Despite what now looks a token effort to address criticisms of investor-state dispute settlement (ISDS) mechanisms, the Trans-Pacific Partnership agreement will do little to protect Australia from vexatious suits and multinational profiteering.

With the secret-from-voters text finally released by governments — large corporations were allowed both to see and draft the document by government negotiators — the claims of Trade Minister Andrew Robb relating to the ISDS provisions of the agreement can now be assessed — and they vastly exceed the reality of the agreement he eagerly signed up to.

Most significantly, despite the claims of Robb, there is no carve-out of public health and environmental matters from ISDS litigation. Article 9.15 of the investment chapter explicitly makes such matters dependent on their conformity with the TPP itself.

“Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives.” [italics added]

That is, unless an environmental or health regulation is prima facie consistent with the TPP, it can be subject to a lawsuit brought by a multinational corporation under ISDS. The result, of course, will be that corporations will pursue litigation they would have pursued anyway, but add to their statement of claims that the policy change they are seeking compensation for is inconsistent with the TPP. The purported carve-out is further limited by the annex on expropriation, meant as a guide to what can be the subject of ISDS processes.

“Non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations, except in rare circumstances.”

This further restricts the exemption: public health and environment measures not merely have to be explicitly consistent with the TPP, but must be “non-discriminatory” (the basis of discrimination is undefined) and might also fall under “rare circumstances”, which are also undefined.

There is thus only a procedural hurdle, and not a particularly difficult one, for companies that want to challenge health or environmental policies under ISDS, and plenty of wriggle room in the TPP for them to evade it altogether.

The only clear, hard-and-fast carve-out is tobacco, which is explicitly and definitely removed from possible ISDS litigation — although governments themselves can still challenge other governments on tobacco, as part of inter-state dispute settlement provisions.

The TPP also compares poorly to the European Union’s proposals to impose procedural and accountability discipline on ISDS in response to similar concerns expressed about ISDS provisions in draft treaties being negotiated by the EU.

Appointment of arbitrators

The EU proposed that arbitators be independent, have no conflicts of interest and be subject to a code of conduct. The TPP dispute settlement section merely requires panellists to “be independent of, and not be affiliated with or take instructions from, any Party” and be “chosen” for objectivity — not display objectivity during the course of the dispute. Panellists can be former advocates who have appeared in other ISDS cases, even for the same industry or companies, as long as they are not currently affiliated with the parties. And the “code of conduct” to apply under the TPP doesn’t yet exist and won’t exist for several more years, so voters won’t be able to see what code of conduct their government is signing up to for arbitrators.

Appeal mechanisms

The EU proposed a bilateral appellate mechanism for ISDS cases. There is no appeal system for ISDS under the TPP, meaning a biased panel can award massive compensation to corporations without any fear of being reversed by another body. The only option governments have — absurdly — is to ask the same panel to reconsider.

Using multiple fora for the same dispute

The EU proposed that “parallel claims” be prohibited, i.e. that companies be prevented from using multiple fora such as domestic courts and other international fora for the same case. The TPP adopts this approach and requires that if ISDS is used, it be used to the shall be used “to the exclusion of other fora”.

Loser pays

The EU proposed an end to companies and governments splitting the multimillion-dollar bills for ISDS cases, even for vexatious or frivolous suits, with losers required to pay. The TPP has no such requirement.

Nor is there any requirement to follow precedent established by previous ISDS hearings (there are currently hundreds of such cases around the world), meaning each new ISDS is a lottery, with little predictability about the outcome even if previous panels have dismissed the claims of multinational corporations against governments on the same issue. And the TPP also allows firms from non-TPP countries to sue Australia — in exactly the way Philip Morris set up a Hong Kong subsidiary in order to commence litigation against Australia over plain cigarette packaging.

In short, the TPP is a massive expansion in opportunities for multinational companies to sue Australia for public policy changes — even in environmental and health regulation — with virtually none of the safeguards that have been proposed to protect governments from vexatious, frivolous or profiteering lawsuits from the world’s biggest companies.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey