Investment Treaty Arbitration `Down Under`: Policy and Politics in

ICSID Review Advance Access published March 17, 2015
ICSID Review, (2015), pp. 1–16
doi:10.1093/icsidreview/siv001
NOTE
Investment Treaty Arbitration ‘Down
Under’: Policy and Politics in Australia
Jurgen Kurtz1 and Luke Nottage2
I. INTRODUCTION
Disaffection regarding treaty-based investor–State dispute settlement (ISDS),
especially binding arbitration, is slowly spreading from a few, mostly leftist regimes
in South America,3 to middle-income and developed countries in other parts of
the world. In particular, now that the European Union (EU) has exclusive
competence to conclude treaties relating to foreign direct investment (FDI),4
tension has emerged between the European Commission and the European
Parliament, particularly in the context of the Trans-Atlantic Trade and Investment
Partnership (TTIP),5 given the potential economic impact of such a free trade
agreement (FTA) still being negotiated between the EU and the USA. However,
there has also been some debate over the advisability of having included ISDS in
the FTAs recently concluded with Canada6 and even Singapore.7
1
Associate Professor of Law, Director of Studies, International Economic Law Program, University of Melbourne
Law School, Australia. Email: [email protected].
2
Professor of Comparative and Transnational Business Law, University of Sydney Law School, Australia. Email:
[email protected]. This note is part of an Australian Research Council Discovery Project (DP140102526)
funded over 2014–16 jointly with Shiro Armstrong, Jurgen Kurtz and Leon Trakman. We thank Melanie Trezise for
editorial assistance.
3
Ricardo Dalmaso Marques and Pinheiro Neto Advogados, ‘Notes on the Persistent Latin American Countries’
Attitude towards Investment Arbitration and ICSID’ (Kluwer Arbitration Blog, 24 July 2014) <http://kluwerarbitrationblog.com/blog/2014/07/24/some-notes-on-the-latin-american-countries-attitude-towards-investment-arbitrationand-icsid/> accessed 30 December 2014.
4
See generally August Reinisch, ‘The Future Shape of EU Investment Agreements’ (2013) 28(1) ICSID Rev—
FILJ 179.
5
European Commission, ‘In Focus: The Transatlantic Trade and Investment Partnership’ <http://ec.europa.eu/
trade/policy/in-focus/ttip/> accessed 30 December 2014.
6
For an overview of the Comprehensive Economic and Trade Agreement’s investor–State dispute settlement
(ISDS) provisions, see European Commission, ‘Investment Provisions in the EU-Canada Free Trade Agreement’ (26
December 2014) <http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf> accessed 30 December
2014.
7
Bilaterals.org, ‘Singapore Concerned by ISDS Debate, Asks Investment Be ‘‘decoupled’’ from EU deal’
(28 October 2014) <http://www.bilaterals.org/?singapore-concerned-by-isds-debate> accessed 30 December 2014.
ß The Author 2015. Published by Oxford University Press on behalf of ICSID. All rights reserved.
For permissions, please email: [email protected]
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ICSID Review
The reverberations are now being felt in the rapidly growing Asian region.8
Asian States have gradually come to accept extensive ISDS provisions not only in
their bilateral investment treaties (BITs) and FTA investment chapters, but also in
their existing regional agreements, notably the Association of Southeast Asian
Nations (ASEAN) Comprehensive Investment Agreement and the ‘ASEAN+’
agreements with Australia and New Zealand (AANZFTA), China, Korea9 and
India (signed in September 2014).10 Yet the path has been a winding one, with a
few dead ends. For example, an investment chapter was omitted altogether from
the ASEAN–Japan FTA. Although Japan has FTAs and/or BITs with all ASEAN
Member States, including Myanmar (signed in December 2013),11 which all
incorporate ISDS provisions, it agreed to a request from the Philippines to omit
ISDS from its bilateral FTA.12 Neither Vietnam, Laos, Myanmar, Thailand or
India are State parties to the 1965 ICSID Convention.13 More generally, it has
been suggested that a ‘combination of a historical sense of hostility, nationalism
that continues to dictate events, pragmatism and competition among themselves to
attract foreign investment underlies the different policies of the Asian states’
towards FDI.14
Most recently, in February 2014, Indonesia declared that it would not be
renewing its existing BIT with the Netherlands. Indeed, Indonesia indicated that it
would review its other BITs as they expire—seemingly with respect to both
procedural and substantive provisions—albeit not necessarily its FTAs.15 India also
8
See generally Australian Government, Australia in the Asian Century White Paper (October 2012) ch 1 and 2
<http://pandora.nla.gov.au/pan/133850/20130914-0122/asiancentury.dpmc.gov.au/white-paper.html> accessed 30
December 2014. As noted further by Vivienne Bath and Luke Nottage, ‘Asian Investment and the Growth of
Regional Investment Agreements’ in Christoph Antons (ed), Routledge Handbook of Asian Law (Routledge 2015): ‘In
2012, North and South-East Asia accounted for 24 percent of the world’s total FDI inflows and 20 percent of
outflows. . . . Using a different measure, in 2013, inflows to the 21 economies in the Asia Pacific Economic
Cooperation (APEC) group—including Canada, the United States, Mexico, Peru, Australia and Russia—constituted
54 percent of the world’s total FDI inflows’ (citations omitted). Investment treaties typically also cover portfolio
investments, but these tend to be less susceptible to host State interference.
9
ASEAN Comprehensive Investment Agreement (signed 26 February 2009, entered into force 29 March 2012);
Agreement establishing the ASEAN-Australia-New Zealand Free Trade Area (signed 27 February 2009, entered into
force on various dates between 2010 and 2012); Agreement on Investment of the Framework Agreement on
Comprehensive Economic Co-operation between the People’s Republic of China and ASEAN (signed 15 August
2009, entered into force 1 January 2010); Agreement on Investment Under the Framework Agreement on
Comprehensive Economic Cooperation Among the Governments of the Member Countries of ASEAN and the
Republic of Korea (signed 2 June 2009, entered into force 1 September 2009); see also Vivienne Bath and Luke
Nottage, ‘The ASEAN Comprehensive Investment Agreement and ‘‘ASEAN Plus’’: The Australia-New Zealand Free
Trade Area (AANZFTA) and the PRC–ASEAN Investment Agreement’ in Marc Bungenberg and others (eds),
International Investment Law (Hart 2014).
10
ASEAN-India Investment and Services Agreement (signed 8 September 2014). The agreement will enter into
force on 1 July 2015. Editorial, ‘India-ASEAN Services & Investment FTA to be in force from July’ Economic Times
(New Delhi, 15 January 2015) <http://articles.economictimes.indiatimes.com/2015-01-15/news/58108785_1_malay
sian-minister-services-and-investments-rcep> accessed 8 February 2015. However, the text is not yet available online
so it is unclear whether or not this Agreement, adding to a free trade agreement (FTA) for goods signed in 2009,
includes ISDS provisions.
11
See Japan Ministry of Economy Trade and Industry, ‘EPA/FTA/IIA’ <http://www.meti.go.jp/policy/trade_policy/
epa/english.html> accessed 30 December 2014.
12
Shotaro Hamamoto and Luke Nottage, ‘Japan’ in Chester Brown (ed), Commentaries on Selected Model Investment
Treaties (OUP 2013) 347.
13
Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for
signature 18 March 1965, entered into force 14 October 1966).
