Anne McEwen (SA, Australian Labor Party) Share this | Hansard source

The opposition will not support passage of the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014. Labor oppose the inclusion of investor-state dispute settlement provisions in trade agreements. However, Labor cannot support the remedy proposed by this bill.

This bill would significantly constrain the executive powers of the government of the day. This approach runs against the constitutional division of powers between the executive and the legislative arms of government in our democratic system. This approach would also create a precedent, undermining the ability of elected federal governments to make progressive reforms in Australia by entering international treaties and conventions.

Labor is a progressive party of government. Over decades, Labor governments have used the Commonwealth treaty-making powers to implement a whole series of progressive reforms in the national interest: progressive reforms to protect the environment, to tackle climate change, to protect human rights, to protect employment and workplace rights, and to prohibit racial discrimination. These are progressive reforms which Labor governments have introduced by using the power of the executive to enter international treaties.

Earlier this week, this Senate paid tribute to former Prime Minister Gough Whitlam. I remind the Senate that the Whitlam government ratified the World Heritage Convention using the executive treaty-making powers which this bill seeks to constrain. It was only because the Whitlam government ratified the World Heritage Convention that the Hawke government was then able to save the Franklin River and the World Heritage listed wilderness areas of western Tasmania. That is something which the Leader of the Greens, Senator Milne, acknowledged in a speech on Gough Whitlam on Monday this week. That is why I am surprised that the Greens, a party formed out of the campaign to save the Tasmanian wilderness, would now week to create a precedent curtailing the executive's treaty-making powers. If that precedent had been in place in 1974, the conservative Senate of the day would have blocked ratification of the World Heritage Convention, and the Franklin River would have been dammed as a result.

I now turn to the issues concerning investor-state dispute settlement provisions. This bill seeks to constrain current and future governments' executive treaty-making power. It would work as a legislative constraint on government from entering into any international agreement that contains investor-state dispute settlement provisions. These provisions, commonly called ISDS provisions, provide foreign investors with greater rights than domestic investors. They grant foreign investors the right to access an international tribunal if they believe actions taken by a host government are in breach of certain commitments made in a free trade agreement or an investment treaty. The ISDS mechanism dates back to shortly after World War II. Inexperienced governments of newly-independent European countries needed to attract foreign investment but lacked experience in property rights and a strong rule of law. Accordingly, one of the original and fundamental justifications for the creation of the ISDS mechanisms was to attract foreign direct investment by providing investors with confidence of an objective legal forum, devoid of the problems of underdeveloped legal systems. Unfortunately, however, in recent years a number of serious problems have arisen with the way ISDS provisions are being applied. International ISDS arbitration is now characterised by substantial costs, substantial delays, lack of certainty, lack of appeal rights, a perception of a lack of impartiality, and abuse of process.

In the decade between 1992 and 2002, the cumulative number of cases under ISDS provisions grew from nought to almost 100. In the following decade to 2012, the number grew to over 500. Of the current known ISDS cases, less than half—244—have been concluded. An ISDS case can typically take between five and 10 years to resolve and the OECD estimates an average cost of $8 million per case, with some cases costing up to $30 million. The panel of arbitrators tend to be largely from the United States or the EU. Professionals in the industry can oscillate between representing a claimant and being a judicial member on a different case involving the same claimant or industry. This practice raises at least an impression of a lack of impartiality. In a robust, developed legal system, justice must both be done and be seen to be done.

The ISDS system has also been used by multinational companies to introduce regulatory chill on sovereign countries. A classic example is the current tobacco plain packaging legislation case against Australia. This expensive and lengthy case, initiated by Philip Morris Asia, has resulted in other countries deferring the implementation of similar health and life saving legislation. These problems with the ISDS system have resulted in governments, organisations and individuals around the world calling for substantial reforms. As just one example, United Nations Conference on Trade and Development, or UNCTAD, has stated:

Challenges posed by today’s investor-state dispute settlement regime create momentum for its reform.

…   …   …

Given the numerous challenges arising from the current ISDS regime, it is timely for States to assess the current system, weigh options for reform, and then decide upon the most appropriate route.

Moreover, the underlying economic rationale no longer stacks up. ISDS provisions could be justified by market failure associated with opportunistic and discriminatory behaviour of host governments. However, the potential of expropriation risk is largely resolved in the marketplace by reputational effects. That is, governments which tend to seek foreign direct investment on an ongoing basis will be significantly harmed by any expropriation type behaviour, even on a single account. Studies have also found that foreign firms tend to enjoy regulatory advantages, rather than bias, as compared with their domestic equivalents. In Australia, the Productivity Commission has concluded that there is no available evidence to suggest that ISDS provisions have a significant impact on foreign investment flows.

