As we approach the Australian federal election, trade minister Richard Marles recently confirmed Australia will not sign the Trans Pacific Partnership Trade Agreement if it includes an investor-state dispute clause. Marles' stance against this threat to our domestic sovereignty is a critical policy difference between the country’s major parties - the Coalition is more open to agreeing to such a clause.
An investor-state dispute clause gives foreign corporations greater rights than local business to seek compensation off-shore for any Australian legislation or policy decision that undercuts investments. Such a clause was used to challenge our constitutionally valid tobacco plain packing legislation. Australia’s trade policy also requires gradual withdrawal from such obligations under bilateral investment treaties.
Whatever the outcome of the election, Australia’s current position against excess investor rights in the trade agreement is principled but precarious. Indeed, many remember how the Howard Government’s “iron clad” assurance our Pharmaceutical Benefits Scheme would not be in the Australia-US free trade agreement eventually buckled under intense US pressure.
Australia’s precarious energy security
The issue is particularly important given Kevin Rudd has put energy market reform at the top of his policy agenda.
The Australian economy depends on coal for export earnings and electricity generation. Further, more than 75% of our economic activities (particularly transport of people and products) are powered by imported crude oil and petroleum fuels.
These have long global supply chains subject to geopolitical instability, and are affected by decreasing Australian domestic refining capacity.
Yet, despite such fuel imports creating a trade deficit of A$18 billion, Australia’s current energy policy is against self sufficiency. Indeed, Australia is one of the few developed nations that lacks a standard stockpile of fuel reserves.
This means that if fuel supplies were cut, Australian motorists would be without petrol in three days and most food and medicine deliveries in a week.
We need stronger public interest energy regulation
Reducing our economic dependence on carbon-based fuels will require new major legislative and policy initiatives by Australian governments. One such policy is a floating price on carbon, designed to divert investment to sustainable zero carbon energy.
Another example is a federal regulatory “trigger” on coal seam (but not shale) gas or coal mining activities which affect water systems.
Policy could also better secure public revenue derived from sources such as state mining royalties (based on volume) and the federal mining super profits tax (based on profits). Reforms similarly might focus on preventing profit shifting to low tax jurisdictions by foreign energy investors.
Rapid deployment of sustainable energy technologies (such as artificial photosynthesis) will also require significant government subsidies or incentives. A meeting to discuss such policies among the leaders of the national artificial photosynthesis projects is being sponsored by the UK Royal Society in July 2014.
All of this policy support for sustainable energy systems could be compromised if US TPPA negotiators eventually undermine Australia’s position against excess investor rights.
Greater rights for foreign energy investors than Australian businesses
In other jurisdictions, such excess investor rights have been used by an American natural gas company after the Quebec provincial government imposed a moratorium on coal seam “fracking”. Likewise, when Germany tried to phase out nuclear energy, similar investor claims were initiated by the Vattenfall Group under the Energy Charter Treaty.
Former Trade Minister Emerson has warned that such excess investor rights could give foreign energy corporations the right to seek compensation if any of our states sought to regulate their coal seam gas developments.
Apart from undermining the sovereignty of a democratic nation, there is strong evidence from the Productivity Commission, researchers involved with the World Trade Organisation and other institutions that allowing such excess foreign investor rights does not encourage additional investment where a nation already has a non-corrupt legal system that doesn’t discriminate between domestic and foreign corporations.
Alternatives to excess energy investor rights
Rather than handing over more rights to foreign energy corporations than local businesses, the Trans Pacific Partnership Trade Agreement should allow us to legislate to ensure these organisations pay proper tax, do not commit fraud and are committed to building a responsible energy industry in Australia.
The agreement, for example, could establish working groups to explore development of anti-corporate fraud and fair taxation systems with particular significance for economically significant areas such as energy supply.
Australia is ready to lead the way here. The Federal Attorney General’s Department is awaiting approval to draft legislation implementing key aspects of the United States False Claims Act. This would allow informants on energy fraud to be represented by their own legal team (on a “no-win-no-fee” basis) in conjunction with government law enforcement officials. If energy fraud is proven, the informant’s team is compensated with 15-30% of the triple damages the government receives.
In California such legislation has been used to catch mining companies that have filed false reports to conceal the theft of natural resources and avoid paying royalties under relatively under-analysed ‘reverse-false claims actions’. Similar claims have recovered damages where oil and gas companies underpaid royalties owed on natural gas produced from federal and Indian leases].
By holding the line against excess foreign investor rights, Australia will set the preconditions for long-term, socially responsive energy trade and investment in an Asian region committed to the rule of law. The issue divides the major parties in the coming election.