Trade and Foreign Investment Bill 2014

It gives me great pleasure to speak on the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014. I think the bill probably is well-intentioned, but I do not think it is a bill that I can support or that my party would support. To bring a blanket ban in on the inclusion of ISDS clauses in free trade agreements would be wrong and would certainly limit the ability of the government to negotiate the best possible deals for Australia and Australian exporters, so the government is considering the inclusion of ISDS clauses in free trade agreements on a case-by-case basis.

There is a great deal of scaremongering with regard to the ISDS approach and the fears raised are simply unfounded judging by Australia's extensive level of experience with them. It is important to remember that ISDS is not a new concept for Australia. We currently have ISDS clauses with 28 economies through four free trade agreements and 21 bilateral investment treaties—these have been agreed to over the past 25 years—and as the minister for trade has pointed out the world certainly has not ended—in fact, far from it. Modern ISDS provisions provide very explicit carve outs and safeguards to protect our ability to govern and regulate in our national interest. ISDS is not a mechanism which allows for frivolous claims. The Labor Party included ISDS provisions in the Australia-Chile Free Trade Agreement and in the ASEAN-Australia-New Zealand free trade agreement back in 2009. The main thing is that ISDS provides protection for those who choose to pursue new opportunities for Australia by investing abroad.

I now want to just talk about a couple of Australian companies who have made use of ISDS overseas. In November 2011 a tribunal awarded White Industries Australia Ltd, an Australian mining company, compensation from India for violating the India-Australia agreement. Details of the award were announced in February 2012. White Industries complained that the Indian courts failed to enforce a foreign arbitration award obtained in 2002 in a dispute between White Industries and its Indian joint venture partner, Coal India Ltd—an Indian state-owned entity. In 2011 Tethyan Copper Company formally commenced ISDS provisions against the government of Pakistan, alleging that Pakistan was in breach of its obligations under the Australia-Pakistan IPPA. In December 2012 Planet Mining's ISDS request against the government of Indonesia was registered by the International Centre for Settlement of Investment Disputes. This was a claim brought under the Australia-Indonesia IPPA in relation to a five per cent stake in an Indonesian company whose exploitation licenses for a coal deposit in Kalimantan had been revoked. In November 2013 the Canadian company Pacific Rim Mining Corporation became a wholly-owned subsidiary of the OceanaGold Corporation. In June 2009 PacRim registered an ISDS request against the government of El Salvador under the US-Central American-Dominican Republic free trade agreement and El Salvador's investment law. This claim was dismissed in June 2012 as a result of a denial of benefits clause. This claim is ongoing under El Salvador's investment law.

Why I talked about those cases—they are the only cases that Australian companies are dealing with at the moment—is that we have to protect Australian companies who want to invest overseas. It is Australian companies who create jobs; it is Australian companies who help grow the economy. Australia is a free trade economy. We are a trading nation. I might digress a little bit. Over the 2000s Australia's ratio of exports and imports to GDP has risen each year. We are an open economy. The size of our import and export sectors is greater than 20 per cent of gross domestic product. Australia is one of the main countries that has benefited from rising international trade. In fact, if we did not have trade and had a closed economy, you would find us becoming one of those closed economies, like Burma or places like that, where we would lose jobs, we would lose wealth and we would be unable to spend any of the money that those opposite want us to spend. Reducing tariffs is producing an estimated savings of at least $1,000 per year to the average Australian family. For example, without the reductions to tariffs on motor vehicles Australians would pay around $10,000 extra on a $30,000 car. Greater access to imports has benefited consumers and businesses by widening the choice of products available and boosting the living standards for many Australians. For us to limit the ability of our government to negotiate agreements with overseas countries by having a blanket ban on ISDS clauses would limit our ability to grow the Australian economy.

There are a number of people who put in evidence to the various committees that looked into the Korean free trade agreement and also to the Senate Foreign Affairs, Defence and Trade Legislation Committee, a committee that recommended against this bill, by the way. Professor Nottage, who is a professor of law at the Sydney Law School, in evidence told the committee that while he thought that the bill was well-intentioned, in the sense that the ISDS treaty based system is far from perfect, he could not support the bill. He said:

[it] would make Australia unique among developed countries and put us in the company of a very few countries, even among developing countries, mainly a few very Leftist regimes in South America. I think it would torpedo future trade and investment treaty negotiations to which the major parties in Australia have long been committed, as well as potentially inhibit the development of multilateral initiatives and international investment law.

In its submission to the committee DFAT argued that the bill may prevent the government from concluding negotiations to benefit Australian producers, consumers and the broader community—something I talked about just before. Furthermore, DFAT went on to say—and I am looking at the report—that excluding ISDS provisions from future trade agreements would impose a significant limitation on the ability of the government, of whichever party, to pursue its broader trade and policy objectives. The report also says:

The Australian Chamber of Commerce and Industry expressed concern that although Australian investors have not utilised ISDS provisions to any great extent in the past

and I have just talked about the four cases that are public and that I am aware of

if a ban on ISDS provisions was implemented it would prevent Australian firms from being able to protect their international interests by using such provisions. The Australian Dental Industry Association noted similar concerns in the dental industry. Having sat on the committee and also sitting on the joint Senate committee on treaties, I have done a bit of reading in this area. I think the committee's conclusions are conclusions that I certainly strongly agree with; I supported the motion of the committee.

I think the ISDS system has improved significantly over recent years both in the way in which treaties are drafted in relation to ISDS causes and the way in which cases are argued and how arbitrators decide cases. The committee noted:

Australia … stands to gain more by remaining actively engaged with the international investment law system … where ISDS provisions apply.

