How Would a New Labor Government in Australia (Re)Negotiate Trade and Investment Agreements?

June 22, 2016

Australia is at an important juncture in negotiating its bilateral and regional trade and investment agreements. The Trans-Pacific Partnership (TPP) Agreement was signed on February 4, 2016.[1] Yet doubts about ratifying it have been expressed by both contenders for the upcoming presidential election in the United States: Democratic Party presumptive nominee Hillary Clinton and Republican Party presumptive nominee Donald Trump (although Trump is resistant on ideological rather than economic grounds). Australia’s current Liberal Coalition government, like Japan’s Shinzo Abe government, favours TPP ratification, but without American support the agreement cannot come into force.

However, Australia also has other fish to fry. Since 2014 it has concluded bilateral free trade agreements (FTAs) with South Korea, Japan and China. Australia is also negotiating the Regional Comprehensive Economic Partnership (RCEP) with the 10 ASEAN countries (Association of Southeast Asian Nations), as well as China, India, Japan, Korea and New Zealand. These and other FTAs are important for Australia in forging and cementing stronger economic links with regional trade and investment partners, reducing trade barriers and promoting inbound and outbound investment.

Nonetheless, could a change in the Australian government from Liberal to Labor, in the tightly contested July 2 election, impact significantly on Australia’s receptiveness to concluding the RCEP and other bilateral FTAs under negotiation, notably those with India and Indonesia?[2]

In broad principle, one might expect no material change. The Australian government of the day inherits the treaties ratified by its predecessors, and even the preliminary outcomes of their ongoing treaty negotiations. 

However, there is no requirement that a successor government promptly implement issues still to be negotiated within agreements already in force, such as the China-Australia FTA. For example, a Labor government might go slow in agreeing to create a “standing panel” of arbitrators for investor-state dispute settlement (ISDS), although ISDS-backed provisions are limited to violations of national treatment. More significantly, a new Labor government might be less amenable to adding further ISDS-backed substantive treatments to that FTA, under a three-year work program aimed at combining it with a bilateral investment treaty (BIT) dating back to 1988. (The latter, like many Chinese treaties of that generation, only included ISDS for matters relating to the amount of compensation payable from expropriation by the host state.) In addition, Labor may not agree to adding any form of ISDS protection to the Japan-Australia FTA, pursuant to article 14.19 requiring bilateral consultations within three months of another treaty coming into force that does contain ISDS (namely, the FTA with China).

Nor would a new Labor government be expected to ratify agreements under negotiation, or concluded but not yet ratified by all parties, if these contain objectionable provisions. Even more profoundly, it could begin to dismantle existing trade and investment agreements, as South Africa is currently doing with its treaties, based on a new conception of the public interest. This has become a real possibility since June 7, when the Labor ppposition trade spokesperson announced that, if elected, a Labor government would not accept ISDS provisions in future agreements, and would also seek to remove them from old treaties or otherwise negotiate to add more safeguards for host states against claims by foreign investors.[3]

The precise contours of this proposed policy shift remain uncertain. For example, the TPP may not be considered a “new” agreement, so a Labor government might still ratify it if the United States does so along with other states, since remaining outside the agreement would put Australian outbound investors and exporters at a competitive disadvantage. (On similar grounds, while in opposition, Labor did eventually vote with the Coalition government in favour of bilateral FTAs with Korea and China, despite misgivings over ISDS.) As for the RCEP and other pending FTAs, a new Labor government may accept a “permanent investment court” along the lines proposed by the European Union in its negotiations with the United States (and already agreed in the FTA with Vietnam and the Comprehensive Economic and Trade Agreement with Canada — both also TPP signatories), on the grounds that this mechanism is sufficiently different from ISDS. This procedural innovation, along with restrictions in substantive commitments offered by host states under the new EU approach, may well be an attractive compromise for Australia in negotiating new FTAs as well as reviewing its older-generation BITs. After all, India is now putting forward its own revised model BIT that is even less pro-investor, while Indonesia has been letting old BITs lapse, with a view to negotiating new ones based on its own template.

