Dissenting Report by the Australian Greens
The Australian Greens welcome that the majority report of the committee
has drawn the Department of Foreign Affairs and Trade and the Government's
attention to the issues raised by many of the submissions and called for a
sound policy for weighing the risks and benefits of Investor State Dispute
Settlement (ISDS) provisions in trade agreements.
The Australian Greens however do not support the recommendation of the
majority report that this bill not be passed by the Senate. The key reasons for
Litigation using ISDS has proliferated in recent times and this is
likely to increase into the future.
ISDS clauses have outlived their usefulness and are now under review in
a number of countries and trade negotiations, including 10 countries in Latin
America, South Africa, India, Indonesia and the European Union. After decades
of public debate it is time to rethink their inclusion in modern trade
There is no evidence that ISDS clauses have any economic benefits for
trade or investment, however the risks of using them are clear and supported by
evidence and numerous case studies.
Trade deals are changing from historic “market access trade” driven
considerations to facilitating and protecting “foreign investment” through
limits placed on the ability of government to develop domestic laws and
policies in a wide range of areas, including public health, patents on
medicines, the environment, food labelling, Internet use and privacy and local
media content . This makes the inclusion of ISDS more dangerous.
Although current ISDS litigation by the Philip Morris tobacco company
against Australia’s plain packaging legislation is globally significant, we
have only escaped the danger of more cases because previous Labor and Liberal
governments have only included ISDS in trade agreements with developing
countries, which do not have investments in Australia, and haven’t included
them in the US-Australia Free Trade Agreement. US corporations are the most
frequent users of ISDS. The current Trans Pacific Partnership Agreement (TPP)
proposals for ISDS in ongoing negotiations would therefore expose Australia to
a much higher risk of litigation.
There was strong evidence presented to the inquiry that ISDS “safeguard”
clauses can and have been be reinterpreted and overturned through the
Parliament has no oversight or control over the inclusion of ISDS in
trade negotiations (or over other aspects of secretive trade negotiations), so
legislation is the simplest way to remove the risk of their use into the
This bill was introduced by the Australian Greens because ISDS clauses
in trade agreements have triggered an “explosion” of litigation with large
powerful multinational corporations challenging the decisions of sovereign
governments and domestic courts of law. Although ISDS clauses have been
included in trade and investment agreements ratified by Australia over the past
25 years, the United Nations Conference on Trade and Development (UNCTAD) has
highlighted the alarming increase in the number of cases that are being
brought both against developed and developing countries.
ISDS inclusion in trade deals are under review in a number of countries,
and it is a significant matter of public interest in many countries throughout
the world, especially in Europe and America. The recent Phillip Morris ISDS
litigation against our own government’s public health policy of plain packaging
for tobacco products has brought the issue to the attention of the Australian
public, policy makers and legal experts as an element of Australian trade
agreements that needs further investigation.
ISDS inclusion in trade deals is now widely debated and recognised by
many legal experts and trade commentators as both risky and unnecessary in
modern trade agreements, with no clear or proven economic benefits.
At the heart of this international debate is the perception that
corporations have too much power in our democracies, and that the inclusion of
ISDS clauses in international trade agreements helps tip the ‘balance of power’
further in favour of corporations over the broader public interest, in areas
such as public health, the environment, access to the ‘commons’ and
This debate has been made more acute in recent years by the changing
nature of our trade deals. Nobel Laureate Paul Krugman summed this up when he
said, “The first thing you need to know about trade deals...is that they aren’t
what they used to be.”
Rather than old fashioned trade in goods and services, current negotiations in
trade deals are aimed at standardizing domestic regulations between countries,
through investment and other chapters that have ramifications for important
aspects of the economy and society that go beyond traditional trade.
ISDS clauses introduce significant potential risks to the public
interest and sovereignty of any nation, as shown by recent events and case
studies. This Inquiry highlighted opinions of legal and academic experts who
agreed that risks posed by ISDS clauses meant they shouldn’t be included in
modern trade agreements.
Evidence from over 100 academic experts to the European commission
inquiry into ISDS shows that the many risks of ISDS clauses imposed on the
public interest cannot be simply managed by ‘carve outs’ or ‘safe guards’ in
the drafting of future ISDS clauses.
Even if future ISDS clauses could be written and structured to avoid the many
risks they posed to the public interest, it has become increasingly clear to
the Greens that the current Government’s proposed ‘safeguards’ in deals like
the Korea FTA are far less extensive than those proposed for the US-EU trade
deal. But even these more extensive ‘safeguards’ have been rejected as
inadequate by the over 100 academic experts. This means the government’s
proposed ‘safeguards’ will not be effective in reducing the risks of ISDS.
