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Joint Committee on Treaties
Multilateral Agreement on Investment

ACTING CHAIR —Welcome, professors. It is nice to see you both here today. For the Hansard record, can you please state the capacity in which you appear before the committee.

Prof. McDonald —I appear in a personal capacity.

Prof. Hiscock —I appear in a personal capacity.

ACTING CHAIR —Would either of you like to make a brief opening statement?

Prof. McDonald —I think we will both make brief opening statements. I will commence, because most of my comments flow directly from the issues raised by the Queensland Conservation Council, and I do not wish to duplicate the comments that Dr Booth has already made. In my opening statement I will identify some of the changes that I think need to be made to the MAI in its current draft in order to address many of the concerns that have been raised. I will run through some of those briefly.

I have done a considerable amount of research in relation to some of the things that you were asking Dr Booth about. Subject to the approval of the publishers, I would be happy to provide the committee with the detailed report that I have come up with on some of those questions that have been raised.

ACTING CHAIR —All right. We look forward to receiving that in due course.

Prof. McDonald —The first point is that both the national treatment and most favoured nation obligations need to have some sort of clause inserted, perhaps in stronger terms than the current 1998 chairman's proposals on environment, that refers to the inclusion of `in like circumstances' language in both of those clauses. There needs to be some recognition in both of those obligations that there may need to be a difference dealing with particular sectors that may be subject to more stringent environmental obligations than other sectors, and there also needs to be some accommodation of differences in environmental regulation at a subnational level. Those are the concerns raised by the QCC. I echo those concerns.

A clause needs to be specifically inserted into the national treatment and most favoured nation obligation. The problem with just putting in an `in like circumstances'

clause is that it does not really tell you very much about what that means. It may require `in like circumstances' language plus a couple of interpretive notes to say that sectors can be dealt with differently, they may call for more environmental regulation than other sectors, and subnational governments are entitled to regulate according to the environmental needs of that particular subnational jurisdiction. Some sort of special clause with an interpretive note that explains exactly why the clause is there and what function it is serving is essential.

The April Chairman's Proposals on Environment propose for the expropriation clause an interpretive note to the effect that the expropriations provision is not designed to impinge upon a government's normal regulations or normal regulatory powers. That is an unsatisfactory arrangement. It raises all sorts of questions about what is normal regulation and what is abnormal regulation. If a country decided to take a bold environmental protection initiative that furthered the precautionary principle and so perhaps flew in the face of prevailing scientific evidence but was nonetheless backed up by considerable scientific support, that may well be challenged as abnormal regulation and therefore subject to an expropriation claim.

The expropriation clause is one area in which there is a real risk of foreign investors being treated more favourably than local investors when you view the clause in the context of the dispute resolution provisions and in the context of current constitutional interpretations of what amounts to an expropriation or acquisition as a matter of domestic law. The expropriation clause needs to be much clearer about what it means when it says a government can still engage in normal regulation. That needs to be clarified.

The third change that needs to take place is that there be a broad environmental exception not in the country specific lists of reservations and exemptions but an exception that is actually embedded into the document. In particular, that exception needs to explicitly cover inconsistent measures that may be taken pursuant to a multilateral environment agreement, such as the Kyoto Protocol, the Montreal Protocol, the Basel Convention and so on. It needs to be made clear that that covers a situation where both disputing parties are parties to the MAI, but only one of them is a party to the MEA, and so the obligations are not necessarily equal. It is one of the most common complaints under the world trade regime. Where you have two parties that are parties to both the GATT and a multilateral environment agreement there is no problem, because they will resolve their difference; they will agree to the framework obligations. The real problem arises where both parties are parties to the economic instrument but only one of them has embraced the environmental obligations. That is where the real tension is created.

We need a very clear environmental exception that explicitly exempts multilateral environment agreements or gives them priority. An example of that can be found in the North American Free Trade Agreement. There needs to be a provision that creates a binding and legally enforceable provision requiring countries not to lower their environmental and labour standards in order to encourage investment, but there also needs

to be an exhortatory statement encouraging the upward harmonisation of environmental standards so that you do not just end up with a case of regulatory chill where nothing changes; that is, it does not go down, but it never goes up again.

