Submission by Civil Liberties Australia CLA TO: Senate Foreign Affairs, Defence and Trade Committee Review of the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014 Contents 1) Investor-State Dispute Settlement (ISDS), part of the Trans-Pacific Partnership (TPP) trade agreement, has developed expanded legal rights for investors which do not exist in national legal systems. 2) The effect of creating special rights for foreign investors has led to the unintended consequence of offshoring jobs as corporations move offshore to acquire the rights of foreign corporations. 3) ISDS provisions dilute the competitive advantage enjoyed by developed economies characterised by the rule of law. 4) The number of cases pursued against countries for introducing measures to protect public health, the environment and other socially beneficial legislation has increased. 5) Costs to government and taxpayers and ongoing “chilling” effect on proposals for socially beneficial legislation. 6) ISDS procedures lack legal protections of the kind found in domestic legal systems 7) Recent “safeguards” included in ISDS clauses to protect health, environment and other public interest legislation have not been effective. 8) Increasing numbers of governments are withdrawing from ISDS. 9) ISDS provisions apply not only to the Commonwealth Government, but to state and local governments also. Yet there is no evidence of any consultation with state and local governments on this issue, or on this Bill. 10) ISDS provisions would weaken our sovereignty by removing the rights of the Commonwealth of Australia to make its own binding laws. 11) Arising out of all of the above effects, ISDS provisions are shown to be inherently anti- democratic. References with annotations (Roman numerals in the text refer to the numerical sequence of the references) Civil Liberties Australia Inc A04043 TPP sub – Senate FADT Committee 1 1) ISDS has developed expanded legal rights for investors which do not exist in national legal systems. ISDS enables foreign investors to sue governments for compensation in an international tribunal if they can claim that a domestic law or policy “harms” their investment or threatens their profits. ISDS clauses were originally intended to ensure payment of monetary compensation to foreign investors in the event of the actual expropriation or taking of their property by host governments. They were designed to protect companies investing in countries with unstable governments or inadequate legal systems. Over time, corporation interests have expanded legal concepts such as “indirect expropriation” and “fair and equitable treatment” beyond the scope of their meaning in national legal systems, enabling investors to lodge claims against countries on the grounds that a domestic law, regulation or policy reduces the value of their investment. This violates the principle of “equal treatment” in trade law. (See VIII United Nations Committee on Trade and Development, (UNCTAD), 2000, p. 11) 2) The effect of creating special rights for foreign investors has led to the unintended consequence of offshoring jobs as corporations move offshore to acquire the rights of foreign corporations. (See XXIII NAFTA at 20: 1 Million Lost Jobs, 580% Increase in Trade Deficit – 2013) 3) ISDS provisions dilute the competitive advantage enjoyed by developed economies characterised by the rule of law. By removing the perception of risks to investing in developing countries, advanced economies lose their attractiveness to foreign investors. Even think tanks such as the US Cato Institute, which have long been bastions of free trade, are beginning to advise against pursuing ISDS provisions in free trade agreements. (See XXIV Daniel J. Ikenson (2014). A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement (Cato Institute)) 4) The number of cases pursued against countries for introducing measures to protect public health, the environment and other socially beneficial legislation is increasing. With increasing frequency, foreign investors are suing governments for hundreds of millions of dollars over health, environment and other public interest legislation. Recent examples include: • In 2009, on recommendations from the World Health Organisation (WHO), Uruguay increased the size of health warnings on cigarettes packets. The Uruguayan government was subsequently sued for US$2 billion by Philip Morris which claimed Uruguay had expropriated its trademark • The Eli Lilly pharmaceutical company suing the Canadian national government over a court decision to refuse a medicine patent • When an Ecuadorian court ordered Chevron to pay US$18 billion in damages for contaminating areas of the Amazonian rainforest, Chevron responded by suing Ecuador Civil Liberties Australia Inc A04043 TPP sub – Senate FADT Committee 2 on the grounds that simply by allowing its court case to continue, it breached an investment treaty with the United States. • The US Lone Pine mining company suing the Québec provincial government of Canada over environmental regulation of shale gas mining • The Swedish energy company, Vattenfall, sued the German government over its decision to phase out nuclear energy • Argentina has been plagued with over 40 law suits for millions of dollars after freezing electricity and water charges during a time of economic crisis. (See I Ken Sievers (2013); IV Gaukrodger and Gordon OECD, 2012, p. 7, and VII Public Citizen Table of Cases, 2014).; XX Mike Seccombe (2013) Abbott: open for business and multinational law suits, 20 Sept. 2013 (The Global Mail; XVIII Martin Khor (2013) The Trans-Pacific Partnership Agreement (TPPA): When Foreign Investors Sue the State (Third World Economics); XXII United Nations Commission on Trade and Development (UNCTAD). Investor-State Disputes arising from Investment Treaties: a review. UNCTAD Series on International Investment Policies for Development – 2005) 5) Costs to government and taxpayers and ongoing “chilling” effect on proposals for socially beneficial legislation. The costs of running cases (OECD estimates an average of $8 million per case, with some cases costing up to $30 million) and the compensation awarded to foreign investors (often hundreds of millions and in some cases billions of dollars), can dissuade governments from pursuing legitimate domestic legislation. The highest amount awarded to date is $1.8 billion against the government of Ecuador. This is damaging for any government, but particularly damaging for developing countries. Many foreign corporations have greater financial resources to draw on than the countries they are suing. It has been documented that the Canadian Government withdrew plain packaging legislation after it was threatened with legal proceedings by a foreign corporation. When corporations are allowed to exercise such power over governments, the effect is far worse than mere lobbying. Such behaviour is destined only to increase if ISDS provisions are included in the TPP. They amount to standover tactics on a grand scale by foreign corporations. (See IV Gaukrodger and Gordon, OECD, 2012, p. 19; IX UNCTAD, 2013a, p. 3; XVI Peter Henning (2014) and XVII TTP Australia. Investor-State Dispute Settlement) 6) ISDS procedures lack legal protections of the kind found in domestic legal systems. The disputes are heard by international investment tribunals, operating under different sets of rules, but all of which lack the safeguards of national legal systems in the following ways: • The proceedings are not made public unless both parties agree and even the results of proceedings can remain secret, unlike national legal systems, where both the proceedings and the results are made public. • The arbitrators may be practising advocates, and so lack the independence of judges in national legal systems. • There is no system of precedents, so decisions lack consistency. Civil Liberties Australia Inc A04043 TPP sub – Senate FADT Committee 3 • There is no avenue for appeal against decisions even when the decisions ignore treaty wording. • third-party funding of cases, described by the OECD as “a new industry composed of institutional investors who invest in litigation by providing finance in return for a stake in a legal claim” has encouraged a growing industry of investment law firms which actively solicit business and encourage large claims. (See X UNCTAD, 2013b, p. 1; IV Gaukrodger and Gordon, OECD, 2012, p. 36) 7) Recent “safeguards” included in ISDS clauses to protect health, environment and other public interest legislation have not been effective. It is often claimed that recent changes to the wording of ISDS clauses in trade and investment agreements such as the Korea-Australia Free Trade Agreement (KAFTA), provide safeguards to prevent foreign investors from suing governments over health, environment or other public interest legislation. However, the initial “safeguard” sentence in the KAFTA reads: "except in rare circumstances non- discriminatory regulatory actions by a party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations" (KAFTA chapter 11, annex 2B). It has been pointed out by many legal experts that the phrase "except in rare circumstances" leaves a giant loophole, which has been utilised in recent cases. The second “safeguard” limits the definition of "fair and equitable treatment" for foreign investors (KAFTA chapter 11, clause 11.5.2 and