Democracy foiled: bad trade rules could threaten TAFE and climate policies

May 13, 2019: Imagine there’s a new government elected on May 18, say a Labor government that relies on Green and Centre Alliance support in the Senate. Their policies include more public funding of TAFE vocational education services, following the failure and fraud of privatisation, which means less funding for private vocational education providers. They are also pledging new regulation of the energy market to achieve renewable energy targets, including stronger gas export controls to keep gas prices down.

But such new government policies could find themselves in conflict with legally binding rules in trade deals like the Comprehensive and Progressive Trans-Pacific Partnership (TPP-11) with 10 governments including Japan, Canada and Singapore which came into force in December 2018. There are proposals for similar rules in the Regional Comprehensive Economic Partnership, a much bigger deal including China, India, Japan South Korea Australia, New Zealand and the ten ASEAN countries which is still being negotiated, aiming to conclude at the end of 2019.

Trade deals used to be mainly about reducing tariffs (taxes on imports). But Australia has hardly any tariffs left to trade off. Recent trade deals are more about reducing what global corporations call “other barriers” to trade and investment. This reflects their desire for global regulations that suit their interests but may be contrary to public interest regulation pledged by newly-elected governments.

The TPP-11 has a trade in services chapter which aims to open up most services to foreign investment, including the energy and education services discussed above. It treats regulation like a tariff to be frozen at current levels, and reduced over time. These rules apply to all services unless they are very specifically listed as exemptions. Public services are meant to be excluded, but only if they are not already supplied in competition with private providers. These rules suit global investors and make it difficult for governments to regulate in response to climate change, privatisation failures or corporate crime like that exposed by the banking Royal Commission.

There are two sets of penalties that can apply to governments that break these rules. The first is though a government to government dispute, in which one government brings a dispute to an agreed tribunal. If the tribunal finds the other government has broken the rules. The winning government can ban or tax its products.

But the TPP-11 also has a second dispute system, called Investor-State Dispute Settlement (ISDS). This gives special legal rights to single foreign investors to claim millions in compensation if a change in law or policy has harmed their investment, even if the law is in the public interest. The US Philip Morris tobacco company provoked community outrage when it shifted some assets to Hong Kong and used ISDS in a Hong Kong-Australia investment deal to claim compensation for our plain packaging law. It took nearly five years and $24 million in legal costs for the investment tribunal to decide that Philip Morris was not a Hong Kong company, and the case was an abuse of process. But despite winning, the government only recovered half the costs.

Let’s take the TAFE example, where a future government addresses the failure of privatisation by investing in public TAFE services and reduces funding to private providers. The TPP-11 has some specific exemptions for education services, which may prevent a government-to-government dispute. But these exemptions do not apply to ISDS disputes. If there were a private vocational education company from a TPP-11 country it would be open to that company to sue the government for tens of millions in compensation if they could argue that a reduction in funding would reduce the value of their investment.

Changes in energy regulation to address climate change, or stronger controls on gas exports, would also be open to ISDS disputes from TPP-11 countries. Mining and energy companies from TPP-11 countries Japan, Canada and Singapore have investments in Australian resources and energy services, and could claim compensation for reduced investment value and reduced future profits. Australian legal firms specialising in ISDS are already canvassing those options. There are also international examples. The US Westmoreland company is using ISDS in the north America Free Trade agreement to sue Canada for $441 million because the Alberta provincial government is phasing out coal -powered energy.

Most Australians oppose ISDS. It is unacceptable that global corporations can use trade deals to sue governments and frustrate democratic election outcomes. The only way to prevent this is to ensure that trade deals do not have provisions that freeze or prevent future government regulation, and do not contain ISDS.

The Australian Fair Trade and Investment Network of community organisations has produced a trade policy scorecard that shows that Labor, Greens and the Centre alliance have promised to remove these provisions from current deals and exclude them from future deals like the RCEP, but the Coalition has not. If there is a change of government, strong community pressure will be required to ensure those promises are implemented, and that election pledges on TAFE and climate change are not under threat.