The dispute resolution mechanism needs to include a provision for civil actions by members of international civil society to even up the balance of investor rights and obligations. I would very strongly propose the inclusion of a binding code of conduct for multinational corporations. At the moment the OECD guidelines are, firstly, non-binding, and even if they were binding they are so weak that they basically mean nothing. It seems to me that the MAI could be turned into quite a useful document for encouraging global environmental improvement if you could start getting the investors, or the actors—the ones causing damage in a country—to improve their overall global environmental performance. It seems to me that the code of conduct would be precisely the way to do that. Finally, special arrangements need to be made for the accession of developing countries, which stand to lose the most both economically and financially from the agreement and which so far have been excluded from the process.

ACTING CHAIR —Thank you very much. Professor Hiscock?

Prof. Hiscock —I would like to make a brief opening statement, which begins firstly by simply re-endorsing the remarks that I made in the submission that was put in to you at an earlier stage. This is simply by way of some focus on those remarks. I would like to begin by putting forward what may apparently be an unfashionable view and that is that I generally am a supporter of liberalisation of foreign direct investment. I really do believe that it does contribute to economic development in its wider sense. I would simply refer back to the OECD survey, which is published under the heading `Open Markets' and which was made available last year.

I believe that what is necessary is that you have a properly crafted international instrument in order to improve the environment, particularly one which is sensitive to situations such as those of developing countries, economies in transition from socialism to a market economy and presently, of course, those that are undergoing reconstruction as a result of the recent currency and banking crises in the region. All of that really leads me to say that, whatever is going to help the liberalisation of foreign direct investment, I do not think it is going to be this. The reason is that I think, basically, the wrong people are doing the job. It seems to me that this is a task for the World Trade Organisation and not for the OECD. I would say that really probably for five principal reasons.

The first one is that the World Trade Organisation has an element of universality, which leads to some kind of international consensus and a willingness to be governed by the participants which, I think, is lacking in the present structure of the OECD. I say that despite the fact that the OECD has taken steps to widen those people who are involved in the negotiation process at present, but I do not think that that goes to the heart of the matter.

The second point is that, if the World Trade Organisation was running this task, it would fit into an established pattern. That would give you the kind of systematic infrastructure which is conspicuously lacking in the current draft of the MAI. It would avoid some of the serious problems of overlap that I see between our stance on the MAI and our existing multilateral and bilateral obligations where I think that there are some clashes and certainly evidence of a good deal of policy confusion among different government departments.

Thirdly, it would be based on the same principles as the present draft of the MAI, namely, most favoured nation, national treatment and transparency. I think those principles are transposed from the WTO to the MAI but they lose a lot in the translation.

The fourth reason, and one which I think is absolutely critical, is that the World Trade Organisation system recognises the position of developing countries. It accepts that, while there may be some consensus about standards of behaviour, some countries will take longer than others to reach them. There are mechanisms to, if you like, encourage the movement in that direction by setting some realistic time frames, maybe as long as 10 years or 15 years, for a country to reach a desired level but not necessarily to have some economically crippling pattern imposed upon it.

Finally, because the WTO is built on the concept of a balance of benefit and advantage, there is a correlation of right and responsibility which, again, I think is lacking in the MAI. I personally feel quite strongly that the Australian position is untenable because we are seeking to take all the benefits as far as we can without necessarily agreeing to any limits on our powers. I feel that that is not the kind of position that we normally hold ourselves out as having in international commerce.

For all of those reasons, I am not totally disturbed by the fact that I think the OECD process will fail. I think that it will follow the pattern of some of its earlier work in this effort: they will come up with a very complicated document that everybody will look at but nobody will ever actually put into force. Our difficulty, I suppose, as a member of the OECD is that, if despite the odds they do succeed, then we have an obligation to put it in force. We may find ourselves living with something very uncomfortable. I believe that we are not taking the possible benefits we could get and we are subjecting ourselves to a lot of disadvantage.

I turn now to two quite specific points and then I will be happy to talk generally with any questions you may have. I have a fundamental problem with the definition of investment, and that is that it does not distinguish between the pre-investment stage and the post-investment stage. I think at a pre-investment stage investors have expectations. They may be well founded; they may not be. If the information is appropriately published, then they should be sufficiently well informed to be able to make some decisions about the actions they want to follow. But once the investment comes into place—whether it is an Australian investment or a foreign investment—then those investors have rights. I think

that it is false to try to treat expectations and rights in the same way. A lot of the problems that we have with things like expropriation, dispute resolution and so on come up because we try to treat arguments about expectations in the same way as we treat arguments about rights. I think that is fundamentally unsound.

