By: Simon Butt and Luke Nottage (University of Sydney Law School)
[with a shorter version at http://www.eastasiaforum.org/]
Professor Chris Findlay recently wrote on the East Asia Forum about ‘Australia’s FDI challenges in the Asian Century’, highlighting problems reported recently by ANZ Bank and Qantas in the region. His proposals including ‘innovation in negotiating modalities’, including a possible new plurilateral agreement in the WTO that would cover all investments (not just in some services sectors). That’s a nice idea, but it’s proving hard enough to complete the current round of Doha Round negotiations. In light also of recent problems in Indonesia, the Australian government should meanwhile reconsider its abrupt policy shift last April regarding an important protection found in most of its bilateral and regional Free Trade Agreements (FTAs) and bilateral investment agreements (BITs): investor-state arbitration (ISA).
Category: Corporate governance and FDI
Book Launch (22 March): Foreign Investment and Dispute Resolution Law and Practice in Asia
Allens Arthur Robinson and Sydney Law School are pleased to invite you to celebrate the launch of Foreign Investment and Dispute Resolution Law and Practice in Asia. Edited by Professors Vivienne Bath and Luke Nottage of Sydney Law School, the book critically assesses the laws and policies affecting investment flows in major Asian economies. It brings together valuable insights from some of the region’s leading practitioners and academics about investment treaties and foreign direct investment regimes in Asia. Foreign Investment and Dispute Resolution Law and Practice in Asia will be launched by Professor Michael Pryles, Chairman of the Singapore International Arbitration Centre. [A recording of his 13-minute speech is available via Sydney Law School’s Youtube channel here.]
Investor-state Arbitration Policy and Practice after Philip Morris v Australia
[Updated 3 August 2011]
Justice Oliver Wendell Holmes famously remarked in Northern Securities Co v United States 193 US 197 (1904) that:
“Great cases like hard cases make bad law. For great cases are called great, not by reason of their importance… but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment”.
We might take this reasoning a step further: big cases make or entrench bad policy. A contemporary example is the request for arbitration (in Singapore) initiated on 27 June by tobacco giant Philip Morris Asia (PM) against Australia, pursuant to the 1993 “Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments”. PM seems to be alleging that proposed legislation mandating plain packaging of cigarettes amounts to “expropriation” of its trademarks (Art 6) and possibly a violation of “fair and equitable treatment” obligations (Art 2(2)).
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Australia’s Productivity Commission Still Opposes Investor-State Arbitration
[This is based on research for the project, ‘Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific‘, supported by the Commonwealth through the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade.]
The Australian Government’s Productivity Commission (PC) released on 13 December its Research Report on Bilateral and Regional Trade Agreements (BRTAs). Recommendation 5 of the Draft Report in July had suggested that BRTAs (including International Investment Agreements or IAAs) should include Investor-State Dispute Resolution (ISDS) only if Australia’s counterpart country has a relatively underdeveloped legal system, and more generally only if foreign investors did not obtain more expansive protections than domestic investors. Following criticism of some factual errors and various arguments included in the Draft Report, the PC convened a policy workshop for officials, academics (including myself) and other stakeholders. Some views expressed there are partly reflected in the longer and somewhat better-argued section on ISDS now found in the final Report (at Part 14.2, pp265-77). Unfortunately, however, there remain serious problems with the analysis, which includes the following Findings by the PC:
‘1. There does not appear to be an underlying economic problem that necessitates the inclusion of ISDS provisions within agreements. Available evidence does not suggest that ISDS provisions have a significant impact on investment flows.
2. Experience in other countries demonstrates that there are considerable policy and financial risks arising from ISDS provisions.’
Below I focus on the implications of this approach. They are particularly acute for Australia’s present negotiations for a Free Trade Agreement (FTA) with Japan, for accession to the Trans-Pacific Partnership Agreement (TPP, which Japan is also interested in joining), and for developments more generally within APEC and at the multilateral level
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Good for the Goose, Not Good for the Gander? Australian versus Japanese Approaches Towards Investor-State Arbitration
[This is based on research for the project, “Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific”, supported by the Commonwealth through the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade. An edited and updated version is also on the East Asia Forum.]
The Productivity Commission (PC) released on 16 July a Draft Report for its Review of Bilateral and Regional Trade Agreements, commissioned by the Assistant Treasurer to reconsider the Australian Government’s policy in negotiating Free Trade Agreements (FTAs). It acknowledges the inefficiencies of preferential agreements compared to multilateral approaches. However, given the persistent impasse in WTO negotiations, the Report pragmatically suggests various means to maximise benefits in the short-term, which may also lead to longer-term multilateral solutions. Unfortunately, that ideal is unlikely to be achieved – risking perverse implications throughout the Asia-Pacific, where Australia has concentrated its FTA activity – if the PC’s Final Report ends up including all these suggestions in its Draft Recommendation 5:
1. “Where the legal systems of partner countries are relatively underdeveloped, it may be appropriate to refer cases to third party dispute settlement mechanisms.
2. However, such process should not afford foreign investors in Australia or partner countries with legal protections not available to residents.
3. Investor-state dispute settlement procedures should be subject to regular review to take into account changing international best practice and the evolving legal systems in partner countries.”
As explained in my Submission to the PC (reproduced here), I have no great difficulty with the last point, although I suggest that one way to achieve that goal would be for Australia to develop and update a Model Bilateral Investment Treaty (BIT). I have much more difficulty with the PC’s second recommendation, but I focus now on problems with the first as it is particularly relevant to Australia’s policy position in regard to the Asia-Pacific, and especially now Japan.
Guest blog: “Learning from Toyota’s Troubles — Where’s the Board?”
