BRADDOCK, Mr Richard John, Director, Office of Trade Negotiations, Department of Foreign Affairs and Trade

DE CURE, Mr Chris, OAM, First Assistant Secretary, Office of Trade Negotiations, Department of Foreign Affairs and Trade

[14:08]

CHAIR: Welcome. I remind the witnesses and my colleagues that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy. It does not preclude questions asking for explanations of policy or factual questions about when or how policies were adopted. I particularly draw the attention of officers to an order of the Senate of 13 May 2009 specifying the process by which a claim of public interest immunity should be raised. Copies are available from the secretariat.

The extract read as follows—

Public interest immunity claims

That the Senate—

(a) notes that ministers and officers have continued to refuse to provide information to Senate committees without properly raising claims of public interest immunity as required by past resolutions of the Senate;

(b) reaffirms the principles of past resolutions of the Senate by this order, to provide ministers and officers with guidance as to the proper process for raising public interest immunity claims and to consolidate those past resolutions of the Senate;

(c) orders that the following operate as an order of continuing effect:

(1) If:

(a) a Senate committee, or a senator in the course of proceedings of a committee, requests information or a document from a Commonwealth department or agency; and

(b) an officer of the department or agency to whom the request is directed believes that it may not be in the public interest to disclose the information or document to the committee, the officer shall state to the committee the ground on which the officer believes that it may not be in the public interest to disclose the information or document to the committee, and specify the harm to the public interest that could result from the disclosure of the information or document.

(2) If, after receiving the officer’s statement under paragraph (1), the committee or the senator requests the officer to refer the question of the disclosure of the information or document to a responsible minister, the officer shall refer that question to the minister.

(3) If a minister, on a reference by an officer under paragraph (2), concludes that it would not be in the public interest to disclose the information or document to the committee, the minister shall provide to the committee a statement of the ground for that conclusion, specifying the harm to the public interest that could result from the disclosure of the information or document.

(4) A minister, in a statement under paragraph (3), shall indicate whether the harm to the public interest that could result from the disclosure of the information or document to the committee could result only from the publication of the information or document by the committee, or could result, equally or in part, from the disclosure of the information or document to the committee as in camera evidence.

(5) If, after considering a statement by a minister provided under paragraph (3), the committee concludes that the statement does not sufficiently justify the withholding of the information or document from the committee, the committee shall report the matter to the Senate.

(6) A decision by a committee not to report a matter to the Senate under paragraph (5) does not prevent a senator from raising the matter in the Senate in accordance with other procedures of the Senate.

(7) A statement that information or a document is not published, or is confidential, or consists of advice to, or internal deliberations of, government, in the absence of specification of the harm to the public interest that could result from the disclosure of the information or document, is not a statement that meets the requirements of paragraph (I) or (4).

(8) If a minister concludes that a statement under paragraph (3) should more appropriately be made by the head of an agency, by reason of the independence of that agency from ministerial direction or control, the minister shall inform the committee of that conclusion and the reason for that conclusion, and shall refer the matter to the head of the agency, who shall then be required to provide a statement in accordance with paragraph (3).

(Extract, Senate Standing Orders, pp 124-125)

CHAIR: I invite you to speak to the department's submission, No. 135, before we go to questions.

Mr De Cure : Thank you and congratulations on your appointment as chair of the committee.

CHAIR: Thank you.

Mr De Cure : In its submission, the Department of Foreign Affairs and Trade expressed a number of concerns about the bill being considered today. As we understand it, the bill would operate as a blanket prohibition on including investor-state dispute settlement provisions in future agreements. DFAT is concerned that this may prevent the government from concluding negotiations to benefit Australian producers, consumers and investors and the broader community. It would impose significant limitations on the ability of the government to pursue its broader trade and investment objectives, and I think it also has the potential to impact on investor confidence in Australia as a destination. The bill would not allow any consideration of the interests of Australians investing overseas. In this respect, DFAT is aware that at least three Australian companies, as you heard, have taken advantage of ISDS provisions in separate Australian agreements in recent years. The blanket prohibition proposed in the bill is inconsistent with the government's policy to consider the inclusion of ISDS provisions in FTAs on a case-by-case basis. The bill would not allow any assessment of the appropriateness or desirability of agreeing to ISDS in the context of particular negotiations.

We are conscious of the concerns of some people about the potential risks that ISDS challenges pose to government regulation. The government is cognisant of that and opposed to signing agreements which include provisions that would restrict its capacity to govern or regulate in the public interest. The bill fails to recognise that agreements containing ISDS can and do incorporate safeguards to protect the rights of governments to take such decisions in the public interest.

In particular, more recent agreements—as I think you heard earlier today—contain considerably more explicit safeguards than were contained in some of the earlier agreements. These safeguards have been developed in response to concerns about challenges to legitimate public welfare regulation. ISDS does not prevent governments from changing their policies or regulating in the public interest and we do not believe that it freezes existing policy settings. ISDS does not entitle investors to compensation just because they object to a government policy or because it affects their profits.

DFAT notes that ISDS is not a new concept for Australia. As we have said in our submission, we currently have four existing FTAs and 21 bilateral investment treaties that include such provisions. Australia has had binding investment obligations enforceable under ISDS for over 25 years. During this period, we have faced only one claim, as you have heard, and that is being defended vigorously by the government. It is significant that this claim, which is yet to be decided, was brought under an older investment agreement rather than under ISDS in a modern agreement with more explicit safeguards. That is not to say that we think we have less prospect of winning it; it just means that it is a claim that was able to be pursued—but, as I said, we are defending that vigorously.

