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Improving Investment Treaties through General Exceptions Provisions: The Australian Example

May 14, 2014 in Economics

By Simon Lester

Simon Lester

The recent Australian elections were decided mostly by domestic policy issues, but their outcome had an impact beyond the border as the new government decided to rethink Australia’s somewhat unique view on the international investment regime. Whereas much of the world supports a core set of investment rules, Australia had long been a skeptic, particularly with respect to investor-state arbitration. Soon after the election, the Liberal-National coalition indicated that it would be more amenable to these rules. They put their new policy into practice quickly, and have recently released the completed text of the Australia-Korea free trade agreement (FTA), which includes an investment chapter with investor-state arbitration. This FTA will soon be submitted to parliament for approval.

In changing course, has the Australian government simply joined the rest of the world? Or have they tried to deal with some of the problems and concerns with investment treaties raised by critics over the years? In this piece, I evaluate one aspect of the Australia — Korea FTA: the “general exception” to investment obligations that exists for certain policy purposes, which parallels WTO exception provisions such as GATT Article XX and GATS Article XIV.

General concerns with investor-state arbitration

One of the main problems with investment treaties comes from vague and broad legal obligations such as “indirect expropriation” and “fair and equitable treatment.” Such principles are common in domestic law, but there is no international consensus on what they mean. Elevating them to international legal status opens up limitless opportunities for litigation and thus makes for a great deal of uncertainty (as well as raising fears of intrusion into domestic policy-making).

The problem is intensified when investment obligations allow direct lawsuits by foreign investors against governments. Generally speaking, international law only allows state-state disputes, which helps filter out frivolous complaints and acts as a check on the system. The possibility of investor-state disputes opens up the floodgates on litigation. Thus, it is investor-state provisions, combined with vague obligations, that are the main cause of concern.

Australia’s history of investor-state skepticism

The international investment regime came to the average Australian’s attention several years ago when the tobacco company Phillip Morris used an obscure Hong Kong-Australia investment treaty to challenge Australia’s plain packaging cigarette laws before an international tribunal. This challenge helped cement Australian doubts about these treaties.

As a matter of government policy, this skepticism was already in place. In its 2004 free trade agreement with the United States, Australia had objected to …read more

Source: OP-EDS

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