On 8 February 2017, President Chris Ward of the ILA (Australian Branch) joined an esteemed panel of speakers for an event hosted by the NSW Bar Association. The topic was the impact of Donald Trump on international law, whether in present or future. More
On 7 July 2016, during a visit to Beijing, United Nations (“UN”) the then Secretary-General Ban Ki-moon met with Chinese President Xi Jinping and Foreign Minister Wang Yi. The timing was unfortunate, owing to the imminent ruling of the United Nations Convention on the Law of the Sea (“UNCLOS”) Arbitral Tribunal on the South China Sea, handed down less than a week later. More
With the victory of Donald Trump, the Trans-Pacific Partnership (“TPP”) has literally been trumped.
As a Presidential candidate, Barack Obama came to power promising to renegotiate the North American Free Trade Agreement (“NAFTA”). As a President, a centrepiece of his administration was the proposal for the TPP, a trade agreement spanning the Pacific Rim. He argued that the trade agreement was essential for the economic and political power of the USA.
The TPP was also ambitious in terms of its membership. The agreement included NAFTA countries such as the USA, Canada, and Mexico. The deal involved Australasian nations, like Australia and New Zealand. The TPP also included South-East Asian countries, such as Singapore, Malaysia, Brunei, Vietnam, and Japan, as well as a couple of Latin American countries such as Chile and Peru. Notably, the TPP excluded members of the BASIC/ BRICS group — such as China, India, Brazil, South Africa, and Russia. Despite its name, the TPP also ignored Pacific Island states. The political geography of the TPP was largely determined by alliances with the USA.
The TPP was sweeping in terms of its subject matter. As well as traditional matters of trade, the agreement also contained extensive prescriptive obligations in respect of intellectual property and investment. The agreement included an extensive Intellectual Property chapter, with provisions on copyright law, trademark law, patent law, and biologics. The TPP also enshrined a controversial Investor-State Dispute Settlement regime (“ISDS”). Such a regime would enable corporations to challenge government decision-making in investment arbitration tribunals. The agreement also contained weak protections in respect of public health, the environment, and labour rights.
As a result of its breadth of membership, and the scope of its subject matter, the TPP was highly unstable. The agreement collapsed in the wake of the 2016 United States elections. With the collapse of the TPP, the debate over trade amongst Pacific Rim nations will shift to other arenas and fora.
The United States of America
The TPP was a key focal point in the Presidential Race.
After initially supporting the TPP, Hillary Clinton shifted her position, first to one expressing reservations about the TPP, and then to opposition to the TPP. Such a repositioning by Clinton was the result of a vigorous challenge from Bernie Sanders, and the deep opposition of the Labour Movement to the TPP.
For his part, Donald Trump promised to renegotiate the NAFTA on more favourable terms to the United States. He vowed to “withdraw from the TPP, which has not yet been ratified.” Donald Trump promised his supporters to negotiate “fair trade deals that create American jobs, increase American wages, and reduce America’s trade deficit”.
Clinton attacked Trump’s credentials, arguing that his trademarked, personalised products were manufactured outside the United States.
For his part, Donald Trump argued that Clinton would pass the TPP, if she won the election.
In the wake of the Trump victory, the White House has conceded that the TPP is doomed. Barack Obama was previously tempted to push ahead with a TPP vote in the US Congress in the lame-duck session. Now, it seems that he has conceded neither the Republicans nor the Democrats will support the TPP in the US Congress.
In retrospect, it seems a grand folly that the Obama Administration should have pushed for the TPP, in the middle of a Presidential race between Donald Trump and Hillary Clinton. Lori Wallach of Public Citizen observed:
“The TPP did not elect Trump per se. But with no small thanks to President Obama’s relentless, high-profile campaign throughout the primaries and general election to pass the pact, the TPP pact readily served as a potent symbol of business-as-usual in Washington and its facilitation of growing corporate power over every facet of our lives”.
Presciently, the documentary film-maker Michael Moore warned of a Rust-Belt Brexit against Hillary Clinton in the mid-west states of the United States. He observed that “Clintons’ support of NAFTA helped to destroy the industrial states of the Upper Midwest” and “Trump is going to hammer Clinton on this and her support of TPP and other trade policies.”
Former Clinton Labor Secretary Robert Reich has lamented that trade deals, declining unionization and market concentration created an opening for Donald Trump’s presidency. He observed that “Americans have rebelled by supporting someone who wants to fortify America against foreigners as well as foreign-made goods.” Reich acknowledged that such protectionist sentiments had created unease amongst the political and economic establishment: “The power structure understandably fears that Trump’s isolationism will stymie economic growth.”
For their part, Progressive Leaders have denied that Trump should claim credit for the demise of the TPP. Evan Geer of Fight for the Future commented:
“Let’s make one thing clear: Donald Trump didn’t kill the TPP. We did. An unprecedented grassroots movement of people and organizations from across the political spectrum came together to spark an uprising that stopped what would have been nothing less than an outright corporate takeover of our democratic process. Together we sounded the alarm, and made the TPP so politically toxic that no presidential candidate who wanted to be elected could support it.”
Arthur Stamoulis, executive director of Citizens Trade Campaign, agreed, saying:
“With peoples’ movements united across borders and across sectors, we were able to stop a power grab by some of the most powerful economic and political interests in human history.”
Digital rights defenders, the Labour Movement, and environmental and climate activists have said that the TPP collapsed in the face of concerted community action and civil society pressure.
In Australia, the Joint Standing Committee on Treaties has held hearings in respect of the TPP. This report was published by the Federal Parliament on November 30, 2016.
The Senate Foreign Affairs, Defence and Trade Committee is also investigating the TPP. There have been concerns expressed about copyright law, trade mark law, patent law, and biologics in the hearings.
Moreover, the Productivity Commission has had an inquiry into Australia’s Intellectual Property Arrangements — including those related to trade.
In the wake of the Trump triumph, the Australian Prime Minister Malcolm Turnbull has warned that protectionism will result in poverty. He has extolled the virtues of free trade agreements. Turnbull has emphasized that the Australian economy needs to be ‘flexible’ and ‘competitive’, but ‘fair.’
