The Australian Chamber of Commerce and Industry (ACCI) has apparently decided that it is up in arms over a Gillard government policy announced more than a year ago.
In April 2011, the federal government released a Trade Policy Statement announcing it would no longer agree to the right of foreign investors to sue governments (investor-state dispute settlement procedures) before panels of international trade arbitrators.
The Gillard Government has stuck to its guns on this issue in recently signed treaties, as well in as the ongoing negotiations for a Trans Pacific Partnership Agreement.
The government’s policy reflects widespread concern within Australia and abroad that investor-state dispute settlement threatens to undermine public policy in areas such as health and environmental protection.
The investor-state dispute between Philip Morris and the government over plain packaging legislation is emblematic of how companies abuse this system to circumvent democratic processes, particularly in nations with an established non-corrupt judiciary operating according to the rule of law.
ACCI has launched a public campaign in opposition to the government’s policy, including this letter to the Prime Minister. There are a number of claims made in the letter that are simply not supported by existing evidence or scholarly consensus in the field.
For example, the suggestion that “by no longer offering [investor-state dispute settlement] protections… Australia loses attractiveness for inbound foreign investment” is unsupported by the evidence. Academic studies on this topic have been unable to find any conclusive correlation between the presence of an investment treaty and changes in flows of foreign direct investment.
A review of the key studies led the Productivity Commission to conclude that “available evidence does not suggest that [investor-state dispute settlement] provisions have a significant impact on investment flows” and furthermore that “there does not appear to be an underlying economic problem that necessitates the inclusion of [investor-state dispute settlement] provisions within agreements”.
Furthermore, Australia’s domestic legal system is very highly regarded in the international community. The fact that the local courts are available as recourse for foreign investors that are upset with public policy decisions has been highlighted in the plain packaging case currently before the High Court.
Investor-state dispute settlement only adds an additional, unnecessary and undemocratic, layer of protection. It allows companies like Philip Morris to challenge public policy even if it is found to be consistent with the Australian Constitution. It also disadvantages local firms that cannot bring international claims even when they are affected by the same policies.
The ACCI letter also ignores two important facts. First, Australian companies have a number of ways in which they can protect themselves from sovereign risk when operating in foreign countries. Two of the most common ways are to employ investment insurance and negotiate specific binding contracts with the state that they are investing in.
Second, foreign investment has always and will always carry a certain level of risk. However, it also comes with the prospect of very lucrative rewards. We do not provide protection for individuals that bet on risky ventures in the stock market; why should we do so for companies?
It is entirely reasonable for the Gillard Government to conclude, as they did in the Trade Policy Statement, that “If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries”.
The statement by ACCI Chief Executive Peter Anderson that accompanies the letter is also misleading. It claims that “some of Australia’s foremost legal experts on trade policy” have signed the letter to the Prime Minister.
In fact the “legal experts” are lawyers and arbitrators that have a very strong vested interest: they profit greatly from the system of international investment arbitration that they are seeking to preserve. In stark comparison, an open letter released in May supporting the Gillard Government policy and rejecting the inclusion of investor-state dispute settlement in the Trans-Pacific Partnership Agreement was signed by an impressive list of more than 100 legal scholars and jurists including Retired Justice Elizabeth A. Evatt (Former Chief Justice of the Family Court of Australia and former President of the Australian Law Reform Commission).
Anderson also claims that investor-state dispute settlement provides “an efficient mechanism for companies to seek to directly rectify any adverse situations”.
The system is in no way efficient; disputes take on average three to four years to be resolved. It certainly isn’t a cheap system. The United Nations Conference on Trade and Development noted in a 2010 report that “costs involved in investor–State arbitration have skyrocketed in recent years” with legal fees alone amounting to over US$15 million in some cases.
Inefficiencies aside, the more important point is that the system lacks democratic legitimacy. Arbitrators do not have the independence of court judges because they are chosen and paid by the parties to the dispute and because they can act as counsel in one case and an arbitrator in another. There is also a complete absence of accountability in the system and demands for transparency and public scrutiny are often denied with many decisions made behind closed doors.
In the end, the only point made by the ACCI that has any value in this debate is that public policy in Australia remains exposed to liability through existing bilateral investment treaties and trade agreements.
However, the ACCI fails to recognise that the most logical solution to this problem would be for the government to terminate its old investment treaties — this is, in many cases, a matter of Australia simply sending a notice of termination to the other country party to the pact—and to renegotiate its trade agreements to remove investor access to dispute settlement.
Doing so would be entirely consistent with the Government’s laudable stated position on this issue.