Sydney Law School

Legal Studies Research Paper

No. 15/97
November 2015

The Evolution of Foreign Investment

Regulation, Treaties and Investor-State
Arbitration in Australia
Luke Nottage
This paper can be downloaded without charge from the
Social Science Research Network Electronic Library
at: http://ssrn.com/abstract=2685941

Electronic copy available at: http://ssrn.com/abstract=2685941

The Evolution of Foreign Investment Regulation, Treaties and Investor-State

Arbitration in Australia
Luke Nottage *
Abstract: This paper outlines the historical evolution of Australias foreign direct
investment (FDI) regulation generally, under national law and more recently bilateral
investment treaties (BITs) or investment chapters of free trade agreements (FTAs). This
sets the stage for closer analysis of the policy and politics in Australia over treaty-based
investor-state dispute settlement (ISDS), particularly the binding arbitration mechanism
since 2010. The paper concludes by highlighting some key contrasts with ISDS debates
in New Zealand, a close trading and investment partner. It has retained more bipartisan
support for ISDS in recent years, and FTAs generally, despite emergent concerns in the
context of the Korea and Trans-Pacific Partnership FTAs.
Keywords: free trade agreements, international economic law, investor-state dispute
settlement (ISDS), arbitration, foreign direct investment (FDI) regulation,
Commonwealth law, comparative law, Australia, New Zealand, dispute resolution, law
reform process
1. Introduction
According to the FDI (Foreign Direct Investment) Regulatory Restrictiveness Index
compiled by the Organisation for Economic Co-operation and Development (OECD),
Australia scored 0.13 overall in 2014 compared to an average of 0.10 across 55 countries
(including all OECD and G20 countries) and the OECD average of 0.07. In terms of
significant world economies, this places Australia in a group with somewhat aboveaverage restrictiveness towards FDI, including also Korea (0.14), Canada (0.17) and
Russia (0.18). Another group is even more restrictive, including China (0.42), Indonesia
(0.34), India (0.26) and intriguingly New Zealand (0.24). At the other extreme are
major economies with more permissive regulatory regimes: the Netherlands (0.01), Japan
(0.05), the United Kingdom (0.06) and the United States (0.09).
The FDI Index is based on foreign equity limitations, screening or approval mechanisms,
restrictions on the employment of foreigners as key personnel, and
operational restrictions (eg on capital repatriation or land ownership), with the
OECD acknowledging that the Index:
is not a full measure of a countrys investment climate. A range of other
factors come into play, including how FDI rules are implemented. Entry
Professor of Comparative and Transnational Business Law, University of Sydney Law School. This paper
also draws on support from an Australian Research Council Discovery Project (DP140102526) for 20142016, jointly with Dr Shiro Armstrong and Professors Jurgen Kurtz and Leon Trakman. I thank Luca
Moretti for research and editorial assistance.

Electronic copy available at: http://ssrn.com/abstract=2685941

barriers can also arise for other reasons, including state ownership in key
sectors. 1
Indeed, a detailed academic study shows that the screening mechanisms are
conceptually similar in China and Australia, but now applied in a much more liberal
manner in Australia. 2
The FDI Index data since 1997 also shows how restrictiveness has gradually diminished
in Australia, as in other OECD countries. But it is revealing to outline (in Part 2 below)
the longer-term historical evolution of Australias regulatory controls and broader public
debates over FDI. This analysis usefully sets the scene for a close analysis of a topical
issue nowadays in Australia: treaty-based investor-state arbitration (Part 3). Some
parallels and contrasts can then be sketched with the situation in New Zealand, its close
trade and investment partner (Part 4).
2. The Law and Politics of Foreign Investment Regulation
Australia has long demonstrated an ambivalent attitude towards foreign direct
investment (FDI). 3 David Urens recent study highlights how a liberal regime mostly
prevailed before World War II, including large-scale investments from the United
Kingdom such as the Vestey familys vast farm in the Northern Territory. 4 From the
1950s through to 1970s, FDI from the United States expanded but attracted increasing
public concern, in a protectionist era characterized by high tariffs on imports. 5
A political turning point involved a takeover bid in 1972 by the American conglomerate
IT&T (then the eighth-largest corporation in the world) for the small manufacturer of an
iconic Australian fast food, the Chiko Roll. 6 The Labor Party government voted in that
year, led by Gough Whitlam until his controversial dismissal by the Governor-General in
1975, followed through electoral commitments to restrict FDI. The Foreign Acquisitions
and Takeovers Act 1975 (Cth) allowed the federal Treasurer to limit FDI in the national
interest, and foreign investment in resource projects was limited to 50 per cent. 7 This
regime was retained after a new government was formed by Malcolm Fraser, leading the
Liberal Party in coalition with the rural Country Party. Indeed, the Fraser government
extended the 50 per cent rule to investments in farming, forestry and fishing, with
Treasurer Phillip Lynch remarking in 1976: 8
Organisation for Economic Cooperation and Development, FDI Regulatory Restrictiveness Index
<http://www.oecd.org/investment/fdiindex.htm>.
2 Vivienne Bath, Foreign Investment, the National Interest and National Security - Foreign Direct
Investment in Australia and China (2012) 34 Sydney Law Review 5.
3 David Uren Takeover: Foreign Investment and the Australian Psyche (Black Inc., Collingwood, 2015).
4 At 147-8.
5 At 62-72.
6 At 83-6.
7 At 101-6.
8 At 106.
1

