Investor-State Arbitration: In the TPP and RCEP (‘ASEAN+6’ FTA)?

It remains to be seen whether the new Coalition Government will revert to Australia’s longstanding treaty practice prior to the 2011 ‘Gillard Government Trade Policy Statement’. That declared that Australia would not include investor-state arbitration (ISA) protections in future investment treaties – including investment chapters of Free Trade Agreements – even with developing countries.
The new Prime Minister, Tony Abbott, has declared that he is keen to conclude FTAs which Australia has long been negotiating with Japan, Korea and China respectively. The Gillard Government’s stance on ISA adding to delays experienced in finalising these treaties – see comments, including some of my own in The Australian on 21 September 2013. It also complicates negotiations for regional agreements like the Trans-Pacific Partnership (TPP) agreement and the Regional Comprehensive Economic Partnership (RCEP).
The ISA system is far from perfect, but there are many ways for Australia to draft provisions in investment treaties – old and new – to balance public and private interests effectively. Examples that attract varying degrees of support, from experts in international investment law, are provided in my paper co-authored with Chris Campbell and Sophie Nappert, forthcoming in a special issue of the Transnational Dispute Management journal. It and some of my other recent papers relevant to this topic, uploaded on, are listed with their Abstracts below.

1. Campbell, Christian and Nappert, Sophie and Nottage, Luke R., Assessing Treaty-Based Investor-State Dispute Settlement: Abandon, Retain or Reform? (June 14, 2013). Sydney Law School Research Paper No. 13/40. Available at SSRN: (forthcoming in Transnational Dispute Management).
Treaty-based investor-state dispute settlement (ISDS) is attracting increasing public debate. Particular concerns involve treaty provisions allowing investors from the home state to initiate arbitration claims directly against the host state for allegedly violating substantive rights (eg relating to expropriation) guaranteed by regional and bilateral investment treaties or free trade agreements.
Some commentators and a few countries (including Australia) presently favour abandoning such protections altogether, leaving foreign investors to the vicissitudes of domestic law and court procedures in the host state, or of any inter-state process under customary international law or as agreed in investment treaties. Others suggest that treaty practice and international arbitrators’ rulings are adequate, so no change is needed to this system. A third group seeks a middle way, proposing various procedural and substantive law reforms to re-balance private versus public interests involved in promoting and protecting cross-border investment.
This paper is based on an Open Letter derived from an online form publicised among those familiar with such international investment law issues. Almost all favoured the middle way, with considerable agreement on several possible reforms. These insights should prove useful in framing the ongoing debate, negotiations over new investment treaties, and perhaps even investor-state arbitration proceedings relating to existing treaties.
2. Bath, Vivienne and Nottage, Luke R., The ASEAN Comprehensive Investment Agreement and ‘ASEAN Plus’ – The Australia-New Zealand Free Trade Area (AANZFTA) and the PRC-ASEAN Investment Agreement (September 26, 2013). Sydney Law School Research Paper No. 13/69. Available at SSRN: (forthcoming in Bundenberg et al, International Investment Law, Beck / Hart / Nomos, 2013).
The Association of South-East Asian Nations (ASEAN) was founded in 1967 partly for political and security reasons, but its main purposes are to accelerate economic growth, social progress and cultural development. Over time, the aim of expanding trade has also come to encompass the objective of encouraging and increasing investment within the ASEAN region, and between the region and other countries around ASEAN. In 2009, the 10 ASEAN states signed the Comprehensive Investment Agreement, which creates a detailed framework for mutual investment within the ASEAN region and came into effect in 2012. ASEAN has also entered into a number of (“ASEAN”) free trade agreements with countries such as China, Australia-New Zealand, Japan, Korea and India, which refer to the liberalisation of mutual investment. It is also the centrepiece of the (“ASEAN 6”) Regional Comprehensive Economic Partnership agreement under negotiation since late 2012.
