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Thursday, 12 February 2015
Page: 572


Senator BACK (Western Australia) (11:11): I rise to explain to the chamber and to the wider community why I oppose the Trade and Foreign Investment (Protecting the Public Interest) Bill of 2014. I read from the explanatory memorandum as supplied by our colleague Senator Whish-Wilson:

The purpose of this Bill is to prevent the Commonwealth from entering into an agreement with one or one more foreign countries that includes investor-state dispute settlement provisions.

Now, I have to say at the outset that I have a lot of respect for Senator Whish-Wilson. He was well educated at Guildford Grammar School, as I understand, in Western Australia. He studied at university in Western Australia, and he has a good, sound understanding of economics and commerce. He has worked in the stock exchanges, as I understand, in Western Australia, in Hong Kong, in New York and in Sydney. So, Senator Whish-Wilson has a very, very good understanding of the world of commerce and particularly the world of international trade.

Senator Whish-Wilson also understands that, in a country that has the land mass of continental USA and the population of New York City, the high level of per capita income, wealth and socioeconomics in this country, indeed, is due to our exporting capacity. We are not like America; we cannot consume the majority of what we produce. We are not like China, which, of course, also can consume. We must rely on exports, we must rely on the inflow of capital, we must rely on the rule of law, and we must, of course, rely on being important players on the world stage. I say again, that section 3 of the explanatory memorandum sets out that the intention of the bill is to prevent the Commonwealth from entering into agreements with foreign countries that include investor-state dispute settlement clauses. How harsh would this be for our little country of 23 million people if we were denied access to the export markets of the world upon which we have relied for so long, which we will need to rely on in the future to sustain the economic wealth and wellbeing of all of our citizens and, indeed, to improve the wellbeing and the socioeconomic conditions of those in our neighbouring and trading regions—Asia, Africa, India and, of course, Central America and Latin American?

It is interesting that in his second reading speech Senator Whish-Wilson draws attention to the fact that the Australian government is currently being sued under the ISDS clauses as a result of a legislative decision the previous government took to require cigarettes to be sold in plain packaging. That is a 1993 agreement; it is 22 years old. Surely everybody in this place realises that we have moved on from the quality of legislation that is 22 years old. I also remind the chamber that this is not yet a settled matter. It is not yet a matter that has had any sort of resolution or judgment. I share concerns. We sat in the committee together. I share the concerns of academics and others. I also share the concerns expressed by the Chief Justice, a fine Western Australian jurist, Robert French. But, at the same time, the role of government is to balance these inputs and to arrive at decisions that are in the best interests of our country, and I want to spell some of those out.

I want to point out, if I may in the time that is available to me, where some of the pitfalls would come if, indeed, we were to pass legislation that prevents the Commonwealth—it does not caution the Commonwealth or give the Commonwealth any leeway in this; it prevents the Commonwealth—entering into an agreement with ISDS provisions. Of course, this blanket prohibition would completely and utterly limit our opportunity to negotiate into the future with foreign countries, be it for inputs or for exports. We could not conclude negotiations which would benefit Australian producers, consumers and investors, the broader community or, indeed, those communities in the countries with which we have such valuable trading relations, and it would impose on the Commonwealth a significant limitation on the ability to pursue our broader trade and investment objectives.

We have spent a lot of time in the last few days, as we have in the last couple of years, in this place debating how we are going to sustain and improve the socioeconomic wellbeing of our country—how we are going to be able to meet the social demands that are so eloquently debated in this place. But, Mr Acting Deputy President, you know that, as Senator Fifield said so well the other day, if the economic agenda and the social agenda are not in alignment, it will be to the demise of each of them. Unfortunately, what this bill, if passed, would do would be to totally limit the opportunity for our economic expansion, particularly at this time.

I feel remiss with the finance minister, Senator Cormann, here, because he is so much better versed than I am in being able to comment on the black clouds that are confronting the world at the moment as we look at what might happen with Greece defaulting or, indeed, jumping into bed with Russia—whose economic circumstances at the moment would be such that you would wonder how Russia would be able to bail Greece out of its current debt crisis. We look at other countries in Europe and the circumstances they are faced with. We have a look at the United States of America, the interest on whose debt—not the debt but the interest on their debt—is a billion dollars per working day at the moment—$250 billion they are borrowing. Senator Whish-Wilson understands this much better than I and as well as the finance minister does. To me, it all points to the fact that we must remember that we are an exporting country.

