ISDS allows foreign investors to sue our Government

Investor-State Dispute Settlement

Investor-State Dispute Settlement (ISDS) pitfalls

Not a fair legal system

ISDS gives special rights to foreign investors (that are not available to local investors) to bypass national courts and sue governments for millions of dollars if they can claim that a change in law or policy will harm their investment.

The tribunals consist of investment lawyers who can continue to be practicing lawyers, with obvious conflicts of interest. Australia’s High Court Chief Justice and other legal experts have said that ISDS is not a fair legal system because it has no independent judges, no precedents and no appeals. There are over 950 known cases, many against health, environment and other public interest laws.

Increasing numbers of ISDS cases against public interest legislation

Recent ISDS cases against health, environment and other public interest legislation include:

  • Public health: The Swiss pharmaceutical company Novartis threatened to sue the Colombian government over plans to reduce the price of a patented medicine to treat leukaemia. Read about more cases here.

  • Environment: the US Bilcon company won millions of dollars of compensation from Canada of because its application for a quarry development was refused by a local government for environmental reasons. The US Westmoreland coal mining company is suing the Canadian government because the state of Alberta decided to phase out coal-powerd energy. Read about more cases  here. 

  • Workers wages: The French Veolia company is suing the Egyptian government over a contract dispute in which they are claiming compensation for a rise in the minimum wage.

  • Indigenous land rights: An ISDS tribunal ordered the Peruvian government to pay $24 million to the Canadian Bear Creek mining company because it cancelled a mining license after the company failed to obtain informed consent from Indigenous land owners about the mine, leading to mass protests. ISDS rewarded the company for ignoring Indigenous land rights. 

  • Privatisation: Mexican transport company ADO has threatened Portugal with a €42 million ISDS case after it cancelled plans to privatise part of Lisbon's public transport network. 

Philip Morris tobacco company vs Australia: when even winning is losing

Even if a government wins the case, defending it can take years and cost tens of millions of dollars. For example, tobacco companies lost their claim for compensation for Australia’s 2011 plain packaging legislation in Australia’s High Court.  The US-based Philip Morris company did not accept this decision under Australian law. The company could not sue under the US-Australia FTA because that agreement had no ISDS clause. The company found a Hong Kong-Australia investment agreement containing ISDS, shifted some assets to Hong Kong, claimed to be a Hong Kong company and sued the Australian Government, claiming billions in compensation. It took over four years and millions in legal fees for the tribunal to decide the threshold issue in December 2015 that Philip Morris was not a Hong Kong company.

Although the tribunal in July 2017 eventually awarded a proportion of the legal and arbitration costs to Australia, the proportion and amount of the costs were blacked out in the tribunal’s cost decision. This was  a failure of public accountability both by the tribunal and the Australian government, as taxpayers have a right to know the costs of defending ISDS cases. Community organisations called for the Australian government to reveal the costs. The government initially appealed an FOI case decision that it should reveal the costs, but  on July 2, 2018  released  total figures for the High Court case and the Philip Morris case  that showed a total of $39 million. 

The government refused to reveal the specific ISDS legal costs and what percentage of the total costs had been awarded to Australia.

The most recent FOI case on the ISDS costs, launched in 2017 by a legal publication, took another two years to reveal in February 2019 h that Australian taxpayers were awarded only half of the costs of almost $A24 million in both legal fees and arbitration costs, despite the finding that the case was an abuse of process.

This cost decision reinforces the case against the ISDS system. Australia could afford to defend the case, but $12 million is still a loss to taxpayers that could have been spent on health or other community services. Developing countries simply cannot afford these costs.

This confirms that, even if governments win ISDS cases, defending them takes years (in this case seven years before costs were awarded) and tens of millions of dollars. 

Learn more
  •  ISDS excluded from giant RCEP trade deal negotiations:  Dr Patricia Ranald's oped  in The Conversation (September 2019)

 

Updated October 2019

Economist argues against Australia joining trade deals that undermine sovereignty

October 31, 2019: A new article by Richard Denniss, chief economist at The Australia Institute, argues against Australia signing free trade agreements that undermine our sovereignty. Denniss calls out the hypocrisy of the Morrison government that has ratcheted up populist rhetoric while signing up to agreements that grant excessive rights to international investors at the expense of the Australian community.

Media Release: AFTINET fears that assurances sought by Labor will not prevent harmful impacts from Indonesia and other trade deals

October 17, 2019: Media Release “Labor has decided to approve the enabling legislation for the Indonesia, Hong Kong and Peru agreements despite the fact that they contain damaging provisions that are contrary Labor policies, in return for some fairly weak assurances from the government that may not be delivered,” AFTINET Convener Dr Patricia Ranald said today.

ACTU polling reveals community opposition to trade agreements that undermine workers’ rights and government sovereignty

October 9, 2019: Australian Council of Trade Unions (ACTU) polling in the seats of Bass, Brand, Corio, Hunter and Rankin reveals 75 - 80 per cent of voters oppose trade agreements that allow additional work visas without first testing if local workers can fill available jobs and that include Investor-State Dispute Settlement (ISDS) provisions that give corporations the right to sue governments for policy decisions that impact on their profit.

AFTINET and Indonesia for Global Justice release joint statement on the Indonesia-Australia Comprehensive Economic Partnership Agreement

October 8, 2019: AFTINET and Indonesia for Global Justice have come together to oppose the inclusion of investor rights to sue governments in the Indonesia-Australia Comprehensive Economic Partnership Agreement.

South Africa, Brazil and Indonesia call for alternatives to ISDS in UN review

September 25, 2019: The South African Government has submitted proposals to the United Nations Commission on International Trade Law (UNCITRAL) review of ISDS. ISDS enables foreign investors to claim compensation from governments in international investment tribunals if they can claim that domestic laws reduce the value of their investment. 

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