What will Investor-State Dispute Settlement mean for Australia under the TPP?

One of many causes for concern around the TPP is that it would give overseas companies special guarantees and the power to sue the Australia government offshore for over new policies and laws in what is called Investor-State Dispute Settlement (“ISDS”).

As lawyers from the academy, bench and bar, legislature, public service, business and other legal communities in Asia and the Pacific Rim, we are writing to raise concerns about the Investment and Investor-State dispute arbitration provisions being considered in the on-going negotiations for a Trans-Pacific Partnership (TPP) agreement.
– Over 100 prominent members of the legal community ask for ISDS to be left out of the TPP in this open letter.

While ISDS reform options abound, their systematic assessment including with respect to their feasibility, expected effectiveness and implementation methods remains wanting.
– 2013 United Nations Conference on Trade And Development Report on Recent Developments in Investor-State Dispute Settlement (ISDS)

The implications?

leaked negotiating text from June 2012 shows that if the TPP negotiations are successful an investor from any of the TPP countries (Australia, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore, the United States, Japan and Vietnam) will be able to sue the Australian government for millions in damages in secretive offshore tribunals. Under ISDS foreign investors could claim that new laws and regulations introduced by the Australian government have breached their special rights under the TPP and seriously undermined the value of their investments. Under the leaked text, “investment” is defined extremely widely, to include almost anything a foreign company has spent money on in Australia — including shares, businesses, contracts, land, intellectual property rights, and even government bonds. There is also a risk of what is known as ‘regulatory chill’ which is when a government decides not to change its laws because of the threat of legal action, even if those laws would benefit the people of their country. The risk of ‘regulatory chill’ was noted in the 2010 Australian Commonwealth Productivity Commision part of which is quoted below:

…the prospect of ‘regulatory chill’  as a risk brought about by ISDS, not just for developing countries seeking to improve their standards of regulation, but also developed countries. For example, Professor Van Harten noted the documented withdrawal by Canada of a proposal to impose cigarette plain-packaging regulations following the threat of ISDS arbitration. AFTINET highlighted the arbitration case against Uruguay over the same proposal. (2010 Australian Commonwealth Productivity Commission, p271)

Putting corporate rights above Australia’s democracy

Over the past decades free trade and investment agreements have had adverse impacts on the enjoyment of human rights by interfering with the State’s fundamental functions to legislate in the public interest and regulate fiscal, budgetary, labour, health and environmental policies (link)
United Nations Independent Expert Alfred de Zayas

If the TPP is signed with its current ISDS provisions it would seriously affect Australia’s sovereignty, and the ability of our government to look out for our interests. We elect our governments, and should be able to rely on them to pass laws and implement policies to protect and grow Australia. If the TPP is signed, our government will be looking over its shoulder to make sure it’s not risking a law suit from companies with more money to spend on lawsuits than we do. Government decisions should be made with the people in mind, not the balance sheets of overseas companies.

Worse, if Australia did get sued, then millions of taxpayer dollars would be spent defending the case with the average cost of defending an ISDS case being US$8 million, (but can easily exceed US$30 million) as well as many millions more if we lost the case. In the last 13 years the number of ISDS cases brought at the International Centre for the Settlement of Investment Disputes — the main ISDS forum — has increased by 460%, and over $719 million has been paid out under ISDS agreements with the United States alone. Just the threat of a long, expensive dispute is designed to get governments to back off. If Australia signs the TPP we’ll face the prospect of a government scared of making a stand, massive unnecessary spending of tax payer money on law suits, or both.

Disadvantaging our local businesses

ISDS gives overseas companies an unfair advantage over Australian businesses. If a Australian feels that they are hard done by, they can take the matter to the Australian courts. However, if the TPP is signed then a foreign investor who thinks that their investment has been damaged would have the option of using the Australian court system, or using ISDS to take the case to an international tribunal claiming a breach of their special rights under the agreement. They could even do both — in September 2012 Philip Morris lost a case in Australia’s highest court about plain packaging of cigarettes, but is continuing to sue Australia using ISDS under an investment agreement with Hong Kong.

ISDS undermines Australian law

Many additional concerns about ISDS were identified by over 100 prominent lawyers and judges from most of the TPP countries in an open letter to the negotiators:

the private, often secret nature of ISDS hearings lacks “the basic principles of transparency, consistency and due process” common to domestic legal systems;
ISDS tribunals routinely put the economic interests of foreign investors ahead of the right of governments to govern their own affairs;
orders of these extraterritorial tribunals can undermine the separation of powers by requiring the executive to override rulings of the judiciary;
many of the judges in these ad hoc arbitration tribunals also appear as lawyers in similar cases, in a way that would be unethical for judges in domestic courts.

Unsurprisingly, the jurists concluded that ISDS “is not a fair, independent, and balanced method for the resolution of disputes between sovereign nations and private investors”.

No economic benefit from ISDS

It is unclear how anyone other than big overseas companies will benefit from ISDS. Australia’s Productivity Commission conducted an extensive study of the impacts of Australia’s free trade agreements and concluded that:

There does not appear to be an underlying economic problem that necessitates the inclusion of ISDS provisions within agreements. Available evidence does not suggest that ISDS provisions have a significant impact on investment flows. Experience in other countries demonstrates that there are considerable policy and financial risks arising from ISDS provisions.

The Australian government refused to include ISDS in its free trade deal with the US in 2005 and maintained a ban in the further inclusion of ISDS in treaties. However after the recent election in September 2013 the new Australian government under the leadership of Tony Abbott has now changed our governments position on ISDS to be decided on a case by case basis.

Does the TPPA sound like something Australia should be a part of?
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Further information on ISDS implications of the TPP…

Sarah Anderson, Manuel Pérez-Rocha, Rebecca Dreyfus, and J. Alejandro Artiga-Purcell (Institute for Policy Studies) – Mining for Profits in International Tribunes: How Transnational Corporations Use Trade and Investment Treaties as Powerful Tools in Disputes Over Oil, Mining, and Gas(updated in November 2011)

Todd Tucker (Public Citizen Global Trade Watch) – Renco Group Uses Trade Pact Foreign Investor Provisions to Chill Peru’s Environment and Health Policy, Undermine Justice (March 2012)

Pia Eberhardt & Cecilia Olivet (The Trans-National Institute) – Profiting from Injustice: How law-firms, arbitrators and financiers an investment arbitration boom (November 2012)

Ben Beachy (Public Citizen Global Trade Watch) – Tribunal Slams Ecuador with Largest Ever Investor’State Penalty (24 November 2012)

Under the Radar, How Corporations Use Global Investment Rules to Undermine a Sustainable Future Unfair by Thomas Mc Donagh

United Nations report on ISDS (2013)

A European Parliamentary Research Service report on Investor‐State Dispute Settlement (ISDS) State of play and prospects for reform 2014