Foreign Investment Rules

Australia is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID). It was formed under the umbrella of the World Bank.

It is essentially an International Tribunal which settles disputes between foreign investors and nation states. Its charter is unequivocally to serve the interests of foreign investors and it does not take into consideration factors such as human rights nor the environment.

There are some international rules but it is also governed by the various treaties and free trade agreements between countries. This means that the rules will be different for investors from different countries depending on what treaties are signed with their home countries.

Most of the time the countries which find themselves before these tribunals are developing countries from Africa, Asia Central and Eastern Europe, South America and Asia with some countries appearing multiple times. Modern developed economies are rarely called to appear although I did see one case against NZ which was settled by arbitration and there was one case against the US.

The costs of appearing are enormous and the fines imposed against countries found to have breached conventions against foreign investors are into the $US100m range.

There are protections against obvious things such as nationalisation and acquisition of property without compensation. Provision of security is covered which could explain why security forces are used so often (sometimes brutally) to clear indigenous populations from logging, mining and farming concessions and (perhaps surprisingly) game parks run by conservation organisations.

International Investment Agreements (IIA) usually impose few obligations on investors but host countries commonly have many obligations. For example they are required to ensure that businesses have the resources to operate.

In reality this means that for an agricultural enterprise for example, water must be provided. This is the case even if local people and crops are perishing.

It is also commonplace in international agreements that an investor is able to operate their business in accordance with their own needs so that even in a time of famine restricting the export of food by a foreign investor may be a breach of international law.

One would hope that a country like Australia has managed to reserve for itself adherence to local laws covering things such as water (where entitlement is often reduced during a drought or to preserve an aquifer) and export where rules for many commodities such as beef are very strict and have evolved over time as a matter of necessity.

 

However the notes on a case of a US company seeking compensation for expropriated land offer some insight.

 The Tribunal is satisfied that the rules and principles

of Costa Rican law which it must take into account, relating to the

appraisal and valuation of expropriated property, are generally consistent

with the accepted principles of public international law on

the same subject. To the extent that there may be any inconsistency

between the two bodies of law, the rules of public international law

must prevail. Were this not so in relation to takings of property,

the protection of international law would be denied to the foreign

investor and the purpose of the ICSID Convention would, in this

respect, be frustrated.

 

I would like to speculate now on attitudes to movements such as Lock the Gate. Governments are particularly sensitive to these movements and the degree of support they have enjoyed.

From a government perspective though, foreign companies have been guaranteed access to their resource and recent legislation which allows CSG companies unlimited access to the water they require. If they cannot provide this, the question is, “Where does this leave us internationally?”

To move a little further down the track, companies would also have been guaranteed, before making sizable investments, that they would have the means to export their product. It appears that in order to fulfil that promise in any sort of a timeframe the ecology of places such as Gladstone Harbour will continue to be sacrificed. The fishers of the Harbour are simply caught in the crossfire.

Whether the foreign investment is industrial mining, farming or logging in most countries in the world where secure property rights are not clear and even in some places where they are clear local people are mostly collateral damage.

In many forests around the world the traditional inhabitants rarely have title. In Australia, farmers have title to the land but not the resources, nor, it appears, the water underneath.

The question remains, “What compromises will we need to make when we do start to welcome large foreign investors in our farming and grazing lands?”

Green groups and others recently have been asking government if they are able to put a stop to CSG projects if they are shown to be causing environmental or massive environmental damage (there may be a difference legally).

There is no doubt that advanced economies go out of their way to maintain their credentials as secure places to invest.

Where does this leave us with an industry that has been hastily rolled out?