As noted in submissions to the Senate Foreign Affairs, Defence and Trade Legislation Committee inquiry into this bill, there has been an increase in international concern about the operation of ISDS provisions, accompanied by calls for reform. The United Nations Conference on Trade and Development, UNCTAD, has advocated for a roadmap for ISDS reform. The European Commission is currently analysing the results of almost 150,000 submissions to its public consultations on the ISDS provisions in the Transatlantic Trade and Investment Partnership, the TTIP. Governments and NGOs in Germany, France, Indonesia and South Africa have all expressed their lack of support for future ISDS provisions in multilateral agreements.

In 2010 the Productivity Commission recommended that Australian governments avoid including ISDS provisions in international agreements. In 2011 the former Labor government announced it would not provide foreign investors with greater legal rights than those available to domestic businesses and therefore would not agree to the inclusion of ISDS provisions in new trade and investment treaties. This policy change did not prevent Australia from progressing bilateral and plurilateral treaty negotiations. Indeed, under this policy Australia concluded negotiations on a free trade agreement with Malaysia without the inclusion of ISDS provisions.

It is unfortunate that the Abbott government is either ignorant of the legitimate concerns about ISDS provisions or in its rush to garner three free-trade-agreement trophies this year is just rolling over when Australia's negotiating partners seek to include such provisions in trade agreements. In the South Korea-Australia free trade agreement the coalition government agreed to South Korea's request for ISDS provisions. Labor have indicated that when we are returned to government we will seek to renegotiate this aspect of the South Korea-Australia free trade agreement. Unlike the coalition government, Labor have a clear and responsible policy on ISDS. Labor disagree with the coalition's case-by-case approach to ISDS.

However, Labor is a party of government. In our system of government the state is divided into the executive, legislative and judicial branches. Under this system it is the executive which has responsibility for negotiating and signing international treaties, including trade and investment treaties. Under our system the executive negotiates and enters treaties, and it is the parliament's role to scrutinise these agreements to ensure the executive government is accountable to the public and to consider any enabling legislation. We believe that this balance of responsibility should be maintained. The legislature should not seek to negotiate treaties, revise the text of treaties or set the negotiating mandate of the government. This would undermine the ability of the government of the day to make reforms in the national interest through the executive's treaty-making power.

Over the years, progressive Labor governments have entered international treaties to implement important reforms in areas ranging from the economy to the environment, from industrial relations to eliminating discrimination. I have already given the example of the Whitlam government's ratification of the World Heritage Convention. Let me give some more examples. Some of the most significant protections for human rights in Australia rely on international conventions and treaties which the Whitlam government ratified, including the 1953 Covenant on the Political Rights of Women, the 1966 International Covenant on Economic, Social and Cultural Rights, the 1966 International Convention on the Elimination of all Forms of Racial Discrimination, the 1967 Protocol Relating to the Status of Refugees, and International Labour Organization conventions relating to employment of indigenous workers, freedom of association and the right to organise, equal remuneration, employment discrimination and minimum wage fixing.

The Keating Labor government ratified the ILO Termination of Employment Convention in 1993. This provided Labor with the constitutional basis to pass legislation protecting workers against unfair dismissal. The Industrial Relations Reform Act 1993 extended unfair dismissal protections to millions of federal award and award-free employees who had never been protected against unfair sackings. The use of the ILO convention to provide the constitutional basis for this legislation was opposed by the Liberal Party. On the precedent that would be created by the Trade and Foreign Investment (Protecting the Public Interest) Bill, a coalition dominated Senate could have sought to block ratification of that ILO convention.

The Hawke-Keating government ratified the United Nations Framework Convention on Climate Change and the Rudd government ratified the Kyoto protocol. These agreements established the basis for international cooperation on tackling climate change. The executive's treaty-making power has also been used to protect against racial, sexual and religious discrimination, to provide protections for refugees and to promote and protect Indigenous populations.

In conclusion, as a progressive party of government, Labor accepts the responsibilities of the executive government of the day to negotiate and enter treaties in the national interest. In addition to the mechanisms of accountability to the parliament, governments are ultimately accountable to the people through the ballot box for the way they exercise their executive power. Labor does not support this bill, because it would constrain the executive powers of the government of the day, alter longstanding and well settled constitutional arrangements and undermine the ability of elected federal governments to make progressive reforms by entering international treaties.