Foreign Minister Julie Bishop and Trade Minister Steven Ciobo have sought to defend the Australia-United States Free Trade Agreement (“AUSFTA”), saying that it is running a surplus in favour of the United States. The Ministers have conceded that the TPP’s future is under threat. Bishop and Ciobo have noted, though, Australia could otherwise pursue bilateral agreements with countries such as India, Indonesia, and the European Union, and regional agreements — such as the Regional Comprehensive Economic Partnership.
The Australian Labor Party will no doubt be relieved that the Turnbull Government cannot wedge the party with the TPP. With the Trump victory, Leader of the Opposition Bill Shorten MP has shifted policy tack. He has argued that “Labor’s approach to the Australian economy is buy Australian, build Australian, employ Australians.” Shadow Minister for Finance Jim Chalmers has emphasized the need for the party to address the concerns of voters who feel trampled by the forces of globalisation and technological change. The Shadow Trade Minister Jason Clare has stressed the need for “policies that increase real wages, improve living standards, reduce under employment and reverse the rise in inequality.”
Senator Sarah Hanson-Young of the Australian Greens has said:
“It would be extremely foolish to continue down the path towards any form of enabling legislation or ratification of the TPP in Australia, considering the circumstances.”
Senator Nick Xenophon feels vindicated over his criticism of the TPP.
There have been few mourners for the end of the TPP in Australia. By and large, the agreement seemed unloved by the larger public.
It has been striking that legislators in the Parliament of Australia, civil society, and business have been deeply concerned about how the Department of Foreign Affairs and Trade has been conducting trade negotiations. The defeat of the secretive TPP has highlighted the need for transparency, accountability, and public participation in future trade negotiations.
Even though the TPP has collapsed, there remains debate about whether a number of Pacific Rim states will implement TPP legislation, anyway. Jeremy Malcolm of the Electronic Frontier Foundation observed: “The death of the TPP in the United States does not necessarily mean that these implementation plans will be scrapped.” The TPP legislative process has been well-advanced in New Zealand, Japan, and Malaysia.
In the New Zealand Parliament, there has been debate over the implementing legislation for the TPP. New Zealand’s then Prime Minister John Key wondered whether the TPP could be passed at a later date, with cosmetic changes. Key has joked that such an agreement could be dubbed the ‘Trump Pacific Partnership’.
The Trade Minister Todd McClay maintained that the TPP would benefit New Zealand: “Trade is essential to the New Zealand way of life, our standard of living, and our potential to become a more prosperous country.”
Key has since resigned as Prime Minister, and been replaced by Bill English.
Rino Tirikatene of the New Zealand Labour Party mocked the Key Government’s enthusiasm for the TPP:
“In the great scheme of things it was a bad deal, an incredibly bad deal, and that is evidenced today by us passing a piece of legislation that will mean absolutely nothing — absolutely nothing.”
Reflecting on the impact of Trump’s victory on the TPP, he observed that:
“It is a dead deal, dead rubber, a dead duck, thanks to, I guess, the Don, the great Don, who has come in, over in the US… the TPP is dead, it is over; finito. Kia ora tātou.”
Clare Curran of the New Zealand Labour Party supported genuine intellectual property law reforms — such as the introduction of a defence of fair use in copyright law.
Gareth Hughes of the New Zealand Greens commented that the TPP was a terrible failure:
“All you can do is facepalm. Surely this is the definition of futility. The day after Trump is elected, National is passing the Trans-Pacific Partnership Agreement Amendment Bill. You could not write this stuff. It encapsulates what a failure and a farce this entire 7-year process has been”.
He argued that New Zealand needed to reform and modernise its intellectual property regime — particularly through the introduction of a defence of fair use in copyright law.
Professor Jane Kelsey of the University of Auckland paid tribute to the community campaign against the TPP in New Zealand:
“An unprecedented campaign against the TPP brought together Kiwis from every walk of life — doctors, musicians, local governments, Maori, the Internet community, unionists and politicians, and many tens of thousands of ordinary Kiwis who took to the streets all over the country. As we celebrate this victory, for now, we call on all our governments to abandon the failed model they continue to push in other equally toxic negotiations. We will continue to work with international allies to develop a progressive and just alternative based on the people’s needs for the 21st century, not those of the corporations”.
Professor Jane Kelsey has observed that the TPP is dead, and New Zealand needs to rethink its approach to negotiating trade agreements in the future.
In Canada, the Trudeau Government seemed quite ambivalent about the TPP — which it had inherited from the former Harper Government. Trudeau expressed a willingness to renegotiate NAFTA with the new Trump administration.
Maude Barlow, National Chairperson of the Council of Canadians, commented:
“The TPP is in full-blown cardiac arrest, thanks to years of international campaigning against this toxic deal, including turning Senate and House elections into contests over rejecting the TPP. But the one thing I know from watching trade agreements is that free trade proponents always try to resuscitate these deals under different names — CETA, TiSA and others. We need to put a ‘do not resuscitate’ order on these corporate deals once and for all”.
She warned that there would be potential for policy laundering — with the text from the TPP copied and pasted to future trade agreements.
Professor Michael Geist of the University of Ottawa has recommended that there is a need for the Canadian Government to reconsider its approach to trade negotiations:
“The public backlash against trade deals points to a process that leaves many feeling excluded and to terms that are presented publicly for the first time as final. The real opportunity for Ottawa is not just to explore new trade partners but to challenge some of the long-standing assumptions about such deals in order to foster greater public confidence in the outcome”.
Geist noted: “Mr. Trudeau’s government inherited a trade policy marked by secrecy, encroachment onto domestic regulation and little ambition to see Canadian policies reflected in the final texts”. He suggested: “The TPP’s demise offers the chance for real change by pursuing trade agreements that offer economic gains and remain true to the commitment for an open and transparent government.”
There has been much disquiet about the potential of a trade war between the United States and China over topics such as currency manipulation, domestic subsidies, and intellectual property. Former Australian Foreign Minister Bob Carr, for instance, has been particularly fearful of a conflict.
In his trade policy, Donald Trump promised to use:
“[E]very lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets — including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.”
President-Elect Donald Trump could learn from the past fights between the United States and China over intellectual property. President George W. Bush brought a trade action against China over intellectual property in the World Trade Organization. By and large, China was successful in this trade dispute. President Barack Obama has sought to deploy the Department of Justice to tackle cases of trade secret violations.