But, of course, this blanket prohibition that is proposed in the bill is inconsistent with the government's policy, which is to consider the inclusion of ISDS provisions in any free trade or other agreements on a case-by-case basis. It denies the government the opportunity to actually negotiate case by case. It says: 'No, sorry. We can't deal with China. We can't deal with Japan. We can't deal with Korea. We couldn't have dealt with Singapore. We're not allowed to deal with the Trans-Pacific Partnership, because we are prevented from even participating.' Nobody in Australia wants to see that—indeed, I do not think Senator Whish-Wilson does. What we do want to see is a very cultured discussion about those elements which are sacrosanct to Australia.

I go back to the point that the 1993 provision is 22 years old. This was not being considered 22 years ago. Possibly it could have been predicted 22 years ago, but nobody is suggesting today that the sorts of agreements that we are negotiating and contemplating have not moved on and are not taking into account those environmental, health and other concerns on which we are, of course, so focused.

The bill proceeds from the view that ISDS invariably represents an unacceptable risk to the public interest and that all provisions are equally severe. We are conscious of potential risks, and I would rely on the excellence of the trade minister—leading and directing the bureaucrats in the department, who are now so well versed in the processes of international trade negotiations—and on being able to govern and to regulate in the public interest in areas such as health and the environment.

On this topic, I would be amazed if in his previous work Senator Whish-Wilson has not come across similar clients. As a businessman myself, and having in the last decade engaged in business activities in Asia, in the Middle East and on the Indian subcontinent, I know that ISDS does not just apply to ogres wanting to come into Australia. ISDS gives a level of protection to Australian industry operating overseas. This is vitally important, because we have the opportunity and indeed, in my view—particularly in the field of agribusiness, in which I spend a lot of my professional time—the compulsion to increase our business activities overseas. I for one would be saying that, in any sorts of agreements that Australia is negotiating, I would want to see our government and our trade negotiators making sure that the interests of Australian business are being protected. Indeed, if we were to prevent the Commonwealth from entering into agreements, we would be cutting off the opportunity for Australian businesses operating overseas to enjoy the protection of ISDS clauses. It is a two-way exercise; it is not just a one-way exercise.

The bill in its current form fails to recognise that agreements containing ISDS can incorporate safeguards to protect the rights of governments and the communities they represent to take decisions in the public interest. The bill suggests that this is not possible; I say that it is. In fact the recent agreement negotiated, again, by trade minister Robb leading the delegation of people who undertook it with the Republic of Korea, contained many more safeguards indeed than earlier agreements. This is how policy works. This is how democracy works. This is how government works. We should always be moving to improve what has gone before us. In the case of Korea these safeguards have been developed in response to concerns about challenges to legitimate public welfare regulation. I, for one, enjoyed the opportunity to participate in the committee and to hear the legitimate concerns of people who not only have the expertise but defend the time. Two instances in the case of Korea where we were not freezing existing policy settings were to do with intellectual property and the environment chapter; exactly the concern that Senator Whish-Wilson and Senator Wright have expressed saw itself played out. Indeed, we have ISDS clauses in four existing free trade agreements and 21 bilateral investment treaties—binding obligations that have been ongoing over 25 years—and I remind those listening that we have only ever faced one claim; we are facing that now and that has not yet been tested or resolved. Not bad for a country of 23 million people that exports more than 65 per cent of its produce around the world.

