Investor-State Dispute Settlement

What is investor-state dispute settlement (ISDS)?

ISDS is a mechanism that is included in a Free Trade Agreement (FTA) or an investment treaty to provide foreign investors, including Australian investors overseas, with the right to access an international tribunal if they believe actions taken by a host government breach its investment obligations.

Why is ISDS included in FTAs and investment treaties?

Australia has negotiated ISDS provisions over the past three decades to provide protection for Australian companies investing abroad. ISDS promotes investor confidence and can protect against sovereign or political risk. An investor can have their claim determined by an independent arbitral tribunal without having to rely on domestic legal remedies. ISDS cases are usually decided by three arbitrators who are independent of both the government and the investor.

What is subject to ISDS?

ISDS provides an opportunity for foreign investors, including Australian investors, to protect their investments overseas. A foreign investor can use ISDS to seek compensation for certain breaches of a host state’s investment obligations – for example, obligations in relation to expropriation, non-discrimination and minimum standards of treatment (such as protection against denial of justice). Investment obligations may also include a commitment to ensure that foreign investors will be able to move capital relating to their investments freely, subject to appropriate safeguards.

ISDS focuses on investment obligations and does not give foreign investors the right to enforce the entire trade agreement, including, for example, the intellectual property chapter.

Does Australia already have ISDS provisions?

Yes. Australia has ISDS provisions in seven FTAs: China-Australia Free Trade Agreement (not yet in force), Trans-Pacific Partnership Agreement (negotiations concluded), Korea-Australia Free Trade Agreement, Australia-Chile Free Trade Agreement, Singapore-Australia Free Trade Agreement, Thailand-Australia Free Trade Agreement, and ASEAN-Australia-New Zealand Free Trade Agreement.

Australia currently also has ISDS provisions in its 21 Investment Protection and Promotion Agreements (IPPAs) with Argentina, China, Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Laos, Lithuania, Mexico, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Romania, Sri Lanka, Turkey, Uruguay and Vietnam.

How is ISDS different to other dispute settlement mechanisms in FTAs?

ISDS is an extra mechanism that enables an investor to bring a claim against a host state that is a party to the FTA. Dispute settlement in FTAs is otherwise a state-to-state process./p>

What is the Government’s position on ISDS in current FTA negotiations?

The Government will consider ISDS provisions in FTAs on a case-by-case basis.

The Australian Government is opposed to signing up to international agreements that 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.

Is ISDS a threat to Australia’s sovereignty?

No. ISDS does not prevent the Government from changing its policies or regulating in the public interest. It does not freeze existing policy settings. It is not enough that an investor does not agree with a new policy or that a policy adversely affects its profits.

The Australian Government is opposed to signing agreements which include provisions that would restrict our capacity to govern and or regulate in the public interest in areas such health and the environment.

Can the Government still regulate the environment?

Yes. ISDS is focused on investment obligations such as treating foreigners and locals similarly. It does not prevent the Government from regulating, including in the interests of the environment.

Can the Government still manage the Pharmaceutical Benefits Scheme (PBS) in the public interest?

Yes. ISDS is focused on investment obligations. The Government will not agree to any outcome in its trade negotiations that undermines the PBS or Australia’s health system more generally.

Have Australian companies used ISDS?

Yes, Australian-based companies have used ISDS in proceedings against other countries to protect their investments. The Australian Government is not a party to these disputes.

Has Australia been subject to ISDS disputes?

Yes. Over the past 30 years there has been just one ISDS challenge brought against Australia. The dispute, brought with respect to Australia's tobacco plain packaging laws, is ongoing and the Government is confident the laws are consistent with Australia’s trade and investment obligations. More information on this case is available at Investor-state arbitration - tobacco plain packaging.

Last Updated: 30 December 2013