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Published online by Cambridge University Press: 24 January 2025
Capital exporting countries have attempted to protect the overseas investments of their multinational corporations (MNC) against host nation governments expropriating these investments, limiting the right to repatriate profits, or subjecting the withdrawal of their investments to heavy penalties. The aborted Multilateral Agreement on Investment (MAI) of the mid-1990s was an attempt at transferring these concerns to a settled legal framework between nations. Some limited expression of this is found in the provisions of the World Trade Organisation (WTO) Dispute Settlement Understanding, while more substantive assertions are found in the investor-state dispute settlement (ISDS) provisions of bilateral trade and investment agreements entered into between developed and developing economies. However, recent legal challenges and associated public relations campaigns by MNC directed at Public Law and Health measures have caused governments to reassess the situation. A classic example of this has been the challenge by tobacco companies against the plain cigarette packaging legislation introduced by the Canadian and Australian governments. The Australian Government's response to this through its statement of position in respect of future bilateral agreements and its Tobacco Plain Packaging Act 2011 (Cth) is equally path breaking. This article examines the dramatic turnaround in perspective of States in respect of Investor-State arbitration, and its impact on the Trans-Pacific Partnership Agreement (TPP) currently being negotiated.
1 The constitutional validity of the Act has been upheld by the High Court of Australia in its decision released on Wednesday 15 August 2012. However, the Court's reasons for making this decision have not yet been released. See High Court of Australia ‘JT International SA v Commonwealth of Australia; British American Tobacco Australasia Limited & Ors v Commonwealth of Australia [2012] HCA 30’ (Judgment Summary, 15August 2012).
2 Multilateral Agreement on Investment (8 June 2011) Organisation for Economic Co-operation and Development <http://www.oecd.org/document/35/0,3343,en_2649_33783766_1894819_1_1_1_1,00.html>.
3 Ralph, H. Folsom et al, International Business Transactions: A Problem-Oriented Coursebook (Thomson Reuters, 10th ed, 2009) 1064Google Scholar.
4 Anup Shah, Multilateral Agreement on Investment (20 December 2000) Global Issues <http://www.globalissues.org/article/48/multilateral-agreement-on-investment>.
5 M, Sornarajah, The International Law on Foreign Investment (Cambridge University Press, 3rd ed, 2010) 238Google Scholar.
6 Working Group on the Relationship between Trade and Investment, ‘Report (1997) To The General Council’ (WTO Doc WT/WGTI/1/Rev.1, World Trade Organisation, 9 December 1997) Annex I.
7 Ibid.
8 Doha Ministerial Declaration, WTO Doc WT/MIN(01)/DEC/1 (14 November 2001) (Ministerial Declaration) para 22.
9 Ibid.
10 Ibid para 20.
11 Global Policy Forum, The EU Offensive for WTO-Investment Negotiations (July, 2003) Global Policy Forum <http://www.globalpolicy.org/component/content/article/209/43723.html>.
12 Sornarajah above n 5, 238.
13 Ibid 80.
14 See, Michael, Gestrin and Alan, M Rugman, ‘The NAFTA Investment Provisions: Prototype for Multinational Investment Rules?’ in Pierre, Sauvé and Americo, Beviglia Zampetti (eds), Market Access after the Uruguay Round: Investment, Competition and Technology Perspectives (Organisation for Economic Cooperation and Development, 1996) 63Google Scholar. See also, Andrew Jackson, The Multilateral Agreement on Investment (MAl) and Public/Social Services (November 1997) Caledon Institute of Social Policy <http://www.caledoninst.org/Publications/PDF/249ENG.pdf>.
15 Negotiating Group on the Multilateral Agreement on Investment (MAI) OECD Doc DAFFE/MAI(98)7/REV 1 (1998) pt V, art D(2).
16 Australia-Thailand FTA, signed 5 July 2004, [2005] ATS 2 (entered into force 1 January 2005) art 917; Singapore-Australia FTA, signed 17 February 2003, [2003] ATS 16 (entered into force 28 July 2003) Ch 8, art 14; Australia-Chile FTA, signed 30 July 2008, [2009] ATS 6, (entered into force 6 March 2009) art 10.16 (Australia- Chile FTA) Agreement Establishing the ASEAN-Australia-New Zealand FTA, signed 27 February 2009, [2010] ATS 1 (entered into force 1 January 2010) Ch 11, art 21. Australia-New Zealand Closer Economic Relations Trade Agreement , signed 28 March 1983 [1983] ATS 2 (entered into force 1 January 1983) and Australia-US FTA, signed 18 May 2004, [2005] ATS 1 (entered into force 1 January 2005) do not have such provisions.
