Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

I would like to thank both the committee secretariat and the deputy chair for their work on the majority and dissenting reports on the Korean free trade agreement. I think they are both worthy documents that grapple with complex and contentious issues. I am a free trader and I am proud of Labor's record in promoting free trade. We established trade relationships with China, now our biggest trading partner, under the Whitlam government. We drove through Australia's biggest tariff cuts, often unilaterally, under the Whitlam, Hawke and Keating governments. We provided international leadership on tariff reduction for agricultural products during the GATT and in the WTO through the Cairns Group. We provided crucial leadership for the establishment of the annual APEC leaders meeting, a crucial forum for pushing the cause of free trade in our region, and the Bogor declaration on trade liberalisation in our region.

This is a proud record—a record of leadership. Unfortunately, the cause of free trade has stalled. The progress of multilateral trade agreements through the WTO has been extremely slow of late. As such, by necessity, increasing attention has been given in recent years to the second and third best options of regional trade agreements and bilateral trade agreements.

A Korea-Australia Free Trade Agreement comes before us today in this context. It delivers worthy but hardly revolutionary tariff reductions and market-access gains. Against these benefits we are left to ponder the cost of trade diversion, new intellectual property obligations and the introduction of an investor-state dispute settlement mechanisms. In this context, I want to add a few additional comments, here today, to the contents of the majority report.

The majority report raises a number of concerns about the adequacy of the treaty-making process. I want to particularly echo the views of those stakeholders who have complained about of the adequacy of DFAT's consultation process on agreements like this. I had first-hand experience of this process before coming to this place and, in my experience, these consultations are a one-way street in which DFAT does not engage with the substance of industry submissions.

It may be that DFAT is more forthcoming with stakeholders with more traditional trade-law concerns. But when DFAT is asked to engage with the complex implications of changes to intellectual property law on industry, engaging with DFAT's consultation process feels like talking to a black hole, where submissions and representations are made but very little of substance ever comes back in the other direction.

It was clear from this inquiry that the overall level of satisfaction with DFAT's consultation process, particularly within the technology and intellectual property sector, is extremely low. With respect to intellectual property, I am pleased that the majority report notes the need for a 'less prescriptive' approach to IP and trade agreements and notes concerns over 'lack of recognition' of the broader public interest in the IP provisions of KAFTA. I also commend the dissenting report's more forthright coverage of copyright issues and largely agree with the substance of this section of the dissenting report.

In my first speech in this place I argued for an approach to intellectual property based on incentives for creators. I warned that at present:

… policymakers continue to view intellectual property as little more than an innate property right to be unthinkingly protected by government. This orthodoxy is buttressed by trade agreements, often negotiated without transparency or democratic accountability, that, instead of promoting free trade, are increasingly providing the expansion of private statutory monopolies.

I am opposed to the unthinking expansion of IP for the same reason that I support free trade. I believe that competition improves price, quality and diversity of products available to consumers and that monopolies, whether created by trade barriers or legislation, are generally not in the consumer interest.

There ought to be a clear weighing of costs and benefits before we go about expanding the scope of a private statutory monopoly, particularly one via the one-way ratchet of a trade agreement. Unfortunately, this treaty is another example of the unthinking expansion of intellectual property rights that I warned against in my first speech. The IP section of the KAFTA treaty is also one of the more mendacious examples of policy laundering that I have seen in recent times. The consultation attachment of the National Interest Analysis of the KAFTA provides:

Consistent with Australia’s existing obligations in the Australia-US and Australia-Singapore FTAs, and to fully implement its obligations under KAFTA, the Copyright Act 1968 will require amendment in due course to provide a legal incentive for online service providers to cooperate with copyright owners in preventing infringement due to the High Court’s decision in Roadshow Films Pty Ltd v iiNet Ltd, which found that ISPs are not liable for authorising the infringements of subscribers.

This characterisation is frankly wrong at law.

The High Court's decision on Roadshow Films and iiNet did not find 'ISPs are not liable for authorising the infringements of subscribers', it simply found that a lower court's decision that—given the facts of that case—iiNet fell within the protection of the Copyright Act's safe-harbour provisions was correct at law.