This paper discusses the approach taken by ASEAN to investment and resolution of investment disputes, leading up to the Comprehensive Investment Agreement and the issues which this Agreement presents in relation to implementation. It assesses some commentators’ claims that some member states (and other parts of the Asian region) are still quite ambivalent about investment liberalisation and investor-State dispute settlement procedures. It then discusses the existing ASEAN economic cooperation treaties and their provisions in relation to investment, with a particular focus on AANZFTA. For example, it examines the exclusion of conditions covering Australia-New Zealand cross-investments and the question of dispute resolution, particularly in light of the (then) Gillard Government’s Trade Policy Statement announcement in April 2011 that changed Australia’s longstanding policy stance to eschew all forms of treaty-based investor-State dispute settlement in future treaties.
The paper also touches on a related important development affecting ASEAN and regional economic integration: the TPP agreement. The TPP was signed in 2005 by Singapore, Brunei, New Zealand and Chile; but Vietnam, Malaysia, Australia, Peru, the USA, Mexico, Canada and Japan are now negotiating accession. It too is premised on the addition of an Investment Chapter, with investor-State arbitration provisions also proving to be contentious.
3. Nottage, Luke R. and Butt, Simon, Recent International Commercial Arbitration and Investor-State Arbitration Developments Impacting on Australia’s Investments in the Resources Sector (October 15, 2013). Sydney Law School Research Paper No. 13/71. Available at SSRN:
This paper highlights two sets of significant developments for businesspeople, legal advisors and policy-makers relating to international arbitration in the resources sector, particularly from an Australian perspective.
Part 2 deals with international commercial arbitration (ICA), primarily between private firms, pointing out that a ‘legislative black hole’ arises for certain ICA agreements with the seat in Australia which were concluded before amendments to the International Arbitration Act (Cth) (IAA) commenced on 6 July 2010. Such ICA clauses are commonly included in long-term contracts, characteristic of the resources sector, so the IAA must be promptly amended to provide support for ICA and these business relationships.
Part 3 turns to treaty-based investor-state arbitration (ISA), especially as it impacts on outbound investors from Australia. It reiterates opposition to the ‘Gillard Government Trade Policy Statement’ in 2011.This Statement changed over two decades of treaty practice by insisting that Australia would no longer countenance any form of ISA (or even investor-state mediation) in future treaties — even with developing countries, with local laws and court systems that may not meet minimum international standards. We highlight problems that arise from this new stance by discussing two major developments in Indonesian law in 2012, both relevant to the resources sector. They suggest how international investment treaties (including two between Australia and Indonesia – both with ISA protections, which remain in effect) can help mitigate adverse effects on foreign investors. Part 3.1 discusses regulations issued to implement provisions of the Mining Law requiring eventual divestment of majority ownership to locals. Part 3.2 analyses a subsequent Constitutional Court decision to disband Indonesia’s regulator for upstream oil and gas exploration. Both examples highlight the need for Australia to retain ISA in addition to substantive law protections in any renegotiated or new investment treaty with Indonesia, including the bilateral free trade agreement under negotiation since September 2012.
4. Nottage, Luke R. and Brown, Chester W., Recognition and Enforcement of Foreign Arbitral Awards: The Application of the New York Convention by National Courts – National Report for Australia (October 15, 2013). Sydney Law School Research Paper No. 13/70. Available at SSRN:
This National Report for Australia responds to a detailed questionnaire on “Recognition and Enforcement of Foreign Arbitral Awards” prepared by the General Reporter, Professor George Bermann, for the 19th International Congress of Comparative Law (Vienna, 20-27 July 2014). It covers implementation into Australian law of the 1958 New York Convention, enforcement by Australian courts of international arbitration agreements (pursuant to Article II of the Convention), grounds for refusing enforcement (Article V), and procedural issues.
By way of general assessment, this Report concludes that overall the Australian courts’ application of the Convention by way of the International Arbitration Act (IAA) has been reasonably successful and positive, especially in recent years. However, some judgments have been out of step with widely-accepted principles. Sometimes this problem has been exacerbated by poor legislative drafting. Broader difficulties also remain with the recent 2010 amendments to the IAA. It would be helpful to undertake some further amendments, and indeed to reform the Convention itself, in several respects. There also needs to be a more consistently internationalist interpretation and application of the Convention by both Australian courts and advocates arguing IAA cases.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.