For its part, China has proven to be an adroit counterpuncher in disputes over intellectual property and trade. First, China has become an intellectual property superpower. The country’s leading companies have acquired and invested in patents, trademarks, designs, and copyright across an array of high tech sectors. Second, China will scrutinise Donald Trump’s protectionist policies, and challenge anything that falls foul of the WTO rules. Finally, China will pursue its own network of trade deals in the Pacific Rim. China has already forged a bilateral trade agreement with Australia, and is pursuing the Regional Comprehensive Economic Partnership (“RCEP”). Australia has shown enthusiasm for participating in RCEP.
It remains to be seen whether Donald Trump will be able to realise his grand vision in respect of intellectual property and trade.
Dr Matthew Rimmer is a Professor in Intellectual Property and Innovation Law at the Faculty of Law in the Queensland University of Technology (QUT). He is a leader of the QUT Intellectual Property and Innovation Law research program, and a member of the QUT Digital Media Research Centre (QUT DMRC), the QUT Australian Centre for Health Law Research (QUT ACHLR), and the QUT International Law and Global Governance Research Program (QUT IL GG). Rimmer has published widely on copyright law and information technology, patent law and biotechnology, access to medicines, plain packaging of tobacco products, intellectual property and climate change, and Indigenous Intellectual Property. He is currently working on research on intellectual property, the creative industries, and 3D printing; intellectual property and public health; and intellectual property and trade, looking at the Trans-Pacific Partnership, the Trans-Atlantic Trade and Investment Partnership, and the Trade in Services Agreement. His work is archived at SSRN Abstracts and Bepress Selected Works.
This article was first published on Medium and is republished here with permission.
Does ISDS Promote FDI? Asia-Pacific Insights from and for Australia and India – Luke Nottage & Jaivir Singh
Treaty-based Investor-State Dispute Settlement (ISDS) keeps attracting media attention. An example is a social media campaign by the ‘GetUp!’ group, which aims generally ‘to build a progressive Australia and bring participation back into our democracy’, objecting to ratification of the Trans-Pacific Partnership (TPP). This free trade agreement (FTA), signed in February 2016, encompasses Australia and 11 other Asia-Pacific economies generating around 40% of world GDP. Whether and how the TPP will be ratified and come into force has become very uncertain anyway, after the unexpected victory of Donald Trump in US presidential elections. Although Trump seems already to be backtracking on some of his pre-election positions, he had been opposed to the US ratifying the TPP and indeed favoured renegotiation of the longstanding North American FTA with Canada and Mexico. Both FTAs include the option of ISDS, allowing foreign investors to bring direct claims against host states for violating substantive commitments such as non-discrimination or adequate compensation for expropriation.
Nonetheless, taking advantage of the extra uncertainty now surrounding the TPP, China is already trying to get Australia’s support to progress negotiations for a broader FTA, establishing a “Free Trade Area of the Asia-Pacific” (FTAAP). China had been pressing for a FTAAP as it had not been included in TPP negotiations. After the TPP was signed, China had also tried to accelerate negotiations for the Regional Comprehensive Economic Partnership (RCEP or ASEAN+6) FTA, underway since late 2012 and involving ten Southeast Asian states along with China, Japan, Korea, India, Australia and New Zealand. Ministerial statements and a leaked draft Investment Chapter indicate that ISDS provisions remain on the negotiating agenda for RCEP (Kawharu, Amokura and Nottage, Luke R., Models for Investment Treaties in the Asian Region: An Underview, 2016).
Public opposition to ISDS therefore remains an important issue, particularly in the Asia-Pacific region. Legal professionals need to engage with this debate and understand the pros and cons of this dispute resolution procedure, especially the investor-state arbitration mechanism. On the one hand, the GetUp! Campaign against the TPP had focused on the risk of Australia being subject to ISDS claims especially from US investors, in light of their claims against Canada under the North American FTA. Yet damages awarded by arbitrators or through settlements amount to only 0.05% of US FDI in Canada, and the latter’s investors bring more ISDS claims per capita than US investors.
On the other hand, the GetUp! campaign did not adequately explain or consider why and how ISDS commitments are made. Host states have increasingly offered such protection to foreign investors in investment treaties since the 1970s. Bilateral investment treaties (BITs) proliferated especially as communist states began to open up their economies from the 1990s. Bilateral and regional FTAs, usually with investment chapters also containing ISDS protections, were concluded after the collapse of efforts to develop a multilateral investment agreement through the World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD).
The extra option of treaty-based ISDS was seen as a more direct and less politicized procedure compared to inter-state dispute settlement. The latter is still typically provided in investment treaties (but hardly ever used), as well as for trade disputes under the WTO (where, for example, Australia has only been complainant in seven cases – last in 2003). Credible commitments through ISDS-backed treaties were seen as particularly important for developing countries where domestic courts and legal protections did not meet international standards.
Yet ISDS has recently become a lightning rod for public opposition to FTAs (and economic globalization more generally), often after host states are subjected to their investment treaty claims (Nottage, Luke R., Rebalancing Investment Treaties and Investor-State Arbitration: Two Approaches,, 2016). For example, major debate emerged in India after Australia’s White Industries won a claim in 2011 under UNCITRAL Arbitration Rules as provided by the BIT with India (signed with Australia in 1999). The tribunal found that India had not satisfied the promised “effective means” for the investor to enforce a commercial arbitration award (against an Indian SOE). This and subsequent claims prompted the Indian government to finalise a revised (less pro-investor) Model BIT in December 2015 It is now being used in negotiating new BITs (eg that signed with Cambodia in 2016) and indeed when proposing to terminate older-generation treaties (including with Australia).
Similarly, Philip Morris Asia’s much larger claim initiated in 2011 under a BIT signed in 1993 with Hong Kong, for alleged expropriation of trademarks from Australia’s tobacco plain packaging legislation, led to escalating local media coverage – until the arbitral tribunal rejected jurisdiction in 2015 (Hepburn, Jarrod and Nottage, Luke R., Case Note: Philip Morris Asia v Australia, 2016). This cause celebre also became a factor behind the Gillard Government Trade Policy Statement announcing in 2011 a major shift for Australia: eschewing ISDS in new treaties, even with developing countries (Nottage, Luke R., The Rise and Possible Fall of Investor-State Arbitration in Asia: A Skeptic’s View of Australia’s ‘Gillard Government Trade Policy Statement’, 2011). This resulted in no significant FTAs being concluded, until a new Coalition Government gained power in late 2014 and reverted to including ISDS on a case-by-case assessment (Nottage, Luke R., Investor-State Arbitration Policy and Practice in Australia, 2016). The current Labor Opposition maintains its objections to ISDS, creating difficulties for Australia to ratify the TPP.
Australia’s temporary shift was partly due to politics: in 2011 the (centre-left) Gillard Labor Government was in coalition with the Greens, who are even more opposed to free trade and investment. But the stance also relied on arguments from some economists, even though they instead favour more free trade and foreign investment, albeit through unilateral or perhaps multilateral initiatives rather than bilateral or even regional FTAs. Developing the latter perspective , a majority report of the Productivity Commission in 2010 into Australia’s FTAs had argued against the common world-wide practice of offering foreign investors extra procedural rights such as ISDS. It did concede that such extra rights might be justified, for example if they led to greater cross-border flows in foreign direct investment (FDI). Yet the Commission pointed to a few studies suggesting that, on an aggregate (world-wide) basis, ISDS-backed treaty provisions had not significantly increased flows.
A recent econometric study by Luke Nottage (a co-author of this posting) with Shiro Armstrong casts doubt on that observation (Armstrong, Shiro Patrick and Nottage, Luke R., The Impact of Investment Treaties and ISDS Provisions on Foreign Direct Investment: A Baseline Econometric Analysis, 2016. After an extensive review of existing empirical research and associated methodological issues, their study instead found positive and significant impacts from ISDS provisions on FDI outflows from OECD countries over 1985-2014, using a Knowledge-Capital Model with a dynamic panel indicator (effectively addressing the problem of endogeneity in variables). This impact on FDI could be found from ISDS provisions on their own, especially when ISDS was included in treaties signed or promptly ratified with non-OECD or less developed countries. The econometric study by Armstrong and Nottage also found a positive and significant impact from ISDS provisions when combined with the Most-Favoured-Nation provision, which is a key and indicative substantive treaty commitment for foreign investors. (This aspect was tested because the “strength” of treaties can vary in terms of substantive commitments by host states: we might not expect much impact on FDI even from ISDS provisions if the substantive protections and liberalisation commitments are few.)
Counter-intuitively, however, the study found that in general FDI impact was even larger for weaker-form ISDS provisions. This could be due to investors historically having been impressed by a broader “signaling” effect from states concluding investment treaties. Yet the impact from ISDS provisions also seems to be diminishing since 2001, when ISDS claims started to pick up world-wide and therefore investors (or at least legal advisors) could have begun to pay more attention to the details of ISDS and other treaty provisions. Reduced impact since 2001 may be related to more efforts from host states to unilaterally liberalise and encourage FDI. However, it could also be due to a saturation effect (as treaties began to be concluded with less economically important partner states), or indeed due to less pro-investor provisions being incorporated into investment treaties (influenced by more recent US practice, partly in response to ISDS claims (Alschner, Wolfgang and Skougarevskiy, Dmitriy, Mapping the Universe of International Investment Agreements, 2016.
Further variables impacting on FDI (such as double-tax treaties) could be investigated, as can regional differences. Data limitations also remain, as there is now considerable FDI outflow from non-OECD countries. Nonetheless, this baseline study suggests that it has been and still may be risky to eschew ISDS provisions altogether. In particular, results indicate a strong positive effect on FDI flows from ratified investment treaties overall even from 2001. So states would have missed out on that if they had insisted on omitting ISDS, and this then became a deal-breaker for counterparty states.
Further econometric research underway at a Delhi-based thinktank suggests that India was correct not to abandon ISDS provisions altogether in its revised Model BIT (and to retreat from an even less pro-investor earlier draft of the Model BIT. While this study by Jaivir Singh (one of the co-authors of this posting) and his colleagues is still ongoing, preliminary results (using instead a gravity-type model) find that although the signing of individual BITs had an insignificant impact on FDI inflows into India, the cumulative effect of signing BITs is significant and so is the coefficient associated with the signing of FTAs. Since almost all of India’s investment treaties provide for full ISDS protections, these preliminary results suggest that ISDS can have a positive influence on foreign investment, albeit in a non-obvious compound manner.
Overall, these studies suggest that ISDS-backed treaty provisions liberalising and protecting FDI have had a significant impact, but in complex and evolving ways. Agreeing to dialed-back ISDS provisions and even substantive commitments (perhaps following recent EU preferences may be an acceptable way forward. This is true especially for Australia and India, as they continue negotiations bilaterally as well as through RCEP, and perhaps eventually for the FTAAP FTA.
Luke Nottage is Professor at University of Sydney Law School & Jaivir Singh is Associate Professor at Jawaharlal Nehru University, Delhi.
This post draws on Nottage’s joint project researching international investment dispute management, funded by the Australian Research Council (DP140102526, 2014-7); and Singh’s ongoing project assessing the impact of investment treaties on FDI in India, for the Indian Council for Research on International Economic Relations. Singh was a visitor at the University of Sydney in October 2016. The article was first published by the Asia-Pacific Forum for International Arbitration, and republished here with permission.
On 24 October 2016, Lord Goldsmith addressed an ACICA audience in Sydney about Brexit and arbitration. He set the Brexit scene: Theresa May is still tight-lipped about the nature of Brexit, following a Brexit campaign characterised by a lack of clarity on what Brexit would actually mean. Uncertainty abounds, except for in one aspect: indications are that negotiations will not be easy. The EU has made it clear to the UK that there will be ‘no negotiation without notification.’
First things first – the constitutional challenge: May plans to trigger Article 50 of the Lisbon Treaty next year but does she have the authority to do that under the royal prerogative? This issue is being hotly debated and is currently being tried in the London Courts. On 3 November 2016, the High Court delivered judgment finding that Article 50 could not be invoked without an Act of Parliament. Arrangements are in place for an expedited appeal straight to the UK Supreme Court and that case will be heard by December. Consequences for the UK and EU will be massive. Much of that is only dimly seen right now.