14
Muthucumaraswamy Sornarajah, ‘Review of Asian Views on Foreign Investment Law’ in Vivienne Bath and
Luke Nottage (eds), Investment Law and Dispute Resolution Law and Practice in Asia (Routledge 2011) 242, 242.
15
Leon Trakman and Kunal Sharma, ‘Indonesia’s Termination of the Netherlands–Indonesia BIT: Broader
Implications in the Asia-Pacific?’ (Kluwer Arbitration Blog, 21 August 2014) <http://kluwerarbitrationblog.com/blog/
2014/08/21/indonesias-termination-of-the-netherlands-indonesia-bit-broader-implications-in-the-asia-pacific/>
accessed 5 January 2015; Luke Nottage, ‘Do Many of Australia’s Bilateral Treaties Really Not Provide Full Advance
Consent to Investor-State Arbitration? Analysis of Planet Mining v Indonesia and Regional Implications’ (2015) 14(39)
Investment Treaty Arbitration ‘Down Under’
3
announced a reassessment of its investment treaties in 2013.16 This announcement
resulted in the Ministry of Finance proposing a new draft model BIT in December
2014,17 with the government reportedly aiming to review its 82 treaties in line
with the new model.18 However, the impact in practice remains hard to discern or
predict, especially under the new government under Narendra Modi.19 In both
countries, the reviews may also have been linked to domestic politics during
election years. In addition, both India20 and Indonesia21 have recently been
subjected to claims by Australian resource companies as well as claimants from
several other countries.
More surprisingly, public debate over ISDS has resurfaced in Australia. For the
political left, it burgeoned after Philip Morris Asia served a notice of claim on 27
June 2011 against Australia, alleging expropriation of trademarks and other
violations of a 1993 BIT with Hong Kong due to Australia’s tobacco plain
packaging legislation.22 ISDS was also questioned from the economic right by the
Productivity Commission’s 2010 report, which was generally critical of preferential
FTAs, preferring instead unilateral or multilateral liberalization measures.23
In April 2011, the Trade Policy Statement initiated by the (Labor-led) government
under Julia Gillard declared that it would no longer agree to ISDS in
future treaties, even with developed countries.24 However, as outlined in the
Sydney Law School Research Paper <http://ssrn.com/abstract=2424987> accessed 30 December 2014, both with
further references.
16
Prabhash Ranjan, ‘India and Bilateral Investment Treaties: A Changing Landscape’ (2014) 29(2) ICSID Rev—
FILJ 419.
17
Surajeet Dasgupta ‘FinMin Proposes New Model to Replace BIPA’ Business Standard (New Delhi, 15 December
2014)
<http://www.business-standard.com/article/economy-policy/finmin-proposes-new-model-to-replace-bipa114121500906_1.html> accessed 30 December 2014.
18
Deepshikha Sikarwar, ‘New Bilateral Investment Treaties Will Help India Avoid Arbitration’ Economic Times
(New Delhi, 16 December 2014) <http://economictimes.indiatimes.com/articleshow/45529061.cms?utm_source=
contentofinterest&utm_medium=text&utm_campaign=cppst> accessed 30 December 2014.
19
See generally Rajiv Kumar, ‘Moving Modi beyond Gujarat’ East Asia Forum (Canberra, 18 August 2014) <http://
www.eastasiaforum.org/2014/08/18/moving-modi-beyond-gujarat/#more-43087> accessed 30 December 2014.
20
Ashutosh Ray, ‘White Industries Australia Ltd. v. Republic of India: A New Lesson for India’ (2012) 29(5) J Intl
Arb 623. India is presently facing at least six further investment treaty arbitration claims. Luke Peterson,
‘Investigation: Latest Developments in the Six Pending BIT Arbitrations against India (and in Other Threatened
Disputes)’ Investment Arbitration Reporter (Santa Monica, 11 December 2014) <http://www.iareporter.com/articles/
20141211_2> accessed 30 December 2014.
21
cf Nottage (n 15). See also, more generally, Luke Nottage and Simon Butt, ‘Recent International Commercial
Arbitration and Investor-State Arbitration Developments Impacting on Australia’s Investments in the Resources Sector’
in Philip Evans and Gabriel Moens (eds), Arbitration and Dispute Resolution in the Resources Sector: An Australian Perspective
(Springer 2015) <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2340810> accessed 30 December 2014; Chester
Brown, ‘Investor State Arbitration: Getting More Bite Out of Your BIT’ (2015) AMPLA Yearbook (forthcoming).
Indonesia subsequently prevailed in another investment treaty claim regarding a banking investment by a Saudi Arabian
investor. Luke Peterson, ‘Indonesia’s Prosecution of Bank Investor Breaches International Law, but Arbitral Claim Fails
Due to Investor Misdeeds; Counterclaim Also Fails’ Investment Arbitration Reporter (Santa Monica, 17 December 2014)
<http://www.iareporter.com/articles/20141217_2> accessed 30 December 2014.
22
See Australian Government, Attorney-General’s Department, ‘Tobacco Plain Packaging: Investor-State
Arbitration’ <http://www.ag.gov.au/tobaccoplainpackaging> accessed 30 December 2014. Critics of ISDS were
already raising with the Australian government in 2010 the possibility of Philip Morris initiating investment treaty
claims. See eg Patricia Ranald, ‘Supplementary Submission on Behalf of the Australian Fair Trade and Investment
Network (AFTINET) to the Productivity Commission Review into Bilateral and Regional Trade Agreements’ (10
September 2010) <http://www.pc.gov.au/inquiries/completed/trade-agreements/submissions/subdr068.pdf> accessed 5
January 2010. See generally Luke Nottage, ‘Investor-State Arbitration Policy and Practice after Philip Morris Asia v
Australia’ in Leon Trakman and Nicola Ranieri (eds), Regionalism in International Investment Law (OUP 2013) 452.
23
Productivity Commission, Research Report: Bilateral and Regional Trade Agreements (November 2010) 265–76
(Productivity Commission Report).
24
Australian Government, Department of Foreign Affairs and Trade, Gillard Government Trade Policy Statement:
Trading Our Way to More Jobs and Prosperity (April 2011) (Trade Policy Statement). The present Abbott government
has removed the Trade Policy Statement from official websites, but it can still be found at <http://blogs.usyd.edu.au/
japaneselaw/2011_Gillard%20Govt%20Trade%20Policy%20Statement.pdf> accessed 30 December 2014.
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second part of this note, this policy shift has proven to be open to significant
criticism.
Since the (Liberal-led Coalition) government under Tony Abbott won the
general election on 7 September 2013, it has quietly reverted to including ISDS
on a case-by-case assessment.25 Accordingly, ISDS was included in Australia’s
FTA with Korea,26 but not with Japan.27 On 17 November 2014, negotiations
were also concluded on the FTA with China, reportedly including ISDS
provisions.28
Remarkably, however, a (minority Greens Party) Senator from Tasmania
introduced on 3 March 2014 a private member’s bill, the Trade and Foreign
Investment (Protecting the Public Interest) Bill 2014,29 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’. As explained in the third
part of this note, the Senate’s Foreign Affairs, Defence and Trade Legislation
Committee issued a report, dated 27 August 2014, with the Coalition Senators
and even the Labor Party Senators (but not the Committee’s two Greens Party
Senators) recommending against enactment. However, this debate over ISDS has
also impacted on Australia’s ratification of the Korea–Australia Free Trade
Agreement (KAFTA), which was recommended by the Joint Parliamentary
Standing Committee on Treaties (JSCOT) but with dissenting reports by
members from the Labor Party as well as the Greens.30
As sketched in the fourth part of this note, over the short to medium term, this
situation will complicate the finalization of Australia’s bilateral FTAs (including
those being negotiated with India and Indonesia) as well as the expanded TransPacific Partnership (TPP) Agreement31 and the Regional Comprehensive
Economic Partnership (RCEP).32 Longer term, it will mean that Australia will
25
Australian Government, Department of Foreign Affairs and Trade, ‘Frequently Asked Questions on InvestorState Dispute Settlement (ISDS)’ <https://www.dfat.gov.au/fta/isds-faq.html> accessed 30 December 2014. See also
Leon Trakman, ‘Deciding Investor States Disputes: Australia’s Evolving Position’ (2014) 15 J World Inv & Trade 152.
