Get used to seeing these four letters: ISDS. They stand for Investor-State Dispute Settlement. They are legal clauses common in trade deals and they lend a foreign corporation the right to sue a government if that government has the cheek to govern in a way that damages their commercial interests.
And there they were this very week: ISDS provisions interred in the minutiae of Australia’s Free Trade Agreement (FTA) with China – provisions which may give the Chinese rights to sue Australia if they feel aggrieved by some change in our laws.
As corporations slowly but relentlessly tighten their grip over governments, it is worth considering how far they are prepared to go to enforce their rights, especially as the secretive Trans Pacific Partnership (TPP) trade deal includes ISDS clauses too.
This is how far they have gone already: Egypt raised its minimum wage at the beginning of last year. It wasn’t much by Australian standards, just $74 a month, but for a state employee on 700 Egyptian pounds a month ($102), a rise to 1200 pounds is not to be derided.
A French multinational with operations in Egypt, however, did not like this minimum-wage effrontery. A couple of months later, Veolia, the global services juggernaut, bobbed along and sued Egypt for the grievous disadvantage it had suffered thanks to the industrial relations changes.
Veolia’s claim relies on ISDS provisions in a trade treaty between Egypt and France.
Then there is the fifth-largest pharmaceutical group in the US, Eli Lilly, which is suing Canada for having the temerity to make medicines cheaper and more accessible to Canadians.
Eli Lilly is demanding $US100 million ($129 million) in compensation because not one but two Canadian courts decided to uphold the country’s own patent laws. They found in favour of a generics manufacturer.
So, here is a situation where a foreign multinational is trying to entrench monopoly protection for its products in the name of free trade; the North America Free Trade Agreement (NAFTA) is the treaty.
In the known ISDS cases underway in US trade deals alone, tribunals have ordered governments to pay investors nearly $US4 billion. Another $US38 billion in claims are pending. It is a global epidemic of pettifogging, whose only beneficiaries are multinationals and lawyers.
Germany is being sued by a Swedish company for phasing out its nuclear sector in the wake of the Fukushima disaster. Australia faces a claim from Philip Morris for its world-leading plain packaging laws for cigarettes.
Oil and gas groups are demanding compensation for Canada’s moratorium on gas fracking and Peru is being sued by a US company for $US800 million because the Peruvians are insisting it comply with contractual arrangements to remediate a toxic smelting site.
It is here, in this arena of natural resources policy and environment, where Australia faces perhaps big risks under the China FTA. What happens if the Chinese invest in an Australian resources project but are refused permission to operate the mine on environmental grounds? What happens if the costs blow out? Investors may have an ISDS suit, indeed even a case for loss of billions in future revenues.
ISAS clauses are not finalised in the China FTA, yet, thankfully. The provision for ISDS is there, though the particular criteria for suing are yet to be established. That will be the job of a committee, which will preside over the detail.
It is only Parliament, however, that gets to vote on the FTA. The government has the numbers, and the present opposition leadership – so frightened of being dubbed pro-terror – is likely to be almost as loath to be wedged as “anti-trade” if it sought to eliminate some of the more suspect elements of the pact.
They will roll out the red carpet in the name of free trade.
This is the strangest deal though, redolent of a government in a rush to thrash something out. Cabinet has already signed off on it but a committee is yet to finalise it, therefore Parliament is being asked to approve a deal that has not yet been finalised.
They should be wary. As independent senator Nick Xenophon has compellingly argued, there is a slim case if any to support the contention that these deals work.
“There is little evidence that the latest deals with South Korea and Japan, nor the raft of previous FTAs ratified in the past decade, significantly improve Australia’s terms of trade, economy or our overall wellbeing,” Xenophon wrote in the wake of the FTA with Korea.
“Cheaper consumer goods for households eventually emerge, but at a huge cost to our manufacturing base, our natural trading strengths in agriculture and services, and our overall trade performance.
“In short: our FTAs tend to favour our trading partners more than us here at home.”
Along with independent academic experts on trade, Matthew Rimmer and Patricia Ranald, Xenophon has called for a more “hard-headed” approach to FTAs.
“We are laughed at internationally as the ‘free-trade Taliban’ because of our purist and fundamentalist approach to these issues, compromising our national interest for a free-trade mantra. We get taken for mugs and this has to stop.”
Xenophon cites the dearth of hard evidence that Australians have benefited from FTAs with Singapore (2003), New Zealand (2004), US (2005), Thailand (2005) and Chile (2009), the countries of the Association of South-East Asian Nations and New Zealand (ASEAN – 2009), and Malaysia (2013).
Despite the hype in the press and political classes, a survey of 5000 Australian firms by the Australian Chamber of Commerce and Industry in 2010 found just 51 firms reported “little if any” benefits from FTAs.
If ISDS mechanisms are in the deals Australia will almost certainly lose.