Around 21 May 2024, after I had presented a submission and oral evidence at a public hearing late March, the Australian Parliament’s Joint Standing Committee on Treaties (JSCOT) issued its Report 215 agreeing that the Australian government should proceed to ratify the ASEAN Australia NZ Agreement for a Free Trade Area (AANZFTA) Second Protocol. This is despite the Labor Government in November 2022 declaring that it will not agree to any form of investor-state dispute settlement (ISDS), relevantly arbitration, in future treaties; and will approach counterparties seeking to remove or otherwise revise ISDS provisions under existing treaties. The Protocol includes a Work Program to review the ISDS provisions, within 18 months of coming into force, which will proceed largely in parallel to a review of the investment chapter also in the Regional Comprehensive Economic Partnership (RCEP) FTA, which might involve adding ISDS provisions, as it includes the same 12 states party but also three big FDI exporting economies that have generally favoured ISDS: Japan, Korea and China.
In the JSCOT inquiry into ratifying the AANZFTA Second Protocol, the Australian Council of Trade Unions (ACTU) and a small NGO (the Australian Fair Trade and Investment Network, AFTINET, which has persistently objected to ISDS in IIAs in parliamentary inquiries) recommended against ratification due to the Second Protocol retaining ISDS for at least the next few years. My Submission recommended ratification, explaining some of the context for ISDS (along the lines and other cited writings mentioned above) and appending my 2020 Submission to DFAT’s review of old IIAs (reiterating where the Second Protocol’s work programme might make some further drafting improvements around ISDS, especially to further enhance transparency and efficiency). We three were then invited to give (concurrently) oral evidence to JSCOT on 25 March 2023.[1]
The ACTU and AFTINET presented a very broad (and curiously similar) definition of ISDS: a procedure giving corporations additional rights to sue governments for compensation if they can argue a change in law or policy will harm or impinge on their future profits. They also both highlighted the three claims recently brought under AANZFTA against Australia by Zeph (a Singapore-incorporated company controlled by Australian mining magnate and politician Clive Palmer) and more generally the risks of regulatory chill to sovereign states particularly from fossil fuel investors, as well as the costs of defending claims even when states prevail. (Similar arguments were presented in the Open Letter from Australian academics and lawyers opposing ISDS, circulating from May 2024.[2]) AFTINET also asserted that there was no good evidence that ISDS-backed IIAs promoted FDI flows and that recent IIAs were omitting ISDS – including supposedly for India and New Zealand, but also the EU and Brazil.
My own evidence countered that ISDS claims require additionally proof of violation of substantive commitments offered by host states, that the Zeph claims face difficulties and anyway Australia does not close down its courts due to occasional aggressive litigants, while its outbound investors also protect their investments abroad through ISDS claims – particularly against states with governance issues. I also reiterated that there is some evidence ISDS-backed IIAs promote cross-border FDI, developing economies are failing to attract sufficient FDI to support the global energy transition,[3] and many states (including also eg Indonesia, India and Vietnam) are still offering ISDS in IIAs despite experiencing some inbound claims.
[1] The transcript of this Evidence is at ‘Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (ANAZFTA) Public Hearings’, Parliament of Australia (Transcript) <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Public_Hearings> and the video-recording is at https://www.aph.gov.au/News_and_Events/Watch_Read_Listen/ParlView/video/2299575.
[2] Open Letter on ISDS (May 2024) <https://docs.google.com/forms/d/e/1FAIpQLSddWDUB2NzZAHYlGJDOxg0DiA-JySOGEE7f_09ZdwQNhryr3g/viewform>.
[3] ‘World Investment Report 2023’, United Nations Conference on Trade and Development (Report) <https://unctad.org/publication/world-investment-report-2023>.
When JSCOT’s Report 215 was issued, contrary to my expectation and curiously as this departs from her party’s past practice where a treaty includes ISDS, the Greens Senator for Western Australia Dorinda Cox did not issue a dissenting report – nor even seemingly attend either parliamentary hearing. The Report’s summary emphasised that:[1]
“Notably, Australia successfully negotiated a review of the existing ISDS provisions in [… marking] an instalment of the Government’s commitment to review ISDS provisions in agreements where they already exist, while ensuring Australia does not agree to ISDS mechanisms in new agreements.”
The Report’s Conclusions added (after noting my call for transparency around this ongoing Work Program):[2]
“Considering the significant interest in this issue demonstrated by a range of stakeholders in this and previous JSCOT inquiries, the Committee will seek an update on the progress of the ISDS review work program commitment in due course, and in any case would expect the Department [of Foreign Affairs and Trade: DFAT] to draw any notable developments to the Committee’s attention.”
The Report also quoted evidence given by DFAT that it “will obviously be coming to government to seek a mandate for the positions that we take into that review’ of ISDS under the Work Program”.[3]
Interestingly, the Report did not specifically mention the Zeph claims, although it stated:[4]
“At the public hearing submitters to the inquiry pointed out that there are currently ISDS actions afoot, some of which involve arrangements between Australia and ASEAN nations. The Committee inquired as to the cost of these legal actions to the Australian taxpayer. The Attorney-General’s Department (AGD) said ‘the Attorney-General and the Prime Minister have instructed us to vigorously defend those matters and we are in the process of doing so, and that does accrue cost.
In addition, after recording the opposition to ISDS and hence treaty ratification from the ACTU and AFTINET, the Report noted my concerns about relying solely on more politicised inter-state dispute settlement or arbitration agreed under individual investment contracts, before observing:[5]
The Committee sought clarification as to the recent trend away from ISDS. Professor Nottage said, ‘I think that’s a good thing—that we try something; it has an effect; we realise some of its problems, so we try to fix the problems […] and come up with a new compromise solution’.
My quoted statement in fact followed more specifically from my observation about the question of a ‘retreat from the high water mark of pro-ISDS approaches’.[6] The Committee also did not go on to mention my point immediately following in evidence that the EU has not abandoned direct claims by foreign investors altogether, but come up instead with the investment court compromise. I had suggested that this model could be considered by Australia (and regional states) in future treaty practice even when not negotiating with the EU, for example in the ongoing review of ISDS under AANZFTA’s Second Protocol and RCEP. (Subsequently I developed this proposal in a letter dated 10 April to the Trade Ministers of Australia and New Zealand.)
Furthermore, the Report did not mention my written Submission urging again specific improvements, including restrictions on ‘double-hatting’ and compulsory mediation before arbitration.[7] Overall, therefore, it seems that parliamentary interest and scrutiny around the specifics of ISDS or possible alternatives remains quite limited, deferring largely to the executive branch of government.
[1] Report 215: AANZFTA Second Protocol, available at Parliament of Australia <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Report>, xv.
[2] ibid, para 2.95 (and 2.79).
[3] Ibid, para 2.74.
[4] Ibid, para 2.75. This level of generality may reflect a compromise reached between the Labor and Greens members (who might have preferred to mention Zeph and Clive Palmer specifically) and the Coalition members in drafting the joint Report.
[5] Ibid, para 2.80.
[6] Idem.
[7] Available at Parliament of Australia, <https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Submissions>.