Impact on London arbitration
The thesis of Lord Goldsmith’s talk was that Brexit will not lead to a diminution of the merits or popularity of London as a seat of arbitration, nor damage the popularity of English law as the commercial law of choice for many international transactions. Why is this the case?
At the centenary conference of the Chartered Institute of Arbitrators (CIArb) in London last year, the CIArb published a list of ten features necessary to make for a safe, effective and successful seat of arbitration. These features are: (1) a clear arbitration law; (2) an independent judiciary; (3) legal expertise; (4) education; (5) the right of choice in representation; (6) accessibility and safety of the seat; (7) facilities; (8) professional ethics that embrace diversity of traditions; (9) enforceability; and (10) arbitrator immunity. London meets all of these requirements, none of which depend on UK membership of the EU. There is, therefore, no reason to believe that London will diminish in popularity as a seat of arbitration. Lord Goldsmith opined that despite the growth of arbitration and arbitral institutions in Asia, Brexit will not spark a ‘land grab’ for traditionally London-based work by other arbitration centres.
In addition to the challenges presented by Brexit, there are certain opportunities. First, there may be a substantive disentanglement of English law and EU law. European law has coloured English law, so if EU regulations no longer apply then English common law may see a resurgence. Secondly, the determination of jurisdictional issues in court cases may end up vastly different should the UK go down the path of abandoning the Brussels Regulation regime and return to common law forum non conveniens principles. The current regime means a UK commercial court can be seized of a matter in circumstances where it is not necessarily the most appropriate forum, but then have limited ways to decline jurisdiction. Right now though, it is uncertain what will happen in terms of UK court judgments until we know more about how the UK will proceed in relation to its private international law framework with respect to the EU. This might push some users towards arbitration, which has a reliable enforcement regime under the New York Convention. Another advantage of Brexit might be that UK courts will again be able to issue anti-suit injunctions directed at European courts. UK courts once commonly issued anti-suit injunctions to prevent proceedings brought in breach of arbitration agreements. This was, however, put to an end in 2004 when the European Court of Justice held that the practice was incompatible with the Brussels Convention.
Thirdly, Brexit might influence the debate about investor-State dispute settlement (ISDS). The EU has proposed an ‘Investment Court System’, a permanent investment court with an appeals process for the Transatlantic Trade and Investment Partnership (TTIP). The competence for negotiating EU treaties currently rests with the EU, and the EU has been firm that the UK is not free to negotiate its own treaties whilst it remains in the EU. The question is, would being freed from the EU give the UK a negotiating advantage? Only time will tell.
In the meantime, it is plausible even if the USA agrees to the an investment court system that it will still opt for conventional ISDS mechanisms in its other trade deals, in which case we might not see the inexorable rise of the Investment Court System. The UK’s decision to opt for one model or the other will influence the course of the debate particularly as the UK will become one of the more active trade negotiating countries over the coming years.
In his concluding remarks, Lord Goldsmith stated that it may now be time for Australia and the UK to grow a new and invigorated cooperation in the field of common law. This is also the time for lawyers to examine closely the opportunities for collaboration in training, development of the law and finding better ways to serve clients.
Marina Kofman is Assistant Editor of the ILA Reporter. A version of this article was originally written for and published by ACICA. It is partially reproduced here with permission.
Philip Morris v Australia award released: Tribunal decides that Philip Morris’ claim constitutes an abuse of rights – Jack Williams
On 16 May 2016 the Permanent Court of Arbitration released a redacted version of the Tribunal’s award on Jurisdiction and Admissibility (“Award”) in the investor-State arbitration dispute between Philip Morris Asia Limited (“Philip Morris”) (part of the Philip Morris group) and the Commonwealth of Australia.
The arbitration concerned the Tobacco Plain Packaging Act 2011, which was passed by the Australian Parliament on 21 November 2011 (and became law following Royal Assent on 1 December 2011). On 21 November 2011 Philip Morris served Australia with a formal Notice of Arbitration that initiated a lengthy international arbitration proceeding over Australia’s tobacco plain packaging laws. On 17 December 2015 the Tribunal issued a unanimous decision in Australia’s favour, but the award could not be released until confidential information was redacted.
In its award the Tribunal held that it was precluded from exercising jurisdiction over the tobacco plain packaging dispute because Philip Morris’ initiation of the arbitration constituted an ‘abuse of rights’. This was so, the Tribunal held, because Philip Morris had restructured its business at a time when there was a reasonable prospect that the dispute would materialise and it did this for the principal, if not sole, purpose of initiating arbitration proceedings against Australia over its tobacco plain packaging laws under the 1993 bilateral investment treaty between Australia and Hong Kong. The Tribunal was unconvinced by Philip Morris’ argument that other business and tax advantages were the principle drivers behind the restructure (Award, paras 582 and 584).
Interestingly, the Tribunal held that the test for whether a corporate restructure will constitute an abuse of rights is if an investor restructures its business to take advantage of treaty protection at a time when a specific dispute is foreseeable. The Tribunal held that ‘a dispute is foreseeable when there is a reasonable prospect…that a measure which may give rise to a treaty claim will materialise’ (Award, para 554). This can be contrasted with another leading award on the abuse of rights doctrine, Pac Rim v El Salvador, where the Tribunal held that an abuse of rights will only be established where restructuring takes place at a time when a specific dispute can be foreseen ‘as a very high probability and not merely as a possible controversy’ (Award, para 554). Accordingly this latest award applies a lower threshold test than that in the Pac Rim award for what constitutes an abusive restructure.
In conclusion this award provides authority for the proposition that multinational companies may restructure their business to take general advantage of potential treaty protections. However, if the corporate restructuring occurs at a time when there is a reasonable prospect that a specific dispute will materialise, the abuse of rights doctrine may preclude the investor from taking advantage of any applicable treaty protections with respect to that specific dispute.
Philip Morris sought to either have the tobacco plain packaging laws withdrawn or not applied to their investments or, in the alternative, to be awarded at least US$4.16 billion in damages from the Australian Government (Award, para 89).
The next and final stage in the proceedings is for the Tribunal to decide on the allocation of costs associated with the arbitration (Award, para 590).
