Negotiations have begun for an EU investor protection agreement with Myanmar that would imbed international arbitration as the preferential dispute mechanism, although observers said such a clause could ultimately be detrimental for the country.

A cargo ship carrying foreign goods arrives at Yangon Port. Photo: StaffA cargo ship carrying foreign goods arrives at Yangon Port. Photo: Staff

The EU Commission and the Myanmar Ministry of Finance began negotiations for the agreement last week – a move that would encourage European investor confidence in new Myanmar markets, EU Ambassador Roland Kobia said.

“By creating legal certainty and predictability for companies, investment protection will help to attract and maintain FDI to underpin Myanmar’s economy. We hope that this bilateral agreement will be swiftly concluded,” Mr Kobia said in an email to The Myanmar Times.

“The main reason for having an ISDS [investor-state dispute settlement] mechanism is because in many countries international agreements are not directly enforceable in domestic courts and therefore an investor cannot find relief in domestic court,” Mr Kobia said.

Investor-state dispute settlements allow a private corporation to sue a state in international arbitration in the event of a trade agreement breach. The mechanism is often a trade pre-requisite for multinationals investing in foreign jurisdictions.

Negotiations for the investor protection agreement come on the back of the EU including Myanmar on its General System of Preferences last year.

“The country’s current investment framework leaves some questions unanswered with respect to investor protection,” Mr Kobia said. “In addition, some events under previous governments of Myanmar (nationalisations, etc) have had a profound negative impact on European companies.”

Myanmar has already signed seven such agreements with its Asian neighbours and acceded to the New York Convention on international arbitration in 2013, said U Aung Naing Oo, adding that the government would continue enacting investor protection agreements that allowed international arbitration.

Pietje Vervest, a fellow at the New York and Netherlands-based social justice NGO Transnational Institute, said the language of such treaties is typically very broad, allowing investors the right to sue the government over any and all policy that will be deemed to hurt their profits.

“[International arbiters] are usually just a group of three people deciding what’s in the public interest,” she said, adding the proceedings effectively gave a “blank check” to big business.

Ms Vervest pointed to the ongoing case of Uruguay vs Philip Morris Tobacco, where the cigarette manufacturing giant launched international arbitration proceedings against the South American country’s government over legislation requiring larger health warnings on tobacco products.

Likewise, Swedish energy multinational Vattenfall took the German government to international arbitration in 2009 over stricter environmental restrictions on coal powered plants. Both lawsuits were made possible under bilateral trade agreements.

“Even if the nations win in these disputes, they still lose,” said Ms Vervest, pointing out that arbitration battles often require millions from the public budget.

According to World Bank data, the average cost of an international arbitration suit is US$8 million, while the total number of cases have increased 35pc since the global financial crisis hit world markets in 2008.

Baker & McKenzie managing partner Christopher Hughes agreed investor-state disputes could be resource intensive and potentially divert much-needed government resources.

“However, on balance, given the confidence that foreign investors will gain from the availability of investor-state dispute mechanism and the lowering political and regulation change risks in investing in emerging markets, we think that the benefits to Myanmar outweigh the potential disadvantages associated with such treaties,” Mr Hughes said by email, adding that such arbitration was usually only a “last resort” for private players.

“Hence, we do not expect to see a flurry of such disputes,” said Mr Hughes.

Link: http://www.mmtimes.com/index.php/business/9773-eu-and-myanmar-get-set-to-ink-new-int-l-arbitration-agreement.html