On February 21, 2023, the Comprehensive and Progressive Agreement for Trans‑Pacific Partnership (CPTPP) formally entered into force for Chile, after undergoing an intense, four-year legislative process.  The CPTPP covers the full range of modern trade agreements, including market access for goods and services, public procurement disciplines, temporary entry, and investment protection, among others.  Despite the CPTPP’s entry into force, the future of investor-State dispute settlement (ISDS) in Chile remains a point of controversy.

Chile and the CPTPP

Eleven countries signed the CPTPP in Santiago, Chile, on the March 8, 2018, after they, all members of the original Trans-Pacific Partnership (TPP), regrouped and relaunched the TPP as the CPTPP following President Trump’s withdrawal of the United States.  The CPTPP entered into force on December 30, 2018 for the six countries that ratified it by that date (Australia, Canada, Japan, Mexico, New Zealand and Singapore).  It entered into force for Vietnam on January 14, 2019, for Peru on September 19, 2021, and for Malaysia on November 29, 2022.

The Chilean Senate approved the CPTPP on October 11, 2022.  The Chilean Government deposited its instrument of ratification notifying the conclusion of internal legal procedures on December 22, 2022.  The CPTPP formally entered into force in respect of Chile on February 21, 2023 (pursuant to Supreme Decree No. 318 of 2022).

Following Chile’s ratification, Brunei is now the only signatory to the CPTPP whose ratification process is still ongoing.  At the same time, several countries, including the United Kingdom, China, Ecuador, Costa Rica, and Uruguay, have expressed their desire to accede to the CPTPP.  The United Kingdom’s accession process is currently under examination pursuant to the CPTPP’s “high standards,” with the 7th meeting of the CPTPP Commission due to take place in New Zealand in 2023.

The CPTPP is a comprehensive trade, investment, and economic integration agreement. It incorporates by reference the provisions of the TPP (itself not in force), with the exception of a targeted subset of suspended provisions that had originally been U.S. “asks” and that the remaining members decided to set aside in light of the U.S.’s withdrawal.  The CPTPP incorporates, for example, detailed rules from the TPP concerning market access for goods and services, rules of origin, sanitary and phytosanitary measures, and the protection of the environment.  It also provides for rules on financial services, intellectual property, labor, the temporary entry of business persons, telecommunications, electronic commerce, government procurement, competition, and investment.  By signing the CPTPP, its signatories have expressed their dedication to maintaining open markets, increasing world trade, and creating new economic opportunities for people of all incomes and economic backgrounds. 

The Protection of Foreign Investors in Chile Under the CPTPP

The CPTPP incorporates a chapter from the TPP dedicated to the protection and promotion of foreign investment.  The chapter is essentially an update of the original investment chapter in the North American Free Trade Agreement (NAFTA) that incorporates innovations in the updated Canadian and U.S. model bilateral investment treaties (BITs) that were elaborated since NAFTA came into force in 1992.  These rules are intended to provide greater certainty and legal protection for investors competing on an equal footing with other investors, while balancing the rights of governments to legislate and regulate in the public interest.  For instance, following the example of NAFTA, the CPTPP ensures that foreign investors shall receive treatment no less favorable than accorded to domestic or other foreign investors in like circumstances.  Moreover, foreign investors are entitled to fair and equitable treatment and full protection and security in accordance with customary international law principles and are protected in case of direct or indirect expropriation of their investment. The CPTPP also incorporates rules on the transfer of funds, performance requirements, and senior management and boards of directors of companies, all part of the original NAFTA text.

Crucially, the CPTPP provides that, in the event of a dispute, a foreign investor may bring a claim against a CPTPP Contracting Party before an international arbitral tribunal.  As a result, a foreign investor coming from another CPTPP country and with a dispute with Chile may rely on these provisions to resolve the dispute before a neutral forum created specifically for these types of dispute.

Going forward, the CPTPP will provide a robust dispute settlement mechanism to foreign investors from other CPTPP countries who make investments in Chile for their investment disputes.  Based on recent developments, this ISDS mechanism may appeal to foreign CPTPP investors in Chile should a dispute with the Chilean state arise.  Since the beginning of 2023, it has been reported that Chile has been put on notice by a U.S. investor under the Chile-United States Free Trade Agreement (FTA) and by a UK-based company under the Chile-UK BIT. It was also threatened with another investment claim by a Canadian investor under the Canada-Chile FTA.  Two more disputes brought by French and Colombian investors against Chile under the Chile-France BIT and the Chile-Colombia FTA, respectively, are currently pending.

Mind the Fine Print: Chile’s Proposed “Side Letters” on ISDS and Other Declarations

Notwithstanding the entry into force of the CPTPP in respect of Chile, foreign CPTPP investors in Chile must be mindful of the “fine print” that may prove to play a crucial role in the scope of their protection.

For example, Chile attempted to modify some of the provisions of the CPTPP prior to its entry into force through the signing of “side letters.”  These side letters were aimed at modifying the provisions of the CPTPP for the signatory CPTPP Contracting Parties. 

This has also happened in the past with other CPTPP countries.  On March 8, 2018, New Zealand signed similar side agreements with five CPTPP partners that either excluded ISDS completely (as was the case between New Zealand and Australia and Peru) or severely restricted access to ISDS (as was the case between New Zealand and Brunei, Malaysia, and Vietnam).  

Chile’s strategy, however, produced few results. On February 17, 2023, Chile and New Zealand reached an agreement to exclude recourse to ISDS against Chile or New Zealand by investors of their respective countries.  Given the contradictory reports in the press, it is unclear whether Chile has signed similar “side letters” with Mexico and Malaysia (see here, here, and here).

Other CPTPP Contracting Parties declined to accede to Chile’s proposed side letters.  In other words, this means that the general ISDS provisions in the CPTPP will apply between Chile and the CPTTP Contracting Parties, with the sole exception of New Zealand.  

Apart from these “side letters,” several CPTPP countries have signaled their intention to monitor and adapt ISDS in light of evolving practices in the ISDS field.  For example, on November 17, 2022, Canada and Chile issued a Joint Declaration on Investment Treaty Practice, announcing their intention to work together on matters relating to the “evolving practice” of international investment agreements and ISDS as part of their ongoing review and implementation of the CPTPP and the Canada-Chile FTA.

This bilateral declaration mirrors the language of a previous Joint Declaration between Canada, Chile, and New Zealand on ISDS.  Even though the Joint Declaration reaffirms the right of those countries to regulate in their territories to achieve legitimate policy objectives, it nonetheless recognizes “the strong procedural and substantive safeguards that are included in the Investment Chapter of the CPTPP,” as well as the need to ensure that small and medium-sized enterprises are able to fully benefit from these investment protections at a reduced cost. Moreover, the Joint Declaration signals their intent to “consider evolving international practice and the evolution of ISDS including through the work carried out by multilateral international fora”.  This may be a reference to the ongoing work of Working Group III on the Investor-State Dispute Settlement Reform of the United Nations Commission on International Trade Law.

None of these declarations reflects an intention to do away with ISDS entirely.  To the contrary, as things currently stand, the CPTPP provides robust investment protection under a modernized framework to a broad and likely increasing cross-section of countries around the Pacific (and beyond, given the UK’s current efforts to accede to the Agreement).     

Foreign investors operating in Chile therefore should be mindful of the current developments and the new substantive and procedural rights the CPTPP accords them, while carefully considering the “fine print” of Chile’s specific carve-outs targeting selected CPTPP Member States.