Should foreign gas companies be able to veto decisions on gas supplies by threatening to sue governments?

 Labor's  policy platform says no, but wil they implement it?.

August 5, 2022:: An article in The Conversation with the catchy title ‘ Hey Minister, leave that gas trigger alone” has urged the government not to use the Turnbull government’s “gas trigger” to compel foreign-owned gas companies to keep gas reserves for use in Australia because they could sue the government for billions of dollars. 

Many Australians don’t know that some trade agreements give foreign (but not local) companies special legal rights to claim millions or billions in compensation if they can argue that a change in law or policy will reduce their profits, even if the change is in the public interest. These rights are known as Investor-State Dispute Settlement or ISDS.

The same rights that enabled the Philip Morris tobacco company  to use ISDS in a Hong Kong- Australia investment agreement to claim billions in compensation for Australia’s plain packaging law

The article urged the government to accept the ISDS threat as a given and seek other solutions to safeguard gas supplies.

Apart from the merits of particular gas policies, there is an issue of principle here. Should governments simply accept that the threat of ISDS cases should determine public policy? The Labor government in 2012 persisted with the tobacco plain packaging legislation because it was an important public health policy. Successive governments fought and won the Phillip Morris case, although it took over five years and the government had to pay half of its $24 million in legal costs.

It is not acceptable for ISDS to curtail the democratic right of governments to act in the public interest in many areas, including on climate change.

A recent comprehensive study showed increasing cases by mining and energy companies claiming billions in compensation for government decisions to phase out fossil fuels to combat climate change, and recommended that ISDS be removed from trade agreements.  The Intergovernmental Panel on Climate Change (IPCC) also recently warned that climate action is being threatened by ISDS clauses in trade agreements.

Cases include the US Westmorland coal company suing the Canadian government because the Alberta province is phasing out fossil fuels, and the German energy companies RWE and Uniper suing the Dutch government over similar policies. EU governments want to withdraw from the Energy Charter Treaty because it includes ISDS provisions increasingly used against climate change policies.

In Australia, the LNP government policy on ISDS varied over the years. The Howard government did not agree to include ISDS in the Australia-US Free Trade Agreement. But successive LNP governments agreed to ISDS in the Comprehensive and Progressive Trans-Pacific Partnership between 11 Pacific Rim countries, including Japan. ISDS was also included in bilateral agreements with China, Korea, and Hong Kong. Companies from all these countries have fossil fuel and/or energy investments in Australia.

However the LNP government was also influenced by the growing sentiment against ISDS. More recent agreements, including the Regional Comprehensive Economic Partnership between 15 Asia-Pacific countries, the Australia-UK Free Trade Agreement, the interim Australia-India Economic Cooperation Agreement, and the Australia-EU free trade agreement still under negotiation do not include ISDS.

The new Labor government’s policy platform opposes ISDS in new trade agreements and pledges to review and remove ISDS from existing trade agreements:

“Labor views these provisions as contrary to the national interest and basic principles of democratic sovereignty and will not accept such clauses in any trade agreements. Labor will not ask this of Australia’s trading partners in future trade agreements.

Australia is a party to Investor State Dispute Settlement (ISDS) clauses through existing trade and investment agreements. Labor in government will review ISDS provisions in existing trade and investment agreements and seek to work with Australia’s trading partners to remove these provisions.” (pp 93-4)

Negotiations with other governments to remove ISDS from trade agreements should be enabled by the growing evidence of the threat from ISDS to all governments wanting to take effective action on climate change. This would enable the current and future Australian governments to develop effective public health policies, policies to combat climate change and other public interest policies without the threat of ISDS cases.