The Trans-Pacific Partnership FTA’s investment chapter: What’s next?

by: Luke Nottage and Leon Trakman
[A shorter version of this also appears today under a different title on The Conversation blog.]
Alongside this week’s APEC leaders’ summit in Manila, US President Obama met with counterparts and trade ministers from 11 other Asia-Pacific states that agreed in October to the expanded Trans-Pacific Partnership (TPP) free trade agreement. These states, covering around 40 percent of world GDP, cannot sign it before 3 February, when the US Congress finishes its 90-day review. But Obama and others in Manila reiterated the importance of the TPP for regional and indeed global economic integration.

Continue reading “The Trans-Pacific Partnership FTA’s investment chapter: What’s next?”

The TPP Investment Chapter: Mostly More of the Same [ISDS Procedure]

The preceding analysis highlights another important feature of the Trans-Pacific Partnership agreement: its inclusion of an investor-state dispute settlement (ISDS) mechanism, especially arbitration (generating a decision binding on both disputing parties, unlike mediation – which they may also attempt under Art 9.17.1 but do not need to try first). This alternative to inter-state arbitration (found in Chapter 28, as in almost all investment treaties) emerged as a common extra option for foreign investors to enforce their substantive rights if their home states did not wish to pursue a treaty claim on their behalf, for diplomatic, cost or other reasons. This mechanism has been seen as particularly important for credible commitments by developing or other countries with national legal systems perceived as not meeting international standards for protecting investors.

Continue reading “The TPP Investment Chapter: Mostly More of the Same [ISDS Procedure]”

The TPP Investment Chapter: Mostly More of the Same [Substantive Commitments]

On 5 October the Trans-Pacific Partnership (TPP) FTA was substantially agreed among 12 Asia-Pacific countries (including Japan, the US and Australia), and the lengthy text was released publically on 5 November 2015. Commentators are now speculating on its prospects for ratification, as well as pressure already for countries like China and Korea to join and/or accelerate negotiations for their Regional Comprehensive Partnership (ASEAN+6) FTA in the region. There has also been considerable (and typically quite polarised) media commentary on the TPP’s investment chapter, especially investor-state dispute settlement (ISDS). The Sydney Morning Herald, for example, highlights a remark by my colleague and intellectual property (IP) rights expert, A/Prof Kimberlee Weatherall, that Australia “could get sued for billions for some change to mining law or fracking law or God knows what else”. Other preliminary responses have been more measured, including some by myself (in The Australian on 6 November) or Professor Tania Voon within Australia, and other general commentary from abroad.
Based partly on an ongoing ARC joint research project on international investment dispute management, with a particular focus on Australia and the Asia-Pacific, I briefly introduce the scope of ISDS-backed protections for foreign investors in the TPP, compared especially to the recently-agreed bilateral FTAs with Korea and China. Overall, the risks of claims appear similar to those under Australia’s FTAs (and significantly less than some of its earlier generation of standalone investment treaties). However, some specific novelties and omissions are highlighted below, and issues remain that need to be debated more broadly such as the interaction between the investment and IP chapters (as indeed raised by both A/Prof Weatherall and myself in last year’s Senate inquiry into the “Anti-ISDS Bill”). The wording of the TPP’s investment chapter derives primarily from US investment treaty and FTA practice, which has influenced many other Asia-Pacific countries (including Australia) in their own international negotiations. Yet the European Union is now actively considering some further innovations to recalibrate ISDS-based investment commitments.

Continue reading “The TPP Investment Chapter: Mostly More of the Same [Substantive Commitments]”

Compromised ISDS-backed investment commitments in the China-Australia FTA

[Updated 2 July 2015. An abridged earlier version of this posting can be found at http://www.eastasiaforum.org/2015/07/01/compromised-investor-state-arbitration-in-china-australia-fta-2/. It forms the basis of my Submission presented to parliamentary inquiries into the FTA by JSCOT and a Senate Committee.]
Australia signed its bilateral free trade agreement with China on 17 June 2015, after announcing last November that negotiations had been concluded – including investor-state dispute settlement (ISDS) provisions. These provide another way for foreign investors to claim against host states that violate substantive commitments, if the investor’s home state doesn’t use the inter-state arbitration protections also given in the treaty, for political or diplomatic reasons. ISDS is especially useful when the host state’s laws and procedures do not meet commonly-accepted minimum international standards.
ISDS variants are included in most of the treaties concluded by Australia as well as many by China. In fact, as it emerges as a major capital exporter, China’s recent treaties have expanded the scope of protection reinforced through ISDS provisions. Australia has instead become more cautious, like other countries after being subjected to an initial ISDS claimPhilip Morris Asia’s claim in 2011 regarding Australia’s tobacco plain packaging law, still pending along with WTO claims. Indeed, the Gillard Government Trade Policy Statement (2011-13) went as far as eschewing ISDS in any future treaties. Since September 2014, however, the Abbott Government has reverted to including ISDS on a case-by-case assessment. It was incorporated into the (long-stalled) FTA signed with Korea last year, but not the FTA with Japan. Relevant factors seem to be whether the counter-party presses strongly for ISDS and offers enough in return during negotatiations, and whether Australia may have concerns about investor protections available through the counter-party’s local courts.
Australia’ reversion to pre-2011 treaty practice has not stilled public debate. It has escalated, particularly given negotiations for an expanded Trans-Pacific Partnership agreement (including also Japan and the US, but not China). A Greens Senator introduced an “Anti-ISDS Bill” last year to prevent ISDS being included in future agreements, but even Labor Senators on the Committee agreed that this encroached too far on the executive branch’s constitutional responsibility to negotiate treaties. Labor parliamentarians initially opposed ratification of the Korea FTA, raising ISDS concerns, before agreeing in October 2014 to vote for legislation implementing tariff reductions, even in the Senate where the Abbott Government lacks an absolute majority. This year the Greens and others highlighted ISDS again in a broader Senate inquiry into the role of the legislature and public consultation in Australia’s treaty-making process. Parliament will now inquire into the China FTA, including of course ISDS, and there is a (small) chance that Labor Senators will vote against tariff implementation legislation to prevent ratification and the treaty coming into force.
Against this backdrop, Australia’s major newspapers reflect and encourage polarized views over ISDS. The Sydney Morning Herald (like The Age in Melbourne) is consistently opposed, as explained below.

