[Ip-health] Luke Nottage-Kluwer Arbitration blog: The “Anti-ISDS Bill” before the Australian Senate

Thiru Balasubramaniam thiru at keionline.org
Thu Aug 28 02:58:01 PDT 2014


The “Anti-ISDS Bill” before the Australian Senate

   - By Luke Nottage
   <http://kluwerarbitrationblog.com/blog/author/lukenottage/>, Sydney Law
   School <http://sydney.edu.au/law/>

Indonesia is not the only Asia-Pacific nation that is reassessing
investment treaties
provisions on Investor-State Dispute Settlement (ISDS, especially
arbitration). India
a review in 2013, partly in the wake of the successful claim from an
Australian mining investor
although the impact in practice is hard to discern or predict – especially
under the new Modi government
In both countries, the reviews may also have been linked to domestic
politics during election years.

More surprisingly, public debate over ISDS has resurfaced in Australia. For
the political left, it really began when Philip Morris Asia announced in
2010 that it would claim under a 1992 treaty with Hong Kong if Australia
went on to enact tobacco plain packaging legislation – which it did
nonetheless. ISDS was also questioned from the economic right, by the
Commission’s 2010 report
critical of preferential Free Trade Agreements (preferring unilateral or
multilateral liberalisation measures). In April 2011, the (Labor) Gillard
Government Trade Policy Statement
that it would no longer agree to ISDS in future treaties, even with
developed countries. After the (Liberal) Abbott Government
<https://www.dfat.gov.au/fta/isds-faq.html> won the general election on 7
September 2013, it quietly reverted to including ISDS on a case-by-case
assessment. ISDS was included in Australia’s FTA with Korea (KAFTA
signed on 8 April 2014) but not Japan
July 2014).

Remarkably, however, a (minority Greens Party) Senator from Tasmania
introduced in on 3 March a private Member’s Bill, *The Trade and Foreign
Investment (Protecting the Public Interest) Bill 2014*
which simply states: “The Commonwealth must not, on or after the
commencement of this Act, enter into an agreement (however described) with
one or more foreign countries that includes an investor-state dispute
settlement provision.” (The Senate referred the Bill to the Committee on 6
March 2014. The reporting date was 11 April 2014, but on 16 June the Senate
extended this until 27 August 2014.)

After a slow start followed by an internet campaign, the Bill attracted 141
Submissions and the Foreign Affairs, Defence and Trade Legislation
Committee also received “over 11,000 emails from individuals using an
online tool asking people to express their opposition” to ISDS. I was
invited with eight others to give evidence in public hearings
<http://ssrn.com/abstract=2483610> that were held (and recorded) on 6
August, and the Committee is due to report on 27 August. Although the Bill
is unlikely to pass the Senate and certain not to pass the lower House of
Representatives (where the Abbott Government retains a majority), this
debate may also impact on Australia’s ratification of KAFTA, which must
first be reviewed by theJoint Parliamentary Standing Committee on Treaties

Procedurally, the Anti-ISDS Bill is trying to have the Parliament set in
advance specific parameters for treaty negotiations conducted by the
executive branch of government. Yet s 61 of the Constitution states that
treaty-making is the formal responsibility of the executive. This starting
point, differing say from the US system, has limited the scope for
longstanding calls for greater prior Parliamentary scrutiny of
treaty-making. Those date back to at least 1983, resulting in establishment
of JSCOT in 1996, but the rejection of the *Treaties Ratification Bill 2012

Substantively, the Anti-ISDS Bill also faces an uphill battle in that no
other developed country has decided that all forms of ISDS – in conjunction
with substantive protections offered by investment treaties – are so flawed
as to justify excluding them altogether. The benefits of ISDS are
admittedly more obvious when treaty partners are developing countries or
those where domestic courts provide processes and substantive rights for
all investors that fall below widely-accepted international standards. The
risks are also lower for a developed country agreeing to ISDS with such
countries, which are likely to be sources of inbound investment and
eventual arbitration claims against the developed country. Yet Australia’s
Bill would preclude ISDS even in such situations, including negotiating a
plurilateral arrangement in a regional treaty such as the Trans-Pacific
Partnership Agreement
(“ASEAN+6”) Regional Comprehensive Partnership Agreement
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2331714>, with an ISDS
carve-out between developed countries (as between Australia and New
Zealand, in their FTA with ASEAN signed in 2009).

