New Frontiers in International Arbitration for the Asia-Pacific Region (7): Australia’s parliamentary inquiries into ISDS in HK, Indonesia and UN/Mauritius treaties

Related to the joint HKU/USyd research project on Asia-Pacific international dispute resolution, and for possible discussion at the related 15 November symposium at USydney, recently I was asked to give evidence at Joint Standing Committee on Treaties inquiries into Australia’s ratification of a new FTA with Indonesia (including an Investment Chapter) and a new Investment Treaty with Hong Kong (alongside an FTA). A transcript of my one-hour Q&A with parliamentarians is here, and my Submission (No 6, including comparative table) is eg here. My key points favouring ratification are set out below, followed by a related news article from the Australian Financial Review on 26 August soon after the Sydney hearings.

I then provided a Submission to JSCOT for its inquiry into the “UN ISDS Convention”, for public viewing soon here. (My Submission appends a draft paper on confidentiality vs confidentiality in ISDS vs international commercial arbitration, focusing on Australia and Japan in regional context, which I will present at the USyd symposium on 15 November.) I also favour Australia quickly ratifying this framework convention so as to retrofit expansive transparency provisions to its many past treaties if counterparties (like Indonesia) similarly ratify this 2014 Mauritius Convention on Transparency in Investor-State Arbitration.


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JSCOT Submission on Australia-Indonesia CEPA (FTA) & Australia-Hong Kong revised Investment Agreement: compared

(a) Both treaties are generally well drafted and balanced, in the familiar (US-inspired) CPTPP-like style, so should be ratified.

(b) The treaty with Indonesia is more pro-host-state (as indicated in red [in the comparative table]). This may be why Australia doesn’t seem to be proposing to terminate the existing BIT, but because AANZFTA also remains in effect with Australia (with clearer advance consent to ISDS arbitration[1] and significant pro-investor features), Australia should consider terminating the existing BIT (as it usually does when concluding broader new treaties).[2]

(c) The treaty with Indonesia helpfully innovates in allowing the host state to require the foreign investor to mediate before filing for ISDS arbitration.[3] This is useful in light of recent empirical evidence from settlement patterns, suggesting that there exists more scope than perceived for pre-arbitral settlements (perhaps therefore with the help of formal mediation)[4] to address concerns over arbitration costs.[5]

(d) It is disappointing that double-hatting by arbitrators is not expressly prohibited in either treaty (unlike under the CPTPP), nor that there is any mention of (even potential future) appellate review mechanisms for ISDS arbitrators. But these are still not deal-breakers.[6]

(e) Ratification is important for Australia to retain credibility in debating and promoting further reforms to ISDS in multilateral forums (especially UNCITRAL), and to encourage Indonesia as it re-engages with ISDS-backed treaties after terminating many old ones amidst pressures towards “economic nationalism”.[7]


[1] But cf Nottage, Luke R., Do Many of Australia’s Bilateral Treaties Really Not Provide Full Advance Consent to Investor-State Arbitration? Analysis of Planet Mining v Indonesia and Regional Implications (April 14, 2014). Transnational Dispute Management, Vol. 12, No. 1, pp. 1-18, 2015; Sydney Law School Research Paper No. 14/39. Available at SSRN: https://ssrn.com/abstract=2424987.

[2] See also Voon, Tania and Mitchell, Andrew D., Old Agreements Must Be Terminated to Bring Life to Investment (May 18, 2019). Available at SSRN: https://ssrn.com/abstract=3390677.

[3] Nottage, https://www.eastasiaforum.org/2019/05/25/settling-investor-state-disputes-asia-pacific-style/

[4] Ubilava, Ana, Amicable Settlements in Investor-State Disputes: Empirical Analysis of Patterns and Perceived Problems (March 13, 2019). Sydney Law School Research Paper No. 19/17. Available at SSRN: https://ssrn.com/abstract=3352181.

[5] Nottage, Luke R., In/Formalisation and Glocalisation of International Commercial Arbitration and Investment Treaty Arbitration in Asia (2014). Formalisation and Flexibilisation in Dispute Resolution, J. Zekoll, M. Baelz, I. Amelung, eds, Brill, The Netherlands, 2014; Sydney Law School Research Paper No. 17/47. Available at SSRN: https://ssrn.com/abstract=2987674.

