Free trade provisions could hamper action on IT pricing

Investor-state dispute resolution clauses in free trade agreements also have potential implications for intellectual property reform, warns Dr Matthew Rimmer

A class of provisions in free trade agreements that allow foreign investors to take legal action over government decisions they consider detrimental to their interests could hamper future action on excessive pricing of IT products in Australia, an ANU academic has warned.

The inclusion of investor-state dispute resolution clauses in free trade agreements is currently being scrutinised by a Senate committee, which is examining the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014.

The legislation, introduced by Greens Senator Peter Whish-Wilson, would rule out the future inclusion of ISDS clauses in free trade agreements.

There's no single model for ISDS clauses in free trade agreements, according to Dr Matthew Rimmer, an Australian Research Council Future Fellow and associate professor at the ANU College of Law.

The most prominent recent use of an ISDS clause in Australia has been the attempt to roll back legislation that enforced plain packaging for tobacco products, said Rimmer, who has appeared as a witness before the Senate inquiry.

Tobacco company Philip Morris Asia took legal action against the Australian government under provisions of the free trade agreement Australia signed with Hong Kong in 1993.

"Investor-state dispute settlement clauses are designed to protect investments of companies when they are operating overseas," Rimmer said.

"There's a debate about whether they should be rolled back entirely or whether or not we should agree to future ones on a case-by-case basis, which is the government's position, or whether we should try to ban them altogether."

Rimmer said that ISDS clauses could potentially affect any attempt by the federal government to address the so-called 'Australia tax' — the high prices Australians pay for some digital goods.

"If there were efforts by this government or a future government to try to take action in relation to IT pricing, [IT vendors] could try to challenge any such decision under an investment tribunal if there was a [relevant] agreement available," Rimmer said.

The report of the parliamentary inquiry into IT pricing released in July last year found significant differences in the prices of IT products in Australia compared to other countries.

"Australian consumers and businesses... must often pay much more for their IT products than their counterparts in comparable economies," states the report, At what cost? IT pricing and the Australia tax.

"In many cases Australians pay 50 to 100 per cent more for the same product... Based on the evidence received over a 12 month inquiry, the Committee has concluded that in many cases, the price differences for IT products cannot be explained by the cost of doing business in Australia," the report states.

There is yet to be a government response to the inquiry's report.

"[O]ne of the things that Adobe, Microsoft and Apple could do would be to try to challenge such a decision in terms of an investor-state dispute settlement if you agree to such a regime in terms of the Trans-Pacific Partnership," Rimmer said at a hearing earlier this month of the Senate inquiry into ISDS clauses.

ISDS clauses could also affect changes to Australia's copyright laws, Rimmer told Computerworld.

"There are concerns that if a future government tried to introduce broader copyright exceptions then perhaps Hollywood and the music industry would bring actions under an investor-state dispute settlement clause, arguing that their foreign investments had been affected by reforms in relation to copyright exceptions," Rimmer said.

Investor-state dispute settlement clauses "raise really problematic issues particularly in respect of intellectual property," Rimmer said.

A case that the academic has been following closely involves drug company Eli Lilly, which took action, initially in 2012, against the Canadian government using provisions in the North American Free Trade Agreement (NAFTA). The move by the company came after a number of its drug patents were invalidated by Canadian courts.

"To me it raises very fundamental issues in terms of the rule of law and domestic courts and also about the role of parliament," Rimmer said. The academic cited a paper by the chief justice of the High Court of Australia, RS French, that raises similar issues with ISDS clauses.

"So far as I am aware the judiciary, as the third branch of government in Australia, has not had any significant collective input into the formulation of ISDS clauses in relation to their possible effects upon the authority and finality of decisions of Australian domestic courts," states the paper by Chief Justice French, Investor-State Dispute Settlement — A Cut Above the Courts?, which was delivered at a legal conference in July.

"He was worried that decisions of Australian courts may be called into question directly or indirectly in the arbitral process," Rimmer said.

Another issue is the impact on policy making, according to Rimmer. So-called "regulatory chill" could potentially affect the decisions of parliament, he said.

"The experience in Canada has been politicians have engaged in a wide range of discussion about various different policy initiatives and they often receive threats of potential [legal] action in relation to a wide range of different regulatory activities," Rimmer said.

Rimmer said that there were concerns that investor-state dispute settlement could be used as a "Trojan horse" for corporations to "achieve some sorts of outcomes that might otherwise be unpalatable in terms of the parliamentary process or the policy process."

The Senate's Inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014 is due to report on 27 August.

Follow Rohan on Twitter: @rohan_p

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