Jack Williams is a Legal Officer at the Australian Attorney-General’s Department and spent three years working on the Australian Government’s legal defence of tobacco plain packaging in the arbitration that is the focus of this article and in the World Trade Organization. The views expressed in this article are the author’s own and do not necessarily represent the views of the Australian Government.
Setting the Boundaries in the Timor Sea: The Prospects of Renewed Negotiations between Australia and East Timor – Esther Pearson
The issue of maritime boundaries in the Timor Sea is once again live following a request from East Timor’s Prime Minister, Rui Araugj, to Prime Minister Malcolm Turnbull that the leaders meet to discuss a permanent maritime boundary. According to Dr Araujo, the existing arrangements governing the exploitation of gas and oil resources in the Timor Sea are not consistent with East Timor’s entitlements under international law. Mr Turnbull has offered to hold ‘frank and open’ discussions about the border, while the Shadow Minister for Foreign Affairs, Tanya Plibersek, has said that the Australian Labor Party, if successful at the Federal election, would negotiate in ‘good faith’ and would submit the matter to international arbitration if negotiations were to fail. This article discusses the background to the dispute and the current arrangements between Australia and East Timor, as well as the possible outcome of any arbitration.
Background and Current Arrangements
In 1972, Australia and Indonesia entered an agreement on maritime boundaries in the Timor Sea, with the final boundary being divided into two sections separated by a gap, in recognition of the existence of what was, at the time, Portuguese Timor. The gap became known as the ‘Timor Gap’, and the ‘Timor Gap Zone of Cooperation’ was established between Australia and Indonesia. On 20 May 2002, the date of East Timorese independence, Australia and East Timor entered into the ‘Timor Sea Treaty’ (‘TST’), which established a Joint Petroleum Development Area (‘JPDA’) over the central part of the Zone of Cooperation. The southern boundary of the JPDA representing the median line between Australia and East Timor. Under Article 2 of the TST, the issue of maritime boundaries was set aside without prejudice to the States’ future rights to negotiate a permanent boundary. It was agreed that East Timor would receive 90% of the revenue from the exploitation of the gas and oil deposits in the JPDA and Australia would receive 10%.
On 6 March 2003, the Sunrise International Unitisation Agreement (‘Sunrise IUA’) was signed between Australia and East Timor that unitised the fields that straddled the eastern side of the JPDA into the ‘Greater Sunrise’ field. The Sunrise IUA deemed 20.1% of the field to lie within the JPDA, meaning that, as East Timor was to receive 90% of the revenue under the TST, it would receive 18.1% of the revenue from the Greater Sunrise field. East Timor considered this arrangement to be unacceptable and refused to ratify the agreement.
Negotiations concerning the exploitation of the Greater Sunrise field resumed in 2004, eventuating in the signing of the Treaty on Certain Maritime Arrangements in the Timor Sea (‘CMATS’) on 12 January 2006. Article 2 of CMATS provides that the treaty is without prejudice (inter alia) to the States’ legal position regarding maritime boundaries, while Article 12 defers each States’ boundary claims for up to 50 years. Under Article 5, Australia and East Timor are to share the revenue from the exploitation of the field equally, despite that around 80% of the field lies outside the JPDA and within Australia’s continental shelf.
The key legal instrument governing the law of the sea is the United Nations Convention on the Law of the Sea (‘UNCLOS’). Articles 56 and 57 of UNCLOS allow States to declare an Exclusive Economic Zone (‘EEZ’) of up to 200 nautical miles (‘nm’), in which the State has sovereign rights to explore, exploit, converse and manage natural resources in the seabed, subsoil and water column. Articles 76 and 77 entitle States to a continental shelf that extends to the outer edge of the continental margin, or to a distance of 200 nm from the territorial sea baseline, in which the State has sovereign rights to explore and exploit the seabed and subsoil.
In the case of States with opposite coasts less than 400 nm apart, it is necessary for the States to agree, or for an independent body to decide, on the delimitation of the States’ maritime boundaries. Article 74 of UNCLOS relevantly provides (inter alia) as follows:
- ‘The delimitation of the exclusive economic zone between States with opposite or adjacent coasts shall be effected by agreement on the basis of international law, as referred to in Article 38 of the State of the International Court of Justice, in order to achieve an equitable solution.
- If no agreement can be reached within a reasonable period of time, the States concerned shall resort to the procedures provided for in Part XV.
Article 83 of UNCLOS addresses the delimitation of the continental shelf and is substantially in the same wording as Article 74.
The Current Situation
East Timor asserts that the north/south boundary between Australia and East Timor should be determined on the basis of equidistance. Given that the southern boundary of the JPDA represents the median line between the States, this would effectively bring the entirety of the JPDA within East Timor’s EEZ. East Timor also wants to shift the eastern and western laterals (the sides of the JPDA) further in each direction. This would bring a greater proportion of the Greater Sunrise field within the JPDA.
Australia, on the other hand, has traditionally argued that the delimitation of continental shelves in the Timor Sea should reflect the ‘natural prolongation’ of each States’ land territory under the sea. This would lead to the formation of two separate continental shelves separated by the Timor Trough, with Australia’s continental shelf extending significantly further than that of East Timor. Australia also refutes East Timor’s claims to the east and west of the JPDA. These opposing attitudes are likely to make it difficult for an agreement to be reached through negotiation.
Articles 74(2) and 83(2) of UNCLOS provide that if no agreement can be reached through negotiation, the States should resort to the procedures enshrined in Part XV. Under Part XV, each State that accedes to or ratifies UNCLOS is to choose whether any dispute will be submitted to the International Tribunal for the Law of the Sea (‘ITLOS’), the International Court of Justice (‘ICJ’) or an arbitral tribunal. On 21 March 2002, in submitting to the jurisdiction of ITLOS and the ICJ, Australia declared that it did not accept any of the dispute resolution procedures in the case of maritime boundary disputes. On 25 March 2002, Australia made a reservation under Article 36(2) of the Statute of the International Court of Justice as to the jurisdiction of the ICJ to resolve disputes over maritime boundaries.
