One of the ongoing controversies hampering the negotiations surrounding the Trans Pacific Partnership is the question of whether it should include an Investor State Dispute Settlement (“ISDS”) clause.
The Trans Pacific Partnership Agreement is a proposed free trade agreement between 12 parties including Australia and its significant trading partners: Japan, Singapore, Malaysia, New Zealand and the US.
Investor State Dispute Settlement clauses allow foreign investors to start arbitration proceedings against a host state in which they have invested, for breach of the investor protections included in a free trade agreement, or multilateral or bilateral investment treaty between the host state and the investor’s home state.
In 2011, the Australian Gillard government announced it would no longer adopt international investment arbitration into its trade agreements and investment treaties with other states on the basis that investor state arbitration “constrains the ability of the Australian Government to make laws on social, environmental and economic matters”; concerns no doubt based in part on Philip Morris’s claim against Australia under the Hong Kong-Australia Free Trade Agreement.
Philip Morris Asia has commenced arbitration against the Government of Australia arguing among other things that its intellectual property, in the form of product packaging and trademarks, is an investment.
It argues that the plain packaging legislation contravenes the investor protections under the Hong Kong Australia agreement as the legislation will result in an expropriation of Philip Morris’s investment due to substantial deprivation of the intellectual property and goodwill as a result of Australia’s Tobacco Plain Packaging legislation. These proceedings are ongoing.
A number of other nations have signaled they will no longer include investor state dispute resolution in future Bilateral Investment Treaties, which would normally mean that dispute resolution will be left to the host state’s courts rather than a privately constituted arbitral tribunal.
For example, in 2007 the Philippines excluded investment arbitration from its Free Trade Agreement (“FTA”) with Japan. South Africa signaled in 2012 that it will no longer include investor state arbitration in its future Bilateral Investment Treaties.
Australia has now mollified its approach under the Abbott government; it will “consider ISDS provisions in FTAs on a case-by-case basis” but maintaining that it is “opposed to signing up to international agreements that would restrict Australia’s capacity to govern in the public interest.”
There is some disagreement as to whether or not the Trans Pacific Partnership will restrict Australia’s sovereignty in this way, with the Australian Government maintaining it will not, despite a range of concerns raised by non-government organisations and regulatory bodies including the Productivity Commission and the Australian Competition and Consumer Commission.
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