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Monday, 22 September 2014
Page: 10143


Ms PARKE (Fremantle) (18:08): In any trade agreement, one expects there will be winners and losers but also that overall the benefits will outweigh the disadvantages. In the case of the Korea-Australia Free Trade Agreement, or KAFTA, the major winners include parts of the agricultural sector as well as copyright holders, as eloquently explained just now by the member for Gellibrand, while the major losers include Australian manufacturing, IP consumers and those sadly overlooked items: Australian sovereignty and democracy.

The pure economic benefits of this agreement deliver a bump to the Australian economy of some $650 million after 15 years, or 0.04 per cent of GDP, which is, as the majority committee report concedes, minimal. The majority report instead points to the impact on individual sectors as justification for entering into the treaty. Yet, as much of the report demonstrates, the agreement also gives rise to significant negative ramifications.

Among the numerous concerns raised about KAFTA in the 78 submissions to the JSCOT, almost half focused on the operation and effect of investor-state dispute settlement, or ISDS, clauses, which will enable Korean corporations to sue Australia for laws or policies or even court decisions they find inconvenient, such as those regulating health, environment and labour standards. This will give foreign investors more rights than Australian investors. As my colleague, Kelvin Thomson, the deputy chair of JSCOT, has noted, this will elevate the interests of corporations above those of the public and their democratically elected governments.

Currently, Australia is being sued by Philip Morris, pursuant to an ISDS clause in an obscure agreement with Hong Kong, in relation to our plain-packaging laws. Quebec in Canada is being sued by a mining company for conducting an environmental review of fracking. Canada itself is being sued by pharmaceutical giant, Eli Lilly, for a court decision to refuse the grant of a medicine patent. El Salvador is being sued by an Australian-Canadian mining company for refusing to issue it with a gold-mining licence as a result of justified environmental and community concerns related to the last gold-mining venture that left the river running yellow with cyanide and arsenic poisoning.

These are just some of the 568 challenges made under ISDS clauses since 1993, but they demonstrate the perilous course this government has chosen. The ISDS arbitrations are not independent. Arbitration panels are made up of independent law experts, most of whom also represent investor complainants. Panellists can be an advocate one month and an arbitrator the next. They are paid by the hour. Consequently most cases take from three to five years. ISDS has no system of precedents or appeals, so decisions can be inconsistent and unfettered. The AFTINET submission quoted Juan Fernandez-Armesto, an arbitrator from Spain, who observed:

When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. Three private individuals are entrusted with the power to review, without any restrictions or appeal procedure, all actions of the government, all decisions of the courts and all laws and regulations emanating from parliament.

Proponents of KAFTA point to supposed safeguards in more recent ISDS clauses, which aim to protect public welfare in areas like health, safety and the environment. However, a number of submissions have pointed to examples where these so-called safeguards have not deterred investors from suing and where tribunals have ignored the intended limitations.

The committee heard evidence regarding a submission made by 100 legal experts to the European Commission regarding an ISDS clause in the proposed Transatlantic Trade and Investment Partnership between the EU and the US. The submission concluded that the safeguards, which are more extensive than those in KAFTA, would not be sufficient to uphold health and environmental legislation. Recently, Chief Justice French of the High Court highlighted his concerns about the impact of ISDS cases on our judicial systems when he said:

Professor Brook Baker of North Eastern University School of Law in a note about the Eli Lilly case, posed a rather rhetorical question, but one which fairly arises when considering proceedings of that kind in relation to well-established, respected and independent judiciaries:

'After losing two cases before the appellate courts of a western democracy should a disgruntled foreign multinational pharmaceutical company be free to take that country to private arbitration claiming that its expectation of monopoly profits had been thwarted by the court's decision? Should governments continue to negotiate treaty agreements where expansive intellectual property-related investor rights and investor-state dispute settlement are enshrined into hard law?'

Those are the words of our Chief Justice of the High Court expressing concern about investor-state dispute settlement clauses.

ISDS provisions have a chilling effect on a government's willingness to look to regulate. For example, Canada withdrew a proposal for plain packaging of tobacco following the threat of ISDS arbitration under NAFTA. Here in Australia, rural communities have successfully campaigned for improved state government regulation of coal-seam gas mining. Yet the inclusion of ISDS in KAFTA may mean that Korean mining investors could prevent further regulation.

Submissions noted that the combination of stronger intellectual property rights and ISDS clauses in KAFTA will also have a stifling effect on innovation and research and on the protection of public health and access to reasonably-priced medicines. For all these reasons, it is no wonder that ISDS was rejected by the Productivity Commission in 2010, that Labor's platform opposes it and that in government Labor refused to negotiate a treaty with Korea that contained such a clause. By entering into an agreement with ISDS clauses, this government is being reckless or grossly negligent as to the likely serious and negative consequences. Let us hope it will not cost the country too dearly.

Debate adjourned.