It leads then to a problem which is, I think, a legal, moral and political problem. We finish up by having Australians disadvantaged in the investment process in relation to foreigners because of this lack of precise definition of investment. Take the case of a single investor. Let me just give you two examples. One is the sort of policy confusion that arises or is exemplified in the existing draft. Australia is already a party to the ICSID—International Convention on the Settlement of Investment Disputes—and so we have a binding obligation to allow a foreign investor to take a complaint against the Australian government to arbitration under that convention. Yet in our exceptions, as they now stand, we have exempted from the MAI what appears to be a parallel kind of process. I do not really understand quite why on the one hand it is in, when it is something which is, in fact, an obligation that exists and yet if we are contemplating future obligations we say, `No, it is out.' I would like to know the process of logic that justifies that sort of thing.

Secondly, I think we get into a difficulty with our own internal system in treating Australian investors or foreign investors within Australian law. As you are very well aware, the FIRB is excluded from the usual administrative review process; it is quarantined from that. But there are still avenues available within our legal system to take action in relation to inappropriate behaviour by Australian authorities for a prospective investor. I can give you an example later, if you like. What we are saying is that we are going to give in addition to all of that an international remedy, which is available to a foreign investor but which is not necessarily available internally to an Australian investor. Given that we are moving as a matter of policy, it appears, to limit even further merits review of administrative decisions within our own internal legal system, it is difficult to know how a government can consistently maintain that and yet protect the position of Australian investors.

I have a real concern that we have a sort of mishmash of procedures and standards depending on whether you are foreign or whether you are Australian—however you define that; I do not know how you do it—depending on whether you have already arrived or whether you are trying to get in and depending on whether a government has done something to you or you say a government has not done something to you. Again, I regard that as being, I suppose, both unacceptable in its substance and as a piece of legal machinery. We should be able to do better than that. Those are the particular points that I would focus on in this statement, but I would be happy to answer any questions anybody would like to raise.

ACTING CHAIR —Thank you for that. Before proceeding to questions, I notice that there are a number of people who are scribbling furiously around the room. I can save

you writers' cramp. This is a public hearing so you are welcome, of course, to take notes, but if you want to get a copy of all of the Hansard of today's proceedings, we have people here who are taking notes. All of the questions and answers will be accurately recorded, as only Hansard can. You should let Patrick at the door there know if you would like a copy of that. We will certainly make it available to you. Of course, if you are on the Internet, the Hansard will also be on the Internet as well. So that is worth knowing, because I think that some people think that a lot of these things are kept in secret, but everything is put onto the Internet. I do not know any more broad and open mechanism than the Internet. Everyone seems to find out everyone else's business off that device. So it is there for you. Take notes by all means, but do not feel like verbatim is necessary on your pad when we can do it for you. Senator O'Chee, do you have any questions?

Senator O'CHEE —I have a number of questions of Professor McDonald relating principally to section 9 of your submission. You referred to section 51 of the constitution—the bit about acquisition of property other than on just terms. You then go on to talk about international dispute resolution. Section 9 of your submission is a little unclear. What is the relationship that you are making between section 51 and international arbitral procedures, because it seems to me that they are two separate issues?

Prof. McDonald —The point that I am trying to draw out in relation to point 9 is that a foreign investor is given certain rights under the MAI, in particular the entitlement to compensation for expropriation of investment assets. What I am saying is that there will be certain environmental regulations that arguably constitute an expropriation as a matter of international law under the broad definition that is included in the MAI, because they may affect the profitability of that asset. That foreign investor will be entitled to pursue that claim for expropriation in a fast-tracked, international dispute resolution environment whereas an Australian investor, who is subject to the identical environmental regulation, will not enjoy those rights and will be required to pursue a remedy in an Australian court to have the compensation paid. Given that it is being heard in an Australian court, it will be subject to Australian domestic law, and Australian domestic law does not give compensation in cases affecting mere reduction in profitability or the overall asset value.