Continue reading “Compromised ISDS-backed investment commitments in the China-Australia FTA”

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.

Continue reading “Senate’s Report into Australia’s Treaty-Making Process – and ISDS Model?”

Submission to the Senate Inquiry into the Commonwealth’s Treaty Making Process

[Below is an un-footnoted Submission to this Inquiry. I was subsequently invited to give oral evidence at public hearings on 5 May, with the transcript available here.]
I welcome this Inquiry and the opportunity to make a public Submission on a topic that has been addressed now several times by the Australian Parliament. As an expert in international business law, I have made several Submissions to other inquiries related to Australia’s international affairs, including Free Trade Agreements (FTAs) and investment treaties, mostly recently giving evidence to this Senate Committee’s Inquiry into The Trade and Foreign Investment (Protecting the Public Interest) Bill 2014 (the “Anti-ISDS Bill”). In that evidence I remarked that there could be improvements in how Australia approaches FTA negotiations. Due to time and space constraints I make three specific suggestions regarding (a) treaty negotiation process and (b) treaty implementation and review, since both stages are encompassed by this Inquiry’s Terms of Reference.

Continue reading “Submission to the Senate Inquiry into the Commonwealth’s Treaty Making Process”

Investment Treaty Arbitration ‘Down Under’: Policy and Politics in Australia

As part of our joint ARC-funded research project on investment treaty dispute resolution, also involving Shiro Armstrong (ANU) and Leon Trakman (UNSW), Jurgen Kurtz and I have completed a note on Australia’s recent policy and political debate over investor-state arbitration, which ultimately was not provided for in the Australia-Japan FTA signed last year (as explained here).
The complex and ongoing saga in Australia may also impact on pending negotiations for an expanded Trans-Pacific Partnership Agreement and (ASEAN+6) Regional Comprehensive Economic Partnership FTA, each of which involves Japan as well as Australia.
Our paper will be published in early 2015 in the ICSID Review, with a longer version also at http://ssrn.com/abstract=2561147. Below is an outline.

Continue reading “Investment Treaty Arbitration ‘Down Under’: Policy and Politics in Australia”

Consumer Protection and Free Trade [and Investment] Agreements

My public lecture on this topic, bringing together two research fields of contemporary public interest, was presented on 24 September 2014 as part of Sydney Law School’s Distinguished Speakers Program.
The session was kindly introduced by my colleague Prof Chester Brown, and ended with a commentary by NUS Asst Prof Jean Ho who kindly arrived straight from Sydney airport after her flight from Singapore.
The audio file of my presentation and Chester’s introduction are available via Sydney Law School’s podcast channel (specifically here), my Powerpoint slides are here (as a PDF), and a related short paper is here. Below is the abstract (with further hyperlinked references available here) and speaker/commentator bios.

Continue reading “Consumer Protection and Free Trade [and Investment] Agreements”

12th ANJeL Japanese Law conference: Cairns, 16 May 2014 (2)

The Australian Network for Japanese Law (ANJeL) successfully hosted the Cairns Symposium on Japanese Law on Friday 16 May, with special thanks to ANJeL member and James Cook University Associate Professor Justin Dabner.
The Symposium’s primary theme was ‘Japanese Law and Business Amidst Bilateral and Regional Free Trade Agreements’, which was a timely coincidence, in light of the conclusion of negotiations for the Japan Australia Economic Partnership Agreement on 7 April 2014. However, presentation proposals dealing with other Japanese Law topics were also welcomed, and topics discussed included agricultural land law and policy, corporate law reforms, insolvency law and practice, long-term contracting, cross-border investment dispute resolution, tax treaties, emissions trading schemes and political participation rights. Please see here for previously published abstracts and see here for the conference program.
The list of presentations topics and speakers, and where possible, their presentation slides appear below.

Continue reading “12th ANJeL Japanese Law conference: Cairns, 16 May 2014 (2)”

The new Japan-Australia Economic Partnership Agreement (FTA)

There has been a flurry of media attention paid to Australia-Japan relations this week. For example, I was asked to appear on “The Wire” radio on 7 April, on the eve of the conclusion of 7 years of negotiating this major bilateral Free Trade Agreement (transcript here). At that stage, the inclusion of Investor-State Dispute Resolution (ISDS) protections for foreign investment in the treaty was still a real possibility, but I argued that there was no need to panic. Japanese investors have never experienced major problems with Australian government authorities illegally interfering with their investments, and indeed have never directly invoked ISDS (especially arbitration) procedures already provided by Japan’s treaties with around 30 countries.
Both governments subsequently announced key features of the Japan-Australia FTA, which ultimately did not include ISDS – unlike the Korea-Australia FTA concluded in December 2013 (and formally signed this week in Seoul). On this blog and then the East Asia Forum, I argued that this presumably meant that the Australian negotiators were happy enough with market access commitments offered by Japan, especially for agricultural products. This may be true but it is hard to be sure, and he argued that omitting even a weak form of ISDS in the FTA with Japan may complicate Australia’s ongoing regional and bilateral FTA negotiations (including with India and Indonesia).

Continue reading “The new Japan-Australia Economic Partnership Agreement (FTA)”