About foreign investment
Investor-state dispute settlement (ISDS)
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.
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)
Australia also has ISDS provisions in 15 Investment Protection and Promotion Agreements (IPPAs) with Argentina, China, Czech Republic, Egypt, Hungary, Laos, Lithuania, Pakistan, Papua New Guinea, Philippines, Poland, Romania, Sri Lanka, Turkey, and Uruguay.
Australia's IPPA with India was unilaterally terminated by India on 23 March 2017. The provisions of the Agreement will continue to apply to investments made on or before 22 March 2017 for a period of 15 years from the date of termination of the Agreement. Investments made on or after 23 March 2017 are not covered by the Agreement.
Australia agreed to terminate its IPPAs with Mexico, Vietnam and Peru subject to transitional arrangements, upon the entry into force of the CPTPP as between Australia and Mexico and Vietnam respectively and the entry into force of PAFTA for Australia and Peru. Accordingly, Australia's IPPA with Mexico was terminated on 30 December 2018; Australia's IPPA with Vietnam was terminated on 14 January 2019; and Australia's IPPA with Peru was terminated on 11 February 2020.
Australia also agreed to terminate its IPPAs with Hong Kong and Indonesia, with no transitional arrangements, upon the entry into force of the A-HKFTA and the Exchange of letters terminating the Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investment respectively. Accordingly, Australia's IPPA with Indonesia was terminated on 6 August 2020, and Australia's IPPA with Hong Kong was terminated on 17 January 2020.
Further information is available at Australia's bilateral investment treaties.
How is ISDS different from other forms of dispute resolution?
ISDS is an extra mechanism that enables an investor to bring a claim against a host state that is a party to the treaty. Dispute settlement is otherwise a state-to-state process.
Have Australian companies used ISDS overseas?
Yes. Australian-based companies have used ISDS in proceedings against other countries to protect their investments overseas. 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 tribunal hearing against Australia. The dispute was brought by Philip Morris Asia challenging Australia's tobacco plain packaging legislation. On 18 December 2015, the tribunal issued a unanimous decision agreeing with Australia's position that the tribunal had no jurisdiction to hear Philip Morris Asia's claim. More information on this case is available at Tobacco plain packaging – investor-state arbitration.
Australia’s engagement in 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 seem likely to 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 clears rules on arbitrator behaviour including conflict of interest.
- 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.