26
Luke Nottage, ‘Arbitration Rights Back for the South Korea-Australia FTA’ East Asia Forum (21 January 2014)
<http://www.eastasiaforum.org/2014/01/01/arbitration-rights-back-for-the-south-korea-australia-fta/> accessed 30
December 2014. Korea–Australia Free Trade Agreement (signed 8 April 2014, entered into force 12 December
2014) (KAFTA).
27
Luke Nottage, ‘Investor-State Arbitration: Not in the Australia-Japan Free Trade Agreement, and Not Ever for
Australia?’ (2014) 38 J Japanese L (forthcoming). Japan-Australia Economic Partnership Agreement (signed 8 July
2014, entered into force 15 January 2015).
28
Australian Minister for Trade and Investment, ‘Landmark China-Australia Free Trade Agreement’, Media
Release (17 November 2014) <http://trademinister.gov.au/releases/Pages/2014/ar_mr_141117.aspx> accessed 30
December 2014. Negotiations for the China-Australia Free Trade Agreement concluded on 17 November 2014, with
the parties signing a Declaration of Intent, undertaking to prepare the legal texts in both languages for signature in
2015 <http://www.pm.gov.au/media/2014-11-17/conclusion-china-australia-free-trade-agreement> accessed 2 March
2015.
29
Parliament of Australia, ‘Inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Bill
2014’
<http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_Trade/
Trade_and_Foreign_Investment_Protecting_the_Public_Interest_Bill_2014> accessed 30 December 2014.
30
Parliament of Australia, ‘Treaties Tabled on 13 May 2014’ <http://www.aph.gov.au/Parliamentary_Business/
Committees/Joint/Treaties/13_May_2014> accessed 30 December 2014.
31
Negotiations for the Trans-Pacific Strategic Economic Partnership Agreement commenced in 2005 and are
ongoing. Leon Trakman, ‘Investment Dispute Settlement under the Trans Pacific Partnership Agreement’ in Tania
Voon (ed), Trade, Liberalisation and International Co-Operation: A Legal Analysis of the Trans-Pacific Partnership
Agreement (Edward Elgar 2013) 179.
32
Negotiations for the Regional Comprehensive Economic Partnership commenced in 2012 and are ongoing. Leon
Trakman and Kunal Sharma, ‘Locating Australia on the Pacific Rim: Trade, Investment and the Asian Century’
(2015) Transnatl Disp Mgmt (forthcoming). For texts and other information on Australia’s FTAs, see Australian
Investment Treaty Arbitration ‘Down Under’
5
continue to stand out as a developed country that has disengaged somewhat from
treaty-based ISDS, especially in treaty relations with other developed countries.
II. OPPOSITION FROM THE (POLITICAL) LEFT AND
(ECONOMIC) RIGHT
Prior to 2010—with the prominent exception of the Australia–USA FTA33 and its
first FTA signed in 1982 with New Zealand34—all of Australia’s 21 BITs35 and
four FTAs36 have included rights to investor–State arbitration. Most of these treaty
counterparties are developing States, reflecting the traditional assumption that
investor–State arbitration is conceptually justifiable if foreign investors do not have
access to an efficient, functioning and independent judicial system. In 2011,
however, the then Australian government made the landmark announcement that
it would no longer include any form of ISDS in future trade agreements.37
This remarkable policy shift was largely due to the recommendation of an
independent government agency—the Productivity Commission—whose past work
had injected admirable rigour and objectivity into the Australian policy-making
process. In its 2011 Trade Policy Statement, the Gillard government publicly
acknowledged that the Productivity Commission’s 2010 Research Report on
Bilateral and Regional Trade Agreements38 ‘has been closely considered in the
preparation of this review’ and that the government’s new ‘policy positions are
highly consistent with the Productivity Commission’s recommendations’.39
Problematically, however, many of the analytical justifications offered by the
Productivity Commission are incomplete, and, when it comes to ISDS, the
Commission failed to thoroughly identify and weigh alternative strategies available
to decrease the sovereignty costs associated with this type of extra-domestic
protection.40
The Productivity Commission, staffed primarily by economists, commences its
analysis with a sensible methodological approach to testing the value or otherwise
Government, Department of Foreign Affairs and Trade, ‘Free Trade Agreements’ <http://www.dfat.gov.au/fta/>
accessed 30 December 2014.
33
Australia–USA Free Trade Agreement (signed 18 May 2004, entered into force 1 January 2005).
34
Australia New Zealand Closer Economic Relations Trade Agreement (signed 14 December 1982, entered into
force 28 March 1983).
35
The UN Conference on Trade and Development’s (UNCTAD) Investment Instruments Online database
<http://unctad.org/en/Pages/DIAE/International%20Investment%20Agreements%20%28IIA%29/Investment-instruments-On-line-database.aspx> accessed 2 March 2015, lists 23 BITs concluded by Australia. Two of these BITs have
been terminated, leaving 21 in force.
36
Rights to ISDS can be found in Australia’s FTAs with ASEAN–New Zealand, Chile, Singapore, Thailand and
Korea (in force from 12 December 2014). For an overview of all Australia’s BITs and FTAs as of 2010, see Mark
Mangan, ‘Australia’s Investment Treaty Program and Investor-State Arbitration’ in Luke Nottage and Richard
Garnett (eds), International Arbitration in Australia (Federation Press 2010) 191. For a more recent chronological
listing, see the Appendix in Nottage (n 15).
37
Trade Policy Statement (n 24) 14: ‘In the past, Australian Governments have sought the inclusion of investorstate dispute resolution procedures in trade agreements with developing countries at the behest of Australian business.
The Gillard Government will discontinue this practice’.
38
Productivity Commission Report (n 23).
39
Trade Policy Statement (n 24) 16.
40
For more detailed critiques, see eg Jurgen Kurtz, ‘Australia’s Rejection of Investor-State Arbitration: Causation,
Omission and Implication’ (2012) 27 ICSID Rev—FILJ 65; Leon Trakman, ‘Choosing Domestic Courts over
Investor-State Arbitration: Australia’s Repudiation of the Status Quo’ (2012) 35(3) U NSW LJ 979; Luke Nottage,
‘Throwing the Baby with the Bathwater: Australia’s New Policy on Treaty-Based Investor-State Arbitration and Its
Impact in Asia’ (2013) 37(2) Asian Stud Rev 253.
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of investment disciplines. The Commission’s assessments ‘first need to establish
whether there is market failure or other economic concern that provisions in
BRTAs could effectively address’.41 Such assessments ‘also need to consider the
balance of benefits and costs that might flow from the provision, and whether
other mechanisms or settings would be better placed to address the issues
identified’.42 There is, of course, a natural and integral connection between these
two research items. To the extent that a particular type of market failure or
economic risk is identified, investment treaty disciplines would offer a benefit (if
they address that problem) in the absence of credible and sufficient alternatives.
