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Australa’s Productivity Committee questions investment protections in trade agreements

The Australian government’s Productivity Committee has just released a report on the impact of bilateral trade and investment agreements on the country’s economic performance. The Commission sought public input, drew on national and international evidence, and took into consideration “the changed international trade, economic and strategic environment.”

Interestingly, the report finds little evidence from business “to indicate that bilateral agreements to date have provided substantial commercial benefits,” that their impact is limited when it comes to reducing perceived trade barriers, and that, “Current processes for assessing and prioritising BRTAs lack transparency and tend to oversell the likely benefits.” The Commission recommends that in future, “A full and public assessment of a proposed agreement should be made after negotiations have concluded – covering all of the actual negotiated provisions.”

Even more interesting is that the Commission recommends not including investor-to-state dispute mechanisms in future bilateral trade agreements! Meanwhile the federal government here in Canada is pulling its hair out trying to get the EU to agree to NAFTA-like investment protections that have been nothing but bad news for Canadian governments. The discrepancy borders on the absurd.

The Australian Productivity Commission says the following about investment protections in the country’s bilateral trade agreements:

It is the Commission’s assessment that although some of the risks and problems associated with ISDS can be ameliorated through the design of relevant provisions, significant risks would remain. Meanwhile, it seems doubtful that the inclusion of ISDS provisions within IIAs (including the relevant chapters of BRTAs) affords material benefits to Australia or partner countries. The Commission has also not received evidence to suggest that Australia’s systems for recognising and resolving investor disputes have significant shortcomings that should be rectified through the inclusion of ISDS in agreements with trading partners.

Against this background, the Commission considers that Australia should seek to avoid accepting ISDS provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system. Nor, in the Commission’s assessment, is it advisable in trade negotiations for Australia to expend bargaining coin to seek such rights over foreign governments, as a means of managing investment risks inherent in investing in foreign countries. Other options are available to investors.

The Commission notes that, if perceptions of problems with a foreign country’s legal system are sufficient to discourage investment in that country, a bilateral arrangement with Australia to provide a ‘preferential legal system’ for Australian investors is unlikely to generate the same benefits for that country than if its legal system was developed on a domestic non-preferential basis. To the extent that secure legal systems facilitate investment in a similar way that customs and port procedures facilitate goods trade, there may be a role for developed nations to assist through legal capacity building to develop stable and transparent legal and judicial frameworks. While not an immediate solution, over time such capacity building goes towards addressing the underlying problem, and provides benefits not only for foreign investors (including Australian investors), but all participants in the domestic economy.

This position is very similar to that taken by an international statement on investment arbitration by leading academics in the field. The statement recommends the following:

– States should review their investment treaties with a view to withdrawing from or renegotiating them in light of the concerns expressed above; should take steps to replace or curtail the use of investment treaty arbitration; and should strengthen their domestic justice system for the benefit of all citizens and communities, including investors.

– International organizations should refrain from promoting investment treaties and should conduct research and make recommendations on the serious risks posed to governments by investment treaty arbitration; on preferred alternatives to investment treaty arbitration including private risk insurance and contract-based arbitration; and on strategies for states to pursue withdrawal from or renegotiation of their investment treaties.

– The international business community should refrain from promoting the international investment regime and from resorting to investment treaty arbitration. Instead, it should promote fair and balanced adjudicative processes that satisfy the requirements of openness and judicial independence in accordance with the principles of procedural fairness and the rule of law. The international business community should also seek to resolve disputes in a co-operative spirit with recourse to adjudication only as a last resort.

– Civil society should continue to take steps to inform its constituents and society at large of the failures of and threats posed by the international investment regime and to oppose the application of that regime to governments that undertake legislative or general policy measures for legitimate purposes.

We’ll help with that last recommendation as we continue to push the federal, provincial and territorial governments not to include investor-to-state disputes in CETA, and to take Chapter 11 out of NAFTA.

CETA debated in House of Commons tonight (December 14)

If you haven’t yet, please encourage your MP to attend tonight’s CETA debate in the House of Commons. The NDP has secured a first but hopefully not last pre-agreement debate but it’s at night, after regular business. We need to make sure our MPs know how much this deal matters to us. Let them know the investment protections in particular should never be part of any deal with the EU. Use our latest Action Alert here.