Lexology | 28 March 2019
Australia and Hong Kong sign new Trade Agreement containing investor-state dispute resolution provisions
by Brenda Horrigan, Chad Catterwell and Antony Crockett - Herbert Smith Freehills LLP
On 26 March 2019, Australia and Hong Kong signed the Australia-Hong Kong Free Trade Agreement (A-HKFTA) and its associated Investment Agreement (Agreement).
These agreements were negotiated against the background of a heated political debate in Australia regarding the benefits and risks of investment treaties. This debate occurred as a result of an arbitration brought against Australia by Philip Morris in 2011 under the 1993 Hong Kong-Australia Bilateral Investment Treaty (1993 BIT), challenging the introduction of the Tobacco Plain Packaging Act 2011 (Cth).
The 1993 BIT will be replaced by the new Agreement once it enters into force, which is expected to occur after both countries complete their respective treaty-making processes and ratify the agreements. Accordingly, investors who may have a claim under the 1993 BIT should consider whether to pursue it before that treaty is terminated.
The Agreement includes common investment protection standards, including, national treatment, most-favoured nation treatment, an expropriation clause and fair and equitable treatment (FET).
The Agreement appears to reflect some of Australia’s particular concerns about investment arbitration by prohibiting claims from being bought in respect of:
- aspects of Australia’s public healthcare system, including Medicare and the Pharmaceutical Benefits Scheme; and
- measures to control tobacco and tobacco-related products.
- Claims against taxation measures are also largely excluded from the Agreement, except where the measures amount to expropriation or an investment in or out of one state.
The FET clause is expressed in narrower terms than the 1993 BIT, in particular, it is stated that the clause does “not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens“. This language is also included in other modern investment treaties and responds to concerns that arbitral tribunals have construed the FET standard more broadly than states had intended and with the result that this created an unacceptable risk that investors would use treaties to challenge domestic legislation or other measures.
The Agreement also has a general exceptions provision which states that the Agreement does not prevent a party from adopting or maintain measures for a range of specified purposes, for example to protect public health or the environment. Such measures, however, must not be applied in an arbitrary or discriminatory manner or be used to disguise restrictions on trade or investment.
Investor-State Dispute Settlement
The Agreement contains a dispute settlement chapter with investor-State dispute resolution (ISDS) provisions allowing investors to submit claims to arbitration under the UNCITRAL Arbitration Rules. There are additional requirements for certain types of disputes. For example, Article 25 requires arbitrators appointed in financial services disputes to have expertise or experience in financial services law.
The ISDS provisions also provide for:
- publication of documents filed in any arbitration proceedings for hearings to be open to the public;
- amicus curiae briefs, allowing for submissions from interested non-parties to a dispute;
- expedited procedure for jurisdictional objections which, if invoked by a respondent, would require a tribunal to issue a decision on jurisdiction within 150 days; and
- applications that related arbitration claims be joined or related proceedings be consolidated.
Significance for Trade
In 2017, Hong Kong was Australia’s 12th largest trading partner with two-way trade in goods and services worth $18.8 billion. In the same year, Hong Kong was Australia’s fifth largest source of total foreign investment, worth $116.6 billion. DFAT claims the A-HKFTA “will provide increased certainty for Australian service providers and investors.”