The Honorable Robert Zoellick
United States Trade Representative
Dear Ambassador Zoellick:
Our companies and organizations strongly support the conclusion of a comprehensive and commercially meaningful FTA with Australia that can provide significant new opportunities for U.S. farmers, companies and their workers. We are writing, however, to express our serious concern regarding Australian proposals to exclude investor-state dispute settlement from the investment chapter of the U.S.- Australia Free Trade Agreement (FTA) and to retain Australian laws allowing investment screening for Australian “national interests.” Exclusion of investor-state arbitration and the retention of investment screening would be a serious departure from the U.S. high standards of investment protection as mandated by Congress. It will put U.S. companies at a competitive disadvantage, open the door for our partners in other agreements to demand the same exclusions, and undermine the confidence of many investors, both large and small, who look to investor-state arbitration as a mechanism for redressing unfair treatment by governments.
There are compelling reasons to include investor-state dispute resolution in the U.S.-Australia FTA:
· Investor-state arbitration is a key component of the negotiating objectives on investment as sought by Congress in the Trade Promotion Authority Act that was included in the Trade Act of 2002. As explained in the Report of the Senate Committee on Finance (107-39), “a key aspect of investment agreements is the establishment of neutral tribunals in which foreign investors may seek redress for host government measures which they believe to be violations of those agreements.” Without investor-state arbitration, investors cannot be assured that the wrongs committed against them will be redressed independent of the political interests of governments (i.e., state-to-state dispute settlement). In a world of complex political relationships, the investor-state arbitration mechanism provides a vital safety net that ensures that the interests of the investor will be protected.
· USTR officials have continuously assured the business community that bilateral FTAs have been and would continue to be the “gold standard” of U.S. trade and investment agreements. An agreement without an investor-state dispute mechanism clearly does not meet that high standard. Other FTA partners would take note, making it more difficult to negotiate investor-state provisions in our agreements with them. Only a consistent policy on investment protection can prevent that from happening.
Australian officials have said that investors currently have adequate protection under Australian law. They also claim that investor-to state dispute mechanisms would provide investors with the opportunity and the means to diminish or negate the reach and effectiveness of domestic regulators. We do not agree.
As a policy matter, the Australian Government’s resistance to investor-state dispute settlement in these negotiations makes little sense, particularly since Australia very recently included a robust investor-state mechanism in its FTA with Singapore (the Australia-Singapore FTA entered into force in July 2003) and has included investor-state arbitration in all of its other FTAs. Failing to include a similar mechanism in the U.S.-Australia FTA puts U.S. companies at a competitive disadvantage. Australia has also recognized the importance of investor-state arbitration in its own laws (e.g., the 1974 International Arbitration Act) and other fora, including its ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and International Convention on the Settlement of Investment Disputes.
Substantively, the purpose of the investor-state dispute mechanism is not to replace a foreign country’s legal system, but rather to provide an important safety net. Given that the investment chapter of an FTA does not become part of a country’s legal system, ensuring that these protections are met can only effectively be accomplished through investor-state, along with state-to-state, dispute settlement. Nor do the investor-state provisions allow any circumvention of non-discriminatory, fairly applied domestic regulatory processes; as early NAFTA cases show, investors have used the arbitration mechanism not to overturn domestic regulation, but to remedy attempts to promote non-regulatory agendas at the expense of a foreign investor or to tilt the playing field in favor of a domestic competitor. Arbitration under the investor-state dispute provisions provided investors with a mechanism to address these legitimate concerns and ensure fair treatment.
Finally, we understand that Australia continues to resist eliminating or modifying substantially its requirement for investment screening, under the Foreign Acquisitions and Takeover Act and other investment screening legislation. Under this authority, the Australian government has broad discretion to determine how particular U.S. investments would affect Australian “national interests.” Such provisions are unnecessary, particularly given the essential security provisions typically contained in the U.S. FTAs and would leave a discriminatory barrier in place that would potentially allow Australia to undermine liberalization it has otherwise committed to in the FTA through its screening process. The United States has never accepted such a sweeping screening mechanism and should remain firm in insisting on the elimination or substantial modification of this provision.
For all these reasons, we urge the United States to continue to press for a high-standard investment chapter in the U.S.-Australia FTA: one that includes an investor-state dispute settlement mechanism and removes such barriers as investment screening.