DFAT is also concerned that the bill may have some unintended consequences—and, again, I think you talked about some of those earlier today. In particular, it is our view that the bill would prevent the government from seeking to update existing agreements containing ISDS should it wish to do so in the future and, in particular, to include, say, more explicit safeguards for public welfare regulation, where we have been able to learn from more recent experience.

We also wish to make a technical comment on the bill, and that is that our understanding is that it would prevent Australia from entering into plurilateral agreements which contain ISDS whether or not we agree to be bound by that particular provision.

Senator WHISH-WILSON: I want to make a point about what you said there about the KAFTA carve-outs or exceptions. You mentioned that the Philip Morris litigation at the moment through ISDS had occurred under a previous agreement that did not have these new carve-outs and exceptions. It was made very clear to us today by Professor Nottage and others that it does not matter what you include in carve-outs or exceptions for future ISDSs; it cannot preclude a company from taking litigation, which it has done. It may, of course, influence the success of that litigation, but we also heard from witnesses today that that litigation is probably strategic and global in terms of what it is trying to achieve, because a number of countries are looking at plain packaging. So the company may not ever hope to succeed in the action, but what it is succeeding in is sending a strategic message. So I just wanted to make the point that it does not preclude any carve-outs and exceptions will not preclude companies taking action against the government.

CHAIR: Is it fair to ask Mr De Cure to comment?

Senator WHISH-WILSON: Please feel free to comment.

Mr De Cure : I am happy to respond to some of those comments. Firstly, I was not making specific reference to a claim; I was talking generally about improvements in agreements over time. Secondly, I think the one point to make about the whole issue around 'we'll never stop a claim' is that one of the improvements that we have seen in agreements is not only in relation to carve-outs but also in relation to processes that allow you to expedite processes and eliminate frivolous or vexatious claims at an early stage. That is one issue that I think that has been addressed more effectively in more recent agreements.

The point about a regulatory chill or a regulatory freeze, which I think you are alluding to in your second comment, is not something that I would necessarily agree with. You referred to the tobacco case. But the fact is that other governments are looking at this. The British government has announced that it is looking to do things and the New Zealand government has been actively looking at all of this. So I do not get a sense that others are shying away from this.

Senator WHISH-WILSON: No; I think what you are saying supports what I said. The fact that other governments are looking at doing this is a reason that Philip Morris are taking a strategic action.

Mr De Cure : If the strategic action is to stop people from looking at this, then they would stop searching—

Senator WHISH-WILSON: Particularly Third World countries that are a lot less wealthy than those countries you mentioned. That is one of the issues that came up in Dr Tienhaara's submission this morning—that the impact of these types of provisions tend to a lot more influential on less developed and less wealthy countries, particularly in terms of regulatory chilling.

I want to ask one question—and I must apologise as I did ask it in JSCOT yesterday as well. You said yesterday that, in relation to the carve-outs that were included in the Korean deal during the negotiations and obviously what we are seeing now in the text, you did not seek any external legal advice on that and that it was decided internally; that is, you used your resources with other government departments and with DFAT to come up with those carve-outs.

Mr De Cure : I should perhaps clarify that I was not there yesterday and—

Senator WHISH-WILSON: My apologies.

Mr De Cure : nor was I involved in the Korean negotiations. I might ask Mr Braddock to respond in that context given that he was there.

Mr Braddock : The government has significant expertise within government in terms of investment law and ISDS and significant experience in negotiating these agreements—and also, with the defence of Philip Morris's challenge to tobacco plain packaging. The government draws on this experience and the experience and interests of other agencies in terms of formulating our whole-of-government approach to ISDS.

Senator WHISH-WILSON: Apart from speculation about submissions that have been made during the European ISDS submission process—the 100 academics I mentioned a bit earlier that have put up their concerns around new carve-outs being proposed in the Canadian-European free trade agreement—we also heard evidence today from witnesses that, in relation to the Korean-Canadian free trade deal which was negotiated in the last week, their carve-outs in ISDSs were far superior to what was achieved in the Korean free trade deal. Do you agree that a process like we have seen in Europe, opening up these types of trade deals to public scrutiny and submissions, would be a better way of capturing expertise, issues and concerns from a lot of stakeholders?

Mr De Cure : Firstly, with the 100 academics, I guess they have had a consultation process. The Europeans have put out a paper and they are commenting on that paper. I certainly have not had a chance to look at that. I am aware of the paper.

Senator WHISH-WILSON: Do not read it before you go to bed, would be my advice. It would put you to sleep very quickly. It is very lengthy and very detailed. I am not a lawyer, so I can say that.

Mr De Cure : Nor am I, so I am with you. I do not know what is in the Canada-Korea agreement. I think all agreements are different. I think I have made the point that there has been an evolution in ISDS provisions in various agreements—from quite rudimentary agreements to much more what you might call refined agreements that reflect experience that the various parties have had with ISDS in its early stage. That is a natural thing to occur and I think it is healthy that people have reflected on the experience and have looked to update it. But every agreement is different. Every agreement approaches particular issues in different ways. As I said, I have not seen the Korea-Canada agreement. So I cannot really comment on the differences between it and the Australia-Korea FTA.