I asked DFAT how the government had formed this erroneous legal view. In an answer provided on notice, DFAT implicitly accepted the error in this characterisation of the iiNet decision, noting:

At the time that the AUSFTA and the SAFTA were implemented, the Government’s view was that Australia complied with this obligation through technology neutral ‘authorisation liability’ provisions contained in sections 36 and 101 of the Copyright Act 1968. However, the High Court’s decision in Roadshow Films Pty Ltd v iiNet Ltd, substantially limited the circumstances in which ISPs will be found liable for authorising the infringements of subscribers’

So, between the NIA and this response from DFAT, we have moved from the iiNet decision finding that ISPs are not liable for authorising infringements to a statement that the decision 'substantially limited the circumstances in which ISPs will be found liable'. This is somewhat better but still not an accurate characterisation of the decision. The High Court's decision did not change anyone's legal rights or obligations. It merely confirmed the scope of these obligations, as understood by the industry for more than a decade, given a particular fact set.

The House should be under no illusions, the terms of the authorisation liability safe harbour provisions have not changed in law since the implementation of the Australia-US Free-Trade Agreement. What is really going on here is what trade law commentators have recently begun describing as 'policy laundering'. That is the use of trade obligations—or in this case a bizarre interpretation of our trade obligations—to circumvent democratic debate of the merits of a policy initiative. The same DFAT answer I was citing earlier went on to say that this situation 'gives rise to some risk that Australia could be perceived as not fully complying with this obligation. In light of this decision, the government has formed the view that it would be prudent to minimise the risk'.

Let us be clear about what the government is saying here. The Attorney-General's Department has decided unilaterally that there is a 'risk' that Australia could be 'perceived' as being noncompliant with its obligations. It has done so without correspondence or prompting from the United States government. It has done so apparently without consideration for whether this view ought to be tested legally. No regard seems to be had for the idea that, even if we were perceived as being noncompliant, this position would be worth testing through the dispute resolution processes of the Australia-US Free Trade Agreement. It has formed this view without any of the usual public or industry consultation that you would expect before making such a major policy decision. Finally, it formed this view based on a mistaken reading of the High Court's decision in iiNet. This is simply a subversion of democratic accountability. If the government wants to reform Australia's Copyright Act, it should make the argument for this change on the merits, not by hiding behind the flimsy claim that we cannot even debate the issue because of our trade obligations.

The IP provisions of this agreement are also troubling, as there has been absolutely no effort to estimate the costs and benefits of these changes to Australian law. While the DFAT secretary's certification letter for the KAFTA RIS states that the RIS draws on 'independent economic modelling of the impacts of the options of proceeding with or not proceeding with the KAFTA', it was confirmed in response to questions put to DFAT that none of the economic modelling done to justify the benefits of this agreement even considered the impact of the IP provisions of this agreement. We know from experience with the Australia-US Free Trade Agreement that these provisions can often have the largest economic impacts in agreements of this kind, and the failure to attempt to measure these costs and benefits is another failure of transparency and democratic accountability.

In this respect I am pleased that the committee report notes the recommendation of the Productivity Commission's report Bilateral and regional trade agreements that the costs and benefits of changes to IP provisions should be modelled on a stand-alone basis so that they can be assessed against the broader benefits of reducing trade barriers and market access. Given the concerns identified in the majority report about the transparency of these agreements and the inclusion of IP provisions in these agreements, this kind of modelling might usefully increase public confidence in the merits of future agreements. I am pleased to see that this recommendation was picked up by government senators, and I look forward to the government adopting this recommendation before future agreements, like the Trans-Pacific Partnership Agreement, are provided to the JSCOT.

Finally, I want to say a few words about investor-state dispute settlement. The majority report notes the 'unintended consequences' of these agreements and notes that there is 'reason for concern' with respect to these provisions. It recommends that the government exercise a 'cautious approach' regarding the inclusion of ISDS provisions in upcoming FTAs. While DFAT indicated that Korea would not have agreed to finalise KAFTA without the inclusion of an ISDS mechanism, from the evidence heard by the committee the provision included in this agreement appears to be seriously problematic. It is true that Australia is already a party to more than 20 trade agreements that include an ISDS provision of some kind. As such we are already exposed to the risks and costs of try-on litigation by no-hopers unhappy with government policy decisions, such as we are currently seeing with respect to plain-packaged-tobacco legislation. However, that is no reason in itself to expand the scope of this risk for our nation. ISDS provisions of this kind deserve more scrutiny and more debate in this place and in the broader community. The issue ought to be given greater consideration and debate before the implementation of this agreement and subsequent regional and bilateral trade agreements.

Melissa Parke (Fremantle, Australian Labor Party, Shadow Assistant Minister for Health) Share this | Link to this | Hansard source

In any trade agreement, one expects there will be winners and losers but also that overall the benefits will outweigh the disadvantages. In the case of the Korea-Australia Free Trade Agreement, or KAFTA, the major winners include parts of the agricultural sector as well as copyright holders, as eloquently explained just now by the member for Gellibrand, while the major losers include Australian manufacturing, IP consumers and those sadly overlooked items: Australian sovereignty and democracy.