Electronic copy available at: http://ssrn.com/abstract=2685941

In past decades of high immigration, and rapid industrial development, there was
a general presumption that all foreign investment should be welcomed. This is no
longer the case. The Australian community quite properly demands that
government today take a more discriminating and mature attitude towards
foreign investment.
Public concern also grew about Japanese investment in resources, the cattle industry and
real estate, although this diminished after Japans bubble economy collapsed in 1990. 9
The Hawke-Keating Labor governments (1983-96) liberalised the Australian economy
and parts of the foreign investment regime, including almost all additional formal limits
to foreign ownership in resource investments. However, the 1975 Act remained, along
with a Foreign Investment Review Board (FIRB) to advise the Treasurer on whether
to limit FDI proposals in the national interest.
Opposition leader and shadow Treasurer, John Howard, proposed abolishing the FIRB
in the lead-up to the 1987 election. However, after gaining power in 1996 and leading
Liberal Party led governments in coalition with the National Party until 2007, Howard
retained the FIRB and the existing FDI regime, except for removing the requirement
that uranium mining be controlled by Australians. Indeed, in 2011 the Treasurer Peter
Costello blocked a bid by Shell to take over Woodside (operator of the North West Shelf
gas project), against the backdrop of the Liberal Party losing a state election in Western
Australia. 10
Nonetheless, cross-border investment flows grew strongly from the 1980s, as local
capital and currency markets were liberalized and share markets boomed at home: 11
Foreign investment poured into the country, doubling its share of the economy.
Investment by Australian companies abroad soared even more remarkably, rising
from 5 per cent of GDP before the float [of the dollar in 1983] to 35 per cent by
the end of the 1990s. The combined value of investments by Australian
companies exceeded the foreign investment in Australia. 12
Beginning in 1988, with the Peoples Republic of China, Australia began concluding
Bilateral Investment Treaties (BITs) particularly with developing economies and/or
countries whose protections for investors might not reach international standards. 13
At 1-3, 149-51, 157-8.
At 110-11.
11 At 90-91.
12 At 142.
13 See generally Mark Mangan Australia's Investment Treaty Program and Investor-State Arbitration in
Luke Nottage & Richard Garnett (eds) International Arbitration in Australia (Federation Press, Sydney, 2010);
Luke Nottage Investor-State Arbitration Policy and Practice in Australia, paper presented in Ottawa, 25
October 2015, at the CIGI project conference (outlined at <https://www.cigionline.org/articles/investorstate-arbitration>); Luke Nottage Investment Treaty Arbitration Policy in Australia, New Zealand and
9

