The Abbott government is poised to finalise a highly secretive international trade agreement with serious implications for Australian democracy.
The Trans-Pacific Partnership (TPP) is a proposed free trade agreement between 12 countries, including Australia, Canada and the United States. Formal negotiations for the agreement commenced in March 2010 and independent news sources are reporting that it could be signed by the Abbott government before the end of October.
The TPP has been widely criticised for its secretive negotiations, restrictive intellectual property provisions and, of perhaps the greatest concern, investor-state dispute settlement (ISDS).
ISDS refers to a provision in an international trade agreement allowing foreign investors to sue the national governments of member countries whose policies harm their investments. Historically, only other national governments were able to enforce such agreements under international law.
While it appears that ISDS leads to greater government accountability, there are a host of serious problems with ISDS. According to a 2013 United Nations Conference on Trade and Development report,
“Concerns with the current ISDS system relate, among other things, to a perceived deficit of legitimacy and transparency; contradictions between arbitral awards; difficulties in correcting erroneous arbitral decisions; questions about the independence and impartiality of arbitrators, and concerns relating to the costs and time of arbitral procedures.”
Unpacking this statement, ISDS lacks legitimacy because it exists outside the formal court structure and its safeguards. It lacks transparency because arbitral decisions frequently remain hidden from the public; sometimes even the dispute itself is kept secret.
There are contradictions between ISDS decisions because arbitrators are not required to follow past decisions and because the procedural rules used to resolve disputes can differ from one dispute to the next. Erroneous decisions cannot be corrected because there is no appeal process.
The independence and impartiality of arbitrators has been questioned because the parties choose them; they are not independent like judges. Defending an ISDS claim made by a foreign investor can cost governments millions of dollars, often after a lengthy and expensive battle through the ordinary court system.
But despite the litany of problems, ISDS decisions can have profound effects on government policy and societal wellbeing. In a submission to the Department of Foreign Affairs and Trade in 2010, Dr. Kyla Tienhaara from the Australian National University wrote that there has been an “explosive increase” in ISDS in recent years, impacting “sensitive issues such as access to drinking water, mining development on sacred indigenous sites, health warnings on cigarette packaging and restrictions on the use of dangerous chemicals”.
To illustrate the power wielded by foreign corporations over national governments through ISDS, take a recent example. The Northern American Free Trade Agreement (NAFTA) is a free trade agreement between the United States, Canada and Mexico that contains an ISDS clause.
In 1996, the Canadian government passed a law prohibiting the importation of MMT, a fuel additive associated with various health and environmental side effects. Two months before the law came into effect, Ethyl Corporation, a US company whose subsidiary imported MMT into Canada, filed a Notice of Arbitration on the Canadian government under NAFTA.
Ethyl Corporation sought over US$251 million in damages, plus costs. The Canadian government initially fought the case, before later agreeing to settle. Under the terms of the settlement, Canada agreed to reverse the MMT ban, pay Ethyl Corporation’s legal costs and issue an official statement declaring MMT safe.
Experts believe the Canadian government settled to avoid the risk of huge damages if it was unsuccessful. The back down did not come without a cost though: MMT continues to be added to fuel in Canada. There have been dozens of cases like this under NAFTA and other free trade agreements throughout the world. The potential for huge damages to be awarded without any avenues of appeal or judicial safeguards forces governments to surrender to foreign corporations with no democratic legitimacy.
Australia is not immune from corporate bullying through ISDS either. Since December of last year, plain tobacco packaging laws have been in force throughout Australia. Before the legislation even entered Federal Parliament, Philip Morris Asia Limited, a Hong Kong based company, commenced the first ever ISDS claim against the Australian government. The claim was made under the ISDS clause of a 1993 investment treaty between Australia and Hong Kong.
The precise details of Philip Morris’ claim are unknown as the case is being conducted in secret; however, experts believe Philip Morris alleges the Australian government’s legislation amounts to an expropriation or unauthorised taking of Philip Morris’ intellectual property, namely the trade marks it used to display on its packaging.
What’s significant about this case is that it arose even after the High Court of Australia upheld the legality of the legislation, in a case brought by several tobacco companies last year. Time will tell whether Philip Morris succeeds in its latest attempt to undo one of the most significant pieces of public health legislation in Australia in recent times.
ISDS was a hot topic in Australia in 2004 as the Howard government completed negotiations with the United States over the Australia-United States Free Trade Agreement (AUSFTA). The US government had sought an ISDS clause but public opposition in Australia led to its removal from the final version.
Subsequently, the trade policies of the Rudd and Gillard governments explicitly ruled out ISDS clauses in future international trade agreements. On the eve of the 2013 federal election though, the Liberal Party released its trade policy, declaring that it “remain[ed] open” to ISDS clauses in future.
Trade and Investment Minister Andrew Robb has been cagey about whether the TPP will include an ISDS clause. Many experts are concerned about the softening of Australian trade policy under Abbott though; particularly given how close Australia is to signing off on the TPP.
The ongoing Philip Morris case is proof that ISDS can threaten important public health and environmental legislation benefiting all Australians. It’s not just the experts who should be worried about Australia’s current trade policy.