Senator WHISH-WILSON: We asked the Law Council and some other witnesses today if they could have a look at the points that were made in that document and provide some feedback to the committee. We heard from all our witnesses today, including Professor Nottage—who, from my understanding, is reasonably supportive of ISDS inclusions in trade deals—that the Korean ISDSs should be redrafted, that they are not sufficient. What would be the process from here? Is it too late, given that cabinet has now signed off on the Korean deal, for this to be possible? Or is there a process that we can go through to tighten up or improve that?

Mr De Cure : There is a process, as you would be aware. The documents have been tabled and it was considered by JSCOT yesterday. I am not sure that the government renegotiates agreements on the basis of comment by an individual, but obviously they will consider all the advice that is provided and proceed on that basis.

Senator WHISH-WILSON: So would or could not take into account new information?

Mr De Cure : We are always listening to the advice of experts and others who have an opinion on this. That is why we have these sorts of discussions.

Senator WHISH-WILSON: With all due respect, it is also why we have a parliament. By the time agreement is signed by cabinet, there is very little we can do as a parliament to change the text or substantive wording in the agreement if it is on ISDS or any other issue. It has been raised by just about every expert, including the Law Council, here today that there is a lack of transparency around the way these trade deals are negotiated and a lack of public input—as we heard from the Chamber of Commerce and a number of stakeholders. My frustration as a parliamentarian is that we get to the JSCOT process and it is already a done deal.

Mr De Cure : With all due respect, we do not make the rules.

Senator WHISH-WILSON: I know you do not make the rules. I would just like to get that on the record. I am not trying to shoot the messenger. I understand.

CHAIR: On that same basis—and, again, being careful to not ask you to give your opinions; and I am not—could you explain for the committee's benefit the rationale for cabinet signing off prior to the wider community, including the parliament, having the opportunity to view the terms and conditions of free trade agreements? Is it a confidentiality thing? Do the other parties demand this, for example? Equally, is it the case that the cabinet of the other country—in this case, Korea—sign off on such an agreement before it went before their parliament and its wider community?

Mr De Cure : All countries have different processes in the way they manage this. I guess the point I would make there is that in most of these cases it is an agreement among the parties on what the confidentiality arrangements would be. The general view is that you are much more likely to get a good outcome from a negotiation if those negotiations are conducted and people are able to speak freely within a negotiating room about their positions and their concerns without having all of that dealt with more broadly in the public domain.

In a number of these agreements—and I could talk about TPP, which is one where this has been most prominently raised—there is an understanding among the parties that no information or the text or negotiating documents will not be released until either all of the parties agree or a period has passed after the conclusion of the negotiations. That is something that we are bound by but it is something that all parties recognise as an important part of getting the best possible outcome.

CHAIR: And that has a historic context, does it? Has that tended to have been the pattern in the past?

Mr De Cure : You have different types of negotiations. For instance, in a multilateral negotiation you will often have documents that are more public. In those cases often the text is a chair's text, so it is not attributed to individual parties. But even in those cases a lot of the discussion would be held confidentially. The general principle, I think, is that it is much better to conduct those discussions frankly and then, once you have got to a point, there is a process for broader public consultation and scrutiny in the parliament and so forth, in our case, or in other ways in other systems.

Senator WHISH-WILSON: I think I understand from your opening statement—it is certainly in your submission—that one of the concerns DFAT has with a blanket prohibition is that it takes away a negotiating tool. Would I be correct in saying that?

Mr De Cure : It depends on what you mean by negotiating tool.

Senator WHISH-WILSON: Not tool but something you can put on the table to help you get access on agricultural products et cetera.

Mr De Cure : You look at these things in terms of the overall deal—what is the overall packing you have got. One element of that is obviously the market access outcomes, other elements are the rules—ISDS is one element. Firstly, we do not look at ISDS as a negative in an agreement. In many respects it is there to protect Australian investors or to provide greater comfort to Australian investors when they are investing in those countries that their interests will be protected or that they will not be subject to unexpected or unreasonable changes in policy. So we have to look at it from both sides of this equation. It is about getting a fair outcome for both sides. You refer to ISDS almost in a negative way from the outset. I do not think that is the way we necessarily look at it. When we do an agreement we are always looking at the total package and bringing it together. If it is not an agreement that is in Australia's interests then obviously the government will not do it. It has to be looked at in that context.

Senator WHISH-WILSON: I understand that the government of the day has an agenda on trade deals and had you been sitting here five or 10 years ago you would probably be saying quite the opposite. I understand it was DFAT's position during the North American free trade deal—certainly under Prime Minister Gillard—that these things were not on the table and were not necessary. I think we have already raised the Productivity Commission study with the department previously in estimates, when it said that these things do not add anything to the bargain in terms of protecting or facilitating investment and trade flows. I think that is a point of debate that we are going to get some more feedback on today from one of the witnesses who is doing more work in that area. We cannot find any evidence—the chamber of commerce were going to present today but they were unable to make it. If you have evidence that these things do facilitate trade and investment flows we would like to look at it.

