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Joint Standing Committee on Treaties
Trans-Pacific Partnership Agreement

DYER, Mr Christopher, Policy Lawyer, Transnational Practice Division, Law Council of Australia

SMITHERS, Mr Jonathan, Chief Executive Officer, Law Council of Australia


CHAIR: I welcome representatives of the Law Council of Australia. Although the committee does not require you to give evidence under oath, I should advise that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make a brief opening statement.

Mr Smithers : I thank the committee for giving me and my colleague, Christopher Dyer, the opportunity to appear on behalf of the Law Council this morning. The Law Council of Australia exists to represent the legal profession at the national level, to speak on behalf of its constituent bodies on national issues, and to promote the administration of justice, access to justice, and general improvement of the law. The Law Council acts on behalf of more than 60,000 lawyers across Australia, advising governments, courts and federal agencies on ways the law and justice system can be improved for the public benefit and for the community.

The Law Council also represents the Australian legal profession overseas and maintains close relationships with legal professional bodies throughout the world. Trade and investment does not and cannot take place in a legal vacuum. Genuine commitments to improving market access for lawyers must therefore be an essential aspect of any modern trade agreement. Thus, the Law Council's submission to this committee is focused on international legal services market access for Australian lawyers.

Regarding intellectual property, a second submission by the Law Council's business law section highlighted three concerns: firstly, the complexity of Australia's international IP obligations, especially regarding the proliferation of IP rules in recent trade agreements, including the TPP; secondly, whether the intellectual property chapter is consistent with Australian law; and, thirdly, the interaction of TPP provisions dealing with intellectual property and investment. I note that Richard Hamer appeared before this committee in Melbourne on 7 October. Mr Hamer is a member of the Law Council's business law section intellectual property committee, which is the organ of the Law Council best placed to respond to any further questions the committee may have regarding intellectual property under the TPP. If the committee has any further questions on that topic, I would be happy to liaise with Mr Hamer and other members of the council's business law section to provide a full and accurate response.

The Law Council is very pleased that, in addition to other commitments on legal services, the TPP professional services annexe includes principles to guide the regulation of foreign law amongst TPP countries. The principles on legal services under the TPP and the Law Council's document, Best practice principles for the regulation of foreign lawyers and transnational lawpractice, overlap significantly. Both build on resolutions of the International Bar Association and work jointly undertaken by the Australian government and the Australian legal profession, including the Law Council, through the then International Legal Services Advisory Council. It is always possible to identify deeper market access that could ideally be included in a free trade agreement, however the Law Council hopes that the inclusion of these principles will provide a good platform for deeper and more meaningful legal services market access in the future. For legal services, the commitment by TPP parties to consider these principles when regulating the practice of foreign law, backed by the implementation of a professional services working group, means that the TPP can be a living agreement capable of providing ongoing improvements—and therefore ongoing benefits to Australian lawyers.

The Law Council is of the view that it is inevitable there will be a noodle bowl effect when we have bilateral trade agreements with countries that are party to multilateral agreements such as TPP. Although the TPP does include some non-binding measures to encourage regulatory coherence, such as the regulatory coherence chapter, and the inclusion of principles for the regulation of foreign lawyers, when in force the TPP would increase the complexity of provisions faced by Australian lawyers seeking access overseas to provide legal services. We do accept that is inevitable in the short term. The Law Council's hope, however, is that the bilateral gains should be multilateralised over time through multiparty agreements. The focus of trade negotiators will be to pull bilateral market access gains into those multilateral agreements. This will of course have a negative impact on the preferential access which we currently enjoy bilaterally. But experience shows that such advantage is actually temporary, because the plethora of trade agreements shows competitors gain the same preferential access before too long.

On balance, the TPP will provide some very welcome improvements to market access measures for Australian lawyers. We believe these include consistent use of a negative list approach in services; Malaysia's inclusion of legal services market access commitments binding their current level of openness and automatically including future liberalisation within the TPP; a right to provide legal services on a fly-in fly-out basis to TPP countries, including a first-time commitment of this kind by Canada to Australia; the inclusion of eight additional US states not covered by the Australia-US FTA or the WTO General Agreement on Trade in Services commitments; and significant clarification of existing access to the Vietnamese legal services market.