17 Australia-Chile FTA, art 10.16.
18 Ibid art 10.20, 10.22.
19 Ibid art 10.16 (a)–(c).
20 Ibid art 10.16 (d).
21 Trade Relationships and Agreement (20 June 2012) New Zealand Ministry of Foreign Affairs and Trade <http://www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/index.php>.
22 In the exchange of letters between Australia's Minister for Trade and New Zealand's Minister of Trade on the application of AANZFTA between Australia and New Zealand, both countries agree that the Investment Chapter of the ASEAN-Australia-New Zealand FTA does not create any rights or obligations between New Zealand and Australia. See, ASEAN-Australia-New Zealand FTA, Department of Foreign Affairs and Trade, Australia <http://www.dfat.gov.au/fta/aanzfta/index.html#FullText>. The public explanation recorded for the omission of the investor-state arbitration in AANZFTA was that Australia and New Zealand at that time were negotiating the Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement, which was signed very recently in February 2011. On this, see Luke Nottage, ‘The Rise and Possible Fall of Investor-State Arbitration in Asia: A Skeptic's View of Australia's “Gillard Government Trade Policy Statement“’ (Legal Studies Research Paper No 11/32 Sydney Law School, Social Science Research Network June 2011) 5 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1860505>.
23 Bilateral Investment Treaty between Finland and Republic of Korea, signed 21 October 1993, 1927 UNTS 27 (entered into force 11 May 1996) art 9.
24 Bilateral Investment Treaty between Poland and United States of America, signed 21 March 1990, 2249 UNTS 9 (entered into force 6 August 1994) art IX (3).
25 United States Department of State, 2004 US Model BIT (2004) <http://www.state.gov/documents/organization/117601.pdf> art 24 (3).
26 Sornarajah, above n 5, 216.
27 Paolo Di Rosa, The New 2012 U.S. Model BIT: Staying the Course (15 May 2012) Kluwer Law International <http://kluwer.practicesource.com/blog/tag/investment-protection/>.
28 Latest Developments in Investor–State Dispute Settlement (March 2010) United Nations Conference on Trade and Development <http://www.unctad.org/en/docs/webdiaeia20103_en.pdf>.
29 Latest Developments in Investor-State Dispute Settlement (April 2012) United Nations Conference on Trade and Development <http://unctad.org/en/PublicationsLibrary/webdiaeia2012d10_en.pdf>, 1.
30 Ibid 2.
31 Ibid annex II.
32 For a possible explanation on this, see Luke Nottage and J.Romesh Weeramantry, ‘Investment Arbitration in Asia: Five Perspectives on Law and Practice’ (2012) 28(1) Arbitration International 19. See also, Erik Voeten, ‘Regional Judicial Institutions and Economic Cooperation: Lessons for Asia?’ (25 November 2010) ADB Working Paper Series on Regional Economic Integration <http://aric.adb.org/pdf/workingpaper/WP65_Voeten_Regional_Judicial_Institutions.pdf>.
33 For example, 2004 and 2006 each saw eight cases filed by investors from developed countries suing developed host states. The number slightly dropped to seven and six in 2007 and 2008, and came back to seven again in 2009. See UNCTAD Database of Treaty-Based Investor-State Dispute Settlement Cases (18 December 2011) United Nations Conference on Trade and Development <http://www.unctad.org/iia-dbcases/cases.aspx> (UNCTAD Database).
34 Jr.Jack, J. Coe, ‘Taking Stock of NAFTA Chapter 11 in its Tenth Year: An Interim Sketch of Selected Themes, Issues, and Methods’ (2003) 36(4) Vanderbilt Journal of Transnational Law 1381Google Scholar.
35 Examples of such cases are CME v Czech Republic (Final Award and Separate Opinion) (2003) UNCITRAL Arbitration Rules, IIC 62, Czechoslonor v Czech Republic (2006) and P.F. Vocklinghaus v Czech Republic (2009) UNCTAD Database, above n 33.
36 Susan, D Franck, ‘Empirically Evaluating Claims About Investment Treaty Arbitration’ (2007) 86 North Carolina Law Review 1, 32Google Scholar.
