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In a bold and dramatic move, newly-minted Natural Resources and Environment Minister Wan Junaidi Tuanku Jaafar announced that the bauxite mining operations in Pahang will be suspended for three months, beginning Jan 15.

This was a swift response to the concerns raised by citizens of the bauxite mining’s deleterious impact on the environment and the health of people.

I was contemplating what could happen if the Trans-Pacific Partnership Agreement (TPPA) was in place, and the mine had been owned by a foreign corporation.

Could the government take the same action in the name of protecting the environment and the health of our citizenry? Let’s explore this issue.

Under the TPPA, any foreign investment cannot be directly or indirectly expropriated. We all know what is a direct expropriation: it’s when the asset or property of the investor is taken away from him.

Indirect expropriation is more complicated. It arises when government action interferes with “distinct, reasonable investment-backed expectations” of the investor.

In a case brought by an oil conglomerate against Ecuador, an arbitration panel - under a provision akin to that of the TPPA - held that reasonable expectation of the fair and equitable treatment requirement was “an obligation not to alter the legal and business environment in which the investment is made.”

Consequently, Ecuador was ordered to pay US$2 billion (RM8.75 billion) to the oil giant.

In another case, an arbitration tribunal found Canada liable for refusing a foreign company permission to expand a quarry for environmental reasons. The company had not received fair treatment, said the private arbitrators, and it is now seeking US$300 million (RM1.31 billion) in damages.

Meanwhile, a private foreign company is suing the Romanian government after it blocked a mining development that risked contaminating inhabited areas with cyanide used in the mining process.

Germany also had to dilute its environmental standards in the face of a US$2 billion action against it by a Swedish energy giant restricting the use and discharge of cooling water for a coal-fired power plant on the banks of the River Elbe. This would cause serious deleterious effects on the river and its wildlife.

The same company launched a US$4.6 billion (RM20.13 billion) action when Germany phased out nuclear power plants following the Fukushima disaster - although its two power plants were not in operation when the phase-out was decided.

Indeed, the mere adverse effect on the economic value of an asset suffices to ground a claim - even if the physical investment is intact. Moreover, the government can be liable even for the expected profits that the company would have made for the entire duration of its operations.

There is a provision in the TPPA which says that a country can enact measures to ensure that investment activity in its territory is conducted in a manner sensitive to its environmental, health and other regulatory objectives.

However, these measures must be consistent with the investment chapter which protects these investments; and this requires the government not to take any measure that would upset the reasonable expectation of the investor to “fair and equitable” treatment.

Arbitration panels, as the cases earlier illustrate, have been imaginative in deciding such cases in favour of the investor under this provision - with the result that awards running into millions and billions of US dollars have been awarded against governments.

Perhaps the International Trade and Industry Ministry (Miti) can give an assurance that this will not happen, and that the taxpayers will be indemnified if this were to occur?


GURDIAL SINGH NIJAR is professor, Law Faculty, Universiti Malaya.

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