10

After a further round of multilateral trade and investment liberalisation under the World
Trade Organization looked increasingly unlikely from around 2000, the Howard
Government also began negotiating Free Trade Agreements (FTAs) including
investment chapters, both protecting and liberalizing investment on a preferential basis. 14
The FTAs with Singapore (signed on 17 February 2003) and Thailand (5 July 2004) were
with smaller economies, but from 2002 Howard committed to negotiating an FTA with
the US (eventually signed on 18 May 2004). 15 By 2001, Australias FDI stock in the US
was higher than the latters FDI in Australia. 16 The then US Trade Representative,
Robert Zoellick, envisaged greater investment flows as the biggest potential benefit from
the FTA. 17 He sought exemptions for US investors from the FIRB process, but instead
ultimately achieved a much higher threshold before applications were subject to review
($800m, instead of $50m). One study estimated that there was $73b more investment in
Australian between 2005 and 2010 than would otherwise have been expected, 18 although
the impact of this FTA on bilateral trade flows remains hotly contested. 19
Labor Governments under Kevin Rudd and Julia Gillard (2007-2013) retained a generally
favourable stance towards inbound foreign investment. Treasurer Wayne Swan, for
example, resisted calls to block a Chinese acquisition of Australias largest cotton farm in
2012, 20 Cubbie Station, which otherwise risked insolvency. However, he rejected the
application by the Singapore Stock Exchange to acquire the Australian Securities
Exchange. 21 This was partly on the grounds of economic nationalism (that the
acquisition would impede the goal of positioning Sydney as a regional financial centre)
Korea? (2015) 25 Journal of Arbitration Studies (Korea) 185 (with a manuscript version at
<http://ssrn.com/abstract=2643926>); and current BITs available via
<http://www.info.dfat.gov.au/treaties>.
14 See generally eg Kristen Bondietti Inconsistencies in treatment of foreign investment in trade
agreements (Research Paper, Australian APEC Study Centre, Monash University, 2008). For a recent
critique for not liberalising more consistently, see Shiro Armstrong et al, Are Free Trade Agreements
Making Swiss Cheese of Australias Foreign Investment Regime (East Asia Bureau of Economic
Research, Working Paper 92, November 2014) <http://www.eaber.org/node/24527>.
15 Nottage Investment Treaty Arbitration Policy in Australia, New Zealand - and Korea?, above n 13;
and all FTAs available via <http://dfat.gov.au/trade/agreements/pages/trade-agreements.aspx>.
Thomas Westcott Foreign investment issues in the Australia-United States Free Trade Agreement
(Australian Government Treasury)
<http://archive.treasury.gov.au/documents/958/PDF/06_Foreign_investment_policy_AUSFTA.pdf> at
71.
17 Uren, above n 3, at 80-81.
18 At 13, citing Stephen Kirchner Foreign Direct Investment in Australia Following the Australia-US Free
Trade Agreement (2012) 45 Australian Economic Review 410.
19 Compare eg Shiro Armstrong The Economic Impact of the Australia-United States Free Trade
Agreement 69(5) Australian Journal of International Affairs 513 (also via
<http://www.tandfonline.com/eprint/832tsxRd9hYWBPjdGetU/full>); with Andrew Stoler Assessing
AUSFTA (panel presentation at Celebrating 10 years of the Australia-US Free Trade Agreement, United
States Studies Centre at the University of Sydney, 2 July 2015), see
<http://ussc.edu.au/events/Celebrating-10-years-of-the-Australia-US-Free-Trade-Agreement>.
20 Uren, above n 3, at 152-3.
21 At 204-5.
16

and partly out of concern about Australia losing sovereignty over regulatory control
(especially in financial crises). Swan also arguably delayed a decision on a bid by a large
US investor for Graincorp (made in October 2012). That decision was left to a new
Treasurer, Joe Hockey, after the Liberal-led Coalition under Tony Abbott regained
power in the general election of 7 September 2013. 22
Hockey eventually rejected the application, under pressure from the National Party
within the Coalition. The Party had also pressed for new FDI restrictions to be
introduced, reviving longstanding concerns in Australias rural community about foreign
investors, including now State-Owned Enterprises (SOEs) and other government-linked
companies from China and other capital-exporting countries. In 2015, the Coalition
Government made good on its election commitments by requiring FIRB review of
investments in rural land exceeding $15m (from 1 March), and by introducing Bills
allowing FIRB review of proposed agribusiness investments exceeding $55m (planned
to take effect from 1 December), albeit with higher thresholds remaining for investors
from certain FTA partners due to commitments made under early treaties. 23 The
Australian government has maintained a particular interest in FDI proposals by investors
linked to foreign governments requiring FIRB approval irrespective of FDI value, and
assessing the commercial nature of the investors activities when assessing the national
interest. 24
Overall, both major parties Labor and Liberal have maintained a liberal stance
towards inbound FDI despite enactment of the Foreign Acquisitions and Takeovers Act 1975
(Cth). FIRB, composed mainly of businesspeople assisted by a secretariat of Treasury
officials, mostly recommends approval of FDI proposals and successive Treasurers are
have rarely rejected them or exercised their wide statutory discretion to impose
conditions on the inbound investments. However, the Labor Party faces considerable
opposition from its left factions, and especially the Australian Greens Party (with which
the Gillard Government, for example, was in coalition over 2011-13). The Liberal Party
also faces concerns from some political conservatives and its National Party partner. By
At 216-7
See Australian Government Foreign Investment Review Board Strengthening the Foreign Investment
Framework <http://www.firb.gov.au/content/strengthening_FIF.asp>; Treasurer of Australia
Government Strengthens the Foreign Investment Framework (2 May 2015)
<http://jbh.ministers.treasury.gov.au/media-release/034-2015/>. The amendment Bills also envisaged
bringing in the existing Policy rules on foreign government investors and land acquisitions into the Act
itself, simplifying the Acts structure to split investments into significant and notifiable actions, and
increasing the substantial interest threshold from 15 to 20 percent (to align with corporate takeover
thresholds). See also Raymond Lou and Sandra Lilly (August 2015) Foreign Investment and FIRB Update
Bills to Amend Foreign Acquisitions and Takeovers Act
<http://www.nortonrosefulbright.com/au/knowledge/publications/131662/foreign-investmentfirbupdate-bills-to-amend-foreign-acquisitions-and-takeoversact?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original>.
24 Uren, above n 3, at 196-201. See generally Treasurer of Australia Australias Foreign Investment Policy
(June 2015) Foreign Investment Review Board
<http://www.firb.gov.au/content/_downloads/Australias_Foreign_Investment_Policy_June_2015.pdf>.
22
23

