An article in the Conversation with the catchy title “Hey Minister, leave that gas trigger alone” has urged the Labor government not to extend the Turnbull government’s gas trigger, which could be used to compel foreign-owned gas companies to keep gas reserves for use in Australia in some circumstances. It warns that actually using the trigger could inadvertently allow such companies to seek to sue the government under Australia’s existing international agreements.
Many Australians don’t know this but some of our trade agreements give foreign-owned companies special legal rights to sue the federal government if a change in law or policy reduces their profits, even if the change is in the public interest. The mechanism is known as an investor-state dispute settlement (ISDS).
It was this mechanism in a Hong Kong-Australia trade agreement that enabled Philip Morris to sue the Australian government over plain packaging laws in 2012. The Gillard government persisted with the legislation because it was an important public health policy. Successive governments fought and won the Phillip Morris case, although it took more than five years and cost taxpayers $12 million in legal fees.
In light of the ISDS risk, the Conversation article urges the government to seek out other solutions to the trigger mechanism to safeguard gas supplies, such as the Western Australian gas reservation model, which requires companies to reserve supplies for the local market before other transactions. However, ISDS also raises a broader matter of principle. Should governments simply accept the threat of being sued by a foreign company when we determine our own public policy?
I would argue no – it is not acceptable for companies to use this legal tool to curtail the democratic rights of governments to act in the interest of their citizens, especially on issues as important as energy supplies and climate change.
A recent study showed mining companies have been increasingly inclined to use the obscure legal tool to sue governments for billions in compensation over decisions that aim to phase out fossil fuels to combat climate change, and recommended ISDS be removed from trade agreements. The Intergovernmental Panel on Climate Change (IPCC) have warned that climate action is being threatened by ISDS clauses in trade agreements.
Cases already under way around the world include the US-owned Westmorland coal company suing the Canadian government because the Alberta province is phasing out fossil fuels, and the German-owned energy companies RWE and Uniper suing the Dutch government over similar policies. European governments want to withdraw from the Energy Charter Treaty because it includes ISDS provisions that are being used against climate change policies.
In Australia, the Coalition’s government policy on ISDS varied over the years. The Howard government did not agree to include ISDS in the Australia-US free trade agreement. But successive Coalition governments agreed to include it in the comprehensive and progressive trans-Pacific partnership between 11 Pacific rim countries, including Japan, as well as in bilateral agreements with China, Korea and Hong Kong. Companies from all these countries have fossil fuel or energy investments in Australia.
However the Coalition government was influenced by the growing sentiment against ISDS. More recent agreements, including the regional comprehensive economic partnership between 15 Asia-Pacific countries, the Australia-UK free trade agreement, the interim Australia-India economic cooperation agreement, and the Australia-EU free trade agreement still under negotiation do not include ISDS.
The Albanese government’s policy platform explicitly opposes including ISDS mechanisms in new trade deals and pledges to review and remove ISDS from existing trade agreements.
“Labor views these provisions as contrary to the national interest and basic principles of democratic sovereignty and will not accept such clauses in any trade agreements,” the policy said. “Labor will not ask this of Australia’s trading partners in future trade agreements.”
But what about ISDS in existing deals? Labor has promised to review existing trade agreements and “seek to work with Australia’s trading partners to remove these provisions”.
There is growing evidence that ISDS provisions pose a real threat to governments wanting to take action on climate change. Negotiations with other governments to remove them from trade agreements should happen as a matter of urgency.
This would enable the Australian government to develop effective policies to combat climate change, without the threat of being sued by foreign-owned companies.