Senator O'CHEE —Leaving aside Ethyl for one minute—because that was dealt with under NAFTA and therefore, for various good reasons, may not, in fact, be a precedent for an argument in arbitral procedure—what other precedents would you have for the civil argument that you are mounting? I could think of Burmah Oil, but that was a different one because that related to the appropriation of the profit as opposed to changing the regulatory regime. Can you think of any other precedents?

Prof. McDonald —Both of the examples that spring to mind were determined under the virtually identical provisions of NAFTA. So it seems to me that they are a fairly useful example of what might happen. My concern is not so much that governments will actually be required to pay compensation; my concern is that international investors will use these fast-tracked dispute resolution processes to threaten governments who attempt to

initiate new environmental regulation. My concern is not so much with the specific requirement that you pay compensation—because I do not think that is going to happen. What will end up happening is that we see this onset of regulatory chill, or regulatory paralysis, whereby companies threaten compensation actions even in circumstances where it may ultimately be unsuccessful. But the government backs down, which is what appears to be happening with the Canadian government in the Ethyl dispute, anyway.

Senator O'CHEE —What do you think does constitute appropriation of property?

Prof. McDonald —That depends a great deal on what constitutional provision you are referring to. In Australia, we have a very specific reference to the acquisition of property. So I am respectfully entirely in agreement with the High Court of Australia, which says that in order to constitute an acquisition of property somebody else must actually acquire a property right. So a reduction in the profitability of an enterprise alone cannot constitute an acquisition because nobody acquires a correlative property right.

However, if you took the interpretations of the takings clause in the US constitution, they take a more generous view and say that where regulation reduces property value to zero, that may constitute a taking of that person's property calling for compensation on just terms. It seems, however—

Senator O'CHEE —Can I just interrupt you? In that provision of the US constitution where they talk about taking property, they are not necessarily talking about taking an earning stream, are they? They are not talking about taking the benefit of it; they are talking about taking it?

Prof. McDonald —No, they are talking about property very broadly defined. So anything, any sort of regulatory intervention that reduces property value or asset value to zero, would constitute a taking. But the US Supreme Court has not gone so far as to say a mere 50 per cent reduction in profit or land value will constitute a taking, although there are US Federal Court decisions to which I refer in the longer paper that I mentioned earlier that have taken a very broad reading of the US takings clause. They have said that denying a wetlands dredging permit over 50 acres out of 600 acres of land will constitute a taking of those 50 acres even though the remaining 550 are able to be developed.

Senator O'CHEE —Because they are severable.

Prof. McDonald —That is the interpretation that has been placed by the US Federal Court but not by the Supreme Court. As I said, my concern at this preliminary stage is not so much that there will be massive compensation payouts; it is more that cases like Ethyl and cases like the Metalclad decision, which is also under NAFTA, will be used as a threat—as what environmentalists refer to as a SLAPP suit—strategic litigation—against public participation.

Senator O'CHEE —So you would have a redrafting of the expropriation definition, would you?

Prof. McDonald —I would have a specific exemption of the kind that is currently being proposed by the chairman of the MAI negotiating group, who in April of this year proposed a suite of amendments or additions for the purposes of environmental and labour protection. His proposal was that you have some sort of specific acknowledgment that the expropriation clause is not intended to cover normal regulation. I think that that needs to be clarified.

Senator O'CHEE —But, if that thrust was there, it would take away much of your concerns?

Prof. McDonald —Yes, it would.

ACTING CHAIR —Is it a fair point to say that the MAI came out of the United States in a sort of post-NAFTA shock stress syndrome? This is the reaction—`Let us have the rest of the world tied up.' Is there a feel of it to that?

Prof. Hiscock —No, I do not think so. I think that it is much more a European drive than an American drive. I think that the Americans, in fact, are still very hostile.

ACTING CHAIR —But there is a common point between both of your submissions that essentially the law should become the last port of call for a bad investment. You would be concerned that, as it stands at the moment, this proposed convention, in fact, could become a mechanism by which the law and the use of our High Court, for instance, or an international tribunal is the last port of call for an investment gone bad?

Prof. McDonald —Or, indeed, it could be a first port of call. I think that it is particularly in the pre-investment phase that it actually becomes a weapon.

