Is the Australian Model the Future for Investor-State Arbitration?

Investor-State ArbitrationIn January, I posted an entry on the Pac Rim case and arguments concerning the desirability of promoting investor-state arbitration. [1] While investor-state arbitration leads to a situation where a foreign investor sues a sovereign state over the latter’s attempt to create laws which promote public health/utility, I maintained in my post that investor-state arbitration is still an attractive forum for international dispute resolution since it guarantees a degree of impartiality. The current government of Australia has adopted a policy position which rejects the use of investor-state arbitration in future trade deals; this policy stance could create a useful test-case in order to determine whether other countries would be wise to follow Australia’s lead.

Last April, the Australian government adopted the following policy statement:

“The Gillard Government supports the principle of national treatment – that foreign and domestic businesses are treated equally under the law. However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses.” [2]

There is some debate as to how expansively the policy statement should be read. [3] Some believe that it means that the Australian government will simply never include investor-state arbitration clauses in future trade deals. Others contend that the policy statement merely addresses the concern that investor-state arbitration clauses should be tailored so as to not supersede the Australian government’s ability to legislate domestically on matters of public health and the environment. At the very least however, the policy statement indicates a degree of hostility towards investor-state arbitration which will clearly impact trade negotiations which Australia will conduct with its neighbours.

The concern of the Australian government – that foreign businesses have greater substantive rights than their domestic counterparts – should resonate with Canadian jurists. As I mentioned in my previous post, Chapter Eleven of the North American Free Trade Agreement creates the peculiar situation where American companies receive preferable treatment to their Canadian counterparts. [4] Chapter Eleven of NAFTA allows a foreign enterprise to receive compensation in the event that the host state expropriates its property; while an American company would enjoy this protection when operating in Canada, Canadian companies receive no such guarantees as the government is not constitutionally required to compensate individuals whose property has been expropriated. In other words, NAFTA creates a situation where foreign businesses receive the protection of greater substantive rights than Canadian businesses; this is precisely the concern of the Australian government which has caused it to adopt the above policy statement.

Whether Australia’s opposition to investor-state arbitration will hurt its economy remains to be seen. Proponents of investor-state arbitration will argue that foreign direct investment in Australia is likely to decrease or stagnate if investors do not feel as though their interests will be protected. However, the stability and predictability of the Australian judiciary may be enough to satisfy foreign businesses that their investments will be safe. The Canadian government should monitor the results of Australia’s trade policy to determine if it is an appropriate model for future treaties.


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