Frequently Asked Questions on Investor-State Dispute Settlement (ISDS)

What is investor-state dispute settlement (ISDS)?

ISDS provisions grant foreign investors the right to access an international tribunal if they believe actions taken by a host government are in breach of commitments made in a Free Trade Agreement (FTA) or an investment treaty, thus providing additional protections for investors.

What is subject to ISDS?

ISDS is focused on investment obligations such as treating foreign investors in a non-discriminatory way, protecting investments from expropriation and providing a certain minimum standard of treatment. It does not extend to obligations in other parts of an FTA such as intellectual property or environment chapters.

Does Australia already have ISDS provisions?

Yes. Australia has ISDS provisions in four FTAs: Australia-Chile Free Trade Agreement, Singapore-Australia Free Trade Agreement, Thailand-Australia Free Trade Agreement, 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.

Why are they included?

Australia has negotiated ISDS provisions over the past three decades to provide protection for those who choose to pursue new opportunities for Australia by investing abroad. ISDS provisions 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.

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. ISDS provisions promote investor confidence against the threat of sovereign or political risk.

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, however, 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?

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. ISDS provisions can incorporate safeguards to protect the rights of governments to take decisions in the public interest.

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 PBS is an integral part of Australia’s health system. 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, companies incorporated in Australia have used ISDS in proceedings against other countries to protect their interests. The Australian Government is not a party to these disputes.

Has Australia been subject to ISDS disputes?

Over the past 30 years there has been just one ISDS challenge brought against Australia. More information on this case is available at Investor-state arbitration - tobacco plain packaging