Alex Gallacher (SA, Australian Labor Party) Share this | Hansard source

I too rise to make a contribution in this debate on the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014. I think that our earlier speakers have indicated our position of opposition to this bill. I would have known two parts or nothing about ISDS about four months ago, but having moved from the Rural and Regional Affairs and Transport Committee and other committees onto the Foreign Affairs, Defence and Trade Committee I now, happily, know a little bit about it.

ISDS has been the subject of a couple of inquiries, and it is instructive to put a couple of lines on the record setting out some of the evidence that has been gathered by both the legislation committee and the references committee of the Senate Standing Committees on Foreign Affairs, Defence and Trade. The Department of Foreign Affairs and Trade provides the following definition of ISDS provisions on its website:

ISDS provisions grant foreign investors the right to access an international tribunal if they believe actions taken by a host government are in breach of commitments made in a Free Trade Agreement … or an investment treaty, thus providing additional protections for investors.

I think the line that has been taken here by the Greens is that only foreign investors in Australia need protection. Senator Ruston highlighted the fact that we are a trading nation and history shows that we have probably taken more actions against countries than have been taken against Australia, and the Philip Morris case is the one that comes to mind.

It is instructive to also put on the record that Australia has negotiated ISDS provisions in free trade agreements signed over the past three decades. Currently Australia has ISDS provisions in four free trade agreements: the Australia-Chile Free Trade Agreement, the Singapore-Australia Free Trade Agreement, the Thailand-Australia Free Trade Agreement and the ASEAN-Australia-New Zealand Free Trade Agreement. The Korea-Australia Free Trade Agreement, which has been signed but has not yet entered into force, also includes an ISDS provision. Australia currently has ISDS provisions in 21 bilateral investment treaties with Argentina, China, the Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Laos, Lithuania, Mexico, Pakistan, Papua New Guinea, Peru, the Philippines, Poland, Romania, Sri Lanka, Turkey, Uruguay and Vietnam.

It is instructive to cite a couple more lines with respect to this matter:

The Senate Foreign Affairs, Defence and Trade References Committee conducted an inquiry into the Australia-United States (US) Free Trade Agreement in 2003. At the time, the committee noted that the inclusion of ISDS provisions in agreements with developing countries was a new development. These provisions had primarily been included in agreements to protect Australian investments and property from expropriation by governments in those countries where the rule of law was weak.

This is a very pertinent issue. We had many submissions to the references inquiry into the KAFTA, which highlighted issues from intellectual property to the sovereign right of governments to legislate with respect to health and the rest of it; very well-qualified people indicated concerns with ISDS and the use of these ISDS provisions by global corporations, so to speak, in the case of Philip Morris. When listening to those submissions, I think it is instructive to note that these are provisions that are used after there is exhaustion of the rule of law in the country or countries from which we are seeking a remedy. In Korea, there is a legal system that is recognisable and works; in Australia, there is a legal system that is recognisable and works.

Very interestingly, evidence was put that the Koreans had simply said, 'We will have ISDS or no treaty,' which, given that there is a rule of law in both countries, would seem to have been a tactical position that they had taken. To be fair, they probably had us over a barrel: if we do not get into the Korean market with our agricultural exports, primarily beef, by 1 January, we will be suffering a further competitive disadvantage with the American growers. So, in its wisdom, the government made a decision to include the ISDS. That seemed to provoke a reaction, if you like, and maybe this bill is a reaction to that circumstance.

The position of the opposition, though, is that we were not prepared to delay the KAFTA in order to negotiate amendments to the ISDS mechanism. That would have been unproductive, so to speak. The committee recognised that we already had, as I laid out before, a number of ISDS provisions within quite a number of bilateral and free trade agreements. I think it is also instructive to put on the record that, if the key objective of such a negotiation should be the clarification of our shared understanding of the word 'expropriation', then we get in behind the ISDS provision to the actual detail. The committee noted that other free trade agreements, such as the Canada-Korea FTA, have used narrower definitions of where the term 'expropriation' applies. In the view of the committee, a narrower definition of expropriation which limits the scope of potential liability would provide additional predictability and certainty.

What is very clear to me in my short time on the Foreign Affairs, Defence and Trade Committee is that this is a very complex area. This is a very, very complex subject. ISDS may well provide us with certainty when we are investing in countries where there is less of a rule of law than in Australia. It may provide that balance that allows people to invest in countries where the rule of law is not as visible as it is in Australia. The reverse position is that we are pretty open and honest about our legal system, as Philip Morris found. If you want to challenge the system, then the system will play its part and a decision will be handed down. To go off then and use a Hong Kong free trade agreement to advance concerns is an entitlement and a right. Philip Morris is a global corporation and it has basically done what global corporations do in trying to protect their shareholders' position. Very clearly, it seems to me that ISDS is a horses-for-courses argument. In some cases it would probably be appropriate, as we have determined over the last three decades. Into the future it probably becomes less valuable in the view of the opposition.

It is worthwhile noting the recommendation of the Productivity Commission on ISDS:

That Australian Governments should seek to avoid the inclusion of investor-state dispute settlement provisions in BRTAs that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors.

