Senate debates

Wednesday, 5 March 2014


Trade and Foreign Investment (Protecting the Public Interest) Bill 2014; Second Reading

5:02 pm

Photo of Peter Whish-WilsonPeter Whish-Wilson (Tasmania, Australian Greens) Share this | | Hansard source

I move:

That this bill be now read a second time.

I table an explanatory memorandum relating to the bill and seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—


Trade is a crucial part of Australia’s economic development. It helps Australia grow, it opens markets overseas, and it allows us to export our world class goods and services across the world. It is also good for our trading partners; it allows them more access to our marketplace and our consumers.

Dismantling trade barriers promotes competition; domestic industries must compete with the best in the world. This forces them to adapt, innovate and focus on the most successful parts of their business.

However, for many, the dismantling of trade barriers can be a disruptive experience. Governments need to be aware of the impact trade agreements can have on ordinary people and their families. The Government’s role is to be there to help people make the necessary transition with financial and retraining support.

There are many positives in trade and trade agreements but it is incorrect to assert that those who find fault in free trade agreements are anti-trade. It is a simplistic and spurious line designed to dismiss the genuine concerns that individuals and organisations have.

One focus of great concern in current free trade agreements is the inclusion of Investor State Dispute Settlement provisions, commonly known as ISDS. ISDS clauses are designed to allow foreign corporations to sue governments if their business activities and interests are impinged on by the policy and legislative decisions of the government. The key concept which is enshrined in these clauses is the idea of ‘indirect expropriation,’ under which any law or policy of government that reduces the value of the investment is considered harmful.

Foreign investment is an important part of trade and in fact it has become a more central part of trade agreements than the traditional exchange of goods and services. The conflict between corporations and policy sovereignty is a very complex and sensitive area. Foreign investment is important for Australia and many other countries. Sovereign risk is an important consideration for companies who want to invest in foreign countries; risk is a part of doing business. The purpose of ISDS clauses is to push more of that risk onto governments and away from corporations.

The Australian Government is currently being sued under ISDS clauses as a result of the legislative decision the previous Government took to only allow cigarettes to be sold in plain packaging. This is occurring under the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments.

This followed two High Court challenges to the plain packaging legislation which were dismissed. Ukraine, Honduras and the Dominican Republic are currently using World Trade Organisation rules to also challenge this piece of Government legislation which is aimed at protecting the health of Australians.

The highest court in Australia has dismissed the case and the World Trade Organisation’s mechanisms are being used to dispute it; there are clearly mechanisms in place to appeal decisions. The case for why an additional avenue of litigation needs to be established in this area has not been made.

There are ISDS clauses in a number of Australia’s agreements with other countries, including in the recently signed Korea Australia Free Trade Agreement (KAFTA), the Singapore FTA, the Chile FTA, the ASEAN FTA and the Thai FTA. It is believed that the Trans-Pacific partnership agreement which is currently under negotiation has ISDS clauses on the table as well.

In May 2013 the United Nations Conference on Trade and Development, in a paper entitled Recent developments in Investor State Dispute Settlement (ISDS), asserted that 244 cases under ISDS have been completed. Of the 244, approximately 42% were decided in favour of the State and approximately 31% in favour of the investor. This left 27% of the cases that were settled before an arbitration decision was made. These figures show that statistically states are hardly the overwhelming winners in these cases.

The Government has said on the record that the majority of cases have found against the companies. The figures I just quoted do not bear this out.

Even if it were true, that in the majority of cases signatory governments do win ISDS cases brought against them, there is still the cost that governments must bear to defend their cases. I have put questions on notice to the all the Departments currently involved in defending the ISDS case Australia is currently defending over cigarette plain packaging to ask about the costs. I look forward to their answers and to sharing them with the Parliament and the public.

In the plain packaging example, the Government has taken a straightforward public health measure that has survived two High Court challenges and still the Government must defend itself to corporations whose only interest, whose only reason for being, is to make profit.

The influence of ISDS goes beyond the direct impact of cases. In their 2010 report the Productivity Commission identified the phenomenon of ‘regulatory chilling.’ In other words ISDS provisions mean governments second guess themselves on whether a public policy initiative will cause an arbitration claim to be made against them by a foreign corporation. Government decision making not only has to take into account the country’s interest but also those of foreign companies. This is not something I believe governments should prioritise when they are formulating public policy.

