Senate’s Report into Australia’s Treaty-Making Process – and ISDS Model?

On 25 June 2015, the federal Senate’s Foreign Affairs, Defence and Trade References Committee tabled its Report on its Inquiry (initiated 2 December 2014) into the “Commonwealth’s treaty-making process, particularly in light of the growing number of bilateral and multilateral trade agreements Australian governments have entered into or are currently negotiating”. The Terms of Reference included “j. exploration of what an agreement which incorporates fair trade principles would look like, such as the role of environmental and labour standard chapters”. This opened the door to many of the 95 public submissions discussing an issue more related to the contents or substance of trade and investment agreements: the investor-state dispute settlement (ISDS) mechanism. These are typically included nowadays as an extra avenue for foreign investors to claim for violations of host state commitments (such as Australia’s Free Trade Agreements reached last year with Korea and China, but not with Japan).
Out of 14 organisations and individuals (including myself) invited to give evidence at public hearings in May 2015, based on their written submissions, nine volunteered opinions on ISDS and a further three were questioned on it by Greens Senator Peter Whish-Wilson. He initiated an “Anti-ISDS” private member’s Bill last year, although the Coalition and Labor Senators on the Foreign Affairs, Defence and Trade References Committee recommended against enactment.
In the present Inquiry, the three (out of six) Committee members presented an extensive majority Report, entitled “Blind agreement: reforming Australia’s treaty-making process”. Senator Whish-Wilson presented a short Dissenting Report urging more wide-ranging reforms to enhance public participation and parliamentary scrutiny of the negotiation and implementation of trade agreements. The (two) Coalition Senators also issued a short Dissenting Report, arguing for the adequacy of the present system of public consultation by current government politicians and officials as well as scrutiny by the Joint (house) Standing Committee on Treaties, conducting an inquiry and making recommendations to Parliament after the treaty is signed and tabled but before Australia takes binding treaty action (ratification etc).
The majority Report noted that “While a number of issues specific to individual trade agreements, such as inclusion of [ISDS] clauses and intellectual property … and copyright chapters, are controversial and the subject of public debate, they are only considered in this report to the extent that they shed light on the treaty-making process” (para 1.7). However, the majority Report did later mention ISDS and indeed recommended that Australia develop a model investment treaty or chapter including indicative provisions.

The majority Report noted, for example, that the “increasing complexity of international trade agreements can sometimes have unintended consequences, especially with regard to intellectual property provisions negotiated in the context of bilateral or regional trade deals”, and quoted the Australian Digital Alliance’s evidence that this can be exacerbated by such IP rights being subject to ISDS (2.33). Later, in Chapter 5 on treaty “Agenda-Setting and Post-Implementation Issues”, the majority Report stated (citations omitted):

Model investment treaty
5.19 One proposal put to the committee that seeks to address inconsistency between agreements, while at the same time facilitating public and stakeholder consultation, was that Australia develop a model investment treaty or model treaty text.
5.20 In a submission to the committee’s 2014 inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014, Professor Luke Nottage proposed that Australia develop a ‘model investment treaty’ to address the public’s concern over the inclusion of investor-state dispute settlement (ISDS) clauses in treaties.[14] The committee’s report to that inquiry noted that such an approach could be a valuable way of managing the controversial issue of ISDS.[15]
5.21 In the hearing for this inquiry, Professor Nottage restated his support for a model investment treaty:
Australia should consider developing a model investment treaty or particular provisions on matters of public interest for the parliament and Australian citizens and, indeed, other parts of trade and investment agreements that are also of broader public interest—so, for example, intellectual property chapters or separate IP treaties.[16]
5.22 Professor Nottage told the committee that it was unusual that Australia does not have draft text in relation to investment:
In relation to investment, nowadays it is quite unusual, in the sense that dozens of economies, including all the major ones, both developed and developing, have a template that they start with, and which they elaborate, and sometimes update quite regularly, based on public consultation.[17]
5.23 According to Professor Nottage, putting in place a procedure for developing model text on controversial treaty provisions ‘could be a useful compromise mechanism to enhance public understanding and input into subsequent treaty negotiations’.[18]
5.24 The proposal that Australia develop model text on controversial areas such as ISDS and intellectual property (IP) was also supported by Associate Professor Weatherall. Along similar lines, the ADA proposed that an ‘overarching framework’ be developed in the area of IP.[19] ACCI, due to concerns that every agreement ‘starts with a blank sheet of paper’,[20] favoured developing a model trade agreement:
…based on international standards that is fully transparent to Australian Industry and to international Governments, so that all stakeholders are aware of what Australia sees as the ideal procedural outcome from a trade treaty…this template would be used as a basis for all future negotiations, and will drive a level of consistency and improved confidence as to what is included in the negotiations.[21]
5.25 Witnesses agreed that, although actual agreements would be expected to depart from the model treaty text, having a template as a starting point could be useful for both consistency between agreements and transparency.
Committee view
5.26 The committee strongly supports the principle that the parliament should have greater access to information about proposed treaties at the commencement of negotiations, throughout the negotiation process and after treaties have entered into force. Although the proposals summarised above are worded differently, there was significant convergence on this topic between submissions and from stakeholders.
5.27 The committee agrees that a statement setting out the government’s objectives and priorities in entering negotiations would be a useful tool to facilitate a more strategic approach to negotiations and strengthen parliamentary oversight. It would also be consistent with recommendations made by JSCOT in 2008 and 2012.[22] The committee believes this document should be prepared by DFAT on behalf of the Minister for Trade and Investment.
Recommendation 7
5.28 The committee recommends that the government, prior to commencing negotiations for trade agreements, tables in parliament a detailed explanatory statement setting out the priorities, objectives and reasons for entering negotiations. The statement should consider the economic, regional, social, cultural, regulatory and environmental impacts which are expected to arise.

5.33 The committee was also surprised to learn that, despite the number of trade agreements entered into in recent years, negotiations still start with a blank sheet of paper. Examples shared with the committee by stakeholders about inconsistencies between agreements demonstrated a need to take a more consistent approach to negotiations.
5.34 The committee considers that the proposal to develop a model or template agreement, at the very least covering controversial issues such as ISDS, IP, and labour and environmental standards, should be considered a priority. Developing a model agreement will also engage stakeholders and the public, and have a positive impact on treaty transparency.
Recommendation 9
5.35 The committee recommends that the government develop a model trade agreement that is to be used as a template for future negotiations. The model agreement should cover controversial topics such as investor state dispute settlement, intellectual property, copyright, and labour and environmental standards and be developed through extensive public and stakeholder consultation.

In his Dissenting Report, Greens Senator Whish-Wilson “broadly supported” Recommendation 7 but expressed no view on Recommendation 9. In their Dissenting Report, the Coalition Senators briefly “disagree with all of the findings and recommendations of the majority report”, without addressing those specific Recommendations.
It will be interesting to see if the Coalition Government maintains this stance, given the continued concern over ISDS expressed through some media outlets since the Australia-China FTA was signed and therefore released on 17 June 2015 (briefly scrutinised in my forthcoming East Asia Forum blog posting). If it loses next year’s general election to the Labor Party, the latter may initiate some significant changes to Australia’s treaty-making process, including developing a model investment treaty or provisions. However, it is also conceivable that once in power the Labor Party will instead maintain the same or a similar system in order to advance its own treaty-making initiatives and priorities.

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.