It makes good sense then to begin—as indeed the Commission elected to do—
by identifying the possible benefits before isolating the costs associated with
investment law commitments. When it comes to the question of benefits, it is
important to bear in mind that Australia is now both a significant capital importer
and exporter. The costs incurred (by Australia) from investment disciplines, as will
be seen later in this note, are not only potentially counter-balanced by the benefits
from inbound foreign investment into Australia (including, but not limited to,
greater inbound foreign investment provided that it can be established that this is
caused by entry and/or operation of Australia’s investment disciplines). In
addition, there may well be benefits to Australia’s ‘offensive’ interests, understood
as the protection of outbound Australian capital. The Productivity Commission
tends to elide this distinction even though it is critical to a full and complete costbenefit analysis.
More generally, there is a troubling variance between the Commission’s
excellent analyses on traditional trade issues compared to its examination of
investment commitments. On the latter, the Commission’s framing is shallower
and less sophisticated, perhaps reflecting its relative inexperience with investment
law. For example, in an earlier part of the report, it begins by selectively focusing
on the quantitative liberalization of border restrictions to the entry of foreign
capital (such as screening processes) in coming to a conclusion that the direct
economic impacts from Australia’s FTA provisions on investment and services ‘to
date have been modest’.43 On this point, the Commission is attempting to identify
whether there is a causal relationship between investment treaties and one
particular economic benefit that could be understood as an increase in inbound
foreign investment. This is an important line of inquiry that has attracted multiple
and conflicting empirical studies in recent years.44 Yet instead of fully engaging
with this complex literature, the Commission has elected to consider only one
study in coming to the summary conclusion that ‘committing to ISDS provisions
does not influence foreign investment flows into a country’.45
41
Productivity Commission Report (n 23) 257.
ibid.
43
ibid 161.
44
For a comprehensive overview of the principal empirical studies, see Jason Webb Yackee, ‘Do Bilateral
Investment Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence’ (2010) 5(2) VJIL
397, 405–14. For a more recent study in this abundant stream of secondary literature, see Todd Allee and Clint
Peinhardt, ‘Contingent Credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment’ (2011)
63 Intl Org 401. For further studies and methodological debates, see also ‘OGEMID Seminar: Investment Arbitration
and Its Critics—Foreign Direct Investment and Bilateral Investment Treaties’ (2014) 3 Transnatl Disp Mgmt
<http://www.transnational-dispute-management.com/article.asp?key=2113> accessed 30 December 2014.
45
Productivity Commission Report (n 23) 269.
42
Investment Treaty Arbitration ‘Down Under’
7
An even more egregious failure is the Commission’s attempt to isolate the
potential benefits that flow from the entry into investment treaties. Unlike trade in
goods, the critical barriers to foreign investment do not mainly take the form of
simple border measures (such as tariffs), whose effects are easily quantifiable. Of
far greater import is the panoply of behind-the-border regulatory interventions,
which, if discriminatory or arbitrary, can lessen or even extinguish the profitability
of foreign investment in the receiving State. The Commission is remarkably
cavalier in assessing both the likelihood and economic impact of these behind-theborder barriers. For instance, it claims ‘evidence that, in practice, host governments are not systematically biased against foreign investors.’46 In effect, the
Commission, by relying on a handful of studies, has concluded that there is no risk
of protectionism whatsoever at play in the formation of host State policy towards
foreign investment. There is little attempt to address the actual political economy
literature on this key question, an omission that is doubly surprising given the
Commission’s particular statutory mandate and expertise.
In comparison to its superficial treatment of likely benefits that can flow from
investment treaties, the Commission’s analysis of costs is much longer. Here too
we are faced with both incomplete analysis and troubling assumptions. The costs
associated with entry into investment treaties can be understood in conceptual
terms as the restriction of Australian policy space, against a counter-factual of full
sovereignty. This necessarily requires the Commission to identify, with some
precision, the outer contours of the scope of investment protection afforded by
Australia’s investment treaties. It would be plainly insensible here to focus only on
the text of the treaties themselves, including, but not limited to, the clauses
outlining rights to ISDS. Like much of international economic law, investment
treaties are incomplete contracts, with the outer limits of protection designated by
the rulings of tribunals constituted to hear specific disputes.47 Of course, there is
no hard rule of precedent at play in this system. De facto, however, tribunals will
often (but not always) tend to situate a given decision by reference to prior
rulings.48 Surprisingly, there is no attempt whatsoever to engage with the actual
case law handed down by investor–State tribunals, especially in recent years, in
understanding the outer contours of the system. Instead, the Commission merely
cites a select part of a secondary account of some cases collated by the United
Nations Conference on Trade and Development.49
In sum, the cost-benefit calculus for investment treaty disciplines (including
ISDS) is far more complex than the minimalistic account offered by the
Commission. It is also important to note that State parties have significant
flexibility to structure their negotiations so as to decrease costs while preserving
the benefits associated with entry-into-investment protections. These strategies
span choice-of-treaty partner (with inclusion or exclusion of ISDS assessed on a
case-by-case basis) to the protection of core domestic policy space through the
46
ibid.
Anne van Aaken, ‘International Investment Law between Commitment and Flexibility: A Contract Theory
Analysis’ (2009) JIEL 1.
48
Ole Kristian Fauchald, ‘The Legal Reasoning of ICSID Tribunals: An Empirical Analysis’ (2008) 19(2) EJIL
301.
49
Productivity Commission Report (n 23) 271.
47
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dedicated exception for State conduct [such has long existed in the law of the
World Trade Organization (WTO)]. None of these strategies, which are already
employed by a range of State parties in their treaty practice, including Australia,
were considered in any detail or with care by the Commission. Yet they are plainly
an essential research item in any rigorous and accurate study of sustainable
engagement with investment treaty disciplines.
Despite these problems, the Gillard government’s Trade Policy Statement of
2011 took literally the recommendations of the Commission that Australia should
no longer seek to include ISDS provisions in any future treaties. Accordingly, in
2012, Australia agreed to a bilateral FTA with Malaysia that omitted ISDS.50
However, the impact in practice was minimal as its regional FTA with ASEAN
already contained investment protections underpinned by ISDS.
It is also important to note that concerns about ISDS arose not just on the part
of economists within the Productivity Commission but also from those on
Australia’s political left. While in opposition in 2004, when the (centre-right)
government under John Howard signed the Australia–USA FTA, the (centre-left)
Labor Party had joined with others in campaigning strongly against this treaty,
raising already the spectre of ISDS and the possibility of not voting for
implementing legislation in the Senate (where the Howard government lacked
an absolute majority). ISDS provisions were omitted, however, and legislation
passed so the Treaty could be ratified.51 After the Labor Party won a resounding
victory in the 2007 general election, the government under Kevin Rudd
nonetheless quietly agreed to ISDS in FTAs signed with Chile (in 2008) and
ASEAN (2009).52 However, by March 2010, Rudd’s trade minister had declared
that the Australian government continued to have ‘serious reservations’ about
ISDS and would make those clear in the negotiations already underway for an
expanded TPP, in response to concerns about the possibility of more controversial
provisions being revisited in the new regional agreement involving the USA.53
Prime Minister Rudd was then deposed by Gillard shortly before the 21 August
2010 general election, which the Labor Party only just won under her
leadership. The new Gillard government needed to rely on support from
independent and (more leftist) Greens parliamentarians, with a formal alliance
between the Labor Party and the Australian Greens Party ending only in February
2013.
