic judicial system, which is not
impartial, not independent (from political authority) and noteffective (because of the enacted domestic law).
→ Useless to use the unreliable court of [B]→ ISDS is alternative method of [B]’s Court
2) It can avoid the escalation of dispute from that between [a]and [B] to that between [A] and [B]→ State [B] wants not to enlarge the dispute→ ISDS is alternative method of diplomatic protection3) It can enforce the award more effectively (esp. the ICSIDarbitration) than domestic court’s judgments→ ICSID Convention Art 54 (enforcement)
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5. When can we use ISDS?
【basic requirements】a) [A] and [B] must conclude IIA or BIT, which contains
the ISDS clauseb) [A] and [B] must be the contracting parties to theICSID Convention, if [a] wants to use the ICSID
arbitrationc) Jurisdiction of ISDS is consensual (based on theconsent of both parties) → [B] agrees to jurisdiction
at the conclusion of IIA. [a] agrees when it submits
application to the ISDS
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6. What can [a] claim before ISDS?
【basic obligations contained in IIA】
a) Expropriation clause: [B] can expropriate (=nationalise)
the investment (=[a’]) under the condition of (i) public
purpose, (ii) non‐discrimination, (iii) due process and (iv)compensationb) NT (national treatment clause): [B] must treat [a] and[b] equally, without discriminationc) MFN (most‐favored‐nation clause): [B] must treat [a]and [c] equally, without discrimination
8d) FET (faire and equitable treatment clause): [B]must be consistent and transparent in its policye) Umbrella clause: [B] must abide by the agreement(= investment contract) between [a] and [B]f) ISDS clause: [a] can sue [B] before ISDS arbitrationg) others: PR (performance requirement), denial ofbenefit, definition of investors and investment
9【Question】
In the above mentioned case, what can theJapanese electricity company claim before
ISDS? → let’s think about the answer !!
・expropriation? → indirect expropriation
・NT? → target of the law
・MFN? → any company from third State?
・FET? → inconsistent or not transparent?
・Umbrella? → any agreement?
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7. Advantages and disadvantagesof ISDS
【Advantages】
・able to protect foreign investments and to promoteforeign investments (the safe investment environment in[B])【Disadvantages】
・limitation of regulatory power (ex. health, environment,tax, education)
・discrimination between [a] and [b] (only merits to [a])→ too advantageous to foreign investors (as many ISDS
cases show)11

【Example case】
Philip Morris vs. Uruguay
Company [a] claims that (i) trade mark on tobaccocase is an intellectual property right protected underthe IIA as ‘investment’, (ii) the plain‐packaging policy(health policy) of [B] prohibits the use of trademark
by [a], (iii) thus, this policy is equivalent to an illegal
expropriation of investment.

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8. Evaluation of ISDS in TPP【Negotiation process】
・confidential negotiation → the draft text is not opened.
・TPP will contain the ISDS clause (Nikkei newspaper).
・the content of ISDS clause is under negotiation.
・negative stance: AUS, Vietnam …
・positive stance: USA, Japan→ important topic is the ‘safe‐guard’ of ISDS
・without the ISDS clause, the protection of investment
under the TPP (investment chapter) will not be effective…
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【Some relevant cases】a) American investors will sue the Japanese
Government? → ex. LSF‐KEB Holdings SCA and others
v. Republic of Korea (ICSID Case No. ARB/12/37)b) Japanese companies will sue other States’
governments? → ex. Saluka (subsidiary of Nomura)vs. Czech Republic, PCA

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9. Exercise
・[a] has a dispute with [B]. You are working as a in‐houselawyer of [a]. What advice can you give to [a]?
【Case 1】Company [a] is an oil company. It concluded anagreement with State [B], which allows [a] to drill the oilfield and fixes the share of profit on 50‐50 between [a]and [B]. After a great success of [a] and more profitable
results than expected, State [B] decided to impose a newoil tax mechanism on every oil company in [B], byenacting a new law. [B] justified its actions by the public
opinion and its history of exploitation.
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【Case 2】
Company [a] is a food company and concluded anagreement with State [B] with regard to providing afixed amount of food to the military section of [B].
After that, State [B] found Company [c], of State [C],which can provide the same food at cheaper price.
State [B] decided to terminate the agreement withcompany [a] and justified this by its public purpose
and contribution to the public interest of State [B].

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Information
・If you have any question, please send e‐mail:tamada@port.kobe‐u.ac.jp
・If you are interested in public international law at
Kobe University, see ‘Kobe University Centre forInternational Law’: http://www.edu.kobe‐u.ac.jp/ilaw/index_e.html
・FDI Moot 2014: http://www.fdimoot.org/→ from 21 to 23 August, in Seoul. This year, Kobe
University team will participate in it for the firsttime.
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