Investor-state dispute settlement (ISDS) is a mechanism in a free trade agreement (FTA) or investment treaty that provides foreign investors, including Australian investors overseas, with the right to access an international tribunal to resolve investment disputes.
In November 2022, Minister for Trade and Tourism, Senator the Hon. Don Farrell, announced the Government’s policy not to include investor-State dispute settlement (ISDS) mechanisms in any new trade agreements and to take opportunities to reform existing BITs and ISDS mechanisms, to enhance transparency and consistency and to strengthen the Government’s ability to regulate in the public interest.
What does ISDS apply to?
A foreign investor in Australia, or an Australian investing overseas, can use ISDS to seek compensation for certain breaches of a country's investment obligations. For example:
- obligations setting parameters on expropriation of a foreign investor's property;
- non-discrimination and minimum standards of treatment (such as protection against denial of justice);
- a commitment to ensure foreign investors will be able to move capital relating to their investments freely, subject to appropriate safeguards.
An ISDS tribunal cannot overturn domestic laws and regulations. The tribunal is limited to determining breaches of certain investment obligations. ISDS does not give foreign investors the right to enforce other provisions of the FTA, including, for example, the intellectual property chapter.
Does Australia have ISDS provisions?
Australia has ISDS provisions in ten FTAs:
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)*
- China–Australia Free Trade Agreement
- Korea–Australia Free Trade Agreement
- Australia–Chile Free Trade Agreement
- Singapore–Australia Free Trade Agreement
- Thailand–Australia Free Trade Agreement
- ASEAN–Australia–New Zealand Free Trade Agreement
- Peru-Australia Free Trade Agreement (PAFTA)
- Australia-Hong Kong Free Trade Agreement and Associated Investment Agreement (A-HKFTA)
- Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)
*In the CPTPP, Australia has agreed with New Zealand and the United Kingdom to disapply the ISDS provisions to any investment dispute between investors from those jurisdictions and Australia. Australia is exploring arrangements with other CPTPP parties in connection with the application of ISDS provisions on a bilateral basis.
Australia also has ISDS provisions in 15 Investment Protection and Promotion Agreements (IPPAs):
Argentina (Date of entry into force: 11 January 1997)
China (Date of entry into force: 11 July 1988)
Czech Republic (Date of entry into force: 29 June 1994)
Egypt (Date of entry into force: 5 September 2002)
Hungary (Date of entry into force: 10 May 1992)
Laos (Date of entry into force: 8 April 1995)
Lithuania (Date of entry into force: 10 May 2002)
Pakistan (Date of entry into force: 14 October 1998)
Papua New Guinea (Date of entry into force: 20 October 1991)
Philippines (Date of entry into force: 8 December 1995)
Poland (Date of entry into force: 27 March 1992)
Romania (Date of entry into force: 22 April 1994)
Sri Lanka (Date of entry into force: 14 March 2007)
Türkiye (Date of entry into force: 29 June 2009)
Uruguay (Date of entry into force: 23 January 2022)
Agreement between Australia and Uruguay on the Promotion and Protection of Investments
Further information is available at Australia's bilateral investment treaties.
Australia’s engagement in multilateral ISDS reform
Australia is actively engaged in reform efforts in relation to investor-State dispute settlement (ISDS).
Two of the key multilateral fora for ISDS reform are the International Centre for the Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL).
ICSID undertook an extensive review of its 2006 Arbitration Rules in order to modernise, simplify and streamline them. These procedural rules are used in the majority of ISDS cases so any amendments have a material impact on the way such arbitrations are conducted. The new ICSID Arbitration Rules were adopted by Member States, including Australia, in 2022.
UNCITRAL’s Working Group III on investor-State dispute settlement is developing a range of possible reform options to address the concerns expressed regarding ISDS with a view to allowing each state the choice of whether and to what extent it wishes to adopt the relevant options. These reform options include a multilateral instrument on ISDS procedural reform, which states can opt into depending on their particular circumstances. The Working Group recently concluded a Code of Conduct for Arbitrators which provides clear rules on arbitrator behaviour including conflict of interest.
Australia is actively engaging with Bilateral Investment Treaty partners to review these agreements, including the ISDS mechanisms in our BITs. More information is available at Australia's bilateral investment treaties.
More information
- ICSID Rules and Regulations Amendment Process
- UNCITRAL Working Group III: Investor-State Dispute Settlement Reform
United Nations Convention on Transparency in Treaty-based Investor-State Arbitration
Australia ratified the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration on 17 September 2020. The Convention is an instrument by which the Parties consent to the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration to investment treaties concluded prior to 1 April 2014. The Rules on Transparency are a set of procedural rules for making information on investor-State arbitration arising under investment treaties publicly available. The Convention entered into force for Australia on 17 March 2021, and applies to Australia's network of older-style investment treaties, in accordance with its provisions.