50
Australia–Malaysia Free Trade Agreement (signed 22 May 2012, entered into force 1 January 2013).
Patricia Ranald, ‘Investor-State Dispute Settlement (ISDS): The Threat to Health, Environment and Other
Social Regulation’ (paper presented at the Stakeholders Forum, eighth round of Trans-Pacific Partnership
negotiations, Chicago, 20 September 2011) 4–6 <http://aftinet.org.au/cms/sites/default/files/pranald%20forum%
20100911.pdf> accessed 30 December 2014.
52
Australia–Chile Free Trade Agreement (signed 30 July 2008, entered into force 6 March 2009); ASEANAustralia-New Zealand Free Trade Agreement (signed 27 February 2009, entered into force 1 January 2010).
53
Jacob Saulwick, ‘Nations Ponder Terms for Pacific Free Trade’ Sydney Morning Herald (Sydney, 16 March 2010)
<http://www.smh.com.au/national/nations-ponder-terms-for-pacific-free-trade-20100315-q9qd.html> accessed 30
December 2014. (Interestingly, these pronouncements were made around the time that the Productivity
Commission released for consultation a draft trade policy inquiry report, sketching views against ISDS that were
expanded significantly in the final report released in December 2010.) Opposition to ISDS from the political left also
intensified over 2010–11 as Philip Morris Asia threatened to file the first-ever arbitration claim against Australia
(formally notified on 27 June 2011), against tobacco plain packaging legislation enacted on 1 December 2011. See
generally Australian Government, Attorney-General’s Department (n 22).
51
Investment Treaty Arbitration ‘Down Under’
9
III. THE ‘ANTI-ISDS BILL’ AND KAFTA BEFORE THE
AUSTRALIAN PARLIAMENT54
After the (centre-right) Coalition convincingly won the September 2013 general
election, and the Abbott government reverted to the policy of including ISDS in
Australia’s treaties on a case-by-case assessment, this debate resurfaced in a new
form. After a slow start followed by an internet campaign, the Trade and Foreign
Investment (Protecting the Public Interest) Bill 2014 (Anti-ISDS Bill), which was
essentially anti-ISDS and introduced by Greens Party Senator Peter Whish-Wilson
on 5 March 2014, attracted 141 submissions—mostly short documents in support
of the Bill.55 The Senate’s 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.56 Nine individuals were invited
to give evidence, including one of the present authors,57 in public hearings that
were held (and recorded) on 6 August 2014.58 Although the Committee’s report
of 27 August 2014 recommended against the enactment of the Bill59—making it
very unlikely to even get to a vote—ISDS is likely to remain a political issue in
Australia.
Procedurally, the Anti-ISDS Bill sought to have the Parliament set in advance
specific parameters for treaty negotiations conducted by the executive branch of
government. Yet section 61 of the Australian Constitution states that treatymaking is the formal responsibility of the executive. This starting point, differing,
say, from the US system,60 has limited the scope for long-standing calls for greater
prior parliamentary scrutiny of treaty-making in Australia. Such calls date back to
at least 1983, resulting in the establishment in 1996 of JSCOT, which comprised
members from both the Senate and the lower House of Representatives and which
only advises the executive branch of government about whether or not to proceed
with ratifying treaties that it has signed and then tabled in Parliament. The
Treaties Ratification Bill 2012,61 another private member’s Bill partly aimed at
preventing further FTAs, had proposed to go further by requiring both Houses to
approve all treaties before ratification. However, this Bill was also opposed by both
54
This part updates and elaborates Luke Nottage ‘The ‘‘Anti-ISDS Bill’’ before the Australian Senate’ (Kluwer
Arbitration Blog, 27 August 2014) <http://kluwerarbitrationblog.com/blog/2014/08/27/the-anti-isds-bill-before-theaustralian-senate> accessed 30 December 2014.
55
Available via Parliament of Australia (n 29).
56
ibid.
57
See Luke Nottage, ‘The ‘‘Anti-ISDS Bill’’ before the Senate: What Future for Investor-State Arbitration in
Australia?’ (2015) 18 Intl Trade & Bus L Rev 245, incorporating an edited version of his submission, responses to
questions on notice from the hearings (except for a chart comparing Australia’s FTAs with Korea, ASEAN and
Chile), which are available at <http://ssrn.com/abstract=2483610> accessed 30 December 2014, and a transcript of
testimony given at the Senate hearing.
58
Transcripts are available via Parliament of Australia (n 29), with video recordings at Foreign Affairs Defence and
Trade (6 August 2014) <http://parlview.aph.gov.au/mediaPlayer.php?videoID=233409&operation_mode=parlview>
accessed 31 December 2014.
59
Available via Parliament of Australia (n 29).
60
cf eg Jonathan T Stoel and Michael Jacobson, ‘U.S. Free Trade Agreements and Bilateral Investment Treaties:
How Does Ratification Differ?’ (Kluwer Arbitration Blog, 28 October 2014) <http://kluwerarbitrationblog.com/blog/
2014/10/28/u-s-free-trade-agreements-and-bilateral-investment-treaties-how-does-ratification-differ>
accessed
31
December 2014.
61
Parliament of Australia, ‘House of Representatives Committees: Chapter 2—Previous Parliamentary Initiatives to
Scrutinise the Treaty Making Process’ <http://www.aph.gov.au/parliamentary_business/committees/house_of_
representatives_committees?url=jsct/ratification_bill/report/chapter2.htm#anc3> accessed 31 December 2014.
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ICSID Review
major parties, Liberal and Labor, during the Gillard government era (2010–13).62
Consistently, in the Senate Committee inquiry into the anti-ISDS Bill, additional
comments provided by the Labor Party Senators agreed with Coalition Senators
that this Bill should not be enacted, primarily on the basis that it ‘is not desirable
to radically constrain the executive’s treaty-making power in the manner
proposed’.63
Substantively, the Anti-ISDS Bill also faced 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 less likely to be sources of
inbound investment and eventual arbitration claims against the developed country.
Yet Australia’s Anti-ISDS Bill would have precluded ISDS even in such situations,
including negotiating a pluri-lateral arrangement within a regional treaty such as
the expanded TPP or the RCEP, with an ISDS carve-out between developed
country members (as between Australia and New Zealand in AANZFTA, which
was signed in 2009).64
Even between developed countries, it may be worth including some form of
ISDS, although the arguments are more finely balanced. As mentioned more
generally by some submissions opposed to the Anti-ISDS Bill,65 no domestic legal
system is perfect, especially when judged against evolving international standards.
Canadian investors found this in Loewen v United States,66 and a USA-based
investor is presently in dispute with Korea.67 International arbitrators may also 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, such as the WTO Appellate Body for trade
disputes). Several treaties now provide for further negotiations to establish such a
62
Sophie Maltabarow, ‘Parliamentary Ratification of Treaties’ (Constitutional Critique, 19 September 2012) <http://
blogs.usyd.edu.au/cru/2012/09/parliamentary_ratification_of.html> accessed 31 December 2014.
63
Parliament of Australia (n 61) s 1.18 (also available at Parliament of Australia, ‘Labor Senators’ Additional
Comments’
<http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_
Trade/Trade_and_Foreign_Investment_Protecting_the_Public_Interest_Bill_2014/Report/d01>
accessed
31
December 2014).
64
Bath and Nottage (n 9).
65
See eg Sam Luttrell and J Romesh Weeramantry, Submission no 106, found in Parliament of Australia (n 61);
Nottage (n 57).