ACTING CHAIR —To guarantee that expectations are actually realised?

Prof. McDonald —Yes. My concern is less that the domestic legal system will be used and rather that the highly pro-investor, fast-track international mechanism will be used because it is cheaper, faster, the investor would at least get the choice of one of the three people on the panel, and so on. That is an infinitely preferable dispute resolution mechanism to the Australian legal system.

Prof. Hiscock —You get to choose anyone.

ACTING CHAIR —Essentially, the concerns that you are expressing about the environment could apply to umpteen other areas?

Prof. McDonald —I am sure they could. My expertise is in environmental law. I have chosen to base my submission on what I am competent to talk about.

ACTING CHAIR —I understand that. Professor Hiscock, do you have a view on the culture of the negotiators of this? It strikes me that there is a culture in Treasury that does not exist in, say, the Department of Foreign Affairs and Trade and, in particular, the trade people. This has been negotiated by Treasury. I have said it before on the record, so let me say it again: it struck me that this was the Treasury officials' place in the international diplomacy sun. They were travelling to Paris every six weeks to sit around a table and chat about this. That was happening some years before we all knew it was happening. Does that say something about the culture that is behind this particular agreement?

Prof. Hiscock —I would perhaps put it in a slightly different way. What it shows to me is that there is not a government participation in negotiation but a departmental participation in negotiation. What I think stands out very strongly, particularly from your interim report and what led up to that, is that there is no communication. There are very high fences between departments. If Treasury says that this is something of which we have the policy carriage and, therefore, it is all ours, and other departments that must be involved in the implementation—to say nothing of some federal entities—are not involved—

ACTING CHAIR —There is an actual conflict that could exist between what a trade based agreement is currently doing and a Treasury based agreement.

Prof. Hiscock —I am afraid that I would go even further and say that it is not just that there is a conflict; I think that there may well be no information about it at all. You have people beavering away in their own little cells in ways that are not really tuned in in the same way.

ACTING CHAIR —Do you think that there are a number of positions that should be reworked and rethought before we go down this path?

Prof. Hiscock —Yes, I would have thought that there would be a lot to be said for some pretty frank communication between departments. I imagine the existence of obligations that we already have, which may be contrary to the stand taken by Treasury on this matter, would come as a bit of a shock.

ACTING CHAIR —Do you have any additional information that you could offer to the committee in relation to the similarities and differences between the GATS and the MAI. I do not necessarily expect it now.

Prof. Hiscock —I would be happy to do that. In some ways, the GATS are the World Trade Organisation moving into a new mode of trying to negotiate. I think they are

moving very carefully. I think there are some very interesting parallels to be drawn. If a GATS type process were being used here, ultimately we would come up with something that might work and be beneficial.

ACTING CHAIR —What about regulation of foreign direct investment? Is our current regulatory regime good enough or, as suggested by a witness earlier, is it a case that it involves just a few per cent of knock-backs and is essentially a rubber-stamping mechanism?

Prof. Hiscock —It is obviously very limited. I think part of the problem is the recasting of the concept of what is in the national interest. That, I think, is a relatively recent development. Under a broader concept of what is in the national interest, one might have a more searching inquiry about investment. I think the problem is that the structure looks not really at the whole range of investments but is substantially concerned with only investment that results through mergers and takeovers and some minimal activities on the outside.

ACTING CHAIR —Essentially, it is a bit like immigration policy: if people are not happy with it, they will, perhaps, be very suspicious of it.

Prof. Hiscock —Yes. Basically, I am not opposed to foreign direct investment. We need capital from whatever source we can get it. It is significant to look at countries like the United States, which in the 1930s were heavily influenced by foreign investment by UK companies. That was the basis of their development at that particular time. I think it is rather childish in a way to say that we do not want to have foreign investment. I find it very hard to give a nationality to capital, anyway.

ACTING CHAIR —We, of course, have always had foreign investment in this country since 1788.

Prof. Hiscock —Yes, I suppose that in 1788 we were all foreigners.

Senator COONEY —You spoke about the disputes tribunal and said that people are a bit upset about it in relation to the MAI. You say that there is one already in existence. How does that work overall? I do not want a long explanation.