The Government justifies ISDS by giving examples of countries where they believe the rule of law will be a problem for Australian companies who are investing. If this is the reason why are there ISDS clauses in the Korea-Australia FTA and the Singapore-Australia FTA, just to provide two examples?

In the FTA that was negotiated with the United States and was implemented in 2004, there was an acknowledgment, and I quote, from the Department of Foreign Affairs and Trade fact sheet released at the time and still available on the website:

“Reflecting the fact that both countries have robust, developed legal systems for resolving disputes between foreign investors and government, the Agreement does not include any provisions for investor-state dispute settlement.”

What exactly has changed? The robust, developed legal system we have in Australia certainly hasn’t been altered in any material way. This example demonstrates just how fast moving the trade space is. As Nobel Laureate Paul Krugman wrote in the New York Times on February 27:

“The first thing you need to know about trade deals in general is that they aren’t what they used to be. The glory days of trade negotiations … which sharply reduced tariffs around the world—are long behind us.”

Trade deals revolve around accommodating investment flows into and out of countries more than the dismantling of trade barriers. This is why ISDS provisions, which were seen as unnecessary in the early part of the 2000s, have become part of the standard template for free trade agreements.

The Government tells us there are carve outs for important areas of public policy such as health and the environment. This hasn’t stopped corporations trying their hand across the world through these types of clauses. When there are profits on the line, corporations will do their best—in fact they are set up to pursue profits and earnings—to try to find loopholes in these clauses. If they see some kind of advantage in litigating they will do it. What happens to a state or local government who is sued by a foreign corporation with vastly deeper pockets? Why is the Government opening Australia up to this?

This Government by its own admission is ‘open for business.’ It’s more than a slogan to this Government. The Prime Minister thinks saying it on the world stage miraculously leads to economic growth. What it really means is this Government is open to influence from business. Forget the public interest; special interests are what really matters to them.

Corporate interests in Australia are in favour of ISDS because it protects them from risk in investing in other countries. According to the United Nations ‘in 66% of new cases respondents are developing or transition economies and while the number of cases initiated by developing country investors has increased, the majority of new cases (64%) still originate from developed countries.’

The Productivity Commission in their November 2010 report Bilateral and Regional Trade Agreements made clear their thinking on ISDS. They outlined:

“In relation specifically to investor-state dispute settlement provisions, the government should seek to avoid accepting provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system. Nor is it advisable in trade negotiations for Australia to expend bargaining coin to seek such rights over foreign governments, as a means of managing investment risks inherent in investing in foreign countries. Other options are available to investors”.

The Productivity Commission made a number of other recommendations about trade agreements and anyone interested in Australia’s approach to trade agreements should take the time to read the report.

The United Nations Conference on Trade and Development 2013 issues note, Recent Developments in Investor-State Dispute Settlement, has also indicated the problems inherent in the global system of ISDS. They sound a warning and I quote:

“the continuing trend of investors challenging generally applicable public policies, contradictory decisions issued by tribunals, an increasing number of dissenting opinions, concerns about arbitrators’ potential conflicts of interest all illustrate the problems inherent in the system”.

Transparency in trade agreements generally is an ongoing concern. Parliament is only able to review trade agreements once Cabinet has signed off on them. Even then Parliament is only entitled to a yes or no vote. There is no scope for amendments or exemptions. This means consultation is a crucial element of trade agreements.

The European Union is currently negotiating an FTA with the US. They recently decided to suspend negotiations for three months as a result of community concern about ISDS and run a comprehensive, transparent consultation process about ISDS.

The same level of community concern exists in Australia about ISDS and this concern is only rising. I would urge the Government to monitor this EU process closely and strongly consider doing something similar in Australia. I believe that most Australians would agree with the Productivity Commission and would be opposed to the powers extended to private corporations under ISDS.

This Bill seeks to ban ISDS provisions in new trade agreements. The Greens believe there shouldn’t be ISDS provisions in any agreements, but we recognise that the legislation we are presenting is not retrospective.

Sovereign governments should not be challenged simply for making laws to govern their country or making a decision to protect their environment or the health of their citizens. What happens to laws governing coal seam gas legislation or the ban on genetically manipulated organisms in my home state of Tasmania? Under ISDS there is great uncertainty. Uncertainty that is unnecessary.

The Australian people elect their governments and their parliaments to design and implement legislation. Their sovereignty should be respected.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.