66
The Loewen Group Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3.
Loewen sought damages for injuries arising out of litigation in Mississippi state court in 1995-6. Among other things,
Loewen alleged that the Mississippi courts violated the anti-discrimination and minimum standard of treatment
provisions in NAFTA. However, Loewen’s claims were dismissed by the Tribunal on 26 June 2003. See generally Don
Wallace, Jr, ‘Fair and Equitable Treatment and Denial of Justice: Chattin v Mexico and Loewen v USA’ in Todd Weiler
(ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and
Customary International Law (Cameron May 2005) 669–700.
67
See Judgment 2012Na88930 (Seoul High Court, 16 August 2013). The US party is considering an appeal to the
Supreme Court of South Korea. Thomas Walsh, ‘South Korean Courts Twice Refuse to Enforce International
Arbitral Awards’ (Herbert Smith Freehills Arbitration Notes, 23 September 2013) <http://hsfnotes.com/arbitration/2013/
09/23/south-korean-courts-twice-refuse-to-enforce-international-arbitral-awards/> accessed 31 December 2014.
Investment Treaty Arbitration ‘Down Under’
11
mechanism, including KAFTA,68 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.69
Transparency of proceedings can also be enhanced, as under KAFTA, which
adopts detailed provisions as well as a side letter requiring consultations about
adopting the new Transparency Rules under the United Nations Commission on
International Trade Law.70 The risks of excessive claims or ‘regulatory chill’ for
host States—namely by not introducing measures genuinely in the public
interest—should be less for developed countries (which generally have higher
standards of good governance). They can be further managed through drafting
general and specific exceptions (although care is needed especially when
attempting to transpose exceptions from other instruments) such as the WTO
Agreement.71
For similar reasons, both the European Commission72 and the US government73 proposed the inclusion of appropriate provisions on ISDS and substantive
rights in the TTIP presently under negotiation. The Commission engaged in a
public consultation from May to July 2014,74 given justifiable public concerns
raised mostly, however, by those who are unfamiliar with the rationales, evolution
and current operation of the treaty-based international investment law system. Yet
a recent comprehensive report from the Dutch government recommends the
retention of ISDS even in the TTIP.75 Admittedly, the theoretical and
68
Australian Government, Department of Foreign Affairs and Trade, ‘Korea-Australia Free Trade Agreement: Official
Documents’ <http://www.dfat.gov.au/trade/agreements/kafta/official-documents/Pages/default.aspx> accessed 2 March
2015. See also KAFTA (n 26) art 11.20.13, envisaging the possibility of a future multilateral appeals mechanism.
69
Robert French, CJ, ‘Investor-State Dispute Settlement: A Cut Above the Courts?’ (Conference of the Supreme
and Federal Courts Judges, Darwin, 9 July 2014) <http://www.hcourt.gov.au/assets/publications/speeches/currentjustices/frenchcj/frenchcj09jul14.pdf> accessed 31 December 2014.
70
See Australian Government (n 68). These Rules would normally apply to provisions for UNCITRAL Arbitration
Rules in treaties concluded after 1 April 2014, but the side letters opt out (with the possibility of later agreeing to opt
back in) by stating: ‘The Parties shall enter into consultations within 12 months of the date of entry into force of the
Agreement on the future application of the United Nations Commission on International Trade Law (UNCITRAL)
Rules on Transparency in Treaty-based Investor-State Arbitration’ to arbitrations initiated pursuant to Section B of
Chapter 11 (Investment). Unless the Parties otherwise agree, the UNCITRAL Transparency Rules shall not apply to
arbitrations initiated pursuant to Section B of Chapter 11 (Investment). However, a preliminary comparison of the
Transparency Rules with the provisions already in KAFTA indicates that the differences are not large. There is also
the possibility that Australia may anyway accede to a proposed UNCITRAL transparency convention. UNCITRAL
Rules on Transparency in Treaty-based Investor-State Arbitration, UN Doc A/CN.9/783 (July 2013).
71
cf KAFTA (n 26) art 22.1, with Ju¨rgen Kurtz and Andrew Lang, Submission to the public consultation on investment
protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement
(TTIP) (13 July 2014) (on file with the authors). Marrakesh Agreement Establishing the World Trade Organization
(signed 15 April 1994, entered into force 1 January 1995).
72
European Commission, ‘Factsheet on Investor-State Dispute Settlement’ (3 October 2013) <http://trade.ec.
europa.eu/doclib/docs/2013/october/tradoc_151791.pdf> accessed 5 January 2015.
73
Office of the United States Trade Representative, ‘The Facts on Investor-State Dispute Settlement: Safeguarding
the Public Interest and Protecting Investors’ (27 March 2014) <https://ustr.gov/about-us/policy-offices/press-office/
blog/2014/March/Facts-Investor-State%20Dispute-Settlement-Safeguarding-Public-Interest-Protecting-Investors>
accessed 2 March 2015.
74
European Commission, ‘Online Public Consultation on Investment Protection and Investor-to-State Dispute
Settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP)’ <http://trade.ec.
europa.eu/consultations/index.cfm?consul_id=179> accessed 31 December 2014. As with the Anti-ISDS Bill inquiry,
social media and the internet were actively used to generate almost 150,000 responses. The Commission’s preliminary
statistical analysis found that most responses came from the United Kingdom, Germany and Austria, and almost all
came from individuals (with most of the 569 organizations providing responses comprising non-governmental
organizations). Only 47% of respondents agreed to allow publication of their comments on the Commission’s website,
despite concerns often being expressed about the need for greater transparency in regards to ISDS.
75
Netherlands Government, ‘The Impact of Investor-State Dispute Settlement (ISDS) in the TTIP’ <http://www.
rijksoverheid.nl/documenten-en-publicaties/rapporten/2014/06/24/the-impact-of-investor-state-dispute-settlement-isdsin-the-ttip.html> accessed 31 December 2014. See also Linda Dempsey, ‘A Fact- and Experience-based Review of
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ICSID Review
demonstrable net benefits of ISDS remain reduced in treaties among developed
countries. But a broader advantage of retaining ISDS with more extensive
safeguards is that it should also then make it easier to negotiate such protections in
treaties with developing countries.
Overall, therefore, the Anti-ISDS Bill represents an over-reaction. Until it can
be shown that the vast majority of States worldwide have taken a wrong turn in
continuing to countenance ISDS provisions, it seems inadvisable for Australia to
opt out of the system altogether. Rather, it should more carefully negotiate both
procedural and substantive rights in future investment treaties. In the Senate
Committee inquiry, it was suggested that Australia should also initiate a public
consultation to develop a model investment treaty or standard provisions. The
Australian government was also urged to review its old treaties as they come up for
renewal76 and even to consider approaching treaty partners to renegotiate
provisions that do not meet its contemporary standards (albeit for future
investments).77 Unfortunately, this approach also appears to be precluded by
this Bill.78 Yet the Philip Morris Asia arbitration reveals problems for host States
under the early BIT with Hong Kong (signed in 1993). In addition, the recent
ICSID jurisdictional decision in Planet Mining v Indonesia has serious implications
for investors making claims under oddly drafted provisions in many of Australia’s
other treaties from the 1990s.79
Indeed, as noted in the main report on the Anti-ISDS Bill issued by the Senate
Committee on 27 August 2014, it agreed ‘with Professor Nottage and others 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’.80
The report concluded that ‘many of the alleged risks to Australian sovereignty and
law making arising from the ISDS system are overstated and are not supported by
the history of Australia’s involvement in negotiating trade agreements’.81
However, while agreeing with the recommendation that the Bill should not be
enacted, the additional comments by Labor Senators insisted that it was
unnecessary to include ISDS provisions in any treaties. They reiterated the core
arguments from the Productivity Commission against the possible benefits, and
contended that:
the current ISDS legal system suffers from some of the same problems as underdeveloped
legal systems, including substantial delays, substantial costs, lack of precedent and lack of
an appeal mechanism.
