The Australian Financial Review | 14 November 2022
Aussie companies to lose right to sue under free trade pacts
by Andrew Tillett
Australian companies face losing rights to sue foreign governments for decisions that harm their business, with the Albanese government vowing to strip future free trade agreements of investor-state dispute settlement clauses and water them down in existing deals.
In a big win for unions and “fair trade” campaigners, Trade Minister Don Farrell will announce the change in a keynote speech on Monday outlining his philosophy in the portfolio, as part of ensuring the benefits of trade deals are shared more equally.
Senator Farrell will tell the Australian APEC Centre that his other “guiding principles” in the job are a fresh trade diversification push to reduce Australia’s dependence on China, boosting manufacturing exports and World Trade Organisation reform.
Senator Farrell will declare that Australia’s future prosperity will depend in part on how well the nation adapts to challenging strategic circumstances.
“It is no longer possible – if it ever was – to insulate our trade policy from geopolitics,” Senator Farrell will say according to speech notes.
“Attempts at economic coercion and unfair targeting of Australian goods in recent years have demonstrated the risks to our economy when the rules of the road are ignored.
“Increasingly, economic policy and national security policy are intertwined – a resilient Australian economy underpins national security.”
Senator Farrell will say the geostrategic case for a European Union FTA had grown, but it will need to deliver “substantial new market access” for agriculture.
‘Govern in the national interest’
Senator Farrell will confirm the Albanese government’s opposition to incorporating investor-state dispute settlement (ISDS) clauses in free trade deals, which allow companies to challenge foreign government decisions and seek compensation before a tribunal if their investment is harmed.
The resources sector argues that such clauses are crucial to reducing sovereign and political risk when deciding to open projects in developing countries.
But opponents, such as unions, argue ISDS clauses undermine domestic laws such as labour or health regulations and give foreign corporations privileged access to the legal system.
Senator Farrell will say excluding ISDS clauses from FTAs will preserve the government’s ability to “govern in the national interest”.
“We believe strongly that the benefits of trade must be shared among the community,” he will say.
“Ensuring the benefits of trade flow to the Australian community also means we maintain Australia’s right to regulate key social policy areas like health, the environment and issues affecting First Nations Australians in all our trade agreements.
“When opportunities arise, we will actively engage in processes to reform existing ISDS mechanisms to enhance transparency, consistency and ensure adequate scope to allow the government to regulate in the public interest.”
Australia has signed 10 agreements with an ISDS clause, including the Trans-Pacific Partnership, ASEAN-Australia-New Zealand FTA and bilateral FTA with China, South Korea, Indonesia and Singapore. A further 15 bilateral investment agreements also include ISDS mechanisms.
However, ISDS clauses are not part of free trade deals with the US, UK and Japan, and have not been part of negotiations with the European Union because they are illegal in Europe. Nor are they expected to feature in the Indian FTA.
Despite the concern over ISDS clauses, Australia has been sued just once, when tobacco giant Philip Morris unsuccessfully challenged Australia’s cigarette plain packaging laws under the Hong Kong FTA. Philip Morris’ case was thrown out when the tribunal ruled it had no jurisdiction to hear the claim.
Gas giant ConocoPhillips last week left open the prospect of launching an ISDS action in response to the Albanese government’s looming intervention in the gas market.
Clive Palmer is also attempting to use the ISDS provisions of the Singapore FTA, where one of his businesses is based, to seek compensation over a dispute with the Western Australia government over an iron ore mine.
However, Australian businesses have used ISDS clauses on at least seven occasions to protect their interests.
In January, Kingsgate Consolidated was allowed to reopen a gold mine in Thailand after it launched an ISDS challenge to the government’s decision to shut the mine five years earlier on health grounds.