AFTINET | 30 June 2015
Reply to the Department of Foreign Affairs and Trade Myths and Realities document, June 2015
The DFAT document creates straw people, misrepresenting the claims of critics and failing to address substantial criticisms including those from the Productivity Commission. Because the TPP text is secret, the most detailed information comes from leaked texts. The DFAT document’s claims are addressed below, starting with the impact of the TPP on national regulation.
1. Investor-State Dispute Settlement (ISDS): not an impartial or independent system
We have never claimed that ISDS will allow foreign companies to sue the government simply because they make a loss on their investments. But ISDS does give special rights for foreign investors to sue governments for damages in an international tribunal if they can claim that a change in domestic law or policy has “harmed” their investment.
ISDS was originally designed to compensate for nationalisation or expropriation of property by governments. But ISDS has developed concepts like “indirect” expropriation which do not exist in national legal systems.
Many experts including Australia’s High Court Chief Justice French and the Productivity Commission have noted that ISDS is not independent or impartial and lacks the basic standards of national legal systems. ISDS has no independent judiciary. Arbitrators are chosen from a pool of investment law experts who can continue to practice as investment law advocates. In Australia, and most national legal systems, judges cannot continue to be practising lawyers because of obvious conflicts of interest.
ISDS has no system of precedents or appeals, so the decisions of arbitrators are final and can be inconsistent. In Australia, and most national legal systems, there is a system of precedents which judges must consider and appeal mechanisms to ensure consistency of decisions.
ISDS arbitrators and advocates are paid by the hour, which prolongs cases at government expense. Even if a government wins the case, a 2012 OECD study found ISDS cases last for 3 to 5 years and the average cost is US$8 million per case, with some cases costing up to US$30 million.
In short ISDS is an enormously costly system with no independent judiciary, precedents or appeals, which gives increased legal rights to global corporations which already have enormous market power, based on legal concepts not recognised in national systems and not available to domestic investors.
2. DFAT claims that critics of ISDS are exaggerating its impact on the right to regulate
Critics do not claim that ISDS would prevent Australian governments from passing laws or Australian courts from making judicial decisions, or that ISDS can overturn regulation or judicial decisions. But there are ISDS cases from recent agreements where corporations have sued governments for hundreds of millions over both regulatory decisions and court decisions, despite the inclusion of “safeguards” intended to prevent claims over health or environmental regulation.
The Renco lead smelting company is suing the Peruvian government over a court decision which ordered it to clean up and compensate for lead pollution. The US pharmaceutical company Eli Lilly is suing the Canadian government over a court decision which refused a patent for a medicine which was not sufficiently more medically effective than existing medicines. The US Lone Pine mining company is suing the Canadian government because the Québec provincial government conducted a review of environmental regulation of gas mining. The French Veolia company is suing the Egyptian government over a contract dispute in which they are claiming compensation for a rise in the minimum wage. These cases can discourage other governments from regulating. The Philip Morris tobacco company’s case against Australia’s tobacco plain packaging law has already delayed the New Zealand government from proceeding with similar legislation.
The latest leaked TPP Investment Chapter confirms that, despite general “safeguards”, foreign companies could sue the Australian government for damages over future decisions of key institutions like the Pharmaceutical Benefits Scheme, Medicare, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator. The Government has sought to provide exemptions from ISDS for these specific institutions, but the bracketed text shows this has not been agreed (p. 55). If specific exemptions from ISDS are needed for them, this begs the question of what other Australian regulation could be exposed, including environmental regulation. ISDS should not be included in the TPP or other agreements.
3. Medicines: DFAT claims no adverse effects on the Pharmaceutical Benefits Scheme (PBS)
The leaked Intellectual Property Chapter shows that the US is seeking greater monopoly rights for medicines which would delay the availability of cheaper generic medicines, meaning that the prices of new medicines would stay high for longer. Studies by health experts show that this would result in higher costs for the PBS. This would create pressure for the government to raise the subsidised retail price of medicines at the chemist. The leaked Annex on Pharmaceutical Transparency shows US proposals for pharmaceutical companies to influence schemes like the PBS, which could reduce the ability of governments to keep the cost of the PBS down and obtain good value for money. We know from the leaked investment chapter that the government has sought specific protection from ISDS for the PBS, but this has not been agreed by other governments. If it is not agreed, the Annex makes it easier for ISDS cases about the operation of the PBS. We urge the government to resist these proposals, but fear there is a danger that concessions in these areas could be traded off in order to gain more access to agricultural markets in the US.
4. Food labelling
The TPP Technical Barriers to Trade chapter, which deals with food labelling, has not been leaked, so we don’t know the details of the text. DFAT is claiming that the text goes no further than World Trade Organisation obligations, and that any state-to-state disputes will be dealt with under WTO rules. But the TPP will also contain ISDS, allowing foreign investors to sue government over changes in law or policy, which does not exist in the WTO.
We do know from the latest leaked version of the Investment Chapter that the Australian government has not sought specific protection of food labelling from ISDS. Until we see the text, we will not know if an ISDS case could be taken over changes to food labelling regulation which might occur after the TPP is in place.
5. Food standards and bio security
DFAT claims again that the TPP chapter dealing with these issues will be covered by WTO rules. Again, because the text is secret, we don’t know whether food standards and bio security will be explicitly protected from ISDS cases.
There are proposals in the leaked Intellectual Property Chapter from the US which legal experts say could affect Australia’s existing laws and policies. We urge the Australian government to resist these proposals.
7. Local media content
We know that Australian policies for local content on television and radio are likely to be retained, but the DFAT document does not mention reported US proposals which could restrict future regulation on local content for digital media. The Australian government should resist these proposals.
8. Workers’ rights and the environment
When negotiations began, we were promised that the TPP would contain enforceable internationally-recognised labour rights and standards, as well as enforceable commitments to international environmental standards. We know from industry and media reports that there is as yet no agreement about how labour rights will be enforced, and a leaked environment chapter revealed that there was no agreement about which environmental standards would be included or how they would be enforced. It is widely reported that these issues are still not yet agreed and will be decided through political trade-offs at the TPP Trade Ministers’ meeting which may take place late in July. The Australian government should support enforceable labour rights and enforceable environmental standards and not be prepared to trade them away.
9. Additional market access to Japanese and US markets
This is highly unlikely, since Australia has just concluded a free trade agreement with Japan, and the US has made many public statements saying that it will not give additional market access to those countries like Australia which already have existing FTAs with the US.
10. The TPP is not secret because DFAT has held many consultations with stakeholders
It is not the quantity of meetings but the quality of information that counts. Stakeholders are not permitted to see the text of the agreement. Trade agreement texts are complex legal documents and, without the detail of the text, consultation lacks meaning. The text of the agreement will not be made public until after it has been signed and the text cannot be changed. As the Senate Report into the trade agreement process has found, this severely limits the parliamentary process of review by the Joint Standing Committee on Treaties, because the text cannot be changed. Parliament only gets to vote on the implementing legislation, not the whole text of the agreement. Many important aspects of the text, including ISDS, do not require implementing legislation and will not be subject to parliamentary vote. The only way Parliament can influence the TPP is to vote against the implementing legislation.
For more information: www.aftinet.org.au