Investor-State From Europe’ <http://www.shopfloor.org/2014/12/a-fact-and-experience-based-review-of-investor-statefrom-europe/32697> accessed 31 December 2014.
76
Curiously, even during the period when the Gillard government’s Trade Policy Statement was in effect,
Australia’s BIT with Peru was automatically renewed as of 2 February 2012, despite including ISDS provisions.
77
Nottage (n 57).
78
See eg Submission no 108, found in Parliament of Australia (n 61).
79
Nottage (n 15). Churchill Mining and Planet Mining Pty Ltd v Republic of Indonesia, ICSID Case No ARB/12/14
and 12/40, Request for Arbitration (22 May 2012).
80
Parliament of Australia (n 61) s 2.59. Nottage wrote on 3 November 2014 to the federal Attorney-General and
Trade Minister, offering to assist in developing such a model treaty or provisions. The latter’s Chief of Staff replied on
23 October 2014, stating that officials were focusing on concluding the negotiations for the bilateral FTA with China
and the TPP but were expected to be in a better position to consider the proposal in 2015.
81
ibid s 2.60.
Investment Treaty Arbitration ‘Down Under’
13
1.9 Another unintended consequence from the growth of ISDS litigation is ‘regulatory
chill’ where states may delay or fail to implement public policy measures for fear of an
ISDS claim.82
The Labor Senators also claimed that ‘[g]overnments and groups in Germany,
France, Indonesia and South Africa have all expressed their lack of support for
future ISDS provision in multilateral agreements’.83 However, they emphasized
that in Australia the executive branch of government is responsible for negotiating
and signing treaties, with ultimate accountability to the voting public, and that
previous Labor governments have accordingly achieved ‘progressive reforms in the
national interest’ (such as protecting human rights and the environment).84 The
Labor Senators concluded that:
1.19 Labor will continue to scrutinise the actions of the Government, including its treatymaking actions, to ensure its conduct is in the national interest and will give appropriate
consideration to enabling legislation.
1.20 Labor has moved in the Senate to order the tabling of all proposed trade agreements
at the conclusion of negotiations and before signing.85
Assuming that both Coalition and Labor Senators follow their party lines, as
indicated in their comments and recommendations in the report on the Anti-ISDS
Bill, it falls far short of the number of votes required to pass. Even in the highly
unlikely event of the Labor Party shifting to support the Greens on this Bill, and
further persuading a few other minor party or independent Senators to pass it in
the upper house of Parliament, it would not pass the lower House of
Representatives, provided the Abbott government retains its absolute majority
there and adheres to its stated policy of including ISDS on a case-by-case
assessment.
Nonetheless, as indicated in the earlier-mentioned additional comments from
the Labor Senators and in subsequent remarks in Parliament, the Labor Party
remains opposed in principle to ISDS. In particular, Labor Party parliamentarians
have consistently objected to ISDS provisions being included in KAFTA. They
dissented in the JSCOT inquiry report of 13 May 2014,86 which recommended
(by majority) that this FTA with Korea be ratified by Australia. In a report dated 1
October 2014 from a separate inquiry into KAFTA by the Senate’s Foreign Affairs
and Trade References Committee comprising three Labor Party members (and
one Greens member) out of six, it was agreed (with a dissent from the Greens
substitute member, Senator Whish-Wilson) that, on balance, the treaty should be
82
ibid s 1.3–1.9.
cf, eg, the more nuanced position in Indonesia. See Trakman and Sharma (n 15). For Germany, cf also Doak
Bishop, ‘Investor-State Dispute Settlement under the Transatlantic Trade and Investment Partnership: Have the
Negotiations Run Aground?’ (2014) 29 ICSID Rev—FILJ 1, 7–8. See also generally Leon Trakman, ‘Australia’s
Rejection of Investor-State Arbitration: A Sign of Global Change?’ in Leon Trakman and Nicola Ranieri (eds),
Regionalism in International Investment Law (OUP 2013) 344.
84
Parliament of Australia (n 61) s 1.15–1.17.
85
ibid (emphasis added).
86
Parliament of Australia, ‘Report 142: Treaty Tabled on 13 May 2014’ <http://www.aph.gov.au/Parliamentary_
Business/Committees/Joint/Treaties/13_May_2014/Report_142> accessed 2 January 2015. One of the Labor Party’s
Joint Parliamentary Standing Committee on Treaties members in dissent, Member of Parliament Kelvin Thomson,
also emphasized opposition to ISDS in KAFTA (calling for its renegotiation to exclude those provisions) when the
report was tabled in the House of Representatives on 4 September 2014. Shortly, however, a government Minister
(Scott Morrison) simply introduced the two bills implementing KAFTA. See HR Deb 4 September 2014, 9722–6
<http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber/hansardr/512317ee-60944e3d-88f0-38ac38d28920/0000%22> accessed 2 January 2015.
83
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ICSID Review
ratified. However, the report recommended that the ISDS provisions be narrowed
by side letter and not included in future agreements.87
Despite such misgivings, Labor Party members voted in favour of the two bills
that the Coalition government needed to introduce on 4 September 2014 in order
to implement associated changes primarily to the customs regime.88 Despite
urging the government to renegotiate KAFTA to omit ISDS provisions, a key
figure in the Labor Party conceded that the FTA had remained overall in the
national interest and therefore should be ratified.89 The implementing legislation
consequently passed both Houses by 1 October, receiving royal assent on 21
October. KAFTA (including the unchanged ISDS provisions) entered into force
on 12 December 2014, after an exchange of notes between the Korean and
Australian governments on 3 December (the day after Korea’s National Assembly
agreed to ratification).90
Yet because Labor Party parliamentarians continue to warn the Coalition
government about including ISDS in further investment agreements, there is no
guarantee that the party will vote in favour of implementation legislation for the
FTA that was substantially agreed with China on 17 November 2014, as it too
reportedly provides for ISDS. The government will probably follow existing
practice and only disclose the finalized text of the treaty around the time of its
signing in early 2015, but it will doubtless then face even more intense
parliamentary scrutiny given strong public concerns, especially about inbound
investment from China.91 If the Labor Party joins with the Greens in voting
against implementation legislation in the Senate for this particular treaty, the
government will need to (i) secure votes from smaller parties or independent
Senators, (ii) wait and hope for broader changes in the Senate composition or (iii)
seek to renegotiate with China the agreement reached regarding ISDS.
87
Specifically, the report from this inquiry (initiated by the Labor Party on 27 March 2014) recommended that
discussions to narrow the KAFTA provisions should include consideration of:
a narrower definition of ‘expropriation’;
a non-exhaustive list of public policy areas covered by the term
‘legitimate public welfare objective’;
limitations as suggested by Chief Justice French or as subsequently formally recommended by the Council of
Chief Justices; and
that the parties promptly establish a bilateral appealant [sic] mechanism as envisaged in Annex 11-E of the
agreement.
