A clause in the UK-Australia trade deal could let companies sue governments. We have been here before



Patricia Ranald | The Guardian

Australians remember Philip Morris suing the government. We should not hand UK corporations the same weapon

The British trade minister has confirmed that corporate rights to sue governments are being discussed in the final negotiations for the Australia-UK free trade agreement before an announcement at the G7 meeting in the UK on 11 June.

The agreement is part of the post-Brexit rush by the UK to conclude deals to make up for its loss of zero tariff access to the huge European market. It’s therefore puzzling that the UK appears to be promoting, and that Australia may agree to, investor-state dispute settlement (ISDS) provisions which are likely to fuel community opposition to the deal in both Australia and the UK.

All trade agreements have state-to state-dispute processes. ISDS is an optional extra only included in some bilateral and regional trade agreements. ISDS began when former colonies became independent and provided compensation to companies if their assets were expropriated. But the system has developed concepts like “indirect expropriation”, “legitimate expectations” and “fair and equitable treatment”, which allow corporations to seek compensation by claiming that regulatory changes reduce the value of their investment and/or that they were not fairly consulted about the change.

ISDS is unpopular because it gives global (but not local) corporations special rights to sue governments for millions of dollars in international tribunals if they can argue that changes to regulation by any level of government will harm the value of their investment. ISDS claims can be made over public health, environment and other public interest laws made by democratically-elected governments.

Legal experts such as the former high court chief justice Robert French have noted that ISDS has no independent judiciary. Cases are conducted by temporary tribunals staffed by practising advocates who can represent a corporation in one case and then sit on a tribunal the next. There are no precedent or appeals, leading to inconsistent decisions.

Australians remember that the US Philip Morris tobacco company sued Australia for billions over our plain packaging law. The Philip Morris company could not sue under the US-Australia free trade agreement, because community opposition resulted in the Howard government refusing to include ISDS in the 2004 agreement.

Tobacco companies comprehensively lost a compensation claim in Australia’s high court, and had to pay the government’s costs. Philip Morris found an obscure Hong Kong-Australia investment agreement which included ISDS, shifted some assets to Hong Kong, declared they were a Hong Kong company and claimed billions in compensation, prompting community outrage.

Dr Patricia Ranald is Convener of the Australian Fair Trade and Investment Network and a Research Fellow at the University of Sydney.

To read the full commentary on The Guardian, please click here.