Investor-state dispute settlement (ISDS) provisions grant foreign investors the right to access an international tribunal if they believe actions taken by a host government are in breach of commitments made by the host government in a Free Trade Agreement (FTA) or investment treaty. In so doing, ISDS provisions provide investors with a degree of protection against the political risks associated with investing overseas, including the risk of expropriation (whether directly or indirectly) of investment assets or profits by opportunistic foreign governments.
The previous Labor Australian Government refused to include ISDS provisions in FTAs and investment treaties, stating that it would not support provisions that conferred greater legal rights on foreign businesses than those available to domestic businesses, or constrained the ability of the Government to make laws on social, environmental and economic matters.
Until recently, the new Coalition Australian Government had not published its official position in relation to ISDS provisions. There had, however, been some signs that the Coalition Government might depart from the position adopted by the former Labor Government. The Australian Minister for Foreign Affairs, Julia Bishop, indicated during a presentation in Seoul that the Coalition Government would consider ISDS provisions on a case-by-case basis and, in December 2013, the Australian Government signed the Korea-Australia Free Trade Agreement (KAFTA), which included ISDS provisions. More information in relation to the conclusion of KAFTA can be accessed here.
The official position of the Coalition Government has now been made clear following the publication of a 'Frequently Asked Questions on Investor-State Dispute Settlement' section on the DFAT website1. That position is that the Coalition Government will consider ISDS provisions in FTAs on a case-by-case basis. They will not be included if they would restrict Australia’s capacity to govern in the public interest — including in areas such as public health, the environment or any other area of the economy. However, according to the Coalition Government, the rights of governments to take decisions in the public interest can be protected by the incorporation of appropriate safeguards in ISDS provisions.
Despite the shift in the Australian Government’s stance towards ISDS provisions, discussion will continue in 2014 in relation to the advantages and disadvantages of ISDS provisions and the appropriate drafting of ISDS provisions. In particular, concerns remain regarding the effectiveness of ISDS provisions in increasing inbound foreign direct investment, and the ability of ISDS provisions to offer higher protection to overseas investors. More information regarding ISDS provisions and the key considerations that those provisions raise for investors can be accessed here.