37 William, S. Dodge, ‘Investor-State Dispute Settlement Between Developed Countries: Reflections on the Australia-United States Free Trade Agreement’ (2006) 39(1) Vanderbilt Journal of Transnational Law 1, 3Google Scholar.
38 For a detailed discussion, see Frank, above n 36, 48-55. See also, Bohuslav, Klein, ‘Who Wins and Who Loses in Investment Arbitration? Are Investors and Host States on a Level Playing Field?’ (2005) 6 Journal of World Investment and Trade 64Google Scholar.
39 Three awards in favour of the Dutch investor are: CME v Czech Republic (Final Award and Separate Opinion) (2003) UNCITRAL Arbitration Rules, IIC 62, Saluka Investments BV (The Netherlands) (Nomura -- Japan) v Czech Republic (Partial Award) (2006) PCA-UNCITRAL Arbitration Rules; IIC 210, Eastern Sugar v. Czech Republic (Partial Award and Partial Dissenting Opioion) (2007) SCC Case No 088/2004; IIC 310 . See UNCTAD Database, above n 33. See also, Awards and Decisions Listed by Host States (2012) Investment Claims <http://www.investmentclaims.com/subscriber_awards_by_hoststate2?country=CzechRepublic&pageno=1>.
40 Cases successfully defended by the US against Canadian investors from 2000 to 2010: ADF Group Inc v United States (ICSID Case No. ARB (AF)/00/1), Glamis Gold Ltd v United States (2003), and Theodorus De Boer, et al (Canadian Cattlemen for Fair Trade) v United States (2005). The case successfully defended by Canada against a US investor, is United Parcel Service of America Inc v Canada (2000). See UNCTAD Database, above n 33.
41 These are Ashok Sancheti v Germany (2000 Indian investor, settled), Pren Nreka v Czech Republic (2005, Croatian investor, award in favour of the investor), Hrvatska Elektropriveda d.d. (HEP) v Republic of Slovenia (ICSID Case No. ARB/05/24) (2005, Croatian investor, pending), Sancheti v United Kingdom (2006 Indian investor, status unknown), Canacar v the United States (2009 Mexico investor, pending). See UNCTAD Database, above n 33. .
42 Sornarajah, above n 5, 25.
43 Patricia Ranald and Harvey Purse, Supplementary Submission on Behalf of the Australian Fair Trade and Investment Network (AFTINET) to the Productivity Commission Review into Bilateral and Regional Trade Agreements (2010), <http://www.pc.gov.au/__data/assets/pdf_file/0015/102525/subdr068.pdf>, 11.
44 See generally John J Kirton and Virginia W Maclaren (eds), Linking Trade Environment and Social Cohesion: NAFTA Experiences, Global Challenges (Ashgate: Aldershot, 2002).
45 Frederick, M Abbott, ‘The Political Economy of NAFTA Chapter Eleven: Equality Before the Law and the Boundaries of North American Integration’ (2000) 23 Hastings International and Comparative Law Review 303, 309Google Scholar.
46 Sornarajah, above n 5, 80-81.
47 Australian Government Productivity Commission, Bilateral and Regional Trade Agreements (November 2010) 285. A literal interpretation of this recommendation simply means that Australia will not include the ISDS in any of its future bilateral agreements. An alternative interpretation might be that there is still possibility of the ISDS practice in Australia, as long as foreign investors are not accorded better rights than domestic counterparts. See, eg, Nottage, above n 22. The Productivity Commission recommendation has been endorsed in the Australian Government's Trade Policy Statement, April 2011, which explicitly states that ISDS provisions constrain the government's rights to regulate, while at the same time it grants greater legal rights to foreign investors than to domestic business. To quote: ‘the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses'. See Australian Government Department of Foreign Affairs and Trade, Gillard Government Trade Policy Statement: Trading Our Way to More Jobs and Prosperity (April 2011), 14 <http://www.dfat.gov.au/publications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf> (΄Trade Policy Statement΄).
48 See generally Steven, C Nelson, ‘Alternatives to Litigation of International Disputes’ (1989) 23 (1) International Lawyer 187, 200-4Google Scholar.
49 United Nations Conference on Trade and Development ′Investor–State Disputes: Prevention and Alternatives to Arbitration′ UNCTAD Series on International Investment Policies for Development (2010) xxiii < http://unctad.org/en/docs/diaeia200911_en.pdf >, 5.