contrast: The radical free trader perspective the voice of John Hewson [Opposition
leader of the Liberal Party, 1990-4], who once called for abolition of the Act no
longer finds expression in mainstream politics. 25 Uren therefore concludes that the
bipartisan political centre remains unstable, noting: 26 There were 160 speeches and
parliamentary interventions referring to foreign investment in the parliamentary debates
of the Abbott Governments first year. 27
Indeed, on 6 November 2015 the Labor Opposition was reported as chastising the
Coalition Government about Bills it had introduced in July, for discriminating on the
basis of investors nationality. Labor proposed amendments to increase thresholds for
Chinese, Korean and Japanese investors in rural land from $15m (the Coalitions new
general threshold since March) to $50m (as preserved for Thai and Singaporean investors
under their longer-standing FTAs). However, this would still leave New Zealand, Chilean
and US investors with their FTA-guaranteed threshold of over $1b. Labors
spokesperson for trade and investment, Senator Penny Wong, further signalled that a
future Labor Government would consider extending the $1b threshold to all foreign
investors in non-sensitive sectors. She also objected to the Coalition legislating a new
agribusiness investment review threshold of $55m (or over $1b again for New Zealand,
Chilean and US investors), pointing out that it would this was one-fifth of the general
threshold for sensitive sectors such as media, defence businesses or uranium mining.
Commentators saw this stance as a response to critiques by the Abbott Government that
the Labor Party and the unions were being racist in objecting to ratification of the ChinaAustralia FTA signed on 17 June 2015, 28 outlined further below.
3. Investor-State Arbitration Policy and Politics
The historical and political backdrop outlined above sets in context the emergence of a
newer lightning rod for public debate, in addition to longer-standing sensitive issues
relating to foreign investment such as FDI in certain sectors (resources, land, media and
infrastructure) or by certain investors (government-linked companies, investors from the
US or parts of Asia). Treaty-based investor-state dispute settlement (ISDS), as an
optional procedure for foreigners to enforce substantive commitments to protect and/or
liberalise their investments as guaranteed by BITs or FTAs, really only emerged in
Australias public discourse around 2003-4, during negotiations for the FTA with the
US. 29
Uren, above n 3, at 217.
Uren, above n 3, also remarks that: Hansard records over 2000 separate speeches on foreign investment
since the Hawke government last amended the [Foreign Acquisitions and Takeovers Act 1975 (Cth)] in the late
1980s.
27 Uren, above n 3, at 209 (also remarking that: Hansard records over 2000 separate speeches on foreign
investment since the Hawke government last amended the [Foreign Acquisitions and Takeovers Act 1975 (Cth)]
in the late 1980s).
28 Fleur Anderson, Labor to fight foreign investors crackdown Australian Financial Review (6 November
2015); Mark Kenny, Labor to oppose tighter vetting of asian investment in farms and agribusiness Sydney
Morning Herald (online ed, 6 November 2015).
29 Uren, above n 3, at 206-8.
25
26

