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Foreign Affairs, Defence and Trade References Committee
05/05/2015
Commonwealth's treaty-making process

NOTTAGE, Professor Luke Richard, Private capacity

[16:38]

Evidence was taken via teleconference—

CHAIR: Welcome, Professor Nottage. Would you like to make a brief opening statement before we go to questions.

Prof. Nottage : Thank you for inviting me back before this committee. My short submission to this inquiry makes three specific proposals in relation to improving Australia's treaty-making process. By way of background to the first of these, last year some of the members of this committee may recall that I gave evidence in relation to Senator Whish-Wilson's private member's bill. That bill would have precluded the Commonwealth from entering into any international agreements providing for investor state dispute settlement—ISDS—as an extra option for foreign investors seeking to enforce the substantive guarantees given to foreign investors by host states under trade and investment agreements.

I was pleased that this committee, including the Labor senators as well as the coalition senators, agreed that that bill should not be enacted. I also noticed that the majority report agreed with my suggestion and others' suggestions that it would be timely for Australia to develop a model investment treaty or provisions, including ISDS mechanisms, that are appropriately balanced. But I think that bill, that was considered by this committee last year and is still pending before the Senate, is partly a result of a lack of adequate public understanding about quite a technical area of law: foreign investment regulation, including the procedure for actually resolving disputes if and when they arise—a lack of real understanding of the benefits versus the costs in practice and reality associated with ISDS provisions.

So, in this present submission to this committee, which is focusing on treaty making process, I first recommend that Australia should consider developing a model investment treaty or particular provisions on matters of public interest for the parliament and Australian citizens and, indeed, other parts of trade and investment agreements that are also of broader public interest—so, for example, intellectual property chapters or separate IP treaties.

Secondly, also to improve the treaty negotiating process for Australia, I suggest that we need to find ways, with the help of parliament, to incentivise the executive—namely, government officials and responsible ministers—to innovate in terms of how they propose to their counterparties particular provisions or particular ideas to be included in treaties. I think that there is a natural inclination for busy practitioners in international trade negotiations to stick to what they have used in the past, and to what others are using and so on, and not to push for things that might be innovative in their drafting or in their concepts. So there should be a role, including for parliament, to try to encourage the executive to at least put things forward in trade negotiations—even if they are not sure if they will go down very well with counterparties in those negotiations from other countries.

Thirdly, in my submission—turning away from the treaty negotiation process to the implementation of treaties—I suggest there should be enhanced transparency around things like work programs which are agreed as part of trade and investment treaties. Increasingly, agreements are reached to keep going to implement certain aspects—some of which are a little bit controversial, others of which are a bit more technical—over the course of the agreement. Unfortunately, even for experts in the field, it is often very difficult to access information about even the extent to which those work programs are functioning and meeting regularly and so on, let alone the outputs from those more specific processes.

So those are the three suggestions I make. I elaborate a little bit more on some of the design features of those in my short submission.

CHAIR: Thank you, Professor Nottage. Given that we have been making treaties since 1901—2,847 of them—is it surprising that we do not have a model agreement?

Prof. Nottage : In relation to investment, nowadays it is quite unusual, in the sense that dozens of economies, including all the major ones, both developed and developing, have a template that they start with, and which they elaborate, and sometimes update quite regularly, based on public consultation. However, we have to remember that countries like Australia started relatively late to negotiate investment treaties. We did not conclude a lot of them until we entered the era, around 2000, of starting to look to free trade agreements, including investment chapters, because there was clearly, at that stage, no realistic chance of concluding a multilateral agreement on investment, either through the WTO or the OECD. So, like Japan, for example, Australia started negotiating investment chapters on top of bilateral investment treaties, but never got around to a public consultation to develop an open model investment treaty or even particular provisions.

CHAIR: Is it common in all emerging economies and developed economies to have a template?

Prof. Nottage : Not all emerging economies but some major developing countries. India, for example, have recently put out a draft revised model BIT, which is actually quite controversial in many of its features. They are going through a process of public consultation about updating their model BIT. For developed countries it is very common. Germany, France, the UK, successively of the US and Canada have one. Of course the EU are now developing essentially a template or a model to guide their negotiations, not just with the trans-Atlantic trade and investment partnership FTA but also with the agreements they are going to be renewing or entering into with non-EU economies.

CHAIR: We have heard evidence over the last day or so that the only one happy with the consultation process is DFAT. Most of the other witnesses have said that have been unhappy with the consultation and transparency. How does a framework agreement take care of that aspect? Does it fix that aspect of the treaty-making concern?

Prof. Nottage : Yes. The main concern about lack of consultation and transparency in current FTA negotiations is that people are not sure what is being put on the negotiating table in terms of the text of the agreement; namely, the obligations that respective countries are signing up to—in this case, Australia. The investment chapter has been periodically leaked—most recently, earlier this year. So we sort of know what is in it. Those who do not like free trade agreements generally and investment chapters or ISDS in particular are of course not happy, but at least everyone knows what has been put on the table.