[6] Nottage, Luke R. and Ubilava, Ana, Costs, Outcomes and Transparency in ISDS Arbitrations: Evidence for an Investment Treaty Parliamentary Inquiry (August 6, 2018). International Arbitration Law Review, Vol. 21, Issue 4, 2018; Sydney Law School Research Paper No. 18/46. Available at SSRN: https://ssrn.com/abstract=3227401.

[7] Nottage, Luke R. and Butt, Simon, Recent International Commercial Arbitration and Investor-State Arbitration Developments Impacting on Australia’s Investments in the Resources Sector (April 16, 2014). ARBITRATION AND DISPUTE RESOLUTION IN THE RESOURCES SECTOR: A COMPARATIVE PERSPECTIVE, P. Evans and G. Moens, eds., Springer, 2015; Sydney Law School Research Paper No. 13/71. Available at SSRN: https://ssrn.com/abstract=2340810.

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Trade pacts needed amid global turmoil: Birmingham

Andrew Tillett

Political Correspondent Aug 26, 2019 — 5.28pm [Australian Financial Review]

Free trade deals with Indonesia and Hong Kong are needed to help protect Australia’s economy against the  worsening stand-off between the US and China, Trade Minister Simon Birmingham warns.

Ratcheting up pressure on Labor to support the FTAs, Senator Birmingham said the Indonesian deal was also critical to Australia’s “regional and strategic architecture”. Parliament’s treaties’ committee opened hearings on Monday into both deals, taking evidence from industry groups and trade experts.

The vexed issue of investor state dispute settlement [ISDS] clauses emerged, with the inquiry hearing the multitude of free trade agreements and investment treaties involving the same countries is adding to red tape for governments and businesses.

University of Sydney transnational law professor Luke Nottage told the committee the Indonesian FTA, a 26-year-old Indonesian bilateral investment treaty and the separate ASEAN-Australia-New Zealand FTA all contained ISDS provisions, which allow foreign companies to sue governments over policy decisions. Advertisement

“One thing is the extra complications and therefore potentially the costs involved in trying to work out what you can and cannot do as a host state if you try to change your regulatory system,” he said.

Professor Nottage said the Australian government was not proposing to eliminate the Indonesian bilateral investment treaty, despite doing so in the past when other treaties had been superseded by FTAs.

He suggested this might be because the Indonesian FTA is more in favour of the host state when in dispute with a company, whereas the older treaty was more pro-investor.

Professor Nottage said the older bilateral treaties had helped attract foreign investment in developing countries but newer trade deals sought to strike a better balance between the rights of investors and government autonomy, and the 1993 treaty should be scrapped when the Indonesian FTA was in place.

With Donald Trump escalating his trade war with China by urging US companies to withdraw from China, roiling global markets, Senator Birmingham said the region and the world had benefited from the opening up of global trade and deeper integration of investment flows.

He said the agreements with Indonesia and Hong Kong would continue to contribute to two-way growth in trade and investment.

Senator Birmingham said a raft of business groups wanted the agreements to “come into force as quickly as possible because it will allow those Australian businesses to diversify their exports, to have new market opportunities, and critically, to be more deeply engaged in the case of Indonesia, with a very close, very large, and rapidly growing economy”. Advertisement

He said Indonesia was projected by some to become the fourth biggest economy in the world and also had huge strategic importance to Australia.

“So against the backdrop of all of those points, I would hope that the Labor Party make it clear as quickly as possible that they will allow entry into force of this trade agreement with Indonesia which is so critical to our economic positioning as well as to our regional and strategic architecture,” he said.

Senator Birmingham said the government looked forward to the treaties’ committee report on the FTAs and would consider the inquiry’s findings in due course.

Labor is yet to say whether it will back the free trade agreements, with the inclusion of ISDS clauses a major sticking point. The party’s trade spokeswoman Madeleine King last week said Labor would let the treaties committee run its course before making a decision.

But Opposition Leader Anthony Albanese signalled his support for good ties with Indonesia and the trade opportunities by making his first overseas visit as Labor leader to Jakarta.

“Indonesia is central to the shape and character of our region,” Mr Albanese said.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM 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.