On balance, given these improvements and the inclusion of principles to guide future developments in the way that foreign lawyers are regulated in TPP countries, we believe that the TPP is a beneficial agreement from the perspective of providing improved access to key overseas markets for Australian lawyers. Thank you.

Mr WALLACE: Thank you, Mr Smithers and Mr Dyer. As a member of the profession, I thank you for your input and I thank you for your submissions in furthering the interests of our colleagues. Not ever having practised outside of Australia—and I am assuming that none of my colleagues have either, although I will stand to be corrected—

CHAIR: Not for practising law.

Mr WALLACE: Is there a practice of anything else?

CHAIR: Force of arms?

Mr WALLACE: Would you explain to me and my colleagues the barriers to practising overseas currently in the marketplace.

Mr Smithers : The barriers are specific to each different jurisdiction. There are large differences in the practice of law between the common-law jurisdictions, like Australia, and those who have a civil code jurisdiction. Many countries allow the bars or law societies of those countries to impose restrictions on practice, which may include examinations and so on. In fact, many are so restrictive as not to allow any foreign nationals to practise at all, including their own law.

Mr WALLACE: Those same restrictions applied within our own jurisdictions in Australia not so long ago, didn't they, unless you had a right of appearance.

Mr Smithers : They did so, indeed. Now we welcome other jurisdictions' lawyers to come here and practise. So this is one of the freest and most open jurisdictions in the world, which has encouraged many large global international firms to come here and bring their expertise, and thus the work and the clients for whom they acted.

Mr WALLACE: Will this totally open the markets for Australian lawyers to be able to operate in any of the parties? Are there any side agreements which prevent our legal practitioners from practising in any of the 12 party states?

Mr Smithers : Perhaps my colleague can come in on this one, but not completely, no. It sets a base level in some where we do not currently have agreements. In some, where we have bilateral agreements, this does no more than embed those—Malaysia, for example—into the TPP. We have seen in the past some countries go through a more liberalising phase, and firms can go and practise with their own lawyers, and then that is rolled back again.

Mr WALLACE: Just before you do that, is there a formal process that a legal practitioner has to go through to appear in a court of a foreign jurisdiction? They still have to get a right of appearance. Does that have to be done through a particular registry or can you just rock up and say, 'I hold a practising certificate in Australia'?

Mr Dyer : Generally speaking, when we talk about the practice of foreign law overseas, that is the practice of, say, an Australian lawyer going over to Singapore. When they practise foreign law in Singapore, they are practising Australian law. Where a Singaporean lawyer might appear before a domestic court and advise clients on domestic legal matters such as criminal law, wills and probate or property or domestic commercial transactions, the role of foreign lawyers is actually to advise on the law of other jurisdictions while they are overseas. In terms of gaining a right to appear before a domestic court, to some extent, that is not the major objective of opening up markets for foreign lawyers to practise in. Having said that, of course, each jurisdiction will have its own rules about admitting members of the public to speak before the court. And in some jurisdictions—for example, in Singapore—there are actually courts such as the Singapore International Commercial Court. Foreign lawyers can appear before that court. In general, however, foreign lawyers, as a matter of practice, do not necessarily seek to appear before a foreign court.

Mr WALLACE: Has your particular committee considered the utility and benefits or otherwise of the ISDS provisions in the TPP?

Mr Smithers : Yes, indeed, we have and we think that they are, on balance, beneficial, although there are some reservations, particularly regarding transparency. On balance, they are beneficial, partly because the evidence shows, from those countries that have them and many of them, that they are rarely used. They would be generally helpful to Australian investors investing overseas in those countries, but they are very unlikely to be used against Australia.

Mr JOSH WILSON: I have a follow-up question on ISDS, because this aspect of it seems to come up with almost everyone who comes before us. The benefits of ISDS for Australian companies operating in other jurisdictions is relatively clear. I guess the question around the TPP is that it only puts ISDS mechanisms between ourselves, the US, Japan, Canada and Peru for the first time—it is only making those mechanisms available between ourselves and those countries—and all those countries, with the possible exception of Peru, are nations with robust judicial systems and low sovereign risk.

To the extent that there was a side-letter agreement excluding ISDS between ourselves and the US—which seems to be where the greatest risk would be, and the Productivity Commission reached that conclusion in 2010—as we have done between ourselves and New Zealand, the agreement would not be any worse for it, in your view.