The committee noted:

… were Australia to legislate for a blanket ban on ISDS provisions in trade agreements, it would be sending a message to existing and potentially new trading partners that Australia was turning inward-looking and distancing itself from the international law system.

I think that comes to one of the key points here: the government are not saying that each agreement must have ISDS clauses, and we are not having the Greens position, saying that they must not be included; we are saying that it should be decided on a case-by-case basis. The committee was:

… of the view that a blanket ban on ISDS would impose a significant constraint on the ability of Australian governments to negotiate trade agreements that benefit Australian business. It is for this reason that the committee considers the current case-by-case approach to ISDS is in Australia's long-tern national interest and a sound policy for weighing the risks and benefits of ISDS provisions in trade agreements.

I will not list the ISDS provisions in the 21 investment protection and promotion agreements, or IPPAs, but I will briefly touch upon the Korean free trade agreement.

The Korean free trade agreement contains a number of safeguards and carve-outs in four areas. There are safeguards built into the core obligations of the investment chapter. There is a schedule of reservations which allows Australia to maintain existing measures and to reserve policy space to maintain or adopt new measures in sensitive areas. There are exceptions and other carve-outs, and there are actually procedural safeguards built into the ISDS mechanism. I think it shows that the ISDS approach has evolved and changed since such provisions were first brought in over two decades ago.

The safeguards built into the core investment obligations have been developed as a result of the experience of states defending ISDS disputes under the older style agreements. These safeguards are binding on any ISDS tribunal and so reduce the risk of obligations being interpreted in an overly broad way. They include a statement that, except in rare circumstances, non-discriminatory regulatory actions by a party to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute expropriation; and a clarification that the obligations of 'fair and equitable treatment' and 'full protection and security', which have been interpreted broadly by some tribunals, are limited to the minimum standard of treatment required under customary international law.

Australia has scheduled reservations to preserve policy space in sensitive areas. In addition to the reservations which Australia generally includes in free trade agreements, the Korean free trade agreement includes several additional broad reservations which preserve our ability to maintain existing measures or adopt new measures in relevant sectors and areas, including essential security, with respect to foreign investment proposals; human health; blood and blood products; and providing preferences to socially or economically disadvantaged groups. In addition, Australia has included reservations which also appear in other free trade agreements and which provide policy space in relation to Indigenous persons or organisations; social services such as social welfare, public education, public housing, public utilities, health and child care; creative arts and cultural heritage; and gambling.

There are procedural safeguards in the ISDS mechanism. These include an expedited procedure to decide preliminary objections and to dismiss unmeritorious claims promptly and the power for the tribunal to award costs against an investor if it makes frivolous claims; a provision that a joint interpretation by the parties, Australia and Korea, is binding on the tribunal; and the ability of the tribunal to consolidate claims where they arise out of the same event. This also is able to provide a high degree of transparency.

In relation to exceptions and other carve-outs: Australia's carved out decisions under our foreign investment policy—the Foreign Investment Review Board—to object or to impose conditions on a proposed investment from the scope of ISDS: the World Trade Organization based general exceptions apply to all obligations of the investment chapter. These include exemptions for measures to protect human health and the environment. A WTO based essential security exception applies to the investment chapter and includes an additional safeguard provided if a party invokes the security exception in an ISDS dispute, the tribunal shall find that it applies. There is also a specific tax exception which carves out tax measures from most of the investment obligations.

The inclusion of ISDS was not a controversial issue in the Chile free trade negotiations. Both sides there agreed on the importance of providing investor protections. For the free trade agreement overall, both sides agreed that negotiations should be concluded as quickly as possible. This was facilitated and helped by the fact that both Australia and Chile had bilateral free trade agreements with the United States and guiding principles to stick to the approach taken in these agreements to as much an extent as possible.

On the issue of ISDS in particular, Chile's free trade agreement with the US included ISDSs and, as such, both sides were prepared to consider the inclusion of ISDSs. Australia and Chile already had an ISDS under an old bilateral investment treaty, and the free trade agreement negotiations allowed Australia and Chile to develop a more sophisticated approach to ISDS with more safeguards. And both sides had to agree to terminate the old bilateral investment treaty as part of the agreement.

By going through those two free trade agreements, I think it is important to note that the previous government and this government have taken the issue of ISDSs very seriously and have used it as a serious negotiating block in terms of whether it should be included or not. To put a blanket ban on the inclusion of ISDS provisions into any free trade agreements, bilateral agreements or whatever would certainly restrict the ability of Australia to negotiate. I take the point that concerns have been expressed in relation to secrecy in how we negotiate our free trade agreements, but I think it is probably a little bit naive to want to have our agreements negotiated out in the public domain.

It is very important that, once they are negotiated, they do come to the parliament and go through the Treaties Committee, so ably chaired by the member for Longman, and that the treaties are then put to parliament. To suggest that we should negotiate treaties publicly or that it is somehow an attack or affront on democracy that we do not know about the treaties until they come along, I think is wrong. I think it would limit and hurt our negotiating position if suddenly our good friends at Fairfax Media, or Sky News or whoever were reporting on our latest negotiating tactics were. I think it would result in a poorer treaty being agreed, and a poorer treaty would mean that Australians would be poorer. And if Australians were poorer it would mean that we could not have investment and create jobs. And if we do not have the jobs we cannot have the taxes. So, we need to make sure that the Australian economy can grow. I do not think that bringing a ban in on ISDS clauses is the way to do that. I think the current system of the ISDS provisions being negotiated on a case-by-case basis is the best way forward. For that reason, I do not support this bill put forward by the good senator opposite.