What is clear is that a new Labor government in Australia will be more likely than a Liberal Coalition government to stress the host state’s public policy interests when negotiating or reviewing trade and investment agreements. Protecting public health, the environment and domestic workers is likely to be at the forefront of its negotiating agenda. It also has prefigured a reversion to the Gillard government’s trade policy statement (2011­–2013) that eschewed ISDS, ostensibly because it is inefficient and dilatory or (more starkly) unduly favours foreign investors over host states.[4] The fact that Philip Morris recently lost the first-ever ISDS claim against Australia, over tobacco plain packaging, might suggest that it is well able to resist claims even by well-heeled and aggressive foreign investors. However, a Labor government would probably be more sensitive to facing and possibly losing future investor claims, as Canada has occasionally done in recent years.

What a Labor government is unlikely to do is attempt to replicate Donald Trump’s promise to withdraw from the international trade and investment treaty system simply on isolationist grounds. In addition, whichever major party wins Australia’s election for the lower House of Representatives may well be limited by the outcome of simultaneous elections for the Senate. The present Coalition government had to be more flexible on ISDS (omitting it from the FTA with Japan, and limiting its scope in the FTA with China) because it also lacked a majority in the upper house. On the one hand, if Labor gains power on July 2, but does not control the Senate, it may need Liberal Coalition votes to pass FTA-related tariff reductions and therefore have to compromise on including some form of ISDS provision. On the other hand, the Australian Greens (who formed the ruling coalition with the Gillard government from 2011 to 2013) have reiterated opposition to ISDS and declared flatly that they will not vote to allow ratification of the TPP.[5]

However, the main question will be the attitude of Australia’s counterparties to FTA negotiations. If they insist on substantive protections that can be credibly enforced, directly by investors (even via an EU-style investment court), rather than having to rely exclusively on the vagaries of inter-state arbitration provisions in investment treaties, then even a new Labor government may need to interpret more liberally or even dial back its recent pre-election pronouncement on ISDS. After all, Australia can’t really afford to be left out (again) of FTA negotiations within Asia. Even developing countries in the region (except perhaps for India and Indonesia) have mostly now weathered their own initial arbitration claims and yet continue to agree to more tailored ISDS-backed investment treaty protections, while others (such as Singapore) have been more consistently positive about promoting such protections.[6]

[1] Luke Nottage and Leon Trakman, “As Asia Embraces the Trans-Pacific Partnership, ISDS Opposition Fluctuates”, The Conversation (20 November 2015), online: <>.

[2] Luke Nottage, “US vs EU vs Other Models for Investment Treaties in the Asian Region”, Japanese Law and the Asia-Pacific (blog), University of Sydney (10 June 2016), online: <>.

[3] Senator the Honorable Penny Wong, Export Council of Australia, Australian Chamber of Commerce and Industry Trade Forum (7 June 2016), online: <>.

[4] Leon E Trakman, “Deciding Investor States Disputes: Australia’s Evolving Position” (2014) 15 J World Investment & Trade 152.

[5] The Greens, “Fair International Trade: Trade for good, not for corporate interests”, online: <>.

[6] Leon E Trakman and David Musayelyan, “The Repudiation of Investor-State Arbitration and Subsequent Treaty Practice: The Resurgence of Qualified Investor-State Arbitration” (2016) 31:1 ICSID Rev 194; Luke Nottage, “The TPP Investment Chapter and Investor-State Arbitration in Asia and Oceania: Assessing Prospects for Ratification” (2016) Sydney Law School Research Paper No. 16/28, SSRN, online: <>.

About the Authors

Leon Trakman is a professor of law at the University of New South Wales. He is the author of numerous books and articles on international commercial arbitration, trade and investment law. He has served extensively as an international arbitrator, mediator and intergovernmental trade adjudicator in investment and trade disputes.