[On 10 April 2024, following my submission and then oral evidence given to the Australian parliament inquiring into the AANZFTA Second Protocol ratification, I wrote as follows to the respective Trade Ministers of Australia (Hon Don Farrell) and New Zealand (Hon Todd McClay). The latter’s response dated 29 April, quite non-committal, is below and here. I also had (confidential) discussions with DFAT officials on 23 May 2024 regarding my proposal.]
I am a New Zealander working in Australia since 2001, specialising in international business law including international and domestic investment law and dispute resolution.[1] I have provided many submissions to Australian parliamentary inquiries into ratifications of bilateral investment treaties or investment chapters of Free Trade Agreements (FTAs), including giving related evidence on 28 March 2024 urging ratification of the Second Protocol to the (ASEAN+2) AANZFTA.[2] Representatives from the Australian Council of Trade Unions and AFTINET (Australian Fair Trade and Investment Network) opposed ratification of the Protocol especially as it retained investor-state dispute settlement (ISDS) provisions, albeit to be revisited in a Work Program. The latter will run largely in parallel to negotiations to consider instead adding ISDS to the ASEAN+5 Regional Comprehensive Economic Partnership (RCEP), which FTA also involves Australia and New Zealand.
Australia’s Labor Government from November 2022 has reverted to its stance, when in power over 2011-13, to opposing ISDS in new treaties, but seemingly does not extend this position to protocols to existing treaties like AANZFTA. The Labor Government also will approach counterparty states to review past treaties. Until losing the general election in October 2023, New Zealand’s Labor Government from 2018 had similarly opposed ISDS in new treaties. However, the new Coalition Government may revert to a more flexible approach towards ISDS provisions.
As a compromise way forward for both countries, with significantly shared economic and geopolitical interests, I proposed in the AANZFTA parliamentary inquiry that in that FTA’s Work Program as well as the parallel RCEP (re)negotiations concerning ISDS, serious consideration be given to substituting an EU-style “permanent investment court” hybrid form of dispute resolution to underpin the substantive commitments (like non-discrimination and fair and equitable treatment) offered in such treaties. Unlike ISDS, the foreign investor complainant does not nominate an arbitrator. Instead, the investor’s home state and the host state counterparty select in advance a panel of “judges”, who are then selected to decide the claim (albeit following arbitration rules and issuing awards). The model also provides for a second-tier review, by other adjudicators selected from the panel, for any serious error of law or fact. Such features make this investment court model sufficiently different from ISDS, in my view, to not conflict with the anti-ISDS policy of the current Australia’s Labor Government or the previous New Zealand Labour Government. Yet it still allows for foreign investors to initiate a claim, without having to lobby its home state to press for initiation of an inter-state arbitration. The latter mechanism is also provided in investment treaties, but is rarely used where the more direct ISDS route is available and is much more subject to (geo-)political vagaries – as we observe also with WTO inter-state adjudication.
Further, this compromise investment court model was developed in the EU almost a decade ago after extensive consultation with legal experts and other stakeholders there, and it has since been accepted in FTAs notably concluded by Canada, Singapore and Vietnam.[3] The model is also promoted by the EU in ongoing UN deliberations on reforming ISDS multilaterally. It is in the EU’s negotiating mandate for the FTA being negotiated with Australia, and if it is not accepted then that FTA unfortunately will not include provisions on investment protection (only instead on preferential market access for agreed investments, underpinned solely by inter-state arbitration). That was also the outcome in the FTA between the EU and Japan, which preferred to retain instead ISDS-backed protections for its investors into many individual EU states under older treaties. The New Zealand-EU FTA similarly does not include any provisions on investment protection, yet New Zealand’s outbound investors lack such BITs with individual EU member states. New Zealand’s new Coalition Government might now consider adding a protocol on investment protection, agreeing after all with the EU’s court mechanism, to encourage more cross-border investment flows.
Greater consideration by both New Zealand and Australia to the investment court model would also be useful as each continues to negotiate FTAs with the other non-EU counterparties, including across Asia (such as the Australia-India negotiations to conclude a treaty going beyond trade in goods). It would also open up space for greater bipartisanship with each country and therefore speed up FTA negotiations.
In fact, in late 2017 I wrote to your respective predecessors as Trade Minister with Dr Amokura Kawharu (then a professor at University of Auckland, now President of the New Zealand Law Commission). Drawing on recent research (which I have updated[4]), we urged even then Australia and New Zealand to consider the EU-style investment court model and coordinate more in progressing investment treaty negotiations, including for RCEP.[5] That FTA could then have been more easily and quickly agreed upon, and indeed included India which in 2019 withdrew from negotiations. Closer joint consideration of the investment court model deserves renewed attention from both Australian and New Zealand governments, as they look to (re)negotiate various investment treaties, including still AANZFTA. The investment court model may not be perfect but nothing ever is, and it promises a better way forward than the current flip-flops in each country around traditional ISDS.
I would be happy to confer with you or relevant staff to discuss this further, or provide additional information.
Yours sincerely
Luke R Nottage
[1] Profile and CV at https://www.sydney.edu.au/law/about/our-people/academic-staff/luke-nottage.html. My father (Richard Nottage) was former Secretary of Foreign Affairs in New Zealand and my brother (Hunter) was later Senior Trade Law Advisor with MFAT.
[2] See transcript and Submission via https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol
[3] For details see eg Moritz Keller (ed) EU Investment Protection Law: Article-by-Article Commentary (Beck/Hart, 2023).
[4] See eg, on the evolving studies on the impact of ISDS provisions on cross-border FDI, my submission in 2020 to DFAT’s review of Australia’s bilateral investment treaties (available at https://www.dfat.gov.au/trade-and-investment/discussion-paper-review-australias-bilateral-investment-treaties), summarised eg in my chapter “Rebalancing Investment Treaties and Arbitration in the Asian Region”, in Mahdev Mohan and Chester Brown (eds) The Asian Turn in International Investment(Cambridge University Press, 2021) 379-398.
[5] Our 2017 letters can be found at https://japaneselaw.sydney.edu.au/wp-content/uploads/2017/11/2017KawharuNottageTurnbullGovt_Combined_LN01.pdf, via https://japaneselaw.sydney.edu.au/2017/11/nz-renounces-isds-deja-vu/
