'Australia's embrace of investor state dispute settlement: a challenge to the social contract ideal?' by Thomas Faunce in (2015) 69(5)
Australian Journal of International Affairs 595-609 explores
the origins of investor-state dispute settlement (ISDS) treaties and their implications for the Australian social contract. This analysis includes how and why ISDS emerged in NAFTA, was rebuffed with the failure of the Multilateral Agreement on Investment (MAI), and became incorporated into most subsequent bilateral US trade and investment agreements. The paper considers Australia's exposure to ISDS—first through using it in bilateral investment agreements in nations with inadequate governance mechanisms to support the rule of law, then turning against it when a multinational tobacco company tried to use the mechanism to overturn scientifically endorsed, democratically approved and constitutionally validated tobacco plain packaging measures. The paper concludes by exploring the hypothesis that an alternative governance vision can be achieved in which the system of investment arbitration and trade law is made coherent with presumptively more democratically legitimate normative systems such as constitutional and international law.
Faunce comments
The idea of social contract, a tacit agreement between the members of a community to develop principles that are equally applicable to all, and that assist in governing their conduct predictably and certainly, represents a jurisprudential ideal at the core of not just representative democracy, but the wider process of assisting humans to dedicate their lives to the individual and social achievement of virtues such as truth, justice and (more recently) environmental sustainability. Rawls in his acclaimed Theory of Justice expressed this view through a thought experiment in which the original persons establishing a society do so by developing principles about justice that are universally applicable because they are made behind a ‘veil of ignorance’ as to the specific characteristics of individual citizens (Rawls 1976). For those who embrace the progressive, natural law implications implicit in such a theory, in the majority of nation states including Australia, one the chief manifestations of this social contract is the Constitution and the legislative and judicial framework of norms dependent upon it.
In this paper I explore the idea that the social contract ideal is currently under profound pressure from the rise and proliferation of Investor State Dispute Settlement (ISDS) treaties. These treaties give exclusive rights to multinational corporations to challenge any national legislation that impacts on their profit-making expectations, before corporate-friendly panels. Historically, the Australian government has maintained a firm line against negotiating such treaties with other developed countries, refusing to include ISDS procedures in the Australia-US Trade Agreement a decade ago. Since then, however, it has agreed to the inclusion of an ISDS chapter in its bilateral deal with South Korea, and now appears to be actively supporting the adoption of far-reaching ISDS commitments as part of the Trans-Pacific Partnership Agreement (TPPA) negotiations.
In the pages that follow I examine where ISDS came from, and explain why its introduction to Australian governance systems should be of concern for those wishing to support in that society virtues such as justice and environmental sustainability. I begin by considering the historical and ideological origins of ISDS, scrutinising the notion that it should have limited applicability to societies with an established rule of law (for example, where the Constitution prohibits nationalisation of assets except on fair terms of compensation). I then examine the varied interactions of Australian governments with ISDS, in bilateral investment agreements with regional neighbours lacking established rule of law mechanisms, in the Australia-United States Free Trade Agreement (AUSFTA), in bilateral trade deals with Korea and Japan, and then in the Trans Pacific Partnership Agreement (TPPA). I conclude by exploring the hypothesis that an alternative governance vision can be achieved in which the system of investment arbitration and trade law is made coherent with presumptively more democratically legitimate normative systems such as constitutional and international law.