The two earlier FTAs, as well as all BITs (albeit in some cases arguably with limited
scope 30), had provided for ISDS including the important investor-state arbitration
option allowing for a decision binding on the host state but had attracted almost no
public attention. However, after the FTA negotiations commenced in earnest with the
US from 2003, some civil society groups and others became worried that American
investors would actively and successfully invoke the procedure as they had arguably
done under the 1993 North American FTA against Canada, as well as Mexico. Critics
also built on national and international linkages created in the late 1990s, when groups
mobilised to force national governments to cease negotiations for a multilateral
investment treaty under the auspices of the OECD. 31
Consistent with its past treaty practice (also reflected in a 2004 Model BIT) and
bipartisan policy around that time, the US government pressed to include ISDS in the
bilateral treaty with Australia as well. However, Howards Coalition Government lacked a
majority in the federal Senate (upper House), which would need to approve preferential
tariff reductions before any FTA could be ratified, so it resisted the inclusion of ISDS. It
also argued that ISDS mechanisms were unnecessary given the confidence each
(developed) country had in the others court systems, to enforce adequate protections in
Australia. 32 Exceptionally, the US agreed to omit ISDS, leaving only the inter-state
arbitration procedure to enforce substantive commitments set out in the FTAs
investment chapter.
The topic was then lost from public view, despite ISDS being included by the Howard
(Liberal-led) Government in 2005 in BITs with Mexico and Turkey. It was also included
by the Rudd (Labor) Government in the 2008 Chile FTA and in the 2009 Australia-New
Zealand ASEAN FTA. However, the latter contained a bilateral carve-out between
Australia and New Zealand, ostensibly because they were negotiating an Investment
Protocol (eventually signed in 2011) for their longstanding Closer Economic Relations
FTA, but also due to trust and familiarity in each others domestic court processes and
investor protections.
From 2010, ISDS began to re-emerge in newspaper and other media coverage, as
illustrated below:

Luke Nottage Do Many of Australia's Bilateral Treaties Really Not Provide Full Advance Consent to
Investor-State Arbitration? Analysis and Regional Implications (2015) 1 Transnational Dispute
Management.
31 See eg Patricia Ranald Disciplining Governments: The MAI Proposals in J. Goodman and P. Ranald
(eds) Stopping the Juggernaut: Public Interest versus the Multilateral Agreement on Investment (MAI) (Pluto Press,
Sydney, 1999).
32 Thomas Westcott Foreign Investment Policy and Australias International Investment Agreements:
Catching the Third Wave (unpublished); Nottage Investment Treaty Arbitration Policy in Australia, New
Zealand - and Korea?, above n 13.
30

Figure 1: Articles in main Australian newspapers referring to ISDS (2003 October

2015) 33
250
200
150

Total

100

Articles also referring

to TPP and/or Philip
Morris

50
0

2003 2004 2008 2010 2011 2012 2013 2014 2015

The backdrop included renewed concern particularly from the political left as
negotiations got underway in 2010 for an expanded Trans-Pacific Partnership (TPP)
FTA, adding Australia, the US and other major regional economies to the original TPP
concluded in 2004 by New Zealand, Singapore, Brunei and Chile. 34 Critics were
concerned that the US would press for and achieve outcomes beyond those obtained in
its bilateral FTA with Australia, including ISDS protections. They also noted that Philip
Morris (originally an American tobacco company) had launched investor-state arbitration
against Uruguay over its tobacco laws. Criticism and media commentary about ISDS
intensified dramatically after Philip Morris Asia engineered the first-ever claim against
Australia, under its broadly worded 1993 BIT with Hong Kong, filed formally in 2011.
This alleged expropriation of trademarks and other interference with its investments
following Australias earlier announced intention to introduce tobacco plain packaging
legislation. 35
This media analysis derives from a FACTIVA database search of major Australian newspapers
(conducted 29 October 2015), for articles (and some letters or op-eds) containing at least one of the
following terms: ISDS, investor-state, investor state, investment arbitration. (A few results may
cover investment and/or arbitration, without necessarily or specifically referring to treaty-based ISDS.)
34 See generally Australian Government, Department of Foreign Affairs and Trade Trans-Pacific
Partnership Agreement News (6 October 2015)
<http://dfat.gov.au/trade/agreements/tpp/news/Pages/news.aspx>.
35 See generally Australian Government, Attorney-Generals Department Tobacco Plain
Packaginginvestor-state arbitration <https://www.ag.gov.au/tobaccoplainpackaging>.
33