50 For instance, the International Trade Committee of European Parliament has recently called for balancing private investor protection and public regulation prerogatives under bilateral investment agreements, calling on the Commission to ′lay down the rights… to regulate in the name of “national security, the environment, public health, workers’ and consumer rights, industrial policy and cultural diversity“′ in its future agreements. European Parliament ′EU Investment Policy Needs to Balance Investor Protection and Public Regulation, Says International Trade Committee′ (Press Release, 17 March 2011) <http://www.europarl.europa.eu/en/pressroom/content/20110314IPR15476/html/EU-investment-policy-needs-to-balance-investor-protection-and-public-regulation>.
51 Gus Van Harten, Submission to the Productivity Commission of Australia:, Bilateral and Regional Trade Agreements Study (23 September 2010) 5.
52 Sornarajah, above n 5, 24.
53 Ibid, 25.
54 ′Foreign Investment Disputes: Come and Get Me Argentina is Putting International Arbitration to the Test′ The Economist (online) (18 February 2012) <http://www.economist.com/node/21547836>.
55 The ICSID is currently hearing more than 20 investor-state arbitration claims against Venezuela. While Venezuela argued that its action is to redress decades of inequality and unscrupulous business practices, foreign firms invested in the country contended that even though Venezuela withdrew from the ICSID, it is still bound by its bilateral investment treaties as they are ′legal…commitments′. See Brian Ellsworth and Robert Edison Sandiford, ′Top Venezuela Firm Files Arbitration Against Chavez Government′ Reuters (online), 16 February 2012 <http://uk.reuters.com/article/2012/02/16/uk-venezuela-arbitration-idUKTRE81F0TB20120216>.
56 ′Exxon Mobil Awarded $900m Compensation′ Nine News Finance (online) (2 January 2012) <http://finance.ninemsn.com.au/newsbusiness/aap/8397401/exxon-mobil-awarded-900-mln-compensation>.
57 Asit Ranjan Mishra, ′India May Exclude Clause on Lawsuits from Trade Pacts′, Live Mint.Com and The Wall Street Journal (online), 29 January 2012, <http://www.livemint.com/2012/01/29231517/India-may-exclude-clause-on-la.html>.
58 Jung Eun-joo, ‘India plans to abolish ISD clause in FTAs’ on Bilateral.org (6 April 2012) <http://www.bilaterals.org/spip.php?article21295>.
59 White Industries Australia Limited v the Republic of India (Final Award) (2011) UNICITRAL Arbitration Rules. Vodafone served a dispute notice on the Indian Government in April 2012, which is the first step required prior to the commencement of international arbitration. Joji Thomas Philip and Vinay Pandey, ′Vodafone Plans No Further Legal Action Against the Indian Government; to Rely on International Arbitration′, The Economic Times (online), 28 May 2012 <http://economictimes.indiatimes.com/news/news-by-industry/telecom/vodafone-plans-no-further-legal-action-against-the-indian-government-to-rely-on-international-arbitration/articleshow/13610673.cms>. See also, K M Gopakumar, India: Investment Treaties Stifle Public Policy Objectives (24 April 2012) TWW Thrid World Network <http://www.twnside.org.sg/title2/FTAs/info.service/2012/fta.info.223.htm>.
60 See above n 16.
61 Trade Policy Statement, above n 47, 14.
62 Ibid.
63 News in Brief, ‘Philip Morris Files for Arbitration over Intellectual Property Dispute with Australia’ (2011) 2(2) Investment Treaty News 13Google Scholar. Philip Morris has been joined in this by British American Tobacco Australia, Japan Tobacco, and Imperial Tobacco, see Alex Boxsell, ′Makers to Roll up to WTO′, Australian Financial Review (Sydney), 16 August 2012, 7. According to the news item, The Dominican Republic, Honduras, and Ukraine are initiating proceedings against Australia under the WTO Agreements ′bank rolled by big tobacco′. In a TV interview with Leigh Sales, Federal Attorney General Nicola Roxon has described the latter action as being brought by countries with whom Australia hardly has any trade. ABC, ‘Attorney General Reacts to Cigarette Ruling, Asylum Laws', The 7.30 Report, 15 August 2012 (Leigh Sales) <http://www.abc.net.au/7.30/content/2012/s3568780.htm>.
