Investor-State Arbitration: Evaluating Australia’s Evolving Position

Abstract

This article examines Australia’s contentious 2011 Trade Policy Statement in which the Federal Government indicated that it will no longer provide for investor-state arbitration (ISA) in future bilateral and regional trade agreements (BRTAs), choosing instead to rely on alternatives to ISA. These are likely to vary from encouraging investor-state parties to negotiate contracts that provide mechanisms for dispute resolution to providing by treaty that domestic courts resolve such disputes. Notwithstanding a change in Australia’s Federal Government in 2013, two years after the Policy Statement was announced, the new Liberal Government has retreated from that Policy notably by including ISA in the Korea-Australia Free Trade Agreement (KAFTA) concluded on 5 December 2013. However, it has not rejected the Policy, but has indicated instead that it will consider ISA in its treaties on a case-by-case basis. As a result, the Policy could still have significant ramifications for Australia in negotiating BRTAs; it could have a material impact on Australia’s inbound and outbound investors, as well as upon other states and investors directly or indirectly impacted by Australia’s Policy. It is also conceivable that other states will follow Australia’s initiative and reconsider whether to agree to ISA in their BRTAs. In analysing the policy shift against ISA, the paper evaluates the nature of foreign direct investment (FDI) and its economic and legal significance to host and home states, as well as to inbound and outbound foreign investors. Following this analysis, the paper outlines the rationale behind Australia’s rejection of ISA in 2011. It evaluates the perceived advantages and disadvantages of alternatives to ISA, such as diplomatic intervention in investor-state disputes and conciliation proceedings between investor-state parties. However, it focuses on the most likely alternative to ISA, namely, reliance on domestic courts to resolve investment disputes. The paper argues against the complete rejection of ISA. It illustrates the challenges of Australia relying on domestic courts to resolve investor-state disputes in light of the impending Investment Chapter of the Trans-Pacific Partnership Agreement (TPPA) and the preservation of Australia’s investment interests in Asia. As an alternative, the article proposes the adoption of a BIT policy which would provide investor-state parties with a choice among dispute-avoiding measures, including access to either domestic courts or ISA. The rationale is that such an approach is likely to preserve the national interests of Australia, while also gaining support within the international community of states and among foreign investors.