Investor-State Arbitration: Not in the Australia-Japan Free Trade Agreement, and Not Ever for Australia?

Abstract

Following the recent conclusion of the Australian-Japanese Free Trade Agreement, the Japan Australia Economic Partnership Agreement (JAEPA) in 2014, the article analyses the issue of ‘Investor-State Dispute Settlement’ (ISDS). This is a mechanism that is normally included in trade and investment agreements between States; however, no such provision is included in the JAEPA. The article first discusses the reasons for this exclusion and its future impact.

The new Australian government has returned to a case-by-case approach on the question of including ISDS provisions in trade agreements. Apparently, no such clause was inserted into the JAEPA since the Japanese side did not insist on it, seeing no strong reasons to do otherwise. The future consequences of this omission may be serious, especially if this trend is continued by Australia in negotiating other Free Trade Agreements and thus heightens an “anti-ISDS” mood. This change could then have an impact on other treaty negotiations, leading to further exclusions of ISDS (especially arbitration) provisions.

The article also examines the controversial Trade and Foreign Investment (Protecting the Public Interest) Bill 2014 and its possible effects. This is basically an “anti-ISDS” Bill, seeking to prevent the Australian government from including ISDS provisions in future trade agreements. Although the Bill will almost certainly not be passed, it may still impact present and future trade agreement negotiations and has stirred up public opinion. If it were passed, it could hinder Australia from renegotiating existing treaties that do not include ISDS provisions. A better alternative to prohibiting certain clauses outright includes the careful drafting of trade agreements or perhaps of a model treaty.

Keywords: international trade law, arbitration, investment law, FDI, Japan, Australia, Asian law, law reform process

JEL Classification: K10, K30, K33