Trade agreements were in the news last week. Australia signed the China-Australia Free Trade Agreement (Chafta), while the Trans-Pacific Partnership (TPP) struggled to achieve the required support in the US Congress. Both agreements include measures for investor-state dispute settlement (ISDS). What's at issue here?
In the Chafta, negotiated last year but only just signed, the ISDS provisions remain to be finalised by committee. Just what is entailed remains under wraps. Even in the case of the TPP (which is likely to get Congressional support, despite the current hiccups), the details are still not public.
It's easy to see why ISDS is a source of controversy. While the original intention of such clauses might have been to give foreign investors some protection when investing in countries with dodgy legal systems, ISDS provisions have been misused in attempts to give foreigners special treatment in opposing well supported domestic legislation. For example, Philip Morris is using an ISDS clause to attack Australia's Tobacco Plain Packaging Act.
In response, the then-Labor government said in 2011 that it wouldn't sign any further agreement that included ISDSs. The current Labor opposition says it doesn't support ISDSs, while the Greens oppose them. The Government has a 'case-by-case' approach. Some of our past agreements (eg. the Australia-US FTA) don't include ISDSs, while others do (The Korea –Australia FTA).
It's also easy to see potential for further misuse of ISDSs. The UN Conference on Trade and Development records around 50 disputes initiated annually in recent years, with a rising share (40%) initiated against developed countries. [fold]
One case has been brought by the Swedish owner of a German nuclear power station affected by Germany's decision (after Fukushima) to phase out nuclear electricity generation. Two cases against Canada also involve environmental issues (regional bans on fracking and wind farms). When Australia eventually comes to grips with climate change, there are likely to be similar environmental disputes. What happens, for example, when Australia legislates to ban the burning of high-polluting brown coal? Will the foreign owners of Victoria's brown-coal generators be ready to accept Australian law as the final arbiter?
A transparent debate would be more helpful here than the generalised assurances given so far. Australia's High Court Chief Justice Robert French points the way, with academic lawyers and economists also expressing their concerns. Canada's G20-oriented Centre for Governance Innovation (CIGI) sees the issue as important enough to commission a research project compiling the current state of play of ISDS cases.
Where is the Government's substantive response? What is the case, in the Australian context, for giving foreigners more favoured treatment than domestic players? Negotiating tactics should not be an excuse for lack of transparency here: an open debate is just part of good governance. The Government should make the case why ISDS benefits Australia. ISDS is not something to be bargained away in exchange for some (probably ephemeral) export advantage.
Photo by Flickr user Chris Guy.