Even between developed countries, it may be worth including some form of
ISDS. No domestic legal system is perfect, especially when judged against
evolving international standards, as Canadian investors found in the
*Loewen *proceedings <http://ssrn.com/abstract=2297219> brought against the
US (ultimately unsuccessfully, in 2004) or US investors are alleging at
present against Korea
International arbitrators may be able to resolve disputes with greater
expertise and even expedition, compared to domestic court judges with
multiple levels of appeals. If treaty partners want additional scope for
review, they can agree to an appellate mechanism (even one staffed with
permanent appointees, like the WTO Appellate Body for trade disputes).
Several treaties now provide for further negotiations to establish such a
mechanism, including now KAFTA, although interestingly no states have
chosen to actually set one up. ISDS can be brought even closer to domestic
court proceedings by first requiring (time-limited) “exhaustion of local
remedies” by foreign investors, as suggested recently by the Chief Justice
of Australia
Transparency of proceedings can also be enhanced, as under KAFTA which
adopts detailed provisions as well as a side agreement on the new UNCITRAL
Transparency Rules. The risks of excessive claims or “regulatory chill” for
host states, namely not introducing measures for good public health
reasons, should be less anyway for developed countries (with generally
higher standards of good governance) and can also be managed through
drafting general and specific exceptions.

For similar reasons, both the European Commission
 and US government
proposed the inclusion of appropriate provisions on ISDS and substantive
rights in the Trans-Atlantic Trade and Investment Partnership presently
under negotiation. The Commission has initiated a public consultation
<http://trade.ec.europa.eu/consultations/index.cfm?consul_id=179>, given
concerns by those mostly unfamiliar with the rationales and current
operation of the treaty-based international investment law system, but a
recent comprehensive Report for the Dutch Government
the retention of ISDS even in the TTIP. Admittedly, the net benefits of
ISDS are reduced in treaties among developed countries. But a broader
advantage of such an approach is that it should also then make it easier to
negotiate such protections in treaties with developing countries.

Accordingly, the Anti-ISDS Bill represents an over-reaction. Australia
should continue down the path of carefully negotiating and drafting both
procedural and substantive rights in future investment treaties, joining
with counterparts in other parts of the world (including indeed Indonesia
and India), instead of simply opting out of the ISDS system altogether (as
in a few South American countries
It would be useful to initiate a public consultation to develop a Model
Investment Treaty or standard provisions. Australia should also review its
old treaties as they come up for renewal, and even consider approaching
treaty partners to renegotiate provisions that do not meet its contemporary
standards (albeit for future investments). Unfortunately, that approach may
also be precluded by this Bill. Yet the Philip Morris Asia arbitration
reveals problems for host states under the old treaty with Hong Kong, while
the recent ICSID jurisdictional decision in *Planet Mining v Indonesia
<http://ssrn.com/abstract=2424987>* has serious implications for investors
claiming under oddly drafted provisions in many of Australia’s other
treaties from the 1990s.

At least in Australia, the Parliamentary process and related media coverage
have allowed some reasoned debate and a better understanding of the pros
and cons of ISDS in the 21st century. Happily, too, the Australian Research
Council agreed last year to fund a majorjoint research project
<http://ssrn.com/abstract=2362122> related to this topic over 2014-6,
including a focus on Asia.

*Luke Nottage (BCA, LLM (Kyoto), PhD (VUW)) is Professor of Comparative and
Transnational Business Law and Associate Dean (International) at the
University of Sydney. He has consulted for leading law firms world-wide as
well as ASEAN, the European Commission, OECD, UNDP and the Japanese

*The author thanks the Australian Research Council for its support in
undertaking research on investor-state arbitration.*

More information about the Ip-health mailing list