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Issue #1628      February 26, 2014

Special rights for investors to sue governments

The US wants special rights for foreign investors included in the Trans Pacific Partnership (TPP*), which would allow corporations to sue governments for millions of dollars if their investments are “harmed” by a law or policy, even if that law or policy is designed to protect public health or the environment. The proposal is known as Investor-State Dispute Settlement, or ISDS.

These disputes are heard by international investment tribunals, which prioritise investor rights above the public interest, and which do not have an independent judiciary or other safeguards of national legal systems.

Australia’s democratic parliament and court system is already being undermined by an ISDS provision in an obscure 1993 Hong Kong-Australia investment treaty. After a group of tobacco companies tried and failed to get compensation through the Australian High Court over the plain packaging legislation, US-based tobacco company, Philip Morris, moved some of its investments to Hong-Kong so it could use this agreement to sue the Australian government. Philip Morris clearly believes that an international investment tribunal will give it a more favourable decision.

Under the North American Free Trade Agreement (NAFTA) US corporations have used ISDS to sue governments for tens of millions of taxpayers’ dollars over legitimate health and environment legislation. Currently, the US Lone Pine energy company is using ISDS provisions in NAFTA to sue the provincial government of Quebec for US$250 million because it suspended shale gas mining pending an environmental study in response to community concerns.

In Australia, farmers and members of communities influenced the NSW government to regulate coal seam gas activity close to residential suburbs and rural industries. If Australia agrees to ISDS rules in the TPP, foreign companies could sue state governments for damages over this kind of regulation. Even if the government wins the case, it can cost millions in legal fees.

The Howard government did not agree to ISDS in the Australia-US Free Trade Agreement in 2004. However, the Coalition’s trade policy is to negotiate on ISDS. We urge the government to oppose clauses in the TPP that grant special rights for foreign investors to sue governments.

“Carve-outs” and “exclusions” in areas like public welfare, healthcare and the environment have not worked in other trade agreements to protect the public interest. For example, the Peru-US Free Trade Agreement and the US-Central America Free Trade Agreement didn’t stop the Renco lead mining company from suing the Peruvian government when they were required to clean up their lead pollution, or the Pacific Rim company from suing the El Salvador government because it refused a mining licence for environmental reasons.

Investors have pursued cases in other countries by claiming the process of developing the law did not include “fair and equitable” treatment for them.

*The Trans-Pacific Partnership Agreement (TPPA) negotiations involve Australia, the US, New Zealand, Canada, Peru, Chile, Mexico, Singapore, Brunei, Malaysia, Japan and Vietnam. The Abbott government hopes that agreement on the TPP would be reached as US President Obama is having difficulty in gaining Republican support in Congress for fast-tracking authority for the agreement. Such authority would avoid the necessity of the agreement having to be approved by Congress before it is signed.

Australian Fair Trade and Investment Network

Next article – Australian Parliamentary process for trade agreements

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