SMH reports China FTA allows investors to sue governments

Sydney Morning Herald

Chinese corporations allowed to sue Australian government under free trade agreement

November 19, 2014 - 12:28AM

Gareth Hutchens

Labor and Greens senators have warned about a controversial and little-understood clause in the new China-Australia free trade agreement that will allow Chinese corporations to sue the Australian government.

The deal struck between China and Australia on Monday will contain a so-called Investor State Dispute Settlement (ISDS) mechanism that will allow Chinese corporations to sue Australia's government if a change in Australian law can be claimed to have harmed their investments in Australia.

Labor and Greens senators warned on Tuesday there will be unintended consequences from the deal and the government ought to explain why it was included in the FTA.

Labor senator Penny Wong and Greens senator Peter Whish-Wilson both asked the Abbott government on Tuesday if the ISDS mechanism would allow Chinese investors, including state-owned enterprises, to "take action" against the Australian government if their profits were harmed.

"Could future changes to the renewable energy target or carbon farming schemes give rise to liabilities under this dispute mechanism?" Ms Wong asked.

But Liberal senator Eric Abetz said the ISDS mechanism was in 20 similar international trade agreements, including ones the former Labor government had negotiated.

"This is the sort of immature and very un-Australian approach that Senator Wong is taking to these free trade agreements," Mr Abetz said in the senate on Tuesday.

"The Labor Party are very sensitive to be reminded that these ISDS provisions are common in these agreements - agreements to which the Australian Labor Party themselves signed up the Australian nation. We agreed with that approach. Now that we do it, the Labor Party cannot reciprocate," he said.

But Dr Kyla Tienhaara, from the Regulatory Institutions Network at the Australian National University, told Fairfax Media that such mechanisms had been used by corporations in the past to challenge legitimate public policy measures – such as Australia's tobacco plain packaging laws – and there was no reason why the mechanism in the China-Australia FTA could not be used for similar reasons.

Ms Tienhaara said Australia would now also have to revisit its trade agreement with Japan because that deal stipulated that if an ISDS mechanism was included in an FTA with China then it would like to have one in its FTA with Australia too.

"Corporations can challenge pretty much anything under these agreements," Ms Tienhaara said.

"Investor state dispute settlements are not the appropriate forum for companies to sue governments. These things should happen under the existing democratic processes and court systems that we have."

Prime Minister Tony Abbott and Trade Minister Andrew Robb knocked back criticism of the ISDS mechanism on Tuesday, saying the mechanism was benign and would allow Australians to invest in China "with greater confidence."

"The ISDS provisions contain strong safeguards to protect the Australian Government's ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment," Mr Abbott and Mr Robb said in a joint statement.

But Dr Patricia Ranald, the Coordinator of the Australian Fair Trade and Investment Network (AFTINET), said on Monday that the text of the agreement remained secret and the details could therefore not be scrutinised.

Dr Ranald said the full text of the agreement ought to be released for public and parliamentary scrutiny before it was signed next year.

"We could face a scenario where Chinese investors could sue local, state or federal governments for damages over a change in environmental or other regulation," Dr Ranald said.

"We have also opposed this provision in the Trans-Pacific Partnership Agreement with the US, Japan and nine other Pacific Rim countries, because ISDS is clearly against the national interest."