How we took on big tobacco - and won

Previously sealed documents reveal the tobacco giant Philip Morris lost its case against Australia over plain packaging because the international tribunal considered it an "abuse of rights".

Philip Morris sued Australia under the provisions of an obscure Hong Kong Australia investment treaty in 2012 after British American Tobacco and Japan Tobacco lost a challenge to the plain packaging legislation in the High Court.

As had its competitors in the failed High Court challenge, the manufacturer of Marlboro and Longbeach cigarettes argued Australia had confiscated its trade marks, turning from "a manufacturer of branded products to a manufacturer of commoditised products".

Philip Morris wanted the tribunal to order Australia to withdraw the law or to award damages of at least $US4.2 billion plus compound interest at the Australian bank cash management rate dating back to the to the law's introduction.

Its use of an outside tribunal rather than an Australian court to sue the government was unusual, in that it was making use of a provision available to foreign companies under trade agreements but denied to Australian companies.

The government spent more than $50 million defending the case, assembling a team including two Queens Counsels and two Senior Counsels and ferrying to Singapore witnesses including the former treasurer Wayne Swan and former judge Roger Gyles QC.

The 186-page judgement, unsealed on Tuesday, shows the tribunal rejected the claim at the first hurdle, finding Philip Morris had moved its Australian and Asian headquarters to Hong Kong for the express purpose of making the claim.

"The tribunal cannot but conclude that the initiation of this arbitration constitutes an abuse of rights, as the corporate restructuring by which the claimant acquired the Australian subsidiaries occurred at a time when there was a reasonable prospect that the dispute would materialise and as it was carried out for the principal, if not sole, purpose of gaining treaty protection," the judgement finds.

A spokesman for assistant health minister Fiona Nash said she welcomed the decision which validated the government's decision to take on Philip Morris.

Originally rare, the use of so-called investor-state dispute settlement provisions in international treaties has ballooned in the past decade. Australia's Productivity Commission counted 42 in 2014.

Productivity Commission count of iinvestor-state dispute settlement cases

Investor-state dispute settlement provisions have been included in Australia's recently-signed treaties with Korea and China and the 12-nation Trans-Pacific Partnership which has been signed but not yet ratified by the Australian parliament.

La Trobe University public health academic Deborah Gleeson said the victory would add to momentum for the spread of plain packaging legislation around the world, but she said it didn't mean that investor-state dispute settlement provisions weren't a threat to public health.

"If we ratify the Trans-Pacific Partnership transnational corporations based in the United States will gain an avenue to sue Australia. There's an exclusion for tobacco control measures, but no solid exclusion for other health measures."

Australia continues to face challenges to its plain packaging laws in the World Trade Organisation from tobacco-growing nations including Cuba, the Dominican Republic, Honduras and Indonesia. The Ukraine withdrew its challenge last year.

In The Age and Sydney Morning Herald

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$50 million up in smoke defending plain packaging

Australia's legal bill for defending its cigarette plain packaging legislation is set to hit $50 million as it battles to contain a case brought by tobacco giant Philip Morris before an extraterritorial tribunal in Singapore.

And that is just for the first stage. If in September the three-person extraterritorial tribunal decides Australia has a case to answer, the hearing will move on to substantive matters and the bills will become far bigger.

The West Australian newspaper revealed on Tuesday that former treasurer Wayne Swan was called to Singapore in February to give evidence for Australia in a secret hearing.

Among the witnesses called by Philip Morris has been former High Court judge Ian Callinan, who was quizzed about administrative law.

Australia has succeeded in getting the case split into two. The first part will decide whether Philip Morris Asia has a right to bring the case.

Philip Morris Asia bought Philip Morris Australia Limited in early 2011 as the plain packaging legislation was being prepared. Australia is arguing this means it can't claim that the law hurt it, because it bought the company "in full knowledge" of Australia's intentions.

If Australia fails in September it will continue to fight the case, calling former health minister Nicola Roxon and her then departmental secretary Jane Halton as witnesses.