Mr De Cure : One thing we do in our consultations is consider the views from business. It is the government's position that we consider it on a case-by-case basis. It gets back to the point that we look at it in the broader context, or that the government looks at it in the broader context. We have seen major business organisations and major businesses who are involved in investment supporting these sorts of things: the Business Council of Australia, the Chamber of Commerce and Industry, BHP, Rio Tinto, major Australian corporations with significant investment overseas who see these things as valuable to them, so we listen to those sorts of things.

Senator WHISH-WILSON: But they do not see it valuable in a market like Japan?

Mr De Cure : Sorry?

Senator WHISH-WILSON: They did not see it as valuable in a market like Japan but they did in Korea.

CHAIR: The National Farmers Federation certainly has.

Senator WHISH-WILSON: My point is that they may see it as a level of comfort or that it is beneficial to their investment and that trade, but I am wondering why with two of our biggest trading partners—Japan and Korea, with whom we have been trading for generations—they have concern in Korea, so they supported it there, but they did not care about it in Japan. It does not make sense.

Mr De Cure : They are very different agreements and the benefits—the package of benefits—that would derive for both sides are different. As I said at the outset, the government looks at the total package and says, 'What's a good outcome here?', or 'What's necessary?' I think, as the Law Council pointed out earlier, Japan and Korea have good legal systems and the rule of law applies. In those circumstances the margin between the two is quite narrow but in other circumstances it could be wider.

Senator WHISH-WILSON: Don't get me wrong, Mr De Cure, I do not hold it against a corporation wanting to have laws that might benefit them and their profits, but my interest in this bill is looking at areas of public interest and concerns that trade deals have been changing in recent decades and moving into areas—when you look at ISDS and the way it evolved from the expropriation of property and assets to where we are today, 30 years down the track, as we discussed today with witnesses—such as intellectual property, fair provisions of internet usage, public health and the environment. These issues are really important. With the proliferation of these types of cases in countries where there has been significant litigation leading into the TPP, which involves the US government and US corporations, I feel that, going into these very big multilateral trade deals, it is time to be looking at this right now.

Senator GALLACHER: The history of these agreements—I am going back 25 years—are contained in your submission: the four FTAs and 21 bilateral agreements; the periods of government when it has been ruled in; the periods of government when it has been ruled out. I think the Howard government prohibited it; Gillard and Rudd allowed it and then prohibited it. In essence, I am not sure whether you are the person who has been doing all of those 25 years of negotiations, your department has had experience of observance of it in bilateral and free trade—in and out. Is there anything you can point to in evidence that makes it a prerequisite to have ISDS in an agreement? Or is it, as the Law Council said, virtually case by case.

Mr De Cure : The government's position is case by case, but to get back to the start, yes, I have been around long enough to have been involved from the start, but I can assure you I was not. The point is that we initially did investment promotion and protection agreements, which in many cases incorporated these sorts of provisions—as I said, it is incorporated in 21 of those. We have not done any of those for some time. I think it is about the late nineties, maybe 1999 was the last one, Richard?

Mr Braddock : Yes.

Mr De Cure : It is probably not important, but you get a sense of the time frame. That is the way we approached it. Some of those in the early stages were obviously very early stage on ISDS provisions. They have progressed through time. The Australian government, speaking as a whole, has really only engaged very significantly in negotiation of free trade agreements, as in bilateral agreements or plurilateral agreements, relatively recently—with the exception of New Zealand, obviously. Since then we have done a number, which included some of the early ones such as the US and Singapore and so forth. In some of those, ISDS provisions were included and in some they were not. Again, that was a case-by-case sort of consideration by governments. You are right, the previous government said that it was not prepared to consider these ISDS provisions in certain agreements. As a result of that we were not able to conclude some agreements, including the Korea agreement, which obviously had an impact on our trade in other areas. That is not to say we are trading things off, but the point is that being able to include ISDS provisions in an agreement allowed us to conclude a very high quality bilateral free trade agreement with Korea that provided both significant access for Australian producers but also worked to correct some imbalances—some disadvantage—that we were facing compared to some of our major competitors in areas like beef.

Senator GALLACHER: Given the high quality of the Korean legal system and Australia's legal system, why was ISDS a significant barrier to concluding that trade agreement?

Mr De Cure : The Koreans insisted on having it in the agreement.

Senator WHISH-WILSON: Can you tell us why?

Senator GALLACHER: That is what the million-dollar question is, I suppose.

Mr De Cure : I was not involved in the Korean negotiations, but the point is that those negotiations were parked for a long period and they resumed once the government said it was prepared to consider that.

Senator GALLACHER: So your evidence here is that ISDS was the principal factor in not concluding KAFTA?

Mr De Cure : As I said, I was not involved in those negotiations. I do not want to be prescriptive about that. I do not know whether Richard has anything to add, but it was certainly a consideration. It was something that Korea required in that agreement.

Mr Braddock : I do not have anything to add except to say that the evidence that Deputy Secretary Adams gave to the Korea JSCOT hearing yesterday was that Korea made it clear that ISDS was essential for it to conclude the negotiations.

Senator WHISH-WILSON: In previous estimates when we canvassed this issue I had the sense—and I cannot remember the exact words, so I will not put words into anybody's mouth—that Korea had negotiated a deal with the US previous to this where the US had insisted on ISDS and also the introduction of the details around copyright provisions et cetera, and because that set that standard in negotiating with the US they insisted on the same standard in all future free trade deals, including with Australia. So, it sort of came via the US, so to speak.

