UPDATE 1-Leaked Pacific trade pact draft shows investment carve-outs sought

(Reuters) – Australia’s medicine subsidies, Canadian films and
culture, and capital controls in Chile would be carved out from
investment protection rules being negotiated in a Pacific trade pact,
according to a draft text released by Wikileaks on Wednesday.

An investment chapter, dated Jan. 20, from the 12-nation Trans-Pacific
Partnership (TPP) deal was released amid controversy over rules
allowing companies to sue foreign governments, which critics say
should be dropped from the pact.

The 55-page draft says countries cannot treat investors from a partner
country differently from local investors, lays out compensation to be
paid if property is expropriated or nationalized and sets out how to
resolve disputes.

Consumer group Public Citizen said the definition of investment was
too broad, covering even “failed attempts” to invest such as
channeling resources to set up a business. But Center for Strategic
and International Studies senior adviser Scott Miller said most
treaties defined investment broadly and the draft was close to a
publicly available U.S. model text.

Lise Johnson, head of investment law at the Columbia Center on
Sustainable Investment, said governments’ rights to regulate for
environmental and public interest purposes seemed “very weak.” But
Miller said they were not a big carve-out.

A footnote says that investor-state dispute settlement (ISDS) rules do
not apply to Australia, although it notes: “deletion of footnote is
subject to certain conditions.”

The exemptions sought would protect countries from being sued by
foreign corporations that complain they do not get the same treatment
as domestic firms because of government actions, such as sovereign
debt defaults or government procurement.

Mexico, Canada, New Zealand and Australia want a free pass for foreign
investments requiring special approval, often for sensitive local
sectors such as banking or communications.

Australia wants to exclude medical programs and Canada to exempt
cultural sectors, including films, music and books.

An annex states that Chile’s central bank can impose capital controls
and maintains restrictions on foreign investors transferring sale
proceeds offshore.

Chile and other emerging markets have seen large inflows of foreign
investment, which can push up currencies and destabilize the local
economy.

Critics argue the rules give companies too much power to sue
governments. But business groups say they are necessary to stop
unscrupulous governments from discriminating against foreigners.

TPP countries hope to wrap up negotiations on the deal by midyear.

A U.S. Trade Representative spokesman said investment agreements
sought to protect Americans doing business abroad and ensure the
ability to regulate in the public interest at home.