Investor-State Dispute Settlement (ISDS) clauses are a prominent feature of many modern International Investment Agreements (IIAs). They are included in nearly all the IIAs to which Australia is a party. Typically, an ISDS clause allows a foreign investor (often a corporation) to challenge a government decision before a panel of private arbitrators who have the power to make decisions and make awards that are binding and enforceable.
President- elect Donald Trump’s announcement on Tuesday 22 November 2016 that the US will not ratify the Trans-Pacific Partnership Agreement (TPP) is not a surprise. He had stated that he would do as such throughout the presidential campaign, as had his democratic rival, Hillary Clinton.
His formal announcement is that the state parties to the TPP, including Australia, will revert to the position they had been in before the TPP was negotiated, seven years ago.
For now, there is no doubt that the TPP’s demise will disappoint the expectations of some TPP states, such as Japan, itself a late party that has strongly endorsed it. Developing countries like Vietnam that stood to benefit disproportionately from its ratification will also be disappointed.
However, President-elect Trump’s announcement is unlikely to throw transpacific economies into turmoil, not only because his position was fully expected, but because the perceived benefit of the TPP for regional trade has been hotly debated and denounced by various labour, environmental, health and consumer lobby groups, among others, from its inception.
President-elect Trump’s announcement nevertheless has strategic importance, particularly in asserting that the US will negotiate bilateral trade agreements that best suit US interests in place of the TPP. This statement is vague at best and wholly unsubstantiated. First, it amounts to little more than a broad aspiration in the absence of verification. Second, it does not stem from prior strategic planning by key US authorities. In fact, President-elect Trump has opined as much before appointing a Secretary of Commerce or a US Trade Representative. It is difficult to conceive of how replacing the world’s largest regional trade agreement with a series of bilateral trade agreements could be seriously contemplated without the serious consideration of such trade authorities. Third, as a practical matter, negotiating bilateral agreements take time, as Britain is likely to learn post-Brexit; and until they are negotiated, trade barriers are likely to continue. Fourth, there is no assurance that the US will do better in negotiating bilateral trade agreements than under a ratified TPP. States may run for cover from such bilateralism fearing that a pro-US trade deal will be too expensive to sustain, even though the US remains the world’s largest trade importer. Fifth, the US already has bilateral trade agreements with a number of transpacific countries, including its 2004 US-Australia Free Trade Agreement. Therefore, in many cases, no new bilateral treaties will eventuate in the absence of real economic impetus to negotiate them.
Importantly, the US withdrawal from the TPP, which excludes China, may provide China with even greater opportunity to conclude regional trade partnerships that exclude the US, such as the Regional Comprehensive Economic Partnership (RCEP) to which Australia is also a party.
Trump’s rejection of the TPP nevertheless has important economic consequences. The TPP is particularly attractive to member states as a prototype treaty directed at reducing and then eliminating trade barriers, including costly import and export duties. In contrast, the RCEP does not replicate that resolve, making it less attractive economically to countries like Australia seeking access to foreign markets.
If the US is to remain the primary player in defining global trade, the result of Trump’s assertion is likely to be a reluctance of states to reduce or eliminate trade barriers in bilateral trade agreements.
If President-elect Trump’s declaration against the TPP has legs to stand on, it is likely to undermine trade liberalisation more generally; and that result, feared by macro-economists, is potentially the most troubling.
Professor Trakman is a Barrister, Professor of Law and Former Dean at the University of New South Wales
When we first heard the news of Donald Trump, financial markets initially plunged as expected. However what was remarkable was that upon hearing his surprisingly conciliatory speech, the market then underwent one of the most incredible recoveries in history. Many began to consider the opportunities that a Trump Administration brings, particularly in the legal market.
Before I go any further, I just want to make it clear that I am not a Trump supporter, nor am I a Clinton supporter and aim to make this as neutral as one can.
The short answer is that it is impossible to accurately predict how the election of Donald Trump will impact the legal market, particularly given his change of tone and direction post-election. However assuming that Trump does follow through on them, below are my thoughts on how some of his proposals will impact the legal market.
One of Trump’s first post-election announcements has been that he will work towards dismantling the Dodd-Frank Act and replace it with policies that “encourage economic growth and job creation”. Assuming this means a loosening of the existing rules (which may be good or bad – depending on what side of the fence you sit on), financial institutions will be scrambling to seek legal advice on how to best prepare for and comply with Trump’s alternative to the Dodd-Frank Act.
International trade deals
If Trump does follow through on his plans to rip up the international trade deals such as the Trans-Pacific Partnership and adopt a more protectionist policy, it is safe to say that the United States’ allies and partners will not go down without a fight. There will be an increase in legal work in the area of international law, particularly in relation to the legality of overturning existing trade agreements, structuring newly negotiated trade agreements and international arbitrations with affected countries.
On a less contentious note, in his acceptance speech Trump emphasised that he was going to rebuild infrastructure in the United States. Regardless of whether his claims that the infrastructure will be “second to none” turns true or not, an emphasis on infrastructure will lead to a need for legal advice in the areas of construction, finance, real estate and regulatory issues (and hopefully some of this will involve international parties, leading to some opportunities world wide).