The pure economic benefits of this agreement deliver a bump to the Australian economy of some $650 million after 15 years, or 0.04 per cent of GDP, which is, as the majority committee report concedes, minimal. The majority report instead points to the impact on individual sectors as justification for entering into the treaty. Yet, as much of the report demonstrates, the agreement also gives rise to significant negative ramifications.

Among the numerous concerns raised about KAFTA in the 78 submissions to the JSCOT, almost half focused on the operation and effect of investor-state dispute settlement, or ISDS, clauses, which will enable Korean corporations to sue Australia for laws or policies or even court decisions they find inconvenient, such as those regulating health, environment and labour standards. This will give foreign investors more rights than Australian investors. As my colleague, Kelvin Thomson, the deputy chair of JSCOT, has noted, this will elevate the interests of corporations above those of the public and their democratically elected governments.

Currently Australia is being sued by Philip Morris, pursuant to an ISDS clause in an obscure agreement with Hong Kong, in relation to our plain-packaging laws. Quebec in Canada is being sued by a mining company for conducting an environmental review of fracking. Canada itself is being sued by pharmaceutical giant, Eli Lilly, for a court decision to refuse the grant of a medicine patent. El Salvador is being sued by an Australian-Canadian mining company for refusing to issue it with a gold-mining licence as a result of justified environmental and community concerns related to the last gold-mining venture that left the river running yellow with cyanide and arsenic poisoning.

These are just some of the 568 challenges made under ISDS clauses since 1993, but they demonstrate the perilous course this government has chosen. The ISDS arbitrations are not independent. Arbitration panels are made up of independent law experts, most of whom also represent investor complainants. Panellists can be an advocate one month and an arbitrator the next. They are paid by the hour. Consequently most cases take from three to five years. ISDS has no system of precedents or appeals, so decisions can be inconsistent and unfettered. The AFTINET submission quoted Juan Fernandez-Armesto, an arbitrator from Spain, who observed:

When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. Three private individuals are entrusted with the power to review, without any restrictions or appeal procedure, all actions of the government, all decisions of the courts and all laws and regulations emanating from parliament.

Proponents of KAFTA point to supposed safeguards in more recent ISDS clauses, which aim to protect public welfare in areas like health, safety and the environment. However, a number of submissions have pointed to examples where these so-called safeguards have not deterred investors from suing and where tribunals have ignored the intended limitations.

The committee heard evidence regarding a submission made by 100 legal experts to the European Commission regarding an ISDS clause in the proposed Transatlantic Trade and Investment Partnership between the EU and the US. The submission concluded that the safeguards, which are more extensive than those in KAFTA, would not be sufficient to uphold health and environmental legislation. Recently, Chief Justice French of the High Court highlighted his concerns about the impact of ISDS cases on our judicial systems when he said:

Professor Brook Baker of North Eastern University School of Law in a note about the Eli Lilly case, posed a rather rhetorical question, but one which fairly arises when considering proceedings of that kind in relation to well-established, respected and independent judiciaries:

'After losing two cases before the appellate courts of a western democracy should a disgruntled foreign multinational pharmaceutical company be free to take that country to private arbitration claiming that its expectation of monopoly profits had been thwarted by the court's decision? Should governments continue to negotiate treaty agreements where expansive intellectual property-related investor rights and investor-state dispute settlement are enshrined into hard law?'

Those are the words of our Chief Justice of the High Court expressing concern about investor-state dispute settlement clauses.

ISDS provisions have a chilling effect on a government's willingness to look to regulate. For example, Canada withdrew a proposal for plain packaging of tobacco following the threat of ISDS arbitration under NAFTA. Here in Australia, rural communities have successfully campaigned for improved state government regulation of coal-seam gas mining. Yet the inclusion of ISDS in KAFTA may mean that Korean mining investors could prevent further regulation.

Submissions noted that the combination of stronger intellectual property rights and ISDS clauses in KAFTA will also have a stifling effect on innovation and research and on the protection of public health and access to reasonably-priced medicines. For all these reasons, it is no wonder that ISDS was rejected by the Productivity Commission in 2010, that Labor's platform opposes it and that in government Labor refused to negotiate a treaty with Korea that contained such a clause. By entering into an agreement with ISDS clauses, this government is being reckless or grossly negligent as to the likely serious and negative consequences. Let us hope it will not cost the country too dearly.

Debate adjourned.