ISDS clauses allow foreign investors to take a government to an international tribunal for decisions that harm their investment.
Miners argue ISDS clauses help reduce political risk when operating projects in developing countries, but opponents maintain they undermine national sovereignty and domestic law.
Business Council of Australia chief executive Jennifer Westacott urged caution on the government’s part.
“Governments have to get the balance right to safeguard our sovereignty and pursue domestic policies, but we’ll need to act very carefully to avoid sending a message to our trading partners that we’re not open to the investment needed to create new jobs, transform and decarbonise the economy and lift incomes for workers,” she said.
“Australian governments of both persuasions have been committed to freer and more open trade and investment since the 1980s because it delivers better living standards, higher incomes and more jobs.”
The Minerals Council said it supported modern ISDS provisions which included safeguards for a government’s right to legislate for legitimate public welfare outcomes.
Sam Luttrell, a Perth-based partner in law firm Clifford Chance’s International Arbitration Group, said ISDS had been one of the most successful innovations in the history of international law and Australia could be worse off on balance without them.
“The reason the ISDS system is coming under pressure politically is because it works,” he said.
“Countries like Australia, with large flows of inbound and outbound investment, have much to gain from the continuation of the ISDS system in the years ahead. The goal should be to refine and improve ISDS, not to unwind it just as its concept is being proven.
Overall benefit
“Australia should be confident that, owing to our strong rule of law and democratic institutions, we are more likely to win than lose in future ISDS cases. Therefore, even though there will be ISDS claims against us in future, Australia is still more likely to enjoy an overall benefit from continued participation in the ISDS system.”
But convener of the Australian Fair Trade and Investment Network, Patricia Ranald, said Senator Farrell’s announcement was part of a global trend by governments abandoning ISDS clauses, noting they would not be in UK, European Union and Indian free trade agreements, while the Biden administration was moving away from their use.
“We believe there is mounting evidence that governments are moving away from ISDS because of the limitations it puts on governments’ ability to regulate in the public interest,” she said.
While the Australian government has only been sued once, when tobacco giant Philip Morris unsuccessfully challenged plain-packaging laws, Dr Ranald said internationally ISDS clauses were now being used by fossil fuel companies to thwart action on emissions reduction.
The Australian Council of Trade Unions has long campaigned against ISDS clauses and president Michele O’Neil hailed Senator Farrell’s announcement.
“ISDS clauses pose a direct threat to Australia’s sovereignty and the ability of the Australian government to make laws in the national interest. They have no place in any agreement which claims to have the interests of working people at heart,” she said.
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