INTERNATIONAL ARBITRATION 1/3LY
MARKET COMMENTARY 41
T PPA : A CH ANGE IN P OL I C Y FOR AUS T R A L I A? BY BETH CUBIT T AND TOM FRENCH, PARTNER AND SENIOR A SSOCIATE AT CLYDE & CO LLP The proposed Trans-Pacific Partnership Agreement (TPPA) – amulti-lateral agreement proposed between a number of countries- currently including Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam– is the subject of much debate. TPPA countries will potentially account for approximately 39% of the world’s GDP, with Australia’s portion of trade representing almost USD 200million. By 2025, the TPPA is expected to account for USD 233 billion in trade per year, and is likely to dictate the ‘economic architecture’ for the region. But will the TPPA contain investor-state dispute settlement (ISDS) provisions? It is not an unreasonable assumption, but the potentially significant effects of ISDS provisions on domestic policy seem to have been outweighed by other considerations. ISDS PROVISIONS: THE AUSTRALIAN CONTEX T Historically, Australia’s participation in treaties containing ISDS provisions has beenmore limited than that of other jurisdictions, for example in South America or Europe. In 1991, however, Australia enacted amendments to its International Arbitration Act 1974 (Cth) (IAA) to give effect to theWashington Convention. Australia has also entered into bilateral investment treaties (BITs), which adopt arbitration as a dispute resolutionmechanism, with 21 countries, including China, Indonesia, Argentina, Philippines and Vietnam. Despite Australian companies investing significantly in Africa, Australia has no formal bilateral arrangements with African countries other thanwith Egypt. Australia has also entered into free trade agreements with Chile, Singapore, Thailand, New Zealand, andmore recently Korea, all of which contain ISDS provisions. Conversely, the recent Japan - Australia Economic Partnership Agreement does not contain ISDS provisions. The Australian Government approaches decisions regarding whether to sign treaties with ISDS provisions on a case-by-case basis. Likemany other governments, it is cautious not to include ISDS provisions where theymight limit Australia’s ability to govern in the public interest. Their reciprocal nature gives rise to two competing interests: while Australian investment abroad is afforded greater protection; Australia, in turn, faces the risk of claims being brought by foreign investors. Hence, while businesses favour accession to treaties containing ISDS provisions –
many Australian businesses, particularly those in the large and thrivingmining sector have begun considering treaty protection as a valid insurance strategy before investing in the Asia-Pacific or Africa – the Government remains concerned to safeguard domestic policy and resources. In the past, questions arose over the Australian Government’s potential exposure to liability to foreign pharmaceutical companies arising from its adoption of the Pharmaceutical Benefits Scheme (PBS). The PBS is a scheme whereby the Australian Government subsidises certain pharmaceuticals. Foreign pharmaceutical companies allege that the PBS unfairly limits their freedom to determine the price of their products and that the subsidy of only certain pharmaceuticals constitutes an unfair restraint on free trade. Despite foreign pharmaceutical companies’ concerns, the Australian Government has sought to protect the PBS in any international trade agreement as amatter of public policy. Similarly, questions arose over the Australian Government’s exposure to liability following the enactment of theMinerals Resource Rent Tax 2012 (Cth) (MRRT). TheMRRT imposes increased taxes onminers (including foreign entities) on net profits over AUD 75million. The introduction of theMRRT was viewed as a sudden and significant departure fromAustralia’s resource taxation status quo, an area usually left to the States, rather than the Commonwealth. The Coalition Government has recentlymoved to repeal theMRRT, with the relevant legislation currently before the upper house of the Australian Parliament. To our knowledge nomajor claims have been brought by foreign investors under thesemeasures, but it may be too soon to tell. PHILIP MORRIS: C A SE IN POINT Perhaps themost prominent example of an investor-state dispute in Australia, albeit still in its preliminary stages, is the inbound claimagainst the Australian Government made by PhilipMorris Asia Limited (a Hong Kong incorporated entity acquired by PhilipMorris Australia), pursuant to the Hong Kong-Australia BIT, under the auspices of the UNCITRAL Arbitration Rules 2010. The claim concerns Australia’s enactment of the Tobacco Plain Packaging Act 2011 (Cth) which enforces the use of plain packaging on all tobacco products sold in Australia. PhilipMorris alleges that the measures imposed by this legislation decreased the value of its intellectual property, causing it to suffer loss and damage. This dispute follows a number of recent constitutional challenges in the High Court of Australia, where cigarettemanufacturing claimants unsuccessfully argued that the plain packaging legislationwas, in effect, an attempt on behalf of the state to acquire intellectual property rights and goodwill without compensation. Interestingly, the enactment of this legislation also led to numerous requests for dispute consultations with Australia fromWTOmembers (including Ukraine, Honduras, Dominican Republic, Cuba and Indonesia), pursuant to a number of international trade agreements, including the TRIPS Agreement and GATT 1994. Members have also requested that a panel be established to open discussions on the implication of Australia’s measures, pursuant to the TRIPS Agreement and GATT 1994. It is likely that other WTOmembers may join as third parties in these panel discussions. ISDS PROVISIONS AND THE TPPA: THE FUTURE The PhilipMorris arbitration and the conception of the TPPA has precipitated considerable debate in Australia and forced a divide between Labour’s and the Coalition Government’s approach to the issue. In 2004, the serving Coalition Government rejected the US’s proposal to include ISDS provisions in the Australia-United States Free Trade Agreement due to strong public opposition. The current Coalition Government appears prepared to consider the inclusion of ISDS provisions in international agreements but, again, this is likely to be on a case-by-case basis. Should the final TPPA include ISDS provisions, this wouldmark Australia’s increasing promotion of international trade and investment protection, in contrast to the previous Labour Government’s positionwhich appeared to be firmly against ISDS provisions. The TPPA is likely to be finalised in the next year so time will tell. A version of this article was published in the Kluwer Arbitration Blog, February 2014
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