As highlighted by submissions, Australia is currently subjected to
litigation by Phillip Morris regarding plain packaging laws introduced by the
previous government. Although this is one of the few cases of ISDS litigation
under historic Australian trade deals, it was explained during the inquiry this
is because Australia has no ISDS in its trade agreement with the USA. This is
why Philip Morris, a US company, had to shift some investment to Hong Kong and
use an ISDS clause in an obscure Hong-Kong–Australia investment agreement. The
Howard Government refused to allow ISDS inclusion in the Australia-US FTA and
the previous Gillard-Rudd Labor government also refused to include ISDS in the
Malaysia FTA and the TPP negotiations.
Most alarmingly, and why it is critical to take a strong stance now to
prevent the future use of ISDS clauses in trade deals, Australia is part of the
ongoing Trans Pacific Partnership (TPP) regional trade negotiations which
includes the USA and 11 other countries. This will be the biggest and most
important regional trade deal in our country’s history and negotiations
currently include the possibility of ISDS clauses. Based on recent experience
overseas, the Greens are concerned by the potential and likely proliferation of
ISDS litigation both against Australia and other countries in our region,
especially against those poorer nations who are more acutely impacted by ISDS
litigation. The vast majority of ISDS cases are brought by Western Corporations
against the governments of developing countries.
ISDS inclusion in trade deals on a “case by case” basis puts our
sovereignty and public interest at risk. ISDS inclusion will be at the discretion
of the ‘policy’ or more to the point the ‘politics’ of the government of the
day. The Greens believe this is especially dangerous given the flawed trade
negotiation process currently in place, which removes the role of parliament in
providing any real oversight in trade deals. Currently there is no transparency
around our trade negotiations which are conducted in secret, and deals are
signed off on by cabinet prior to the limited scrutiny allowed by the
Parliament. This adds an additional layer of risk to the inclusion of ISDS in
our trade deals.
All these factors combine to underline why the strong action of banning
the inclusion of ISDS clauses through legislation must be undertaken. ISDS is
an issue of significant ethical, moral and economic importance, and should be
thoroughly debated and overseen by parliament and this country’s judiciary. The
Greens believe the issue is important enough to warrant legislative action and
should be removed from the ‘politics of the day.’
Approach by the Government to ISDS
The majority report states that, "the risks associated with ISDS
can and should be managed more effectively and in ways which do not require
legislation, including careful treaty drafting (of both old and new agreements)
and development of a well-balanced Model Investment Treaty."
This Government and particularly the current Minister for Trade and
Investment (the Minister) has so far been misleading regarding or demonstrated
very little understanding of the issues surrounding ISDS in trade and
Following the signing of the Korea–Australia Free Trade Agreement
(KAFTA), the Minister stated regarding ISDS:
In the Korean Free Trade Agreement that I've just concluded,
we did insist on explicit safeguards to ensure that regulation or law that's
passed in public interest areas, such as health and the environment, cannot be
covered by this ISDS... you could not have the plain packaging exercise repeated
there because it has been essentially carved out those areas of public policy interests,
especially to do with health and the environment.
This assertion was disputed during hearings on the Trade and Foreign
Investment (Protecting the Public Interest) Bill 2014. Professor Luke Nottage,
who is in favour of Australia maintaining its current position on ISDS and
therefore opposes the bill, when asked whether the ISDS clause in KAFTA would
preclude a Phillip Morris type case occurring again responded:
The answer is no under the current wording. If that sort of
claim by tobacco companies is a particular concern, the obvious way to preclude
it completely is to have a carve-out for measures in relation to tobacco.
While Australia has only ever been sued once under ISDS (the current
Phillip Morris case) the majority report does make it clear that, "past
experience may not be an accurate guide to the future in terms of potential
ISDS claims against Australia." The current Government's approach to ISDS
indicates it does not take ISDS seriously.
Minister Robb has made it clear that he and the Government want to speed
up the process of trade agreements. For the KAFTA agreement, ISDS was a
sticking point that needed to be overcome. A DFAT representative stated that:
Korea made it clear that ISDS was essential for it to
conclude the negotiations.