Do Toyota’s woes indicate, as some have argued, the last nail in the coffin of the mass production based export model that had served the Japanese economy so well at least through to the 1980s? In other words, does Japan need to wind down even high-tech goods manufacturing and further expand its services sector? Are consumer product safety expectations both within Japan and abroad just too demanding nowadays? Or is Toyota similar to Mitsubishi Motors, an aberrant company which for years conducted clandestine recalls – taking consumers and regulators for a ride – until an employee blew the whistle in 2000 … almost destroying the Mitsubishi brand name? And does the Toyota saga suggest that Japan’s gradual transformation in corporate governance is, well, TOO gradual?
For one view on that last point, and to encourage public comments on any of these questions or others that have been raised by Toyota’s saga, I am pleased to reproduce (with permission) the following posting by an American ANJeL member on JURIST, the University of Pittsburgh’s blog:
JURIST Guest Columnist Professor Bruce Aronson of Creighton University School of Law says that Japanese automobile manufacturer Toyota’s current safety crisis – now the subject of Congressional hearings – should prompt the company to address its seriously flawed system of governance more than just its public image….
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2nd ANJeL Australia-Japan Business Law Update CLE Seminar: 13/02/10 in Tokyo
Happy New Year of the Tiger!
Registrations are now open for the 2nd ANJeL Australia Japan Business Law Update seminar: Saturday 13 February 2010 2-5.30pm at the Kasumigaseki building of Ernst & Young in Tokyo (http://shinnihon.vo.llnwd.net/o25/image/aboutus/eytax_access_mapE.gif).
Learn about post-GFC financial markets reg and (yes) the amended Australia-Japan double tax treaty. And even get 3 MCLD/PLD credits. Just A$200 – with no GST chargeable! At least some of us will follow up with an informal (PAYG) dinner.
For more details and registration please visit: http://www.usyd.edu.au/news/law/457.html?eventcategoryid=39&eventid=5139
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China, national security, and investment treaties
Peter Drysdale’s weekly editorial for the East Asia Forum, along with related postings to that blog and enormous media attention in Australia and elsewhere, focuses ‘on the continuing detention of Rio Tinto executive, Stern Hu, in Shanghai on allegations of espionage’. Drysdale signposts some future analysis of ‘the legal framework under which Hu’s detention has taken place’. He also emphasises that we need ‘a cooperative framework—bilaterally, regionally and globally‘ for ‘China’s authorities to avoid damage to the reliability of markets and for Australia to avoid the perception of investment protectionism’. The most pressing legal (and diplomatic) issues concern China’s criminal justice system, especially when ‘national security’ is allegedly involved. But we need already to consider some broader ramifications, including how we think about FDI legislation and (increasingly intertwined) investment treaty protections.
In short, most agree that the Chinese government got annoyed when Australia itself invoked national security interests to restrict Minmetals bid for OZ Minerals back in March 2009. Then it got really annoyed when Chinalco’s bid for Rio Tinto fell through, even though the Australian government wasn’t directly involved. And so, one story goes, Stern Hu has been arrested to send a message – in the hope that Australia (and other potential host states) will be think twice before invoking national security exceptions to restrict future FDI from China. The China-watchers are better placed to decide whether this is really the motivation behind his arrest. My point here is rather that we should not be surprised that host states may be increasingly tempted to invoke exceptions to limit FDI at the outset, which in turn generates risks of (over-)reactions by home states, as we may be witnessing in Hu’s case. And the initial temptation may arise due to proliferating investor-state arbitration provisions in investment treaties, because those later restrict their room to invoke national security or other limits once the FDI has been approved.
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Economics, Politics, Public Policy and Law in Japan and the Asia Pacific in 2008
All my blogs over July-October 2008, posted originally with full hyperlinks at http://eastasiaforum.org/author/lukenottage/], have been edited and updated as:
Nottage, Luke R., ‘Economics, Politics, Public Policy and Law in Japan, Australasia and the Pacific: Corporate Governance, Financial Crisis, and Consumer Product Safety in 2008’ (November 3, 2008) Sydney Law School Research Paper No. 08/134, Available at SSRN: http://ssrn.com/abstract=1295064 (and forthcoming, early 2009, in Ritsumeikan Law Review)
Some of the individual topics focused more directly on Japanese Law, asterisked below, are also available on this USydney blog:
* 1. Taking the Australia-Japan FTA negotiations to new levels
* 2. Whaling: What can law add to science, economics, ethics and politics?
3. Australia also should ‘Rail at Australian’s Tabloid Trash’ about Japan
* 4. Consumer over-indebtedness in Japan, Australia and the US
* 5. Dodgy foods and Chinese dumplings in Japan
* 6. FDI and corporate governance in Japan
* 7. Investor-state arbitration for Indonesia, Australia and Japan
8. Rivals: China, India and Japan – economic, not Olympic?
* 9. The politics of Japan’s new Takeovers Guidelines
* 10. Tables turned in Japanese and US financial markets
* 11. Lessons from Japan for the US financial crisis
* 12. The financial crisis – and loansharks in Japan and NZ
* 13. Consequences of melamine-laced milk for China, NZ, Japan and beyond
14. Political dynasties in Japan, the US, Australia … but not NZ?
* 15. A New Consumer Agency for Japan?
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The politics of Japan’s new Takeovers Guidelines
[Originally posted, with full hyperlinks, at http://eastasiaforum.org/author/lukenottage/]
As outlined in FDI and Corporate Governance in Japan, in the context of growing inbound FDI and M&A activity, Japan is developing a hybrid approach to setting parameters for hostile takeovers. It is worthwhile taking a closer look at a third Report recently from a Study Group playing a major role, along with the courts, in elaborating Guidelines on permissible defensive measures. The Group’s membership seems to be changing, and differences are emerging compared to both the Anglo-Australian and American approaches to substantive rules on takeovers as well as the process for defining them.
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