Mr De Cure : I was not involved in the Korea negotiations, so I do not want to speculate on the motivations of the Koreans other than to say that clearly it was a key factor in—

Senator GALLACHER: As part of your department's role in negotiating free trade agreements, you would have to assess the risks to Australia of ISDS. So, in terms of Korea and Australia, given that we both have a rule of law, how does it rate on a scale of 10? Is it two out of 10 as a risk? Six out of 10?

Mr De Cure : Risk in terms of concerns about Korea not respecting Australian investments?

Senator GALLACHER: Yes, or vice versa, yes. You are struggling to find a point of difference, I would have thought.

Mr De Cure : So, low-risk is your point?

Senator GALLACHER: Yes.

Mr De Cure : Low risk of the ISDS provisions being invoked.

Mr Braddock : The only point I would add to that is that as far as we are aware a Korean investor has never commenced an ISDS claim.

Senator WHISH-WILSON: Nor had a Hong Kong investor.

Senator GALLACHER: Yet it was a deal breaker.

Senator WHISH-WILSON: Philip Morris found that that vehicle was suitable for their case, so it is possible that stacking assets and doing this could occur again.

Mr De Cure : I think that is yet to be tested.

Senator WHISH-WILSON: Yes, depending on carve-outs and—

Senator GALLACHER: There must be a finite number of trade agreements we are going to reach, even in our region. If there was no ISDS, what is on the horizon that would be stopped from being negotiated?

Mr De Cure : I am not sure I understand the question.

Senator GALLACHER: Well, we have a Korean agreement, we have an agreement with Japan, we have ASEAN, we have all the free trade agreements in this region, and we have America, with China coming up. If we did not have ISDS as a government policy—if it was prohibited—what would it stop us from doing?

Mr De Cure : It would stop us from doing other free trade agreements, with countries that may require this. I think the other thing it would stop us doing is investment protection and promotion agreements with countries around the world. There are a number of countries, for instance, where Australia is increasingly having significant investments from Australian companies, where we do not have investment protection and promotion agreements. So, that may be something that we would look at down the track, or there could be a new—

Senator GALLACHER: Do you have an example? I am just trying to get my head around it. Is there an example that comes to mind?

Senator WHISH-WILSON: TPP would be the main one, right?

Mr De Cure : Well, that is one. You have China—there is a range of agreements that the government has indicated that it would like to explore. We have not commenced any of those. We have a partially completed negotiation with the Gulf Cooperation Council, for instance. I am not saying where all those will end up, but they are all agreements. My point is that the world is not a static place. Trade flows and investment flows change and move. Countries evolve. Some become richer, some become poorer—all of those sorts of things. So, your priorities change, and you have to shift your focus, and your policy and your negotiation focus, to those areas where you can benefit Australian exporters, investors and businesses and help them grow their businesses. Certainly in our view, you do not want to be restricted in your ability to do agreements or to protect Australian investors as a result of what is essentially a proposed blanket ban on such negotiations. And, as we have alluded to, our view on this is also, on a reading of the bill, that it would preclude us from renegotiating some of the existing investment chapters in trade agreements because of that sort of blanket ban.

Senator GALLACHER: I have read media reports that we are pursuing a free trade agreement with China. Would that have ISDS in it?

Mr De Cure : That is a negotiation that is underway at the moment. I am not the negotiator and I would not want to comment on what is actually in that.

Senator GALLACHER: But it would be government policy that it would be in it? Or not?

Mr De Cure : The government's policy is that we look at it on a case-by-case basis. In the TPP, which the senator referred to, we look at ISDS on a case-by-case basis. The government has not at this point agreed that it would do that in the context of TPP, but we would look at it in the context of the overall deal and the government would make a decision on that. And it would be the same with China, I would expect.

Senator WHISH-WILSON: Rather than an individual country, would it also be looked at in something like the Trade in Services Agreement? Would this type of provision also be looked at in a broader—

Mr De Cure : ISDS relates to investments. It is complicated. There are some elements of investment in services agreements. There is a plurilateral services agreement, which I assume you are referring to.

Senator WHISH-WILSON: Yes.

Mr De Cure : That is at a fairly early stage of discussion. But as a general rule we are talking here about investment chapters and ISDS applying to the investment chapters of agreements rather than the whole agreement. So, it does not apply to the IP chapter, it does not apply to the labour chapter or the environment chapter or whatever it might be; it applies to the investment chapter.

Senator WHISH-WILSON: We heard evidence earlier from Dr Rimmer, I think it was, that it does. He disagreed with your submission, saying that there was direct evidence that ISDS does apply, for example, to the chapter on IP and the environment and it is in the text—in KAFTA.

Mr Braddock : At least in terms of Australia's experience with investment agreements and ISDS, that is not the case. ISDS applies only to investment obligations; it does not apply to obligations in other chapters.

Senator WHISH-WILSON: But what if there is investment in IP? Then does it apply?

Mr Braddock : It is possible that the subject matter of an investment dispute could be, for example, intellectual property, so intellectual property is typically covered as one category of investment. So, it is possible to have a claim with respect to intellectual property, but we see that as being quite distinct from being able to bring a claim with regard to a breach of an intellectual property obligation.

Senator WHISH-WILSON: Sorry—if I was a lawyer I might be able to understand what that means! It certainly sounds very confusing, from my ignorant perspective of law.