Mr Smithers : I think our view is that it would be better if it was there, but it would not be fundamental to it. Australia and New Zealand, obviously, have a particular level of similarity than do the States and some of the other countries you mentioned, so we do not think it is fundamental to it.

Mr Dyer : Although you do note that there is perhaps less risk posed to Australia, for example, by claims coming relating to the US because of their well-developed domestic legal system where we could expect, before the US courts, to have fair and transparent hearings and to have access to justice in that setting.

I think, as Jonathan touched on, one of the differences between even an advanced rule-of-law setting, such as the US and its relationship with Australia and Australia's relationship with New Zealand, is that between Australia and New Zealand we have the Australia-New Zealand Closer Economic Relations Trade Agreement with a protocol in investment. There has been a decision to establish a single economic market. We have comprehensive recognition of goods and services through the Trans-Tasman Mutual Recognition Arrangement. We also have the Trans-Tasman Proceedings Regime, which is underpinned by the agreement between the government of Australia and the government of New Zealand on Trans-Tasman Court Proceedings and Regulatory Enforcement.

What all of that means together is that between Australia and New Zealand there is a framework which can give a level of confidence and reassurance to investment, between our two countries, that does not necessary exist between Australia and any other country, even an advanced-legal-system economy such as the United States.

CHAIR: I want to challenge this view that we have heard from a number of organisations that the US are rapacious litigants in the ISDS world. Let me just read from Lawrence Herman. He is a principal at Herman & Associates, a former Canadian diplomat and practises international trade law—a fellow lawyer. He was writing about Mobil Investments and Murphy Oil under NAFTA, which has been going for 20-odd years. In April this year the arbitration was ruled against Canada, and Canada had to pay $90 million. He writes:

Even with the latest $19-million decision, the total awards against Canada, in more than 20 years of NAFTA litigation, comes to about $37-million.

He excludes the $130 million settlement with AbitibiBowater following Newfoundland’s expropriation because the province said, 'From day one we are going to pay compensation,' so it never reached an active stage. He also makes the point that of the 12 cases where final awards have been issued, half have gone in Canada’s favour.

Looking at the evidence—12 cases, half have gone to Canada and the total cost is $37 million over 20 years—are the US truly this rapacious ISDS machine coming forth to devour us?

Mr Smithers : No, they simply are not. The numbers, in fact, show a relatively small number of cases, bearing in mind the number of agreements that there are. I have some statistics here from the April 2014 UN conference on trade and development survey—127 claimants from the US, 61 from the Netherlands, 43 from the United Kingdom, 39 from Germany, 32 from Canada and so far only three lodged by Australian companies. Those numbers are very small compared to the very large number, I think over 3,000, of foreign investment treaties globally in force. So it is a very, very small number.

Mr JOSH WILSON: I take all those numbers at face value, but I guess it only takes one. I think the experience that Australia very nearly had—the close shave that we had in relation to the Philip Morris ISDS case—showed that even one case that goes against a nation can have a very profound effect on its ability to regulate in the public interest. The number of actions brought and the costs that flow from them does not take into account regulatory chill. Again the Philip Morris case is apposite, because we know that New Zealand did not go down the plain-packaging path for three years, waiting to see the outcome of the action that Philip Morris was bringing against Australia. I would venture—

CHAIR: Is that a question, Josh?

Mr JOSH WILSON: Yes. I would venture that that action by Philip Morris was worth it just to keep New Zealand from that path. Doesn't that back up what the Productivity Commission said in 2010: that the precautionary principle really should apply? There is no investor benefit to ISDS; it just puts us at risk from a regulatory point of view.

Mr Smithers : There is also risk in litigation. The Philip Morris case was dismissed early on. It has been the only one against Australia. I think that has to be balanced with the risks which foreign investors will take if there are not reciprocal provisions. If each country just wants to exclude themselves and expects every other country to have them, then that will have a chilling effect on the foreign investment which Australian companies can have. So I think there is a risk either way, but the greater risk is for Australian investors overseas rather than those inward. And of course if any country is in breach of its international treaty obligations then it may run a risk that it is fined and findings are made against it. It is the same for every sovereign nation.

