The Rise and Possible Fall of Investor-State Arbitration in Asia : A Skeptic’s View of Australia’s ‘Gillard Government Trade Policy Statement’

Treaty-based investor-state arbitration (ISA) has gradually become a more established part of the legal landscape in the Asian region. But this development is threatened by the “Gillard Government Trade Policy Statement” announced in April 2011. One interpretation is that the Australian government will no longer include ISA protections in future investment treaties or Free Trade Agreements (FTAs) even with developing countries – effectively eschewing treaty-based ISA altogether. Another interpretation is that the government may henceforth include ISA provisions on a case-by-case basis, but not if that would provide greater procedural or substantive rights against the government to foreign investors compared to local investors in Australia. Part I of this paper outlines the complex and potentially far-reaching implications of even the latter policy stance. Part II revisits some of the economic theory and evidence underlying the related recommendation of Australia's Productivity Commission, announced in 2010 as part of its review of FTA and investment treaty policy, including some more recent case studies involving investment both in and out of Australia. Part III outlines some less radical ways for Australia – and other countries in the Asia-Pacific region – to rebalance private and public interests in the ISA system. However, Part IV outlines how Australia's recent experience suggests more generally that nowadays there may be surprisingly few constituencies prepared to come out strongly in favour of refining the present-based ISA system in those ways. Within many states, there are probably more public and private interest groups now wishing to see it more drastically curtailed – along the lines recently announced by the Australian government or, indeed, even more restrictively. Part V concludes that many other states in Asia already or potentially negotiating treaties with Australia – including Japan and China – are also unlikely to achieve a relaxation of the policy stance. The treaty-based ISA system may well therefore end up declining significantly in the region, especially over the medium- to longer term