Mr De Cure : To put it simply, there is an IP chapter in agreements. The provisions of that are not subject to ISDS. In some cases in an investment chapter, when you talk about investments, IP is one element of an investment.

Senator WHISH-WILSON: So, if I was an internet service provider and the government changed the law so that I had to keep two years worth of data on every one of my customers and meet these certain benchmarks, and that changed my compliance and my costs and my business and therefore was an impost, that would affect my investment. Correct?

Mr Braddock : It may affect your investment. It is very difficult to see how that would constitute a breach of an investment obligation.

Senator GALLACHER: Perhaps I could go back to the evidence you gave about three companies. Can you give us the flavour of which companies they were and what the issue was?

Mr De Cure : The only one really that has been fully resolved at this point is White Industries, and they were awarded compensation from India. That was a claim brought under a bilateral investment promotion and protection agreement with India in 2011. There are two current ones running, one by a company called Tethyan Copper against Pakistan and one that Planet Mining has brought against Indonesia.

Senator GALLACHER: And there was some earlier evidence that they were subsidiaries or something. But they are Australian companies?

Mr De Cure : Well, we live in a globalised world. Companies can be subsidiaries and so forth. But the fact is that these are companies that operate in Australia and the investments in those countries were taken through Australian companies. Some of those would have foreign ownership, I imagine; I do not know the detail of these ones. But, as we all know, large companies in particular have diverse registers and so forth.

Senator GALLACHER: Is there any understanding of the scale of the claim? Is it hundreds of millions?

Mr De Cure : I do not think it was of that order. As I said, the one decision was White Industries. My recollection is that it was in the millions.

Mr Braddock : We do not have those figures here, but we could take it on notice if you would like more information about that.

Senator GALLACHER: Yes, I think it is important that we get the evidence here that some claims have been resolved and for how much, if that is possible. So, from the department's point of view you have had it ruled in, you have had it ruled out, you have negotiated it on a case-by-case basis. But overall, can you actually point to an area of detriment, in that 25 years of history, when it has not been available to you?

Mr De Cure : I would have to take that on notice.

Senator GALLACHER: You have said Korea—Korea could not be finalised.

Mr De Cure : Oh, I see—you are talking about how it detrimentally affected our negotiations with other parties.

Senator GALLACHER: Yes.

Mr De Cure : As I said, traditionally what we have done is negotiate investment promotion and protection agreements. So, there are not a lot of cases where we have concluded negotiations of free trade agreements, which is essentially what has happened since 1999. I do not think there are any negotiations that we have just given up on. There are a number that are in abeyance or under negotiation. But Korea is one, obviously, where those negotiations had essentially been paused, I guess, because of that issue. It is probably the only one that I can think of.

Senator GALLACHER: And what about the China free trade agreement, given the reported legal jurisdiction there and the difficulty you have accessing results—would ISDS be a prerequisite for the China agreement?

Mr De Cure : As I said, I am not negotiating the China agreement; I do not know the details. But I get back to my point earlier that the government looks for balance in agreements, and both sides need to find a balance in the agreement.

CHAIR: Is it known in the context of the New Zealand-China Free Trade Agreement whether there is an ISDS provision?

Mr Braddock : Yes, there is.

CHAIR: Once they are in the public arena, they literally are for all countries—we know the terms, do we, of the New Zealand-China Free Trade Agreement?

Mr Braddock : We do.

CHAIR: Just so I am very clear, in the last paragraph of your submission you talk about plurilateral agreements, which contain ISDS, and whether Australia may or may not be bound. Can you explain to the committee what it is you are saying in that final paragraph in the context of the fact of this bill or the possibility of this bill being passed? What are you telling us? Are you telling us that the provision exists at the moment in a plurilateral agreement for Australia to agree to some elements and not others and still go forward and that we would be precluded from doing so in the event that this bill was passed? Is that the sense of what that final paragraph tells us?

Mr De Cure : Yes. The obvious current example is the TPP. As I said, the government has said that it will take a case-by-case approach to the inclusion of ISDS provisions in trade agreements. The bill as we see it would preclude us from participating in those negotiations, and in the early part of those negotiations the government's position was that we will not include ISDS provisions in these agreements. Other parties said that we should include them in this agreement. Something like this might preclude us from participating from the start in a negotiation like the TPP, because we were not able to say that ISDS was or was not included in the agreement. So, it is really that point.

CHAIR: So, it is whether you are at the table or excluded from the table.

Mr De Cure : Yes, and what this alludes to is the fact that we had said previously that we would not be covered by ISDS provisions in that agreement. That was a position that we took in those negotiations, and we would not have been able to even participate and take that position with that sort of provision, in our view, with this language.

Senator WHISH-WILSON: I wanted to raise something that we raised with a previous witness, Dr Ranald, at AFTINET. She gave an example of a plurilateral agreement—the ASEAN one—where Australia and New Zealand opted out on ISDS. They basically gave each other an opt-out clause to continue those negotiations.

Mr De Cure : I think that is an argument that actually supports our position, which is that that was an agreement negotiated with ISDS provisions in it. This bill would not have allowed us to participate in that negotiation. In some of those cases we actually agreed bilaterally not to do that with New Zealand, because of the very close relationship we have with New Zealand and the CER agreement and so forth. In some cases we do exclude each other from certain external provisions, and that is a case where, if we are doing a bilateral agreement with New Zealand, we would not include it, because of the way we operate. Because it was a plurilateral agreement, we had to deal with New Zealand after the event.