Prof. Hiscock —I will give two points. It does not pick up anything in the pre-investment phase. The same is true of the Energy Charter Treaty in Europe. Pre-investment stuff is all soft law; it does not give rise to any hard dispute settlement mechanisms. You are not comparing like with like. How is it worked? It shows its age a bit. It was drafted about 30 or 40 years ago. It has been slow. The upside of it being slow is that sometimes being threatened with it is enough to get people to settle. It has had far more settlements than decisions. The downside is that is has a very convoluted appellate process, which has meant that, if you want to, you can drag the thing on for 15 years. I

think the NAFTA process, for example, is a much better process as a result of the experience that people have had with ICSID. Its great advantage was that it got over the problem of sovereign immunity, because it also made people have non-retractable submissions to arbitration. If you got a submission to arbitration from a government, when you first established your investment you could be sure that you would always have a mechanism for prosecuting your dispute that would not be subject to political interference.

Senator COONEY —Have you been able to gain an impression as to how the one suggested under the MAI would work?

Prof. Hiscock —I do not think that is sufficiently coherent as yet. I share Jan's concerns about the composition of the tribunal. I cannot really see the point of establishing yet another series of tribunals when there may be existing tribunals that could already be used.

Senator COONEY —Professor McDonald raised a point that I thought we should explore. She said that we should not throw this idea away too readily because, if it was expanded to include, say, ILO conventions and environment conventions it might be an opportunity to bring some sort of order to international companies. Do either of you have any thoughts about that?

Prof. McDonald —I understand that at the end of 1997 the OECD Environment Directorate was asked to give their views on what an MAI with high environmental content would include. I have not been able to access that document, but I have read briefing reports of it. Their view is that a code of conduct that actually required foreign investors to undertake an environmental impact assessment of any foreign project, even if the host country does not require it; compliance with either World Bank or other recognised international best practice standards for that industry; and compliance with, for example, ILO convention obligations by the investor itself could be an appropriate mechanism. It seemed to me that relying on host governments, which is the standard response—`All of these things should be dealt with by the host government'—is a fairly ignorant view of the way that foreign investment works, especially in the case of developing countries where the investor has the power to decide whether to relocate in, say, Thailand or Indonesia. They are not going to start saying, `We want really high environmental standards of you.' Really the onus needs to fall upon the investors to take that upon themselves. Since we cannot necessarily rely upon them to do that out of sheer altruism, I think there needs to be an enforceable framework for it.

Senator COONEY —Within the development of this treaty?

Prof. McDonald —Yes.

Senator COONEY —What about human rights conventions—would you include those?

Prof. McDonald —I am not a human rights lawyer.

Senator COONEY —You would certainly include the environment ones?

Prof. McDonald —I would certainly put environment in.

Senator COONEY —ILO ones?

Prof. McDonald —Once again, that is probably beyond the scope of my expertise. In a purely personal capacity, I would say that there are some minimum safeguards in International Labour Organisation conventions that should be addended to multinationals' obligations.

Senator COONEY —From the expertise of both of you, which is considerable, would you say that there is no principle that you can think of that would stop an international treaty containing those protections for the environment?

Prof. Hiscock —On the other hand, you know as well as I do that you can put something in a treaty; it is just words on paper. If you really want to make it work, I think you have to do it in an environment that is favourable to its working. UNCTAD has spent 30 years trying to develop a code of conduct for multinational corporations and conspicuously failed, because it was dealing with a particular sort of constituency which was, if you like, the exact converse of the OECD. I do not think the OECD can do it either, because it is on the other side of the fence. That is the reason that I think you need to come back to a body that is somehow or other in the middle to look at these issues in a slightly more detached way.

Senator COONEY —If you did come back to that middle body, there would be some reasonable prospects?

Prof. Hiscock —Yes, I think there would be great advantage in doing it. I think it would be done, perhaps, in the same way that things like GATS are being developed: `We recognise that this is an acceptable standard of behaviour, but for all kinds of reasons we may not be able to reach that for two years, five years, 10 years, but we will now make a commitment that we will.' I think that kind of commitment is important.

Prof. McDonald —I will add one thing there; that is, the reason it seems so timely with the MAI is that, very often, countries complain that they cannot afford high environmental standards. But if you go directly to the actors—with something like 51 of the largest 100 economies in the world being multinationals—they do not have the same complaints about competing economic considerations. It seems to me that where the international community under the auspices of the OECD is negotiating an agreement—the benefits of which will flow almost entirely to those private investors—that is the appropriate opportunity to say that with those great benefits are going to come some

competing obligations.