Possible Outcome of Arbitration
This leaves East Timor with the possibility of submitting the matter to international arbitration, should the Australian government be willing. While the arbitrator/s would not be bound by the jurisprudence of ITLOS and the ICJ, the principles established by these bodies are likely to have some influence on the outcome. Despite the finding of the ICJ in North Sea Continental Shelf (Federal Republic of Germany/Netherlands) that natural prolongation should be a significant factor guiding the delimitation of the continental shelf, more recently, the concept of equidistance has been given primacy (see, in particular, Continental Shelf (Libyan Arab Jamahiriya/Malta)).
In its judgment in Maritime Delimitation in the Black Sea (Romania v Ukraine), the ICJ developed a three-step approach to the delimitation of States’ boundaries with opposite coasts. Firstly, a provisional median line is drawn between the coastal States. Secondly, any factors that require an adjustment to the provisional line to achieve an equitable result are considered. Finally, to ensure the result is equitable, the ratio between the States’ coastal lengths and maritime areas, with reference to the adjustment line, are compared. As there are no obvious factors requiring an adjustment to the provisional median line between Australia and East Timor, it is reasonable to expect any arbitral tribunal to find in favour of an equidistant north/south boundary.
In terms of the eastern and western JPDA laterals, an opinion prepared by three public international law specialists, Vaughan Lowe, Christopher Carleton and Christopher Ward, considers that the laterals should move further in each direction. According to the opinion, the western lateral proceeds from the incorrect point on East Timor, and, should the lateral proceed from the correct point, the line would move somewhat to the west. In addition, the eastern lateral gives disproportionate effect to the western Indonesian island of Leti. This means that all points on the lateral are equidistant between East Timor and Leti, resulting in the eastern boundary being closer to East Timor. If half or three-quarters effect were given to Leti, consistent with ICJ jurisprudence (see Continental Shelf (Tunisia/Libyan Arab Jamahiriya), the eastern lateral would move significantly to the east, placing most, or all, of the Greater Sunrise field with East Timor’s EEZ. This also points towards an arbitral tribunal finding in favour of East Timor.
The issue of maritime boundaries in the Timor Sea is the cause of considerable tension between Australia and East Timor. The foregoing analysis suggests that East Timor’s Prime Minister may, in fact, be correct to say that the existing arrangements do not reflect East Timor’s entitlements under international law. With this in mind, the outcome of the upcoming Federal election may bring about a significant change in the relationship between the two Asia-Pacific neighbours.
Esther Pearson is Assistant Editor of the ILA Reporter.
The final stages of the Trans Pacific Partnership (TPP) negotiations were well-publicised in Australia, albeit hazy with regard to the implications of the agreement. Negotiations between Australia, the US, Japan and nine other Asia-Pacific countries over the mammoth deal have been ongoing for seven years. From an international law point-of-view, the fact that an agreement has been reached is in itself laudable.
DFAT has said that outcomes from the conclusion of the TPP include new market opportunities for exporters and investors, increased transparency of regulators frameworks, greater certainty for businesses, improved access for regional supply chains, and a reduction in bureaucratic processes. However, reactions to the deal so far have been mixed, and key economic commentators have concluded that the advantages and the disadvantages of the TPP are largely unremarkable (see for example, opinions by Ross Gittins, Joseph Stiglitz and Adam S. Hersh). Major changes to existing legislation as a result of the TPP are unlikely. There are, however, legal implications to be aware of.
Investor-state dispute settlement arrangements
One of the most contentious issues appears to be the investor-state dispute settlement (ISDS) mechanisms in the TPP. Australia initially maintained that it would not accept any arbitration mechanisms for investor-state dispute settlements. However, the final text of the TPP reveals that Australia has conceded to the ISDS provisions, which allow for the establishment of an arbitration tribunal specifically to adjudicate on claims arising from the operation of the TPP. As a result, foreign investors will be able to bring claims against a participating TPP country.
ISDS mechanisms can enable foreign investors to attack legislation enacted for the protection of the public interest. The best example of such a such a scenario is the Phillip Morris litigation. One of the avenues Phillip Morris used to challenge Australian plain-packaging legislation was the ISDS mechanism in the 1993 Australian bilateral investment treaty with Hong Kong. Recently, the Permanent Court of Arbitration dismissed the case, agreeing with Australia’s position that it did not have jurisdiction to hear the case.
Notably, the TPP disallows tobacco companies to challenge public health legislation. So Phillip Morris, for example, will not be able to seek relief under the TPP. Nevertheless, such free trade agreements can stand in opposition to public interest legislation. Article 9.15 of the the TPP’s Investment Chapter provides that a signatory party is not prevented from legislating in the public interest. However, there is a clause allowing non-discriminatory public welfare legislation to be challenged ‘in rare circumstances’, at appendix 9-B, clause 3(b). Effectively, this can give rise to challenges against legislation that protects legitimate public welfare objectives.
The Intellectual Property Chapter of the TPP was crucial to the conclusion of the negotiations, especially for the Australian delegation.
The TPP and pharmaceuticals
One of the central issues was the length of the data exclusivity period, especially for biologics. Biologics are a type of medicine made of protein-producing cells found in living organisms, and are used to treat a number of illnesses, including diabetes and cancer. Generic versions of biologics, known as biosimilars, can be manufactured in Australia after a minimum of five years since the release of the biologic. This is known as the data exclusivity period.
The US pushed for a twelve-year minimum data exclusivity period during the negotiations. However, according to the final text of the TPP, the agreed data exclusivity period is five years. Since this is the same level of protection that is afforded to biologics under Australian legislation, there is no real impact here.
The TPP and copyright
Once again, it is unlikely that there will be any major change to domestic copyright laws. DFAT has confirmed that provisions under domestic legislation relating to copyright terms, patents and Internet Service Provider liability are all consistent with the TPP’s standards. Notably, there will likely be no introduction of new civil or criminal penalties for individuals who download movies illegally.
The biggest legal implication here for the Asia-Pacific region involves the TPP’s provisions on counterfeit and pirated goods. The TPP requires signatory countries to legislate against the use of counterfeit and pirated goods. This includes expanding the range of offences for counterfeit or pirated labels and packaging, broaden powers to allow the forfeiture of counterfeit or private goods, and ensuring that adequate damages are available for copyright and trademark infringement. Within the Asia-Pacific region, this may have large implications, given that the large majority of counterfeit goods originate from the Asia-Pacific region (mostly from China, but also from Malaysia, a TPP signatory). These countries will now be required to legislate according to the TPP’s provisions. This is a welcome development for Australia.