Additional Comments from the two Coalition Senators rejected those two recommendations. cf Parliament of
Australia, ‘Report: Korea-Australia Free Trade Agreement’ (1 October 2014) 50, para 5.8, 52, para 5.15 and 59, para
1.3 <http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_Trade/KoreaAustralia_Free_Trade_Agreement/Report> accessed 2 January 2015. For a preliminary analysis of issues recommended by the Labor Party Senators, including the matters raised for discussion by the Chief Justice of Australia in a
speech on 9 July 2014, see French (n 69); see also Nottage (n 57).
88
Customs Amendment (Korea–Australia Free Trade Agreement Implementation) Bill 2014; and Customs Tariff
Amendment (Korea–Australia Free Trade Agreement Implementation) Bill 2014. Both bills had their third readings
in the House of Representatives on 25 September and in the Senate on 1 October 2014.
89
See Senator Penny Wong (Leader of the Opposition in the Senate, Deputy Leader of the Labor Party), HR
Senate
Deb,
1
October
2014,
7548–51
<http://parlinfo.aph.gov.au/parlInfo/search/display/display.
w3p;query=Id%3A%22chamber/hansards/4630d1fc-e7c9-4b04-8c13-d1aa918c703f/0000%22> accessed 2 January
2015 (proposing the addition of a motion urging the government to renegotiate KAFTA to exclude ISDS provisions).
90
Minister for Trade and Investment, ‘Robb Announces Korea FTA to Take Effect in 9 Days’ Media Release
(3 December 2014) <http://trademinister.gov.au/releases/Pages/2014/ar_mr_141203.aspx> accessed 2 January 2015.
91
For example, unions have expressed strong opposition to enhanced free trade and investment with China,
including ISDS provisions. Editorial, ‘FTA with China Could Deal Fatal Blow to Local Industry’ The Australian
(Sydney, 17 November 2014).
Investment Treaty Arbitration ‘Down Under’
15
IV. CONCLUSIONS
The public debate over ISDS in Australia, triggered by the arbitration claim by
Philip Morris Asia and the Productivity Commission’s trade policy inquiry in
2010, has even contributed to the Senate’s Foreign Affairs and Trade References
Committee commencing another broader inquiry into the constitutional allocation
of treaty-making authority.92 At the immediate micro-level, the present (centreright) Coalition government has reinstated the pre-2011 Australian policy and
practice of including ISDS provisions in treaties on a case-by-case assessment. The
calculus on inclusion is apparently shaped by strong demands from the
counterparty to the negotiations (as with Korea) and/or by lobbying Australia’s
business sector involved in outbound investment (especially into developing
countries, as within the proposed TPP or RCEP).93 These new-generation treaties
also continue a trend of countervailing sovereignty costs (and thereby offering
greater political cover) by injecting levels of flexibility via exceptions for public
regulation, often modelled on the law of the WTO. However, the (centre-left)
Labor Party continues to vocally oppose ISDS and has even held out the
possibility that its elected representatives in the Senate may block implementing
legislation for future FTAs that include such protections (as is reportedly
occurring now with China). Of course, the risk of political obstructionism is
necessarily lower for a major political party that seeks electoral reinstatement (with
the then inevitable need to negotiate with Australia’s treaty partners) than it is for
minor and fringe political actors (such as, for now, the Australian Greens). Indeed,
it is telling that the Labor Party has publically proclaimed its opposition to ISDS
while allowing the Coalition government to ratify KAFTA. While no doubt
appealing to some of its constituents, this Janus-like stance may ultimately prove
unsustainable or sub-optimal.
Australia is currently involved in a range of bilateral and regional FTA
negotiations involving a number of other States. As we have seen, many of these
countries have specific concerns about ISDS (often due to their own episodic
experience as respondents to challenges) as well as the broader trajectory of
international investment law. The two major Australian political parties now have
the rare and valuable opportunity to guide and shape debates surrounding those
politically difficult questions. Ideally, they would do so by reflecting on the
strengths and weaknesses of the complex set of policy shifts and treaty practices
undertaken by successive Australian governments over the last decade. A mature
assessment of this sort could allow for a shared and sustainable policy stance and
92
Submissions due by 27 February and a report by 18 June 2015. Parliament of Australia, ‘The Commonwealth’s
Treaty-Making
Process’
<http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_
Defence_and_Trade/Treaty-making_process> accessed 2 January 2015.
93
Australia’s parliamentary records indicate that Korea pressed hard for inclusion of ISDS in KAFTA. However, a
joint statement from Australia’s peak business organizations, the day before it entered into force, noted: ‘The inclusion
of investor-state dispute settlement provides certainty for Australian and Korean investors. As Australian businesses
seize the opportunities from Asia and invest in Korea, the agreement will provide these companies more investment
certainty overseas.’ Australian Chamber of Commerce and Industry, ‘KAFTA’ <http://acci.asn.
au/Research-and-Publications/Media-Centre/Korea-Australia-Free-Trade-Agreement?feed=ACCIResearch> accessed
2 January 2015. An active Melbourne-based business consultancy firm has also recently pressed for ISDS to be
included in the TPP. ITS Global, ‘Trans-Pacific Partnership: Free Trade Architecture to Boost Global Growth’
(October 2014) 14–15 <http://www.itsglobal.net/sites/default/files/itsglobal/141003_TPP_ITSGLOBAL_0.pdf> accessed 2 January 2015.
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ICSID Review
might even find overdue embodiment in a model investment treaty or model
provisions for Australia.94
Australia’s willingness and ability to reflect on its own experience so as to present a principled approach to investment treaty constraints has charged systemic
implications. We now live in a period of acute political contestation surrounding
the role, content and procedure of investment treaty limitations on State
sovereignty. The Australian experience shows that the re-politicization of ISDS
attracts multiple constituencies and actors to the field who will forcefully advocate
their position to treaty negotiators and governmental actors. Re-politicization of
this sort is inevitably characterized by heterogeneity, as different State parties
understand that there are legitimately varying choices on investment treaty
disciplines, which turn on questions of economic strategy, development goals, risk
profile and levels of institutional quality (including that of the judicial system).
When guided by rigorous theoretical and empirical analysis,95 these types of
contestation offer real potential to foster progressive and sustainable reform of the
system in a way that could even address some of the concerns of its most
entrenched opponents. At least the recent parliamentary reviews of the Anti-ISDS
Bill and treaties such as KAFTA, together with related media coverage,96 have
allowed some more reasoned debate and a better understanding of the pros and
cons of ISDS in the twenty-first century.
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Parliament of Australia (n 86); Trakman and Sharma (n 15).
Indeed, in their additional comments to the report recommending enactment of the Anti-ISDS Bill, the Labor
Senators welcomed ongoing collaborative research into international investment dispute management, funded by the
Australian Research Council over 2014–16, particularly with respect to the impact of offering ISDS protections on
inbound FDI. Parliament of Australia (n 61) s 1.6. See Shiro Armstrong and others, ‘The Fundamental Importance
of Foreign Direct Investment to Australia in the Twenty-First Century: Reforming Treaty and Dispute Resolution
Practice’ (2013) 13(90) Sydney Law School Research Paper <http://ssrn.com/abstract=2362122> accessed 2 January
2014.
96
For example, ABC Radio National aired an extended feature on 14–16 June 2014, focused on ISDS and the
TPP. ‘ISDS: The Devil in the Trade Deal’ ABC Radio National (14 September 2014) <http://www.abc.net.au/
radionational/programs/backgroundbriefing/isds-the-devil-in-the-trade-deal/5734490> accessed 2 January 2014.
95