It is unclear why Australia did not at least ensure the strongest ISDS
clauses possible were in place when KAFTA was signed. Evidence from Associate
Professor Kimberlee Weatherall following her comparison of ISDS clauses in
KAFTA, the Korea-Canadian FTA and the Canadian–European Union FTA indicated
that while KAFTA does have safeguards, on the face of it, "other
agreements and texts reviewed here have stronger and broader safeguards and
exclusions and narrower definitions for investor rights."
This begs the question why Canada managed to negotiate more extensive
safeguard clauses for ISDS than Australia.
Consultation and transparency
Questions have also been raised beyond academia regarding ISDS.
Community groups and the judiciary have also expressed reservations about
consultation over ISDS clauses. Chief Justice French of the High Court made it
So far as I am aware the judiciary, as the third branch of
government in Australia, has not had any significant collective input into the
formulation of ISDS clauses in relation to their possible effects upon the
authority and finality of decisions of Australian domestic courts. This is an
issue which presently is of small compass. It has the potential to become
larger and it is desirable that it be addressed earlier rather than later.
Justice French raises the pertinent issues of transparency, a recurring
theme amongst many submitters to the inquiry. It is clear not just for ISDS
clauses but for the entirety of trade and investment agreements that greater
transparency and external input is needed.
While many submitters caveated their opposition to this bill by also
calling for greater transparency and improved processes, the current Government
and their predecessors have not changed these processes despite calls from the
community, stakeholders and Parliamentary committees such as the Joint Standing
Committee on Treaties.
Aside from the Government's failure to appropriately consider and
attempt to ameliorate the risks of ISDS in trade agreements, the bill has been
introduced because of the growing evidence that ISDS clauses in trade
agreements are not in the public interest and do not deliver economic
Risk of ISDS clauses
A number of submissions and evidence presented in the hearing outlined
the risks associated with including ISDS clauses in trade and investment
agreements. Patricia Ranald from the Australian Fair Trade and Investment
Network states one of the major issues with ISDS clauses is they:
[G]ive additional rights to foreign investors to challenge
domestic laws which may be made as part of protecting or advancing human rights
or environmental sustainability. Those are the kinds of examples that we cite
in our submission. So our worry is that ISDS has the potential to undermine or
challenge domestic law which seeks to protect those broad principles of human
rights and environmental sustainability.
ISDS clauses allow corporations to challenge policy decisions and
legislation of democratically elected sovereign Governments. Even in the cases
where corporations do not win, they have still dragged governments through
lengthy and expensive legal processes.
Strategic litigation by corporations and the concept of 'regulatory
chilling' was also raised in submissions to the inquiry. As an example, in the
context of the Phillip Morris case, the committee heard evidence that by suing
the Australian Government the company is able to put pressure on other
countries who may be considering introducing their own plain packaging regimes.
According to Dr Kyla Tienhaara:
[T]he Australian government has suggested that Philip Morris
is currently engaged in trying to achieve global regulatory chill through its
case by basically showing other countries that might want to introduce plain
packaging legislation 'Look what we're doing to Australia.' This is actually
working because countries are saying, 'We're going to wait to find out what
happens with that case before we go ahead with our regulations.'
There are clear risks associated with allowing ISDS clauses in trade and
investment agreements and it not clear what economic benefits these clauses
Lack of economic benefits
In 2010 the Productivity Commission (PC) in their research report titled
Bilateral and Regional Trade Agreements came to the conclusion 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
No evidence presented to the inquiry contradicted this conclusion of the
Productivity Commission’s 2010 report.
In their submission and during the course of the hearing representatives
of the Department of Foreign Affairs were concerned that the bill “would
prevent Australia from entering into plurilateral agreements which contain ISDS
whether or not we agree to be bound by that particular provision.”
This is not the intention of the bill and if redrafting is considered necessary
this will be carried out.
The current Government and the Minister have demonstrated they are
unwilling to effectively engage with the risks of ISDS provisions. For them, it
is more important that trade and investment agreements are signed rather than
working through ways to address ISDS risks effectively. Although legislation
banning ISDS clauses has been determined by the majority of the committee to
not be the best way to deal with the risks associated with ISDS it is clear
that this Government doesn't have any mechanism to deal with the risks. The
Government has also not given any indication that it intends to develop a
The existing signing and ratification process does not enable Parliament
to provide appropriate oversight of trade and investment agreements, including
ISDS clauses. It seems unlikely that the current government or future
governments will improve this process. This bill is the best way to manage the
risk of ISDS clauses until the Government and the Minister can prove they are
able and willing to do so.
That the Trade and Foreign Investment (Protecting the Public Interest)
Bill 2014 be passed.
Senator Peter Whish-Wilson Senator
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