With the ongoing Australia-Phillip Morris “Plain Packaging” arbitration and the recently concluded China-Australia Free Trade Agreement, the benefit and indeed the very legitimacy of investor-state dispute settlement provisions have been heavily debated in Australia. In this commentary, David Coleman examines Australia’s experience with investor state dispute settlement alongside potential developments in this area, particularly in light of Australia’s ongoing negotiations of the controversial Trans-Pacific Partnership.
Traditionally, the relevance of investor-state dispute settlement (“ISDS”) arbitration to Australia has been limited because such provisions have not been included in the trade agreements with Australia’s largest investment partners. However, it seems likely that this is to change as the pattern of international investment into and out of Australia changes and as the progressive expansion of the application of the ISDS system to Australia’s bilateral and multilateral trade treaties continues.
According to the Australian Burea of Statistics’ 2014 figures, the major sources of foreign investment in Australia are currently the United States of America $758.2b (27%), United Kingdom $484.2b (17%), Belgium $226.1b (8%), Japan $174.7b (6%), Singapore $80.2b (3%) and Hong Kong (SAR of China) $77.3b (3%). The major investment destinations for Australian firms are currently the United States of America $575.5b (30%), the United Kingdom $304.5b (16%), New Zealand $99.9b (5%), Japan $69.6b (4%), Germany $65.4b (3%) and China (excludes SARs and Taiwan Province) $57.9b (3%). The investment provisions of the China-Australia Free Trade Agreement may also increase the investment interaction of China and Australia in the future as may the planned Trans-Pacific Partnership (“TPP”).
At present, ISDS provisions apply to the some 28 international trade agreements involving Australia, including the following:- China-Australia Free Trade Agreement (which is not yet in force although is soon to reach its date of implementation); Korea-Australia Free Trade Agreement; Singapore-Australia Free Trade Agreement; Thailand-Australia Free Trade Agreement, and ASEAN-Australia-New Zealand Free Trade Agreement. The (looming) elephant in the room is the potential completion of the TPP which is anticipated to include ISDS provisions and would cover nearly 40 percent of the GDP of the world.
Australian government policy is to pursue ISDS provisions in its bilateral and multilateral treaties. The stated reasons for this are that it provides protection to Australian companies investing overseas and promotes investor confidence in both inbound and outbound investment by mitigating political risk. Australian companies have invoked the ISDS provisions of international investment treaties in the past. An example is when OceanaGold sued El Salvador for USD$301million through its Canadian entity because of a mauratorium placed on its right to mine near one of the country’s major water sources. Also, in conjunction with New Zealand, Australia has also used an ICSID tribunal empanelled under the terms of the United Nations Convention on the Law of the Sea to challenge Japan’s fishing programs in the well known case of Southern Bluefin Tuna Case (Australia and New Zealand v Japan) (Jurisdiction and Admissibility) (2000) 39 ILM 1359.
So far, in the thirty year history of ISDS provisions in relation to Australia, Australia has only once faced a challenge to its laws based on the ISDS provisions. Phillip Morris Asia has challenged the validity of Australia’s Tobacco plain packaging laws, the Tobacco Plain Packaging Act 2011 (Cth) (under the which it argues unfairly disadvantages its investment in Australia. The case is ongoing, with the dispute seated in Singapore. It should be noted that Phillip Morris first attempted to challenge the laws in the High Court of Australia on Constitutional grounds but failed, some would say abysmally. No other example of a challenge by a private entity to the laws of Australia currently exists. If Phillip Morris is successful in the arbitration, it is perhaps uncertain what the Australian government’s response will be. It should also be noted that the ISDS terms which Phillip Morris has based its claim on are not modern in the sense that they do not contain the exceptions of “health and environmental measures” which are part of China-Australia Free Trade Agreement (and would presumably be contained in the TPP).
It could certainly be argued that, on balance, Australia has a been a beneficiary of the expansion of the ISDS system, particularly due to the fact that the Australian government has yet to concede in any ISDS arbitration. However, it should be emphasised that Australia’s exposure to ISDS provisions has only represented a very small, perhaps negligible, proportion of the overall pattern of Australia’s investment inflows and outflows. This will change if Australia’s investment relationship with China increases in scale under the terms of China-Australia Free Trade Agreement. It will definitely change with the introduction of the TPP assuming that the United States and Japan become parties and allow ISDS provisions to be part of this multilateral agreement. In the case of the TPP, ISDS provisions would then cover the bulk of Australia’s investment partners which would result in a markedly different situation to the current state of play.
This commentary was originally published on 29 August 2015 on InternationalLawyersNetwork.com.
This commentary may be cited as follows: David Coleman, “Australian Case Update: An Australian Analysis of the Value of ISDS Arbitration, International Arbitration Asia (4 September 2015) <http://www.internationalarbitrationasia.com/An-Australian-Perspective-on-the-Value-of-ISDS-Arbitration>.