Investor clause modification no TPP fix

We will know soon whether Andrew Robb has agreed to the controversial ISDS clause in the Trans Pacific Partnership Agreement. If he has, he risks opening the floodgates to costly litigation, even under the mooted modified version.

In a luxury beach resort in Maui this week, trade ministers are negotiating the most politically sensitive and challenging issues that remain after five years of negotiations for the Trans Pacific Partnership Agreement (TPP).

One particularly contentious issue is the inclusion of "investor-state dispute settlement", or ISDS, in the agreement. ISDS allows foreign investors to sue governments over policies and laws that they believe harm their investments. It is the process that has allowed Philip Morris to challenge Australia's plain packaging laws, a dispute that has already cost the country over $50 million.

Recent statements by Andrew Robb, the Minister for Trade and Investment, about the government's intentions on ISDS in the TPP have Australian health organisations and academics worried. Although Robb has confirmed that he has not yet agreed to accept an ISDS clause applying to Australia, he won't rule out doing so.

On Wednesday, Robb suggested he was considering a "modified version" of ISDS, and that he would only agree to it if there was a "carve out for public policy on health and the environment". In the most recent leaked draft of the text of the TPP Investment Chapter, it was clear that Australia had proposed carve outs for the Pharmaceutical Benefits Scheme, Medicare, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator. These had yet to be accepted by the other parties to the agreement. No carve outs were provided for other areas of health policy (e.g. tobacco and alcohol control) or for environmental policies.

The draft also contained so-called "safeguards" meant to increase the chances that the government will succeed if a claim is brought under ISDS. Robb has made much of these safeguards, but recent experience in other countries suggests that they may prove insufficient to protect public policy from challenge.

For example, Costa Rica has been sued over its efforts to protect the breeding grounds of endangered sea turtles. The US investors in that case are exploiting a loophole that exists in one of the "safeguards" that is also proposed in the TPP.

And Canada recently lost a case under the North American Free Trade Agreement (NAFTA) where an investor had argued that an environmental impact assessment had been unfair. The tribunal in that case adopted a broad interpretation of the agreement that should have been precluded by a "safeguard" similar to the one proposed in the TPP. All three NAFTA countries have since declared the tribunal's reasoning to be flawed.

Minister Robb has tried to reassure the public by pointing out that Australia already has an ISDS clause in 29 agreements and the sun "still comes up every morning". But most existing agreements are with developing countries and transition economies that aren't significant sources of foreign investment in Australia. As such, it is hardly surprising that the ISDS provisions haven't been employed.

Corporations based in the United States have been by far the biggest users of ISDS. And the rights of US investors have been interpreted broadly in 98 per cent of cases. Australia has been somewhat shielded from ISDS because John Howard refused to include it in the Australia-US Free Trade Agreement in 2004. Agreeing to ISDS in the TPP would bring us into a whole different ball game.

It's a game that Canada is quite familiar with. The country has had to deal with over 20 disputes since signing NAFTA in 1994, mostly over environmental regulations. No Canadian investor has ever prevailed in a case against the US.

It is also worth noting that ISDS has only become popular with multinational corporations in the last decade and cases are rapidly on the rise. In 1994 there were less than ten known cases, but by 2014 there were 608 cases involving over one hundred countries around the world. It would be foolish to assume that just because we haven't seen many cases in Australia yet that we won't in the future.

Signing the TPP with ISDS in place risks opening the floodgates to costly litigation. We are not convinced that any "modified version" of ISDS will provide sufficient protection for health and environmental policies. The best way to defend Australia's right to regulate is to stand our ground and continue to say no to ISDS in the TPP.

This article first appeared on ABC News website The Drum

Image credit;AAP: Alan Porritt

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