So, clearly, it is not only experts or people making submissions saying that ISDS is out. We also have the Productivity Commission making a recommendation. The job of the trade minister gets harder and harder. He has to negotiate a trade agreement with a country in the interests of Australia's exporters, and he is getting very competitive and conflicting advice from all quarters.

The committee recognised that the Australian government had indicated it will consider ISDS mechanisms in future trade agreement on a case-by-case basis, which is basically a replication of the last 30 years. In light of this position, the committee considered it vital that the Australian government ensure there are sufficient safeguards within those future ISDS mechanisms to protect the ability of the Australian government to conduct its ordinary processes without the apprehension that investors may instigate compensation claims if investments are negatively affected. So, we have this very complex situation. Very clearly, the committee would recommend that the Australian government should not agree to investor-state dispute settlement mechanisms in future free trade agreements. The reason being is that we have had a history, for over 30 years, of some in, some out, some working well, some not so well, and then we had the Philip Morris position.

Along with a number of other people I have a view, which has come through evidence to the committee, that ISDS is probably not the way to go forward. With the existence of a good legal system in Korea and a good legal system in Australia, ISDS does not appear to have merit to be included. Having said that, free trade agreements are negotiated differently in different countries. I was told last night that the Japan free trade agreement needs to go to the lower house of the Japanese parliament for agreement and that no trade agreements can be made without that assent. We do know that the Korean free trade agreement is currently before the Korean parliament, and they need to sign off on it. Clearly, that is not the case in Australia where only the enabling legislation goes through the respective parliaments. Here we have a situation where we can all be on the same wavelength but on different paths, and I think that is what has happened in this debate.

The point where we get to agreement is not clear. It is the view of quite a number of well-educated, skilled research people that ISDS provisions are going to be detrimental to Australia in the future. It is the attitude of other people that they have worked well for three decades, and we have had only one case in three decades. It protects Australia's investments overseas. We are trading nation and the more we can gain access to markets the better. It is very clear that different parliaments deal with it in different ways. It is also clear that, at the end of the day, there is a negotiation process where someone has to bite the bullet, so to speak, and make a decision. For better or worse, in the KAFTA agreement this government has done that. We have placed on the record our position in respect of that. There you have a broad-brush approach to the situation we find ourselves in.

The European Union has a view on ISDS. The Americans have a view on ISDS. Someone argued that the Americans are using ISDS as a mechanism for their global corporations to further enhance their primacy in the market and their leverage. I am not across that. I hear that view, but I do not subscribe to it particularly—I see no evidence of that. But investor-state dispute settlement, or ISDS, is clearly a topic that is going to be around for a fair while. It will not be resolved in the short term—and, importantly, it will not be resolved by the passage of this bill. This bill could in fact have a detrimental effect on negotiations which are in the best interests of Australian trade.

I will restate the argument. These sorts of trade negotiations have been going on for the last thirty years. There are a large number of countries involved, and trade access to those countries is critical to Australia's economic welfare. Many thousands of mining industry workers, mining companies, agricultural workers, pastoralists and so on rely very heavily on agreements like the Korean free trade agreement.

It is worth noting that even a country as prosperous as Korea, with an average income of over US$30,000 per annum and with very healthy exports of manufactured goods, protects its beef production to the tune of 40 per cent. My question to DFAT was, 'Can you explain to me why a country as wealthy as South Korea taxes its citizens 40 per cent on their purchases of protein?' I asked the Japanese ambassador the same thing. It appears that they protect those industries not for economic reasons but for cultural reasons. Their rural landholders and their rural agricultural lobby groups are immensely strong. It makes no economic sense to charge their citizens 40 per cent extra for protein.

Assuming the Korean parliament agrees to the free trade agreement and we get to 1 January 2015 with the agreement in place, then at least our beef exporters will not be at an even more substantial disadvantage in the Korean market than they currently are. But, as I said, for 75 per cent of our trade with Korea there are no tariffs either way. It is iron ore, it is concentrates, it is lead, it is zinc—it is stuff they need and, as we speak, there are no barriers to any of that coming and going. The barriers have primarily been in the agricultural sector because the Koreans have a view—unlike Australia—that they need to protect that sector.

Delaying the agreement because of the ISDS provisions would be economically foolish. Were we to pass a bill like this, which would have that effect—at least in intent—it would put us at risk of not having the Korean free trade agreement operating on 1 January 2015. The Japan free trade agreement starts on 1 April. I thought that was quite interesting—April Fools' Day being the date of commencement of a free trade agreement. There would be a similar effect on that agreement if we were to take these ISDS provisions off the table. The Koreans have clearly indicated that it is non-negotiable. They wanted the ISDS provisions.

The opposition remains opposed to ISDS clauses. We would look to further clarify the definition of 'expropriation', as other nations have done, but we would otherwise proceed in an orderly manner to pursue Australia's trade interests. I do not have any particular view of Minister Robb other than that he has a very complex and difficult job negotiating these outcomes—as all other trade ministers who have represented the Australian government have had. It is an extremely complex field. Our ministers do, in the main, the best they can in the context of the matters that are up for negotiation at the table. ISDS provisions remain under extreme scrutiny by this opposition, but they should not prevent these agreements from proceeding.