Yves here. This post is written from the perspective of Australia, and assesses the risk of Investor-State Dispute Settlement litigation. And one has to wonder how well those cheery assurances of “Nah, the US is never a target of these investor suits” will hold up in practice.
By Kyla Tienhaara, Research Fellow Regulatory Institutions Network (RegNet), Australian National University. Originally published at The Conversation
Australia and Canada have a great deal in common – a British colonial past; large and sparsely populated territories; and resource-intensive economies.
Two other similarities also bear mentioning: the economies of both countries are dominated by US investors (27% of foreign investment in Australia and nearly half in Canada); and both countries were involved in the negotiations in the Trans-Pacific Partnership (TPP) finalised on Monday.
But there is a one major difference: up until now, Australia has never agreed to provide American investors with access to Investor-State Dispute Settlement (ISDS), whereas Canada has. Why is this significant? Trade minister Andrew Robb likes to point out that Australia already has ISDS in 29 existing treaties and “the sun has still come up”.
But comparing investment treaties with countries like Papua New Guinea (PNG) and one with the US is comparing apples and oranges. Aside from the obvious differences in levels of investment (PNG investors that don’t exist can’t sue the government), there is the fact that American corporations are more litigious than investors from any other country.
It is true that creative lawyers can already find ways to bring suits against Australia on behalf of their American clients (such as tobacco giant, Philip Morris). But in providing direct access to ISDS the TPP will make it much easier for American investors to launch cases and possibly also to win them. For example, Philip Morris might very well lose its ISDS case in the jurisdictional stage for technical reasons related to the timing of its investment restructuring (which was done to access an Australia-Hong Kong investment treaty).
So how has this difference between Australia and Canada played out? In In total Canada has faced 35 challenges, 23 of these in the last ten years. Australia has been subjected to only one ISDS case.
Canada has been sued more times than Mexico under the North American Free Trade Agreement (NAFTA) and at a global level it has been involved in more ISDS cases (35 in total) than any other developed country. Canada has already lost or settled seven claims, paid out damages totalling over CA$170 million and incurred untold millions more in legal costs.
At the same time, Canadian companies have been rather unsuccessful in ISDS. In general, the claim that ISDS will primarily benefit the “little guy” isn’t borne out by the statistics. According to an extensive (as yet unpublished) study by Gus Van Harten, the largest multinationals (those with over US$10 billion in annual revenue) have the highest level of success in ISDS (89% at the jurisdictional stage, 83% on the merits, and 71% overall). Small and medium-sized enterprises, on the other hand, don’t fare as well.
Nevertheless, Van Harten’s data indicates that investors on the whole have a high degree of success with the system (80% on jurisdiction, 64% on the merits and 49% overall). Others have come to similar conclusions. When lower success rates are reported there is often a clear methodological error (for example, erroneously counting pending cases as “losses” for investors).
What kinds of policies are being challenged in ISDS? While much attention in Australia has rightly been given to Philip Morris’ challenge of the plain packaging legislation, many cases around the world actually focus on environmental protection and resource management.
Such cases account for 63% of disputes involving Canada. So carving out tobacco from ISDS, as has reportedly been done in the TPP, is like putting a Band-Aid on a bullet wound. If anything, it signals that the “safeguards” in place in the agreement are, on their own, insufficient to protect public policy.
Australia is opening a can of (really expensive) worms with the TPP. And significantly, it isn’t a can that can easily be closed again. Agreeing to the TPP means locking Australia into the current flawed system of ISDS long into the future, at the very time when countries (including France, Germany, South Africa and India) are considering abandoning it or at least introducing more significant reforms than those expected to be found in the TPP.
The bilateral investment treaties that Australia is already party to are relatively easy to get rid of – most have provisions allowing for unilateral termination after an initial period of around ten years. Its bilateral trade deals (like the recent ones signed with Korea and China) are a lot more difficult to amend because there are other issues covered that Australia might not want to open up for renegotiation. Pluri-lateral trade deals like the TPP are all the more complex and nearly impossible to change once ratified.
Despite huge problems with NAFTA, and a great deal of rhetoric from US president Barack Obama and Hillary Clinton (who has, incidentally, just come out against the TPP) about amending it on the campaign trail in 2008, the treaty has not been touched in over 20 years. We should expect that the same will be true for the “NAFTA on steroids”.