Finance Expats in the Asia-Pacific Region
Under the TPP, the Australian financial sector has more opportunity to integrate with those in the Asia-Pacific region. Australian bank and asset managers have been seeking expanded growth in Asia, with a focus on financial services exports. This includes lowering restrictions for Australian professionals to work in Australian financial companies overseas. Some countries within the Asia-Pacific region limit the number of foreign persons that can hold senior managerial positions in a financial institution in their country. The TPP places a cap on these restrictions, and also provides for special visa arrangements that will allow such professionals more certainty during their stay overseas. This is outlined by DFAT, announcing that Australian financial institutions will be ‘guaranteed’ the option to transfer specialists and managerial staff to their overseas branches for extended periods. Conversely, such provisions will also lead to an increase in financial services (and expats) from Asia-Pacific countries.
Where does the TPP leave us?
Overall, the TPP is a good deal for Australia, and promotes Australian involvement in the Asia-Pacific. Legally, the biggest uncertainty is what the ISDS provisions will entail. While an exception has justifiably been made for tobacco companies, the clause allowing public welfare legislation to be challenged is perturbing. For example, under a similar ISDS mechanism, a US investor was able to sue Costa Rica on the basis that its environmental legislation impeded their business interests, thus contravening a free trade agreement. As has been pointed out, ‘tobacco control measures are not the only policies worth protecting’. Litigation against public welfare legislation is detrimental to the public interest, can encroach on national sovereignty in a negative way, and could ultimately lead to the public expenditure of millions in legal fees.
A further (albeit political) consideration for Australia is its relationship with the US. Australia has an important role to play in the imminent economic dominance of the Asian countries. A criticism often brought against the TPP is that it preserves US interests in the Asia-Pacific region in the face of growing Chinese influence. Tellingly, the negotiations (released on Wikileaks)showed a reluctance on Australia’s part to step away from its alignment with US interests and establish itself as an important regional player in its own right. For example, Australia’s position in the negotiations lined up with the US 64 times. This was higher than its alignment with the next highest, Peru (54 times) and Singapore (51 times). Additionally, Australia ranked second last in terms of the support drawn by its proposals. The dominance of Asia-Pacific region should lead to a convergence in regional interests, but Australia appears to be taking a step away from this direction.
The TPP is an important step towards economic integration within the Asia-Pacific region. This is not without legal implications, and while many aspects of the deal are welcome and needed, a better outcome could be achieved in others.
Anna John is a final year Law/Arts student at the University of Queensland. She works as a research assistant at the T. C. Beirne School of Law. Anna was recently also a guest researcher and research assistant at the Max Planck Institute of Comparative Public and International Law in Heidelberg, Germany.
Last week the USS Lassen, a United States guided-missile destroyer, sailed within 12 nautical miles of a series of artificial islands built by China in the South China Sea. In response, China reportedly summoned the US Ambassador, with a state-run newspaper claiming that China was not afraid of fighting a war. China’s naval commander warned that the move was ‘dangerous and provocative’, and policy makers, officials and journalists on all sides of the dispute have debated the wisdom, or otherwise, of these actions by the US.
The latest move by the US comes in the wake of China’s actions in the previously uninhabited Spratly Island group. In late 2014, China began reclaiming land on a series of reefs, some of which were only partially exposed at low tide. In 2015, satellite images showed significant construction beginning on the reefs/islands. China based its claim over the reef/islands on the so-called ‘Nine-Dash Line’, a 1947 map drawn up by Chiang Kai-shek’s nationalist government. It has been used as the basis, once in 1958, and in 2009 before the UN, in order to substantiate China’s claims.
China’s claim has not gone uncontested. Both Vietnam and the Philippines lay claim to the Spratly Island group, and some of the islands fall within the Exclusive Economic Zone of Malaysia and Brunei under the United Nations Convention on the Law of the Sea (UNCLOS). The Philippines has brought a case challenging the validity of China’s claims before an arbitral tribunal under UNCLOS. Despite China’s argument that the is over competing sovereignty claims, and so outside the remit of the arbitral body, last week the Permanent Court of Arbitration rejected this argument and will consider the case under UNCLOS (see Lea Christopher’s piece on the ILA Reporter on 5 November 2015 summarising the tribunal’s decision). However, China has pre-empted any finding, stating that it will not comply with any unfavourable ruling.
The legal issues associated with the South China Sea are complicated. There is a distinction to be made between claims that are covered by customary law and claims that are covered by the international law of the sea (predominantly contained within UNCLOS). The case of the USS Lassen is to be distinguished on this basis as well, and Shannon Tiezzi’s Diplomat analysis is instructive on the point. The recent US patrol was not concerned with challenging China’s claim to sovereignty over the islands, but rather asserting freedom of navigation, a point which the author claims has been lost among much of the news coverage.
Under UNCLOS, territorial sea extends 12 nautical miles from the shore (article 3). Within it, any ship enjoys the right of innocent passage (article 19). The circumstances that will generate territorial sea is central to the current disputes. A key provision is article 13, regarding low-tide elevations (LTEs):
Where a low-tide elevation is wholly situated at a distance exceeding the breadth of the territorial sea from the mainland or an island, it has no territorial sea of its own.
Article 60 then states that artificial islands do not have any territorial sea of their own and are only entitled to at most a 500 metre ‘safety zone’. This means that under UNCLOS, any artificial structures built by China on LTEs have no territorial sea. Whilst some of China’s construction has occurred on land not considered LTEs, the US has only conducted patrols within 12 nm of Mischief and Subi reefs, artificial islands that were previously LTEs, and so understood by the US not to have a territorial sea. By asserting their right to freedom of navigation past such structures, Tiezzi suggests the US ‘is not challenging China’s sovereignty over the Spratly features; it is challenging the status of those features under international law‘.
With many other LTEs in the region, this stand on freedom of navigation past the Spratly chain is an important test. Understanding how patrols, such as the USS Lassen’s, challenge China under the international law of the sea will be central in understanding the broader geopolitical developments in the region.