Senate Inquiry reveals community opposition and dangers of foreign investor rights to sue governments despite claimed “safeguards”

by Dr Patricia Ranald, Research Associate, University of Sydney and Convenor, Australian Fair Trade and Investment Network

The report from a Senate inquiry into foreign investor rights to sue governments in international tribunals for damages over domestic legislation, known as Investor-State Dispute Settlement or ISDS were tabled in Parliament on the evening of August 27. The inquiry received 141 submissions and 11,000 letters which were overwhelmingly critical of ISDS. There are two other ongoing Parliamentary enquiries into the Korea-Australia Free Trade Agreement which includes ISDS. This level of public concern and Parliamentary scrutiny demonstrates that ISDS is a hot button issue.

The Senate Committee inquiry examined the Greens’ Trade and Foreign Investment (Protecting the Public Interest) Bill 2014, which seeks to ban governments from agreeing to foreign investor rights to sue governments in trade agreements.

The Government has a majority on the Senate Legislation Committee on Foreign Affairs, Defence and Trade which conducted the inquiry. The Coalition policy is to support ISDS in some trade agreements on a case by case basis, and it has agreed to its inclusion in the Korea-Australia Free Trade Agreement. It was therefore predicable that the majority report did not support a ban on ISDS.

However, the majority report had to acknowledge the overwhelming public opposition and critical evidence presented to the Inquiry. This showed fundamental flaws in the ISDS system, which enable governments to be sued by foreign investors over health and environmental legislation, and have led   many governments to review ISDS and consider substantial changes.

The ALP Committee members’ comments noted the strong community opposition to ISDS and that many governments were reviewing its inclusion in trade agreements. They reaffirmed ALP policy opposition to ISDS, said ISDS clauses were unnecessary, and noted the flaws in the ISDS system. However, they did not support the specific wording of the Bill, claiming that Parliament did not have the authority to restrict the constitutional power of Cabinet to endorse trade agreements.

The Greens dissenting report supported the Bill.

Community opposition to ISDS has mounted because the Philip Morris tobacco company is using an obscure Hong Kong Australia investment agreement to sue the Australian government for millions of dollars of damages over our plain packaging legislation. This is an attempt to undermine Australia’s High Court decision which found they were not entitled to any payment under Australian law.

The Howard government did not agree to include ISDS in the 2004 US-Australia free trade agreement, which is why Philip Morris, a US company, had to use SDS in Hong Kong investment agreement. A 2010 Productivity Commission report found no economic benefits from ISDS, and recommended against it on the grounds that it gave greater rights to foreign investors than to domestic investors. The previous ALP government adopted a policy against ISDS in 2011.

ISDS tribunals lack the basic legal protections of domestic legal systems. They consist of investment law experts who can be arbitrators one month and lawyers the next. This means there is no independent judiciary. There are no precedents or appeals, so decisions can be inconsistent.

Australia’s High Court Chief Justice French has canvassed these issues in a paper entitled  ISDS: A Cut above the Law? expressing his concerns about the impact of ISDS on domestic court systems, He cited the Philip Morris case, and the US Eli Lilly pharmaceutical company case against a Canadian court decision which refused to grant a medicine patent on the reasonable grounds that it was not more effective than existing medicines. The paper also noted that governments have not consulted with the judiciary about ISDS.

The Committee heard evidence that 10 Latin American countries, Indonesia, India, South Africa and The European Union are reviewing ISDS. The EU the public inquiry on ISDS has received thousands of submissions. Hundreds of academic experts have argued that the proposed “safeguards” for health and environmental legislation proposed in a trade agreement between the EU and the US are inadequate. But these safeguards are far more extensive than those in the Korea-Australia free trade agreement, which has been signed and is being reviewed by two other Parliamentary committees. ISDS is also being debated in the Trans-Pacific Partnership (TPP) negotiations next week between Australia, the US and 10 other countries.

Trade agreements are negotiated in secret. Cabinet decides whether to sign them, and the text is only tabled in Parliament after signing. The review by the Joint Standing Committee on Treaties, cannot change the text, but can only recommend whether the implementing legislation should be endorsed by Parliament. Implementing legislation only deals with those parts of the agreement which require changes to Australian law. ISDS clauses do not require changes to Australian law. Parliament can only express opposition to ISDS by voting against the implementing legislation for the agreement, and asking the government to re-negotiate on ISDS

This Inquiry has demonstrated the mounting critical evidence and growing community opposition to the ways in which ISDS undermines democratic legislation and national courts. All Australian Parliamentarians should consider voting against the implementing legislation for trade agreements like the Korea FTA and the TPP if they contain ISDS.