Philip Morris has been able to bring the case despite losing an appeal against Australia's laws in the High Court because of a so-called investor-state dispute settlement clause in an obscure Hong Kong Australia investment agreement.

Such clauses have been included in two of Australia's recently concluded free trade agreements, with Korea and China. They allow foreign corporations (but not local corporations) to sue for expropriation.

Such cases were rare until the early 1990s, but the Productivity Commission says there were 42 worldwide last year.

Speaking from Hawaii on the sidelines of talks expected to wrap up the Trans Pacific Partnership agreement with Australia and 11 other Pacific-facing nations, La Trobe University public health specialist Deborah Gleeson said she feared Australia would be unable to carve out sufficient exemptions.

Australia has asked to exempt the Pharmaceutical Benefits Scheme, Medicare, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator from investor-state dispute settlement procedures.

"There is likely to be a lot of unhappiness among other countries about specific Australian programs being carved out, because that begs the question of what happens to their programs," she said.

The United States has secured an investor-state dispute settlement in each of its agreements apart from the 2005 Australia-US agreement, in which the Howard government refused to give way.

Trade Minister Andrew Robb said from Hawaii that Australia was party to investor-state dispute settlement provisions in 29 agreements and "the sun has still come up".

The talks continue until Friday.

In The Age and Sydney Morning Herald

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Australia flying blind on trade deals says PC

On the eve of negotiations expected to finalise a giant trans-Pacific free trade agreement with 11 of Australia's neighbours, the Department of Foreign Affairs has revealed that none of Australia's existing agreements has been subjected to an independent analysis to work out whether the claims made for it have stacked up.

Australia signed its Closer Economic Relations agreement with New Zealand 32 years ago and its free trade agreement with the United States 11 years ago.

Giving evidence to a parliamentary inquiry on Tuesday, the department's first assistant secretary for trade agreements, Frances Lisson, said economic assessments were sometimes conducted before agreements were signed.

Asked whether any of that modelling had been subsequently checked against the actual outcomes, she replied: "Not that I am aware of."

"I am not aware of any economic modelling that's been, I guess, remodelled," she said. "But certainly the objectives and that are outlined in the feasibility study are very much part of the negotiated outcomes, so the free trade agreements are only entered into when they achieve the objectives that have been set out to begin with."

Labor MP Jim Chalmers expressed incredulity saying that the department was asking Australia to believe claims about future agreements with India and the Pacific bloc when it hadn't checked the claims it had made in the past.

Ahead of the US Australia Free Trade Agreement the department published modelling conducted by the Centre for International Economics that said it would boost Australia's gross domestic product by $5.7 billion. A study conducted a decade later by the Australian National University found it had boosted trade not at all.

The privately-owned centre was retained by the department again this year to examine the free trade agreements with Japan, Korea and China and found they would boost the economy by $24.4 billion by 2035.

Appearing before the inquiry the head of the Productivity Commission Peter Harris said such analysis needed to be genuinely independent of Australia's trade negotiators, otherwise the consensus in favour of trade reform would crumble.

The Commission itself was perfectly capable of doing it, although he said he wasn't using the inquiry "to solicit for work".

It should be conducted before negotiations begin and again in the four or so months after negotiations have concluded but before the deal is ratified.

"We should do better on transparency or we risk losing the consensus that has lasted for decades," Mr Harris said.

The analysis should first identify the problem that the trade agreement was designed to solve and then make clear the costs it would impose on business.

The recently-signed Korea Australia agreement included 5200 separate so-called rules of origin delineating which inputs included in an export in order to give it preferential treatment. An earlier agreement with Singapore had one.

"It's red tape, growing at a very healthy rate," he said.

"It adding to the compliance costs of businesses as well as the costs to governments."

So-called investor-state dispute settlement clauses included in the China and Korea agreements and planned for the Trans Pacific Partnership agreement would allow foreign but not domestic business to sue Australian governments in international tribunals.

"We would like to see analysis conducted that demonstrates the benefit," Mr Harris said. "We are not alone on this. Senior representatives of Australia's legal system have questioned why rights should be made available to foreign parties that are not available to domestic parties."