Senator WHISH-WILSON: Can you think of any examples of plurilateral or multilateral agreements where this has happened, where someone has been excluded from entering into negotiations because of a position?

Mr De Cure : I am not aware of it because, obviously, countries would self-select out, if—

Senator WHISH-WILSON: But it raises a risk?

Mr De Cure : If a country took a position that they were not going to do ISDS, then clearly they are not going to enter into a negotiation that includes that, unless they can actually exclude it. I don't know of any cases other than the one I referred to, which was Australia.

Senator WHISH-WILSON: I think the position we went into with the TPP is we said we were not going to sign up to ISDS, and that was a firm position and that is the position the Gillard government had had for years—and Labor had had for a number of years as well. I am not sure about the difference between that and having an official parliamentary position that you will not sign up to ISDS. The government is in that position. The government of the day has a position but you still entered negotiations, whereas in this situation there is no difference except parliament has passed a law saying we will not do it.

Mr De Cure : But I think there is a difference, because the bill would say we cannot enter a negotiation that includes ISDS but the previous government took a position that we were not going to be covered by that. The question is: would that have been sustainable at the end of that negotiation? I think that is quite problematic.

Senator WHISH-WILSON: I will get some feedback on the drafting of the bill and whether that is an issue and whether we can even enter into that.

Mr De Cure : The bill is very short, and so it is open to those sorts of interpretations—

Senator FAWCETT: Some of the evidence we received earlier talked about the fact that Australia and the US did not require ISDS provisions, because both countries consider that the state of the legal systems in each country was up to scratch. With the US-Korea agreement, there are ISDS provisions. Was that at the insistence of Korea, given that the US on the basis that their relationship with us does not appear to mandate the provisions of one?

Mr De Cure : I do not have the answer to that. There is obviously a fair distance in time between the two agreements. As I said earlier, all agreements are different. Countries negotiate these agreements and the provisions in them according to their own circumstances. I just do not know what motivated the Korea-US negotiations: whether both parties wanted that or one or the other.

Senator FAWCETT: Do you have any information as to whether it has been exercised by other parties since the signing of the US-Korea agreement?

Mr De Cure : Whether anyone has taken ISDS action understand that agreement? Richard, do you know?

Mr Braddock : I am not aware of a claim under KORUS yet.

Senator FAWCETT: Is it a consistent thing that Korea has had an ISDS with every country that it has had a free trade agreement with?

Mr Braddock : My understanding is that Korea has had ISDS in each of its agreements which contain investment chapters. As I understand it, not all of its FTAs contain investment chapters.

Senator FAWCETT: Are you aware of any action being taken under those where they have had investment chapters and ISDS has been included?

Mr Braddock : I am not aware, but my understanding is that a Korean investor has not initiated a claim under any of those agreements.

Senator FAWCETT: There was also evidence given earlier that, if a claim was initiated and two governments got together and said, 'Do we both agree that this is not a breach or a violation of our obligations under the FTA?' that the claim of a company would be put aside—are you aware of that occurring anywhere in the world?

Mr Braddock : Of this specific example that you just mentioned, I am not aware of any. I am aware that modern agreements, including some of Australia' recent agreements, contain the ability for both of the state parties to issue a joint interpretation of any obligation of the agreements, and that interpretation will be binding on a tribunal. This is one of the things that we regard as being an important procedural safeguard so, if the parties consider that a tribunal has taken an overly broad interpretation of an obligation, they can issue an interpretation of that obligation and that would be binding on a tribunal. I am not sure if that was getting to your point. That is the closest thing I can think of.

Senator FAWCETT: Sure. Okay.

Mr De Cure : You were asking the question about whether governments could agree just to basically waive the right of their companies to take ISDS action.

Senator FAWCETT: That was the evidence that was put to us by an earlier witness—that that was possible. I was just seeking to understand if that had actually occurred to your knowledge.

Mr Braddock : The only other provision I can think of is that there are denial of benefit clauses in FTAs. They vary between agreements, but they often allow a party to deny the benefits of an agreement to an investor if certain conditions are met. Those conditions generally involve the investor being owned or controlled by persons of a non-party and the investor having no substantive business operations in the territory of a party. It does get quite technical. I am aware that under some agreements, especially older agreements, there is the ability for both the contracting state parties to deny the benefits to an investor in those cases, provided certain conditions are met. But they do vary between agreements.

Senator FAWCETT: Sure. This is my last question. The whole point of an FTA is for nations to open up their domestic markets to international competition on agreed or equitable terms. If a government decides to legislate something, whether it is for public interest or for whatever reason that equally impacts on domestic providers as well as those from overseas, is that a defence against an ISDS claim?

Mr De Cure : I think the question you are asking is: if you agree to an ISDS provision in an agreement and the government subsequently takes a public policy decision which equally impacts on domestic and foreign—in other words, it is non-discriminatory—would that automatically rule out an ISDS claim? Is that the question?

Senator FAWCETT: Yes, that is the question. If you are not sure I am happy for you to take it on notice.

Mr De Cure : It is a question of how much detail, I guess.

Senator WHISH-WILSON: It is also a question of what is 'non-discriminatory'. It is a very broad term.