But this is very haphazard and, also, it does not allow for sustained, balanced, broad consultation about the merits of particular provisions included in those sorts of leaked drafts. It would be better if we had a structured process where we could get together a group of people with knowledge in the area and with concerns and so on to see if they can come up with a balanced set of obligations in the draft text that can then be put out for wider consultation so that everyone can really understand the issues and the options. In my submission I suggest, for example, that we would not necessarily need to always come to an agreement at the end of this consultation on a model treaty or on particular provisions and we could leave a couple of options, for example. Even that would serve the purpose of identifying particular issues and possible responses, and governments of the time when they come to negotiate treaties might happen to develop a preference for going one way rather than the other. But at least it would narrow the range of disagreement and create some possibility for reaching some sort of compromise way forward rather than just polarising the debate, as we are starting to see now—partly, I think, because some people feel that there is just not enough transparency around the present treaty negotiation process.

CHAIR: Given that treaties are binding on governments that may win elections later on, it would be a sign, if you like, that a model agreement thrashed out properly would be in Australia's best interest and remove a lot of this argy-bargy, so to speak, on the natural negotiation of further agreements.

Prof. Nottage : I think so. In fact that is the experience in other countries that have embarked on this sort of process. I mentioned just now that one outcome of this might be a model treaty that lists certain types of options as a compromise, particularly on contentious points at issue. When you look at the model BITs, they do not give those options. They tend to manage to reach agreement on particular provisions. That is not to say that future iterations of these in those other countries or in our country, if we go down this road, will necessarily be able to reach full agreement in terms of a model. But I think there is certainly great scope to bring more understanding and therefore common ground in terms of the sorts of provisions that we can have—that can survive changes of government at the national level.

Senator WHISH-WILSON: We heard from DFAT yesterday, and you could almost say that they were outlining what their model treaty process is at the moment. They talked about the fact that before they entered into negotiations they would go broadly and speak to stakeholders and get input. Then you go through these various stages of negotiations and public consultation and then it goes to legal scrub, gets signed by cabinet, goes to JSCOT, and a national interest assessment is done. Some of that is legislated but some of it is not. Are you suggesting that we actually have parliamentary legislation that sets up in law a model agreement, a template, that needs to be used for future trade agreements?

Prof. Nottage : In my submission I suggest that one way that parliament could be formally involved is to request the executive to develop a model treaty or provisions in particular areas where the country is regularly now engaged in treaty making. Free-trade agreements or investment treaties are a prime example. Then get them to report back.

Senator WHISH-WILSON: You say that 'parliament could issue recommendations to the executive'. Would that be via a Senate inquiry like this, for example, or via a motion in parliament? How do you see the recommendations being given effect?

Prof. Nottage : I am not an expert in parliamentary procedure and what would work both constitutionally and well in practice. I think perhaps a committee just making a recommendation that a model treaty or provisions be developed may not be enough to get a response from the executive branch, so you might need to go beyond that. The reason I say that is that after this committee gave its report on your bill last year to preclude ISDS in future agreements, when the committee by majority agreed that a better approach would be, for example, to develop a model investment treaty or provisions, I actually wrote to the federal Attorney-General and the Minister for Trade saying that that is a great idea and I would be available to help, along with co-researchers in an Australian Research Council three-year research project precisely on this sort of issue of investment dispute management. The response was, 'It is an interesting idea, but we are very busy negotiating treaties.' I think that is perfectly true. They have been very busy. But it puts the cart before the horse. I think a little bit more prompting from parliament in whatever form you can come up with that is constitutional and effective would provide further incentive for the executive to respond and actually take this sort of approach forward.

Senator WHISH-WILSON: In relation to that comment, in your submission you say that 'although these are party valid reasons, the result is that FTAs get "stuck in a rut"'. Does party valid reasons mean political or politicisation of the trade process?

Dr Nottage : I am sorry, senator, that is a typo. I wrote this in haste. That is 'partly'.

Senator WHISH-WILSON: So that does not mean 'party'.

Dr Nottage : No. It means 'partly'.

Senator WHISH-WILSON: Okay. Maybe it is my eyesight. Actually, I am wrong. It does say 'partly valid'. Maybe I wanted to read it as 'party valid reasons'. I will withdraw that question. On that note, I might hand over to someone else.

CHAIR: Thank you very much, Dr Nottage, for that submission and for your patience in waiting for your turn to give evidence. Thank you for appearing today. We remind all witnesses that the committee has set Friday 22 May as the date for the return of answers to questions taken on notice during today's hearing. I will now close this public hearing. On behalf of the committee, I thank all witnesses who have attended here today and appeared and thank Hansard for their patience and declare this hearing closed.

Committee adjourned at 16:35