Immigration and employment law
Let’s now get the elephant in the room out of the way. During the campaign, Trump announced proposals requiring employers to check the immigration status of their employees. I would imagine such a measure would leave businesses scrambling for legal advice on how to ensure compliance and (sadly) advice on whether their workers have any chance of staying in the United States.
Healthcare and insurance
In a country without universal health care, any change to healthcare and insurance laws will have a profound impact on most Americans. Insurance firms, employers and healthcare providers will no doubt need to seek legal advice should Trump follow through with the Republican party’s desire to get rid of Obamacare (which seems highly likely).
In summary, the election of Donald Trump will lead to a strong level of change and uncertainty. Nobody can predict what direction he will take the free world, however one thing is certain – like always, any change can be translated into an opportunity.
Nathan Huynh is an Australian-based lawyer practicing in the finance division of a leading global law firm.
Our blog mini-series, co-hosted with the ICRC, wraps up with a post by Associate Professor Rob McLaughlin, Co-Director of the ANU Centre for Military and Security Law. Dr McLaughlin shares his reflections on common article 2 and the important question of when IHL must be applied.
In the post-9/11 zeitgeist, the ever-present fear of terrorism has reignited debate regarding whether a State has the right of self-defence against attacks by non-State actors. As Australia targets non-State actors such as ISIS and Al-Qaeda fighters in self-defence, the legality of such actions in international law must be questioned.
WHAT’S NEW IN CHINA’S LEGAL LANDSCAPE
The Law Council of Australia’s International Law Section will host a China Law breakfast on Wednesday 26 October at King & Wood Mallesons in Sydney. Judge Judith Gibson of the District Court of New South Wales will chair a panel of six experts in Chinese law to discuss contemporary legal issues facing the country today.
- ‘One Belt One Road’ and Chinese investment policy;
- IP and Trade Mark legislative changes;
- Consumer legal protection in the era of M-commerce;
- The Guiding Case system; and
- Court use of social media and legal writing issues.
- Professor Vivienne Bath, University of Sydney
- Scott Gardiner, King & Wood Mallesons
- Mary Ip, University of New South Wales
- Professor Vai Io Lo, Bond University
- Belinda Melocco, King & Wood Mallesons
- Professor Natalie Stoianoff, King & Wood Mallesons
- Judge Judith Gibson, NSW District Court (Chair)
For details on the cost of a ticket and the registration form, please click here.
Recently, the Australia-China Youth Association (ACYA) hosted Australia-China Emerging Leaders’ Summits (ACELS) in Shanghai and Sydney respectively, which brought together many prominent youth delegates from the two nations. Legal practice in the Asia-Pacific region was a strong focus. Amongst the delegates and networking participants, there were a number of legal practitioners and law students from both Australia and the People’s Republic of China. Additionally, interesting conclusions were reached regarding the prevalence of legal issues for cross-border commercial activities between the nations.
Foremost, government and business leaders from the two countries attended ACELS. The consistent message coming across was one that all lawyers will be familiar with — the complexity of navigating regulatory regimes between Australia and China. Despite an overall decrease in regulation (a result of the China-Australia Free Trade Agreement and similar initiatives), the primary challenges facing businesses that aim to have bilateral operations still appear to be legal requirements of compliance with regulatory systems and effective communication with relevant regulators. Without knowledge of the precise regulatory limitations for a business’ operations in a jurisdiction, it is difficult for companies to achieve commercial certainty. It is imperative to understand the existing law and its practical application. Attendees highlighted that an absence of this knowledge acts as a ‘legal handbrake’ on prospective commercial operations.
An Australian company, whose operations in China are about 1/50 the size of their presence in Australia, provided the following example. Despite this overwhelming difference in size, it must complete double the number of reports in China as in Australia for regulatory compliance,. Evidently, the complexity of regulatory requirements places substantial burdens on the company, whose operations in China are not large. For the majority of foreign companies operating in China, this appears to be a shared experience — the inability to obtain commercial certainty can hamper their investment options.
Importantly however, Chinese companies looking to invest in Australia have faced similar difficulties. Many large-scale proposed investments appear before the Foreign Investment Review Board, or are so politically-charged that the project’s future becomes uncertain, such as Shanghai Pengxin’s involvement in a bid for the Kidman pastoral empire (see for example this ABC article). Similarly, the recent approval of the bid by Chinese company Landbridge to operate the Port of Darwin has been highly controversial and subject to intense public scrutiny (see for example this ABC article).
These shared experiences at ACELS helped delegates to realise the high demand for cross-border commercial legal practice. Many commercial law firms specialise in advising foreign clients on the local regulatory environment, which presents an opportunity to the next generation of emerging commercial lawyers. They will need to be equipped with fluid skillsets, that enable them to not only advise clients on their home jurisdiction, but to collaborate with colleagues overseas in order to provide seamless advice that gives clients a holistic appraisal of regulatory conditions in each jurisdiction and the interplay between them. Following a string of newly signed free trade agreements between Australia and our major Asian trading partners in China, South Korea and Japan, much larger numbers of companies and investors will be exposed to the legal and regulatory difficulties associated with cross-border business. Naturally, this will lead to an increase in the demand for legal expertise in dealing with these issues.
David Douglas, President of the Australia-China Youth Association and graduate lawyer at a leading international law firm.