From late 2010, however, opposition to ISDS came from a new and unexpected quarter:
the Productivity Commission (PC) in Canberra. The PCs Inquiry Report on Bilateral and
Regional Trade Agreements generally urged Australias trade policy to refocus on
unilateral liberalization, and otherwise multilateral initiatives (eg through the WTO), with
FTAs being very much a third-best option that required careful and transparent costbenefit analyses. From this general perspective, the majority Report was worried about
the distorting effects of granting protections to foreign investors beyond those available
to local investors, including ISDS. It argued primarily that: (a) recent aggregated studies
found no statistically significant impact in attracting more inbound FDI by offering ISDS
in investment treaties, (b) outbound investors generally or from Australia did not need
such protections abroad, and (c) offering ISDS to inbound investors increased the risk
that the Australian government would have to pay compensation as well as more diffuse
regulatory chill. 36
Each of these three arguments against ISDS is questionable, 37 and the PC Reports was
accompanied by a strong dissent by an Associate Commissioner. 38 Nonetheless, its
recommendation that Australia should no longer include ISDS in future treaties was
accepted in the Gillard Government Trade Policy Statement of April 2011. 39 A bilateral
FTA concluded in 2012 with Malaysia omitted ISDS, although this was quite meaningless
in practice as the protection was anyway available under the earlier Australia-NZASEAN FTA. Negotiations for other FTAs were also delayed as a result of Australias
policy shift.
In the lead-up to the general election of 7 September 2013, the Liberal-National
Coalition declared that it would revert to a case-by-case assessment of the need for ISDS
in trade and investment agreements. After gaining power, the Abbott Government
updated official websites accordingly, 40 and signed an FTA with Korea on 8 April 2014
that included ISDS for substantive protections similar to those found in Australias
earlier FTAs and BITs. 41 However, Japan seemingly did not press as strongly for ISDS,
See Australian Government, Productivity Commission Bilateral and Regional Trade Agreements:
Research Report (13 December 2010) <http://www.pc.gov.au/inquiries/completed/tradeagreements/report>.
37 Luke Nottage Throwing the Baby with the Bathwater: Australias New Policy on Treaty-Based
Investor-State Arbitration and its Impact in Asia (2013) 37 Asian Studies Review 253; Jurgen Kurtz
Australias Rejection of Investor-State Arbitration: Causation, Omission and Implication (2012) 27
ICSID Review 65; Leon Trakman Choosing Domestic Courts over Investor-State Arbitration: Australias
Repudiation of the Status Quo (2012) 35 UNSWLJ 979.
38 Uren, above n 3 at 207-8.
39 Preserved at: Australian Government, Department of Foreign Affairs and Trade Gillard Government
Trade Policy Statement: Trading our way to more jobs and prosperity (April 2011)
<http://blogs.usyd.edu.au/japaneselaw/2011_Gillard%20Govt%20Trade%20Policy%20Statement.pdf>.
40 Australian Government, Department of Foreign Affairs and Trade Investor-State Dispute Settlement
<http://dfat.gov.au/trade/topics/pages/isds.aspx>.
41 On Koreas renewed push for including ISDS in investment treaties generally, see Nottage Investment
Treaty Arbitration Policy in Australia, New Zealand - and Korea?, above n 13.
36

given a long history of largely problem-free investment in Australia, so it was omitted

from that bilateral FTA signed on 8 July 2014. 42 The issue of ISDS protection was more
relevant in the negotiations for an FTA with China, given problems experienced by
investors on both sides, 43 but ISDS was only agreed for certain National Treatment
commitments. Nonetheless, the 1988 BIT remains in effect and contains ISDS for
disputes relating to the amount of compensation for expropriation, as well as inter-state
arbitration for other substantive protections such as fair and equitable treatment, while
the FTA provides for a review of its investment chapter during a three-year work
program. 44
This variegated negotiating stance on the part of the Abbott Government doubtless
reflected its concern to minimise the chance of tariff implementation legislation not
being passed in the Senate, where it lacks an absolute majority, thus preventing
ratification of signed FTAs. Labor parliamentarians initially opposed ratification of the
Korea FTA, partly on the basis of its ISDS provisions, but eventually voted with the
Abbott Government to pass the necessary preferential tariff amendments. The Labor
Partys position on the China FTA was complicated. 45 Its parliamentarians on the Joint
Standing Committee on Treaties dissented from the main Report (dated 19 October
2015) recommending ratification, objecting to the ISDS provisions despite their
narrow scope. 46 Nonetheless, soon afterwards the Labor Party leadership agreed with the
Coalitions new Prime Minister (Malcolm Turnbull) to vote in favour of implementation
Bills (introduced on 16 September, passed on 9 November) in order allow ratification of
the China FTA, subject to agreed extra safeguards regarding labour mobility concerns. 47
The Greens remain resolutely opposed to ISDS (and FTAs generally). Tasmanian
Senator Peter Whish-Wilson even initiated an Anti-ISDS Bill, which would have
precluded Australia entering any agreement containing any form of ISDS (even investorstate mediation). However, even Labor Senators on the relevant Senate Committee
agreed in July 2014 that this constituted excessive encroachment on the executive
42 Luke Nottage Investor-State Arbitration: Not in the Australia-Japan Free Trade Agreement, and Not
Ever for Australia? (2014) 38 Journal of Japanese Law 37.
43 See eg Uren, above n 3; Bath, above n 2; and John Garnaut A Chinese prisoners dilemma as man
begging for release from Australian prison risks upsetting the delicate relationship with China The Sydney
Morning Herald (online ed, Sydney, 4 April 2015).
44 Luke Nottage Compromised ISDSbacked investment commitments in the ChinaAustralia FTA (26
June 2015) University of Sydney, Japanese Law and the AsiaPacific
<http://blogs.usyd.edu.au/japaneselaw/2015/06/compromised_isds_china.html>.
45 Jurgen Kurtz & Luke Nottage Investment Treaty Arbitration Down Under: Policy and Politics in
Australia (2015) 30 ICSID Review 465.
46 The Report is available via Parliament of Australia Proposed China-Australia Free Trade Agreement
(24 March 2015)
<http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_T
rade/China-Aust_Free_Trade>.
47 Daniel Hurst Labor and Coalition reach agreement on China-Australia free trade deal The Guardian
(online ed, 21 October 2015); Minister for Trade and Investment (9 November 2015) ChAFTA legislation
passes the Senate <http://trademinister.gov.au/releases/Pages/2015/ar_mr_151109.aspx>.