In The Age and Sydney Morning Herald

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ISDS: The trap Australia and Japan avoided

So straightforward was Australia’s first trade deal with Japan that the Japanese thought it was a trick.

Twelve years after the war and with the Thai-Burma railway still fresh in Australians’ minds Australia offered Japan ‘'most favoured nation'' status for its exports in return for Japan giving its exports the same treatment.

Japan’s lead negotiator Ushiba Nobuhiko stayed in Canberra for six months going through the proposal line by line.

At one point Australia's exasperated lead negotiator Alan Westerman told him he was wasting their time. “I am telling you right now that Australia will remove all discrimination. Now let’s get on to what you will do and then let’s go and have a game of golf,” he said.

Ushiba Nobuhiko cabled Japan, they still thought the Australians were trying to trick them and Ushiba Nobuhiko was recalled. In his biography of trade minister Jack McEwen Peter Golding reports that eventually Ushiba Nobuhiko convinced his superiors that the Australians meant what they said and prime ministers Kishi Nobusuke and Robert Menzies signed the deal that went on to make both nations rich.

Japan’s present prime minister Shinzo Abe is Kishi Nobusuke’s grandson. The deal he will sign with Tony Abbott is in some ways similar to the simple one his grandfather signed 57 years ago.

It doesn't include an ISDS. The initials stand for Investor State Dispute Settlement procedures and they're everywhere. Conducted by specially-constituted often private tribunals, usually in secret, there have been 400 cases heard in the past 10 years. There have been 58 in the most recent year for which the United Nations Conference on Trade and Development has done the sums, although it says it can’t be sure because the mere existence of some hearings is kept secret.

One of them is against Australia. Philip Morris Asia acquired Philip Morris Australia in 2011 for the express purpose of using the ISDS provisions of an obscure Hong Kong Australia trade treaty, a process known as “nationality planning”. It says Australia’s plain packaging legislation deprives it of the value of its investment. Australia is attempting to have the case laughed out of court on the grounds that Philip Morris Asia only bought Philip Morris Australia after the plain packs legislation was already public (and for that reason) so it can’t say Australia’s action wasn’t expected.

But fighting the case is costing Australia millions and its mere existence is frightening poorer countries that might want to follow Australia's lead. Philip Morris has already lost its case under Australian law in the High Court. It is using rights not available to other Australian companies to get yet another bite of the cherry, this time in a tribunal that doesn't need to take account of precedents, doesn't need to publish transcripts and whose decisions are unappealable. The ''judges'' are also less independent than real ones. They take turns acting for (sometimes big-paying) litigants and sitting in judgement on them.

The United States loves investor state dispute settlement procedures. It has insisted on them in every one of the 14 free trade agreements it has signed and the 17 it wants to sign. Its companies use them to browbeat and potentially bankrupt governments that introduce environmental or health-related laws they don't like, a practice Australia's productivity Commission refers to as "regulatory chill".

Only one world leader has successfully stood up to the US over a demand for an ISDS. It was John Howard, who in 2004 told George W. Bush he wasn't having one in Australia's free trade agreement.

It has not hurt us at all. Indeed, when the Productivity Commission examined investor state dispute settlement procedures in 2010 it found no evidence that they boosted investment in nations likely to be sued. It recommended the government "seek to avoid" them in the future.

Labor banned them saying it would "not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses".

The Coalition went to the election saying it would be prepared to consider them on a case by case basis. It has said yes to one with Korea, with what it said are safeguards for health and environmental legislation. But they were similar to safeguards that have failed to stop ISDS proceedings on environmental matters overseas.

It said yes in order to have something to trade away in return for more market access. The US wants one in the 12-nation Trans Pacific Partnership. Australia is under pressure to say yes to sell more sugar.

Other nations are saying no. Indonesia has just announced it will terminate all 67 of its treaties with an ISDS. France, Germany, Brazil and Argentina are thinking along similar lines.

And now Australia has said no to an ISDS in its free trade agreement with Japan. The agreement will be better and simpler because of it. Robert Menzies and Shinzo Abe's grandfather would be proud.

In The Age and Sydney Morning Herald

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