Mr Dyer : Another thing is that the TPP does actually include a number of provisions to deal with cases such as the Philip Morris case, which was manifestly unmeritorious. There are fast-tracking provisions, fork-in-the-road provisions and also the ability for arbitral tribunals to award costs against unmeritorious claimants. I think that that does go some way to address some of those concerns about regulatory chill that you have raised because, where a foreign corporation does seek to throw its weight around and influence the conduct of Australia's parliament in their legislation program through ISDS, there are these mechanisms built into the TPP that are not necessarily available under other Australian bilateral investment treaties and that seek to address some of those concerns.

CHAIR: Sam Luttrell, who is an ISDS lawyer with Clifford Chance in Perth, gave evidence under parliamentary privilege that he was counsel—I am speaking from memory and I am not putting words in his mouth, because the record is very clear on what he said and we can always go back to the record—for Philip Morris in the case that they brought through the BIT in Hong Kong. He said that, under the ISDS provisions of the TPP, that action would not have even got past the first stage and would be lucky if it had survived the first 60 days or thereabouts, give or take. Do you have a view on the ISDS provisions in the TPP and whether Mr Luttrell is correct or otherwise?

Mr Smithers : I would bow to his superior knowledge on that; I do not have such a detailed view of that.

CHAIR: I am happy to bow to his superior knowledge as well.

Mr JOSH WILSON: There is a specific tobacco exclusion in the TPP, Mr Chair. But it does beg the question that there is a specific exclusion for tobacco—whether or not the broader health and environmental protections would be sufficient in other areas.

CHAIR: Is that a question to me or Mr Smithers?

Mr JOSH WILSON: It's a comment through you!

CHAIR: Any more questions from the committee?

Mr WALLACE: I have one question. Mr Smithers, when I asked you about the ISDS before, you said 'with the exception of transparency concerns'. What do you mean by that?

Mr Smithers : I think there were some concerns regarding transparency of arbitral decisions, which is a comment made generally often about arbitral decisions. But I think there is some provision regarding transparency to ensure that international decisions and particularly the appointment of the arbitrator are made known for everybody.

Mr WALLACE: Can we pull that apart a little bit? The appointment of the bench is done by the parties; is that correct?

Mr Smithers : Yes.

Mr WALLACE: So the parties have significant, if not total control over who sits on the bench, whether it is one person, three people, five people or whatever it might be. That is done by the consent of the parties, assumedly. If the parties can determine who sits on the bench, they cannot really complain about who they get, can they? It sounds to me like it is arguably even a better system than what we have where a judge is just appointed to a matter. If it requires both parties to agree to it, how is that not transparent?

Mr Smithers : I think it is the external transparency, if you like. Because this is between a company and a state, there should be transparency in the appointment so that, if arbitrators are appointed by a state, they are not doing the bidding of that state—as opposed to between two commercial companies, who would simply be choosing an arbitrator between them.

Mr WALLACE: If the other side can veto the appointment, where is the problem?

Mr Dyer : I think I would agree with your line of questioning. I am not sure that there is actually a right for either side to veto the other side's choice of arbitrator or choice of members to a tribunal. I think that probably one of the things that is not immediately clear on the face of the treaty with regard to these matters is that, rather than set out the rules for appointing members of an arbitral tribunal, the treaty refers to systems of rules that exist already such as the UNCITRAL arbitration rules or the ICSID convention. Within those conventions there are the rules regarding appointment of arbitrators and removal in cases where they might have conflicts. In order to understand the full implications of the treaty, you do have to go down a level or two; however, I do think that, in terms of appointment of arbitrators and that being transparently done, there are responses to that in the treaty.

Mr WALLACE: If I understand your response correctly, it is not really a concern at all.

Mr Dyer : I think it is a concern that is publicly held and I think it is a legitimate concern about the way ISDS has operated previously. I think that, on the face of the treaty, there are responses to those concerns that should go quite some way to alleviating that fear.

Mr WALLACE: From the Law Council's perspective, it is not an issue.

Mr Dyer : I think we would have to see how the ISDS provisions were actually implemented, but we think there are significant developments in the text of the TPP that should go a long way towards addressing these concerns.

CHAIR: Thank you very much for your attendance here today. If you have been asked to provide any additional information, would you please forward it to the secretary within seven working days. You will be sent a copy of the transcript of your evidence and will have an opportunity to request corrections to transcription errors. We appreciate your time.