10

branchs constitutional responsibility to negotiate treaties. 48 More recently, the Greens

launched a further Senate Inquiry into Australias treaty-making process more generally.
The majority Report from Labor Senators urged various mechanisms to enhance
parliamentary scrutiny and public consultation especially regarding trade and investment
agreements, including the possibility of Australia belatedly developing a model
investment treaty or provisions. 49
In summary, compared to the political situation regarding foreign investment regulation
generally (outlined in Part 2 above), the politics regarding ISDS in Australia is now
significantly more unstable. As well as objections from the political left, and conservative
(rural community) political right, 50 doubts have emerged about ISDS and indeed FTAs
generally from the economic right (economists at the PC and the Australian National
University, for example, who generally favour measures to enhance cross-border trade
and investment). This unusual and uneasy combination has already undermined
bipartisan support for ISDS since 2011. It remains uncertain what path a future Labor
Government will adopt, if elected at the general election scheduled for 2016. It may
revert to the Gillard Governments Trade Policy Statement approach and eschew ISDS
completely, thus preventing ratification of the TPP agreement the text of which was
released officially on 5 November 2015. 51 Alternatively, it may adopt a policy of
negotiating ISDS on a case-by-case assessment, as under the Abbott (and then Turnbull)
Coalition Government, while perhaps seeking to incorporate even more safeguards in
terms of both the procedural and substantive protections provided in Australias
investment treaties.
4. Comparative Conclusions
Compared to Australia, New Zealand has displayed more consistent support for FTAs
over the last decade. 52 Partly this is due greater dependence on agricultural product
exports, for which foreign market access is difficult without negotiating treaties. New
Nottage Investor-State Arbitration: Not in the Australia-Japan Free Trade Agreement, and Not Ever
for Australia?, above n 42, based on his Submission and evidence to the inquiry into the Trade and Foreign
Investment (Protecting the Public Interest) Bill 2014 (via
http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_Tra
de/Trade_and_Foreign_Investment_Protecting_the_Public_Interest_Bill_2014).
49 Nottage Investment Treaty Arbitration Policy in Australia, New Zealand - and Korea?, above n 13;
and Esme Shirlow Reviewing Australias Approach to the Negotiation of Trade and Investment Treaties
(8 September 2015) Kluwer Arbitration Blog
<http://kluwerarbitrationblog.com/blog/2015/09/08/reviewing-australias-approach-to-the-negotiationof-trade-and-investment-treaties/>.
50 See eg Esther Han Liberal Senator Bill Heffernan blasts Trade Minister over secret TPP talks The
Sydney Morning Herald (online ed, Sydney, 10 April 2015).
51 See Australian Government, Department of Foreign Affairs and Trade Trans-Pacific Partnership
Agreement News, above n 34; and a preliminary comparison with Australias recent FTAs in Luke
Nottage The TPP Investment Chapter: Mostly More of the Same (12 November 2015) University of
Sydney, Japanese Law and the AsiaPacific
<http://blogs.usyd.edu.au/japaneselaw/2015/06/tpp_investment.html>.
52 Nottage Investor-State Arbitration Policy and Practice in Australia above n 13, at Part 3.
48

