Australia changes position on investor-state arbitration in free trade agreement with Korea<\/b><\/p>\n
The Australian government has agreed to investor-state arbitration in the investment chapter of a free trade agreement with Korea, abandoning the position of the previous government which had made a decision not to sign up to such commitments.<\/p>\n
The deal, signed in December but not yet public, concludes negotiations that began in 2009.<\/p>\n
The previous Labor-led coalition committed to rejecting investor-state dispute resolution in 2011. The government justified the policy on the basis of not allowing \u201cgreater rights\u201d to foreign investors and maintaining its \u201cability to impose laws that do not discriminate between domestic and foreign businesses\u201d to protect the public interest.<\/p>\n
That position hardened when Philip Morris, the tobacco company, sued Australia under the Hong Kong-Australia bilateral investment treaty over legislation that limits branding of tobacco products.<\/p>\n
However, the new Liberal-National coalition has said it would take a more flexible approach to investor-state arbitration, considering it on a case-by-case basis.<\/p>\n
In the new agreement with Korea, the Australian government said that it \u201chas ensured the inclusion of appropriate carve-outs and safeguards in important areas such as public welfare, health and the environment.\u201d The text of the agreement was not public as ITN<\/span> was going to press, so it was not possible to verify the nature of those carve-outs and safeguards.<\/p>\n Investor-state arbitration has proven divisive in the Trans Pacific Partnership Agreement (TPP)\u2014the mega regional trade and investment agreement that is currently under negotiation. Australia has not confirmed whether it would sign on to investor-state in the TPP, preferring instead to keep its options open.<\/p>\n European Commission goes on the offensive to promote investment treaties <\/b><\/p>\n In recent months the European Commission\u2014the executive body of the European Union\u2014has released a number of documents that seek to drum up support for investment treaties.<\/p>\n In October it published a fact-sheet titled Incorrect claims about investor-state dispute settlement<\/i>, which seeks to refute common concerns about investment arbitration.[1]<\/a><\/p>\n For instance, in response to the claim that investor-state dispute settlement “subverts democracy by allowing companies to go outside national legal systems,” the Commission responds “Untrue!” While not exactly responding to that claim, the Commission points out that an \u201cinvestor may not want to bring an action against the host country in that country’s courts because they might be biased or lack independence,\u201d or \u201cmight not be able to access the local courts in the host country.\u201d<\/p>\n A factsheet published in November, however, acknowledges that the investment protection provisions in international treaties have \u201cimperfections.\u201d Investment protection and investor-state dispute settlement in EU<\/span> agreements<\/i> identifies two areas where improvements are needed: to investment protection rules, and how the investor-state dispute settlement system operates.[2]<\/a><\/p>\n The Commission identifies the \u201cmain concern is that the current investment protection rules may be abused to prevent countries from making legitimate policy choices.\u201d It points to Philip Morris\u2019 case against Australia, and Vattenfall\u2019s case against Germany, as examples that raise this concern.<\/p>\n The factsheet goes on to outline how the Commission is responding to these concerns by better defining investment protection rules and the procedures that guide arbitrators.<\/p>\n With respect to investment protection rules, the Commission says that EU agreements preserve states\u2019 right to regulate. For example, on indirect expropriation, \u201cthe right of the state to regulate should prevail over the economic impact of those measures on the investor.\u201d On fair and equitable treatment\u2014which is frequently invoked by claimants\u2014the EU\u2019s agreements will \u201cset out precisely which actions are not allowed.\u201d<\/p>\n Turning to dispute settlement, the Commission seeks to discourage frivolous claims, such as by setting rules that encourage tribunals to settle such cases quickly and ordering the claimant to pay for legal costs. In response to concerns about the independence of arbitrators, the EU has established a new code of conduct. It is also aiming to set up an appellate mechanism \u201cto ensure consistency and increase the legitimacy of the system by subjecting awards to review.\u201d<\/p>\n