Australian Financial Review 31 January 2017
Investor State Dispute Settlement (ISDS) are four words we can expect to hear constantly as the Trans Pacific Partnership Mark II is finalised and ratified.
ISDS is an investment clause which is a critical component of a cohesive and sustainable pan Pacific trade and investment deal.
The protectionist and isolationist union movement is already using ISDS as their chief reason to oppose the TPP.
The unions don’t like ISDS for the same reason they don’t like company tax cuts, trade deals or anything to encourage a competitive economy: their business model relies on a closed shop.
Union leaders are consistent in their laughable denial that Australia does not require foreign investment. We do and we want to be integrated into our region as it booms.
AMWU Secretary Andrew Dettmar said last week:
“We are gravely concerned at the implications of the investor-state dispute settlement provisions which allow foreign corporations to sue the Australian Government. It is a direct attack on Australia’s sovereignty and we should never sign up to a deal that gives multinationals a stick to beat us with.”
This is nonsense – purely spin and dogma which must not be accepted without proper examination.
It would be the epitome of intellectual laziness if this statement became a legitimate part of the TPP debate.
Previously rich nations like Argentina were driven to the brink through this type of provincial thinking. For a nation that relies on free trade and two way foreign investment, the ISDS dogma has to be unpacked and destroyed.
There are three things to note on ISDS as a clause in trade deals.
It reinforces the rule of law, encourages investment and has never compromised a health, safety or environmental law.
Firstly, the rule of law is strengthened by ISDS is it provides a mechanism for disputes to be resolved by transparent, weighty institutions such as the Permanent Court of Arbitration or the World Bank.
The Permanent Court of Arbitration which was set up by the Hague Convention heard the plain packaging cigarette case which Australia won.
The proponents of international law who believe in the United Nations surely also believe in these institutions?
These provisions have been part of trade deals for decades, they allow companies that have invested abroad to protect their investment within a credible legal institution.
Mr Dettmar’s statement that ISDS “(allows) foreign corporations to sue” fails to consider Australian companies investing abroad which presumably fails to enter the isolationist mindset.
Secondly, there are two sides to investment. On outbound investment, this is the time for Australia to encourage it. The rise of the Asian middle class – expected to be $3 billion strong by 2030 is the opportunity of lifetime.
Australia now has over $500 billion in outbound foreign direct investment – much of it in very different legal systems. The fifth largest source of offshore Australian investment is China.
Encouragingly, seven per cent of our FDI now heads to ASEAN nations – a good start but it should increase if we are to supply the growing middle classes’ desire for higher end products and services.
Australian investors have used ISDS three times in recent years – where in one case, they were successful.
There is also the moral case to reflect upon in nations less wealthy than our own.
London School of Economics and Asian Development Bank research shows a link between ISDS and investment where “developing countries that sign more bilateral investment treaties receive more FDI inflows” and ISDS “is likely to promote foreign investment”.
Thirdly, governments do not give away rights in putting in place ISDS clauses. Our own experience should not be forgotten.
We have had ISDS in trade and investment agreements for decades. There has been one case against Australia on cigarette packaging which was won. Uruguay also won its case on plain packaging.
The United States has a similar record. 13 wins from 13 cases.
To put this another way, trade deals with ISDS do not give away sovereignty. Parliaments maintain the right to legislate.
The TPP I text specifically stated that each nation would maintain rights to legislate for public welfare, safety, health and environmental purposes. Inclusion of this text is simply belts and braces on an already certain case that ISDS is good for Australia.
The fact remains, no union leader can point to a case where such a law or sovereignty was compromised.
As Dartmouth trade guru Douglas Irwin wrote in Foreign Affairs last year, we have been here before:
“And despite populist claims to the contrary, the TPP’s provisions for settling disputes between investors and governments and dealing with intellectual property rights are reasonable. In the early 1990s, similar fears about such provisions in the WTO were just as exaggerated and ultimately proved baseless.”
Andrew Bragg is the author of a monograph on trade policy Fit for Service (Connor Court) 2017