Jumping Back and Forth between Domestic Courts and ISDS: Mixed Signals from the Asia-Pacific Region

Abstract

It is uncontroversial that cross-border investments engender the possibility of disputes arising between investors and host States. What is unclear is whether such disputes should be characterized as being unique or distinctive because they involve foreign investors. What is further in controversy is whether there should be a customized mechanism to resolve such disputes. The institution of investor–State dispute settlement (ISDS), which has for some time enjoyed popularity as a way of resolving investor–State disputes, has come under renewed scrutiny over the past few years as a result of dissatisfaction articulated by a number of countries. Many South American and Asian countries have expressed concerns over the nature of ISDS and the organizations that facilitate it. This includes Nicaragua and Venezuela signalling an intention to terminate existing bilateral investment treaties (BITs), and Ecuador denouncing the International Center for Settlement of Investment Disputes (ICSID) established by the World Bank, which is the primary source of investment arbitration. In 2007, the Philippines negotiated to exclude ISDS in its free trade agreement with Japan.4 In March 2014, Indonesia indicated that it would terminate its BIT with the Netherlands and likely implement a scheme of terminating all of its remaining BITs as they become due to expire. In 2011, the Commonwealth Government of Australia stated in a Trade Policy Statement (‘the Policy’) that Australia would no longer agree to the inclusion of ISDS in its future bilateral and regional trade agreements (BRTAs), choosing instead to rely on alternatives to ISDS. After a change in Australia’s Government in 2013, two years after the Policy was announced, the new Liberal–National Coalition Government has retreated from that Policy notably by including an ISDS regime in the Korea–Australia Free Trade Agreement (KAFTA) concluded on 5 December 2013, and the China–Australia Free Trade Agreement (ChAFTA) concluded on 17 June 2015. References to the Policy have been removed from the Department of Foreign Affairs and Trade’s official website, which indicates instead that it will consider the inclusion of ISDS on a case-by-case basis.8 Further, the Government has categorically stated that Australia’s ability to pass public interest legislation, such as in the areas of national security, public health, and environmental protection, will not be compromised. Notably, the Japan–Australia Economic Partnership Agreement (JAEPA), concluded in April 2014, does not include an ISDS regime. Australia is currently in bilateral negotiations with Indonesia and India, as well as having a stake in the imminent Trans Pacific Partnership Agreement (TPPA). It is not clear what negotiation stance the Australian Government is likely to take with respect to these instruments. In formulating national investment policy, including with respect to ISDS, governments should seek to adopt measures that pursue broader economic development, encourage responsible investor behaviour, and are practical in ensuring policy effectiveness. These principles, addressing concerns about investment policy generally and ISDS in particular, are reflected in global debate over sustainable development, notably in the UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD). In light of a broader framework for sustainable development of investment policy, this chapter will consider the value of ISDS in resolving disputes between host States and foreign investors, particularly in the Asia Pacific region. It will argue that the oscillation between ISDS and domestic courts serves to destabilize international commerce as well as comity between states. It will recommend, in response, potential developments to the substantive and procedural execution of ISDS provisions. The chapter will focus on the policies articulated by Australia in its Policy Statement in 2011 and then in 2013. The chapter will also construe the positions adopted by a number of Asian countries as examples of developments taking place within the region and the potential future of ISDS regionally as well as internationally.