Who, in fact, are the players? Of the bilateral investment treaties that we are considering, more than 90 per cent of the 2,500 in force have operated without a single investor claim. We know that the inflow of capital is vital to this country, and of course the inflow of capital reflects the claims—for Europe, it is about 50 per cent and about 47 per cent of the claims. For the United States, the next biggest player in this game from Australia's point of view, it is 24 per cent of FDI stock outflow from them and 22 per cent of the claims. It is in the resources sector—mining, oil and gas resources—where most of the claims have been made, because they are the sectors in which there is the greatest degree of state involvement, and I hope to come to Mexico in a few moments by way of illustration. The disputes have been mainly around countries with weak legal institutions—Argentina with 53 claims and Venezuela with 36 claims are the two leading respondent states. About a third of all ISDS cases are settled in advance of a ruling, and it is the case that people come to realise it is as expensive to run an ISDS claim as it is to go through the commercial legal process. We see that treaty-based investment protection represents a major advance in the fair treatment of aliens and the peaceful resolution of disputes. When you consider the alternative—withdrawal from these treaties, which is the logical conclusion should the good senator's bill be accepted—then the negative consequences for economic growth in this country and the rule of law are there for all to see.

I want to continue now in terms of what those opportunities are. We are an economy of some $1.6 trillion. The services sector contributes about 70 per cent—about $1.12 trillion—of that economic activity, but at the moment the services sector only contributes 17 per cent—$57 billion of $330 billion—towards export income. Therein lies the opportunity for this country to radically increase the contribution of the services sector to export earnings as resources earnings go down because of the decline in oil and gas prices and of course the price of iron ore and other resources. You turn and say, 'That is all well and good, Senator Back. Where are these opportunities for increasing the services sector from 17 per cent?' Imagine, Finance Minister, if the services sector expanded its export activity from 17 to 34 per cent. Do you know where the answer lies? It lies in those countries with which we have just concluded free trade agreements. When Minister Robb briefed us on the value of the Chinese free trade agreement to our country, as a person involved in agriculture and resources I was thinking, 'This is wonderful.' We already export a lot of iron ore. In fact, for your interest, we actually export 19 tonnes of iron ore per person to our overseas markets—we did that in 2014.

But Minister Robb told us that what the Chinese actually want is access to our services. They want further access, for example, to our education services. Last year our education services to China were valued at in the order of $4 billion. The value of tourism from China to this country is in excess of $1 billion. That is just those two services alone—higher education and tourism—but add in to that the opportunity for services exported for governance, for prudential regulation, for insurance purposes, and the fact that that particular free trade agreement has now guaranteed that Australian service providers will be able to construct, renovate and wholly operate Australian-owned hotels and restaurants in China. How often have we heard, 'Of course, it is all well and good—they can come here to our country, but we cannot do the same.' Under this agreement we can; but if the provisions of Senator Whish-Wilson's bill had prevailed, we could not have. Australian travel agencies and tour operators, for example, are now able to establish wholly Australian-owned subsidiaries in China for tours within China for domestic and foreign travellers. And remember: in 2014, 100 million Chinese travelled outside their country, and it is predicted that, by 2016, that will double. Another area of services that they desperately want and need from us has led to the decision under the free trade agreement that China will permit wholly-owned Australian hospitals and aged-care institutions to be established in China and run and managed by Australians. Those are just three examples, in hospitality, in tourism and in the health and hospital and aged care sectors. And, as I say, there is the value of higher education. That is for just one country. If we expand that to Japan, which also has an ageing population, there is an opportunity for expansion of our services sector.

Mention was made by previous speakers about the Trans-Pacific Partnership. I was in Mexico only some three weeks ago, discussing with government officials and industry people—for example from the oil and gas sectors, the hard-rock mining area and the energy sector—the value of NAFTA, the North American Free Trade Agreement, to Mexico; it has been massive. But the Mexicans said, 'We cannot wait for the inclusion of more Australian investment.' At their geological survey institution they showed me proudly the geological map of Mexico at the one in 250,000 level and noted the fact that, in those mineral-rich areas of Mexico, they have actually now mapped it at one in 50,000. They then turned to me—through you, Mr Deputy President Marshall, to Senator Whish-Wilson—and said: 'Do you know where we got that expertise from, Senator Back? We got it from Geoscience Australia, and we got it from the CSIRO.' How proud do you think I was? And when they said, 'We are now sending 50,000 of our university students away every year to learn more about energy, oil and gas,' I thought, 'What opportunities are there for Australians to get in there, in hard-rock mining, in their services sector, in their corporate governance, in their insurances and in their health sector?' Those opportunities will be open to us, but, indeed, if we were to accept the provisions of this particular bill, we would be denied them because they will have ISDS provisions.