Expanding Melanesian Spearhead Group Agreements to Promote and Support Intra-Regional Investment

The MSGTA in its current form The MSGTA is designed to promote and facilitate the free flow of goods and services by the gradual and progressive removal of tariff and non-tariff barriers to trade between the member States. Similarly, the Agreement requires members to take appropriate measures to facilitate, strengthen, consolidate and diversify the trade between parties on a long-term and stable basis. Despite the inclusion of Most-Favoured Nation treatment (MFN) and articles which promote ‘administrative cooperation’ the application of the current MSGTA is limited to trading activities as opposed to investment, or for addressing labour mobility. Increased intra-MSG Member investment into each other’s economies is increasing, however a company from a Member State investing in another’s economy is still treated under the recipient country’s investment promotion laws as a foreign entity. Foreign Investment within international law The challenge for international treaties is that there is no single type of international agreement or universal principle that can be used solely for the promotion and deregulation of foreign investment in international law. Typically, hybrids of different types of agreements have been used. An International Investment Agreement (IIA) is a type of treaty between countries concerning issues relevant to foreign investments, usually for the purpose of protection, promotion, regulation and liberalisation of such investments.[1] Free Trade Agreements (FTAs), on the other hand, are mechanisms for trade liberalisation which aim to eliminate barriers to trade by reducing tariffs and other restrictions.[2] In more recent times FTAs have incorporated IIA-type investment provisions. For example, Chapter 11 of North American Free Trade Agreement (NAFTA)[3] is an important codification of the promotion of international investment. Its chief aim is to protect the interests of foreign investors while promoting the liberalisation of international investment,[4] and it applies to measures adopted or maintained by a Party (member State) in relation to investors and investments made by investors, of another Party. Similarly, the impending China-Australia Free Trade Agreement (ChAFTA) also incorporates elements of an IIA. Significantly, ChAFTA will open up access in China for providers of architectural, tourism, and healthcare sectors, which will make it easier for Australian and Chinese businesses to operate domestically.[5] As with most international treaties, the wording of the principle is very important. Taking Chapter 11 of NAFTA as an example, it states that: “each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.”[6] NAFTA also codifies the requirement to extend MFN treatment to potential investors in other Articles in Chapter 11.[7] In combination, these provisions work to encourage foreign direct investment by imposing common principles on all parties in order to ensure a secure and predictable environment for investment.[8] In practice this is achieved by relaxing domestic foreign investment laws. In Canada for instance under the Investment Canada Act, the threshold for foreign investment requiring review by Investment Canada was greatly increased for NAFTA countries which had the effect of incentivising foreign investment by other NAFTA parties.[9] Despite this, NAFTA further provides that a party is not prevented from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments, provided that such formalities do not materially impair the treatment afforded under the MFN clause.[10] This suggests that procedural requirements involved in ‘carrying on business’ are not circumvented by the application of NAFTA[VS1] . ‘Carrying on business’ Requirements Each of the MSG member countries has foreign investment rules which require foreign entities to comply with before domestic investment is permitted. There is inconsistency between each country’s legislation and the glaring difference is that regulatory requirements defining ‘carrying on business’ vary. Typically a foreign investor will be caught under the relevant legislation when entering into a contract, applying for a licence or lease, dealing with property in a business capacity, maintaining an office or engaging in a project. Upon triggering this legislation, foreign investment approval from the relevant authority is required in order for a foreign investor or foreign person to ‘carry on business’ in the jurisdiction. The application process to obtain foreign investment approval in several of the jurisdictions can take some time. Once approved, any variations or amendments to the business activities of a foreign investor usually require a variation to their foreign investment certificate. Ongoing regulatory scrutiny also exists for foreign investors, for example, in Papua New Guinea law requires a foreign company to be certified as a foreign company prior to entry into a contract. A failure to do so may lead to the contract being found to be void.[11] Each jurisdiction restricts foreign investment in certain industries which are reserved for local businesses. These proscriptive regulatory requirements arguably limit the effectiveness of trade and investment promotion activities within the MSG. What do we suggest? Liberalising regulatory hurdles in these Pacific jurisdictions is likely to stimulate economic growth and provide for a more profound level of business engagement. NAFTA and ChAFTA demonstrate how the inclusion of provisions specifically concerning investment can be used in conjunction with trade agreements to achieve this outcome. While the inclusion of an investment chapter in the current MSG trade agreement could allow MSG countries to collectively encourage trade between the countries, careful consideration needs to be given by law and policy makers in relation to legislative regimes like the ’carrying on a business’ requirements. Decision-makers should consider the draft text of an investment chapter and the method by which the text can be incorporated into the existing framework in a meaningful manner. [1]International Investment Agreements: Key Issues UN Publication UNCTAD/ITE/IIT/2004/10 (2004) 113 [2] Russel Thirgood, ‘Bilateral Treaties – providing unlimited opportunities’ The Global Legal Post (online) 7 January 2014 <http://www.globallegalpost.com/global-view/bilateral-investment-treaties---providing-unlimited-opportunities-58721287/ > [3] North American Free Trade Agreement, United States, Canada, Mexico, signed 8 December 1993, entered into force 1 January 1994 (32 ILM 289, 605 (1993) [4] Bronwyn Pavey and Tim Williams, ‘The North American Free Trade Agreement: Chapter 11’ (2003) Government of Canada Publications <http://publications.gc.ca/Collection-R/LoPBdP/inbrief/prb0254-e.htm > [5] Samantha Cook, ‘Chatting about ChAFTA’ (Media Release, 25 November 2014) <http://www.pln.com.au/whats-news/chatting-about-chafta-by-samantha-cook > [6] NAFTA art 1102 (1) [7] NAFTA art 1103(1) [8] J Anthony VanDuzer, ‘NAFTA Chapter 11 to Date: The Progress of a Work in Progress in Laura Ritchie Dawson (ed) Whose Rights? The NAFTA Chapter 11 Debate (Centre for Trade Policy and Law, 2002) 43. [9] NAFTA Annex I: Reservations for Existing Measures and Liberalization Commitments Schedule of Canada [10] NAFTA art 1111(1) [11] Investment Promotion Act 1992 (PNG) s 41A.