Negotiating and Applying Investor-State Arbitration Provisions in Free Trade Agreements and Investment Treaties: Australia, Japan and the Asia-Pacific

Abstract

This paper addresses treaty-based investor-state arbitration (ISA) and other forms of investor-state dispute settlement. The topic has become particularly controversial for Australia, given its ongoing Free Trade Agreement negotiations with Japan – which is also considering joining negotiations underway among Australia and 10 other states (including the US) for an expanded Trans-Pacific Partnership Agreement. Both Japan and Australia have almost always included ISA protections in their investment treaties, but Australia omitted them in investment treaties with the USA and New Zealand, and recently declared that it will no longer accept ISA in future treaties – even with countries with less developed legal systems and economies.

Part of the reason for Australia’s policy shift is a claim under its 1993 investment treaty with Hong Kong, by Philip Morris Asia complaining about expropriation and other treaty violations allegedly arising from Australia’s Tobacco Plain Packaging Act 2011 (outlined in Part 4). This arbitration is ongoing and may at least partially succeed. By contrast, Japan Tobacco and other large cigarette manufacturers failed this year in their claim before the High Court of Australia, arguing that plain packaging requirements amounted to an unconstitutional ‘acquisition’ of intellectual property rights under Australian domestic law (Part 9).

This paper begins (in Part 2) by setting such issues in a broader socio-economic setting: the characteristics of government lawyers in Australia and Japan (as well as Korea, also negotiating an FTA with Australia and which signed this year a trilateral investment treaty with Japan and China). The question of ISA protections is also located, in Parts 3 and Part 10, in the context of the Australia-Japan FTA negotiations as a whole. Parts 5-9 hone in on ISA, but also other existing or potential forms of investor-state dispute settlement, including investment law issues highlighted recently in another key economy for both Japan and Australia-Indonesia.

Keywords: International trade and investment law, dispute resolution, arbitration, mediation, commercial law, public international law, investment policy, consumer protection, Asian law, Japan, Korea, Indonesia

JEL Classification: K10, K30