64 Philip Morris International, ′Philip Morris Asia Initiates Legal Action Against the Australian Government Over Plain Packaging′ (News Release, 27 June 2011) <http://www.pmi.com/eng/media_center/press_releases/pages/PM_Asia_plain_packaging.aspx>.
65 Philip Morris v Oriental Republic of Uruguay (ICSID Arbitral Tribunal, Case No ARB/10/7) (2010) International Centre for Settlement of Investment Disputes <http://icsid.worldbank.org/ICSID/FrontServlet>.
66 Ibid.
67 Australian Government Department of Foreign Affairs and Trade, Supplementary Submission to the Australian Productivity Commission, Review of Bilateral and Regional Trade Agreements, September 2010, 13 <http://www.pc.gov.au/__data/assets/pdf_file/0016/102652/subdr098.pdf>.
68 Ibid.
69 See for example, World Trade Organisation, The Way Forward on Doha is “to Move in Small Steps“—Lamy (14 February 2012) World Trade Organisation 2012 News Items <http://www.wto.org/english/news_e/news12_e/gc_rpt_14feb12_e.htm>.
70 See discussion in Part I, above.
71 Office of the United States Trade Representative Outlines of the Trans-Pacific Partnership Agreement <http://www.ustr.gov/about-us/press-office/fact-sheets/2011/november/outlines-trans-pacific-partnership-agreement>.
72 To quote: ′[W]e believe strong investor protections must be a critical element of the TPP and any future US Free Trade Agreements′ Philip Morris International, Submission of Philip Morris International in Response to the Request for Comments Concerning the Proposed Trans-Pacific Partnership Trade Agreement (2009) A copy is available at Tobacco.Org, News Briefs <http://archive.tobacco.org/news/311851.html>
73 United States Council for International Business In Trans-Pacific Trade Talks, USCIB Seeks Neutral Forum for Dispute Settlement (5 May 2011) What's New <http://www.uscib.org/index.asp?documentID=4086>.
74 John Key, Post-Cabinet Press Conference (Video of Press Conference 15 November 2010) 38:42 <http://www.johnkey.co.nz/categories/8-Video/P7.html>.
75 Radio New Zealand, ′Law Suit Prospects Seen in TPP Deal (7 Feburary 2011) <http://www.radionz.co.nz/news/business/67967/law-suit-prospects-seen-in-tpp-deal>.
76 Key Stands by TPP Comments (7 February 2011) Voxy.co.nz <http://www.voxy.co.nz/politics/key-stands-tpp-comments/5/81075>.
77 Nick Brown, ′Anti TPP Demonstration: Death of Democracy?′, Scoop Independent News (online), 16 December 2010 Scoop <http://www.scoop.co.nz/stories/HL1012/S00159/anti-tpp-demonstration-death-of-democracy.htm>.
78 Jane Kelsey and AFTINET, ′Australian and NZ Groups urge PMs to Reject US Investment Demands Next Week′ on Our World is Not For Sale (4 December 2010) <http://ourworldisnotforsale.wordpress.com/>.
79 Open Letter from Elizabeth A Evatt et al, An Open Letter from Lawyers to the Negotiators of the Trans-Pacific Partnership Urging the Rejection of Investor-State Dispute Settlement, 8 May 2012, <http://tpplegal.wordpress.com/open-letter/>.
80 Green Party, ′Big Tobacco Wants TPP Trade Deal To Block NZ's Smoking Laws′ (Press Release 5 December 2010, <http://www.scoop.co.nz/stories/PA1012/S00045/big-tobacco-wants-tpp-trade-deal-to-block-nzs-smoking-laws.htm>.
81 The leaked TPP Investment Chapter, arts 12.17 and 12.18 available at <http://www.citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf>. Simon Lester, ′The Leaked TPP Investment Chapter′ on International Economic Law and Policy Blog (14 June 2012 ) <http://www.citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf>.
82 Ibid, 18. Footnote 20 of the leaked TPP Investment Chapter states, ′[s]ection B does not apply to Australia or an investor of Australia. Notwithstanding any provision of this Agreement, Australia does not consent to the submission of a claim to arbitration under this Section'.
83 Benn McGrady, ′Leaked Trans Pacific Partnership Investment Chapter′ on Trade, Investment and Health (13 June 2012) <http://www.oneillinstitutetradeblog.org/leaked-trans-pacific-partnership-investment-chapter/>.