TPP threatens nobody's sovereignty

Patrick Carvalho, Greg Lindsay

24 February 2016 | Australian Financial Review

TPPScaremongering campaigns against Investor-State Dispute Settlement provisions in the recently concluded TPP talks are the new sweet spot for protectionist siders. We’ve even seen Hillary Clinton facing accusations of conducting a union-backed misinformation campaign against the twelve-nation deal.

In Australia, ISDS provisions in the TPP agreement are at the heart of current parliamentary discussions, with the Australian Greens calling it a ‘Trojan Horse in our secretive trade agreements’. Such anti-trade diatribes are at best unfounded, and if successful it would be a major own goal against Australia’s national interests.

ISDS is a legal provision in international investment agreements that enables foreign investors to take host states to an arbitral tribunal for alleged treaty breaches of pre-established rights. There’s been considerable clamour about this. But thou shall not fear ISDS — and here is why.

At the core of ISDS criticism is that international investor-state arbitration constitutes an attack on sovereignty, reducing the national ability to legislate domestic public policy and providing ‘special rights’ to foreign investors. However nothing could be further from the truth.

First, there is nothing in ISDS arrangements that cannot be separately found in other legitimate legal instruments and procedures. For starters, arbitration itself is a commonly used form of adjudication outside national courts, present in commercial disputes as old as trade itself. In its core foundation, there is the mutual and voluntary consent of the disputing parties for an impartial, law-based approach to resolve conflicts.

Second, legal disputes between commons and sovereign national states constitute the central tenet of our civilised society. As set in stone by the Magna Carta some 800 years ago, ‘the King too should be bound by the law’. And fortunately, in most contemporary societies, governments every day are legally and judicially held accountable for their acts.

In addition, outside the ISDS arena, there are myriad examples of sovereign states (including their domestic court decisions) being brought to international adjudication forums outside their domestic judicial system with legally binding resolutions — e.g. the WTO Panel Proceedings, the European Court of Human Rights, the International Court of Justice.

What makes ISDS so unique — and yet no less legitimate — is the summation of these features in one single institution: that is, a set of legal rules governing an international arbitration forum to settle disputes between an investor and a sovereign state outside the domestic court system.

Furthermore, there is no international agreement that allows ISDS tribunals to overturn national legislation or regulation. And indeed, all Australian investment-protected agreements since 2008, including the TPP, expressly limit ISDS awards to non-punitive, monetary compensation against unlawful expropriation.

In particular, the TPP agreement also provides significant carve-outs to ISDS scope in sensitive regulatory areas: prohibiting investor’s claims against legitimate non-discriminatory public policy in social welfare and education; public safety and health (including Australia’s PBS scheme); government grants, subsidies and procurement; environmental protection; financial stability; and many more.

Another common attack on ISDS provisions concerns the allegedly special rights status given to foreign investors that would be denied to domestic citizens. However, as outlined by the European Commission, in such cases, international agreement legal provisions “cannot be invoked before domestic courts, (which are competent to rule on disputes brought on the basis of national law). This is the raison d’être for international tribunals, including for investment matters”. Basically, these are international treaty-based matters well suited for an equally international law-based adjudication forum.

Further, there is nothing in ISDS material protections that are not covered — or should not be covered — by a civilised society respectful of the rule of law: e.g. legal predictability, impartial adjudication, fair and equitable treatment, property rights, no unlawful discrimination, observance of contract obligations.

At the core of ISDS provisions is the right to no expropriation without compensation, which is a well anchored principle in many foundational legal documents, from the Magna Carta to the United Nations Universal Declaration of Human Rights to many other civil rights legislations across developed democracies, including the Australian Constitution.

In short, there is nothing to fear from investor-state arbitration and much to welcome it in our international commitments. In the past 30 years, Australia has agreed to ISDS provisions in 21 bilateral investment treaties and seven free trade agreements, allowing Australian investors to successfully make use of it against unlawful foreign government acts. Besides, the first and only ISDS case against the Australian government (on tobacco packaging legislation) has been recently dismissed — proof the system works.

And that’s the beauty of the rule of law: those who owe nothing have nothing to fear.

Greg Lindsay is executive director of the Centre for Independent Studies. Dr Patrick Carvalho is a research fellow at the Centre for Independent Studies and author of the forthcoming research report on “Investor-State Arbitration: Debunking the Myths”.

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