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Zealands support for FTAs extends to offering ISDS as well as substantive protections
and liberalization for foreign investors, albeit with safeguards similar to those found in
Australias FTAs. By contrast, New Zealand has concluded far fewer BITs, perhaps
because of reduced emphasis and activity with respect to outbound investment,
especially into developing countries. 53 This historical legacy has minimized the problem
in Australia of variable and often more pro-investor drafting of BITs, and the risk of
high-profile claims such as that filed in 2011 by Philip Morris Asia.
There is growing concern about ISDS in the New Zealand media and Parliament,
including even an Anti-ISDS Bill. 54 However, the Bill was defeated at First Reading on
22 July 2015, and such blanket opposition remains limited to minor (populist or leftist)
political parties. The unicameral legislature and less polarized newspaper coverage have
also helped keep the issue less salient than in Australia. More important factors have
probably been the lack of a high-profile claim, 55 particularly from a US (or US-linked)
investor, and New Zealands inability to conclude a bilateral or even regional FTA with
the US. Yet both New Zealand and Australia pressed for an expanded TPP regional
agreement. 56 New Zealands FTAs with major economies such as China and Korea may
anyway eventually generate treaty-based ISDS claims against New Zealand. 57 It is
therefore likely that public debate over ISDS will continue to escalate. Already, New
Zealand media coverage of ISDS increased dramatically in 2015, as illustrated below:
Figure 2: Articles in main New Zealand newspapers referring to ISDS (2007 October
2015) 58

Even in 2012, around of half of New Zealands outbound FDI stock was invested in Australia: Statistics
New Zealand New Zealand's direct investment with Australia: How the global financial crisis affected
profits and reinvestment (2 May 2013)
<http://www.stats.govt.nz/tools_and_services/newsletters/economic-news/may-13-direct-investmentwith-australia.aspx>.
54 See Jane Kelsey NZ First Bill throws down the gauntlet over TPPA Scoop (online ed, 19 March 2015);
Fighting Corporate Control Bill 2015.
55 For an analysis of the impact of a first ISDS claim on a host states subsequent treaty negotiations, see
also generally Lauge Poulsen and Emma Aisbett When the Claim Hits: Bilateral Investment Treaties and
Bounded Rational Learning (2013) 65 World Politics 273.
56 For further background, see eg Amokura Kawharu The Negotiations for a Trans-Pacific Partnership
Agreement (2012) 27 ICSID Review 145.
57 Chinese and Korean investors are starting to bring ISDS claims: Nils Eliasson Chinese Investment
Treaties: A Procedural Perspective in Vivienne Bath and Luke Nottage (eds) Investment Law and Dispute
Resolution Law and Practice in Asia (Routledge, London, 2011); Joongi Kim A Bellwether to Koreas New
Frontier in Investor-State Dispute Settlement? The Moscow Convention and Lee Jong Baek v. Kyrgyz Republic
(2015) 15 Pepperdine Dispute Resolution Law Journal (forthcoming). However, for various reasons ISDS
cases involving Asian parties (especially as claimants) remain relatively low: Luke Nottage and J Romesh
Weeramantry Investment Arbitration in Asia: Five Perspectives on Law and Practice (2012) 28
Arbitration International 19.
58 This media analysis derives from a FACTIVA database search (conducted on 29 October 2015) of major
New Zealand newspapers, for articles (and some letters or op-eds) containing all of the following terms:
ISDS, investor-state, investor state, investment arbitration; and at least one/none of these words
Trans-Pacific Partnership or TPP or Trans Pacific Partnership or Trans-Pacific Strategic Economic
53

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90
80
70
60

Korea FTA but not TPP

50

Korea FTA and TPP

40

TPP but not Korea FTA

Neither TPP nor Korea FTA

30
20
10

2007 2008 2010 2011 2012 2013 2014 2015

In addition, there is significant concern in New Zealand over FTA ratchet clauses and
other provisions that limit scope to introduce stricter substantive controls over inbound
FDI, especially in rural or residential property. 59 These sectors have been historically
sensitive, as in Australia, where restrictions added in 2015 indeed have had to be tailored
to pre-existing FTA commitments. This therefore marks another area where closer and
ongoing comparisons between these two countries will be fruitful.

Partnership or TPPA; and at least one/none of these words Korea. (A few results may cover
investment and/or arbitration, without necessarily or specifically referring to treaty-based ISDS.)
59 See eg Amokura Kawharu The Investment Chapter of the New Zealand Korea Free Trade
Agreement: A Portent of Things to Come? (2015) 26(4) New Zealand Universities Law Review
(forthcoming).

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