Amy Schwebel is a research officer for the Australian Council of Trade Unions.
After three-and-a-half years of negotiation, the investment chapter of the Trans Pacific Partnership (TPP), a regional trade agreement being negotiated by countries across Asia and the Pacific, remains hotly contested. A key issue is the so-called investor-state dispute (ISDS) settlement provisions. Australia is the only country in the negotiations opposing the inclusion of ISDS, and is the only country to have signed a bilateral trade agreement with the US that excludes ISDS provisions.
Since the signing of the North America Free Trade Agreement (NAFTA), the US has required trading partners to include clauses in trade agreements that elevate the rights of foreign investors above domestic investors and, most importantly, above governments. Put bluntly, that makes international corporations more powerful than governments and limits the ability of those governments to introduce legislation and policies that promote and protect the interests of their citizens.
The result has seen a flurry of litigation by corporations suing governments for perceived losses. Over $365 million in compensation has been paid out to foreign investors since NAFTA came into effect in 1994, while $13.1 billion of further damages could result from pending claims.
Recently, US-based pharmaceutical company Eli Lilly announced it will sue the Canadian Government over a decision on a drug patent. Canada argues that the decision on the ADHD drug was in line with existing medicine patent standards, and a Canadian court decided not to hear Eli Lilly's appeal. The corporation is seeking compensation through international arbitration established by ISDS.
In 2012, there were 58 new cases filed under ISDS, the highest number ever in one year, bringing the total number of known cases to 514.
In Australia, we are seeing this risk play out in the response by tobacco companies to the introduction of legislation mandating plain packaging of tobacco products. This legislation was introduced to address tobacco-related deaths (over 15,000 in Australia in 2003) and a cost to the economy of approximately $31 billion in 2004-05. The legislation was unsuccessfully contested in the High Court but now Philip Morris International is challenging the legislation by using ISDS provisions that were agreed upon in an early '90s investment treaty between Australia and Hong Kong.
As negotiations progress, some Australian businesses and industry groups will become more vocal in calling for the Australian Government to reverse its position on ISDS not only in the TPP but also in bilateral trade negotiations with South Korea.
Trade unions and many community groups strongly support Australia's resistance but worry about rhetoric from the Coalition that it would reverse Australia's position on ISDS.
I would ask the Coalition to remember that it is not the role of government to underwrite the risk of corporations investing overseas, particularly when it exposes the interests of its citizens at home. Companies have demonstrated a preparedness to invest in high risk environments due to the potential for high profits. That risk should not be sheeted onto governments and citizens.
Government policymaking must be judged on public interest, not the level of profits that flow to corporations. Any changes to include ISDS would jeopardise Australia's sovereignty as it has done to other countries. This point was recognised by the Productivity Commission, which found that ISDS posed a 'significant risk'. Joseph Stiglitz has argued that the inclusion of ISDS in the NAFTA treaty has 'potentially weakened democracy throughout North America'.
Despite the dangers, some argue that ISDS should be included as it encourages foreign direct investment. Yet World Bank research questions the role of ISDS in promoting foreign investment.
Trade negotiations are increasingly complex, with interests being balanced across a range of negotiating topics. But when it comes to ISDS the decision should be clear. Yes, companies have a right to trade in goods and invest, and this can create benefits to society. But the inclusion of ISDS promotes the interest of a small but powerful group of corporations at the expense of public policy and the interests of citizens.
Photo by Flickr user shawncalhoun.