Mr De Cure : Sure. We could be here for another day.

Mr Braddock : I think the question in that circumstance would be whether there would likely be a breach of any of the obligations of the investment chapter and, if so, how the investor would be able to establish that. It is a bit difficult in a very broad, hypothetical sense to say whether or not there would be a valid claim in those circumstances. It would certainly be relevant to the prospects of a claim and the government's defence of a claim if the measure was non-discriminatory and if it was objectively directed towards a legitimate public welfare objective. That would trigger some of the common safeguards included in recent agreements which are designed to protect against those measures. I am sorry, that is quite a broad, general answer.

Senator FAWCETT: No, that is fine. Thank you.

Senator GALLACHER: These ISDSs have been around for about 25 years. I think earlier evidence said that that the Productivity Commission said that there was no economic value to ISDS. So I am asking the department, forgetting the resolution of disputes, is there is any evidence that ISDS in a bilateral free trade agreement—or wherever—has actually facilitated investment both ways? Can you say where you have negotiated it that it has opened up Korean investment in Australia, because I think I read somewhere that Korean investment is very low in Australia? So now that they have got it, they wanted it, has it opened the floodgates up? Is the money pouring in in terms of investment? You can take it on notice, but can you point me in some direction to say, 'Here is the critical value of the ISDS'? Forget about the resolution process of it, because if we are looking at the glass half full, it is supposed to provide an environment where we get a chance to invest over there and they invest over here.

Mr De Cure : You have got to look at it more broadly anyway. Clearly, if we have investor-state dispute settlement provisions in an agreement it certainly sends a message to investors that we intend to be consistent in our approach to investment policy. But more broadly there are the benefits that flow to Australian investors which, as we pointed out earlier, are vitally important to. We have had evidence from business that this is important and valuable thing for them to have in markets. The third point I think I made was that when you do FTA negotiations and include these provisions, it is about balancing the total package. You have got to look at it holistically rather than at one element. I cannot point to a very specific example. I think there is no doubt that, where you have investor state settlement type provisions, you provide a level of confidence that has to impact on decision making at the margins, if not more substantially.

Senator GALLACHER: But they do not precipitate a great flow of inward investment?

Mr De Cure : We can look at that issue but I think the point is that, at least in relation to free trade agreements, they are relatively recent development, as I pointed out earlier. So finding the evidence, particularly when you are talking about companies making decisions about investment that are based on a whole range of factors, is problematic—it would be very hard to actually measure that. I am not sure how the Productivity Commission did. But if companies say to us these are good things and they support them then I guess you take that on face value.

Senator WHISH-WILSON: I do not know if I can officially correct the record, Senator Gallacher—

CHAIR: You can comment.

Senator WHISH-WILSON: I can comment. I think the Productivity Commission said that there was no evidence that they delivered value; I don't think they said that it did not deliver value. I think they said there was no evidence they could find.

Senator GALLACHER: I think the comment from at least one was that there was no economic value to it, which is quite separate to what you have just said. There is plenty of value to them—it gives confidence and is a system that works. What I am trying to find out is: does it precipitate an inward flow or an outward flow of investment—and that would be economic activity arising out of the implementation of it?

Senator WHISH-WILSON: If I could just finish with a final comment. Obviously we have investment, we have companies and we have the vested interests that are involved in trade deals which can be good for the country—no doubt about it. Then we have got the Philip Morris case as an example, carve-outs and exceptions being put aside, where an area of public health, significant area of public interest, has been challenged by a profit-seeking corporation. We have a number of other case studies we have been given as a committee—dozens of them—where we are talking about areas of public interest being challenged by corporations through these ISDS clauses. Fracking bans, for example, et cetera, et cetera. My perspective is that trade deals should include more than just what is good for agricultural producers—particularly new trade deals that include really big, broad areas of public interest. IP is just one of them. The point here today was to try to, as legislators, look at the risk that these clauses can pose: the way they are structured; the way they occur; the historical record; and, more importantly, what is the risk in the future. I think you said that things change dramatically, and they do. Who knows where these things are going to be in five, 10 or 15 years time. We have seen a massive proliferation in the last decade of these court cases against governments.

CHAIR: Would you care to respond, Mr De Cure.

Mr De Cure : Yes, if I could, just briefly. I understand the point you are making and you refer to the tobacco case against Australia, which is the only one which has been taken against us. And I guess, as I said at the outset, that has not been decided. Many of the cases that were referred to by witnesses here today are also cases that have not been decided. So you are talking about claims; not about outcomes. I think we should judge ISDS in terms of the outcomes. I think the separate issue was around the issue of the initiation of claims and harassment, if you like. Again, that is an area where I think ISDS provisions in agreements are improving significantly to reduce those sorts of things.

Senator WHISH-WILSON: Just for the record, a lot of the case studies have had definitive claims made. We have looked at situations—$1.6 billion in Ecuador et cetera. They are in other countries and in different agreements but the point is that there have been specific moneys applying under these case studies.

Mr De Cure : I think it is important also to look not just at the headline—this was an environmental case or this was Labor case; but look at the details of the case and make judgements about them on that basis.

CHAIR: That is a good point, I think, for us to draw today's discussion to a conclusion. Can I thank you both and all other witnesses who have appeared today. I thank Hansard, the secretariat and my colleagues.

Committee adjourned at 15:04