ACTING CHAIR —With the greatest respect to everybody, I point out that I was elected to the Australian parliament and I do not control what happens in Thailand. I certainly do not want Thailand or any other country to control what happens here. The great fault with having an international mechanism is that, with our constitution, it can impact on our country's own domestic laws and determination. That is something that concerns me greatly. I think international agreements are important. I challenge you on this basis: are we better to say that these agreements set standards by which governments themselves and the people who elect or otherwise those particular governments can judge, rather than have some enforced mechanism from some outside entity judging whether or not we are doing the right thing?

Senator COONEY —I was referring not so much to the countries as the corporations. That is what we are talking about.

ACTING CHAIR —Either way, surely it is up to a country that is receiving foreign investment? If it creates sufficient barriers that it makes it difficult for a country to invest there, so be it. It is doing so because of a reason, a domestic and local imperative.

Senator COONEY —I think what Professor McDonald is saying—

ACTING CHAIR —I would like to hear what they have to say about it.

Senator COONEY —I think she was saying that there are Third World countries that would not be capable of enforcing standards.

ACTING CHAIR —On that point of incapacity, it is in a democracy that these things work. In an autocracy, in a dictatorship, in a country controlled by the military, these things might mean a piece of nothing.

Prof. Hiscock —Let us take an example from our own country. Let us go back to Fraser Island. That is pre-MAI. It is pre almost any of these things. What was the final decision? The decision was that the Commonwealth Government would not grant appropriate statutory permits.

ACTING CHAIR —That is right. That was 20 years ago under the Fraser government.

Prof. Hiscock —The Australian partner in that enterprise had no redress, but the Australian government paid compensation to the foreign joint venturer in that situation simply as a matter of a negotiated settlement. Again, that to me is really basically the problem. My view is that we should have a situation where you do not necessarily characterise investment—foreign investment or other investment. It is investment;

therefore, it should be treated in the same way.

ACTING CHAIR —As you say, again foreign investments have an additional advantage under this.

Prof. Hiscock —Exactly. It is worse than that: some Australian investment is disadvantaged, which I think is a further problem.

Prof. McDonald —Can I give you one example of the point that I was trying to make, that is, the case of BHP's involvement in the Ok Tedi gold and copper mine in Papua New Guinea. Papua New Guinea was not necessarily in a position economically to start imposing very rigid environmental requirements on BHP. Without wanting to debate the precise details of the environmental performance of BHP, most Australians took the view in that case that their performance was less than satisfactory. Had they been in Australia, their performance would not have been acceptable. What I am proposing is that we have something attached to the MAI that says, `You do overseas as you would be required to do in your home country at least.'

ACTING CHAIR —Yes, so there is a citizenship nexus rather than a territorial nexus.

Senator COONEY —The United States has done that with some of its companies, has it not?

Prof. McDonald —They have attempted to.

Prof. Hiscock —There is a downside to that, that is, extraterritoriality.

ACTING CHAIR —We have done that with other legislation, though.

Prof. Hiscock —Yes, I know; but I think we will be open to more suffering than gain.

ACTING CHAIR —But would it not be better that Australian companies were known for good practice rather than bad?

Prof. McDonald —I would like all companies to be known for good practice rather than bad. That is why I think it should be an integral part of the agreement.


Senator COONEY —That illustrates Professor Hiscock's point that it ought to be looked at by more than just Treasury.

Prof. Hiscock —I would like a government view, not a Treasury view.

ACTING CHAIR —I guess that is what this committee and this process that we are undertaking is about. If these matters that you talked about today are not addressed satisfactorily, what is Australia to do? Should we be signing this document as it is currently proposed?

Prof. Hiscock —No.

Prof. McDonald —No.

ACTING CHAIR —Thank you very much for your considered submission both on paper and verbally. I think we have received great value out of your time here today. I hope you have felt that you have imparted great value. Your expertise in the areas you have stuck to quite deliberately is greatly appreciated.

Prof. McDonald —Thank you very much.

[11.58 a.m.]