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COMMENT

Half-baked China-Australia Free Trade Agreement is lopsided

In a bizarre move, the Abbott Government has signed a treaty before it has finished negotiating key aspects of it. The investment chapter of the China-Australia Free Trade Agreement, signed in Canberra on Wednesday, is missing many provisions that have created controversy in other FTAs. Instead, the Government has agreed to set up a committee that will, in the future, negotiate these provisions.

What does it mean? It seems the ChAFTA may eventually contain problematic clauses on "indirect expropriation" and the "minimum standard of treatment" – which are frequently used by investors to challenge public health and environmental measures – but Parliament will not be able to scrutinise them before ratifying the deal.

Prime Minister Tony Abbott with Chinese Premier Xi. The ChAFTA may eventually contain problematic clauses.
Prime Minister Tony Abbott with Chinese Premier Xi. The ChAFTA may eventually contain problematic clauses. 

Even so, there is already more than enough in the ChAFTA to raise alarm bells. The agreement allows for investor-state dispute settlement (ISDS), for example, which is the controversial mechanism that lets corporations bypass the courts and sue countries before arbitrators who lack judicial safeguards.

The government claims the ISDS provisions in the ChAFTA are "modern" and "balanced", but Australia has gone backwards on secrecy in ISDS. The ChAFTA does not guarantee that ISDS hearings and key documents will be public as has become standard in recent treaties.

Also surprising are the ChAFTA's provisions on market access and non-discrimination. Remarkably, the government has given Chinese companies a general right to buy resources and other assets in Australia – so-called market access – without getting the same right for Australian companies in China.

That is the free trade equivalent of exchanging your car for a pair of sneakers. It is a huge concession by Australia, in the context of the investment chapter.

To put it more technically, Australia's commitments on national treatment in Article 9.3 of the ChAFTA apply to the "establishment" and "acquisition" of assets by Chinese companies in Australia. But China's commitments in Article 9.3 do not apply to these stages. A footnote in the deal helpfully confirms that China's commitments – unlike Australia's – apply only to "existing investment" and not "new, separate investment".

There you have it, plain as day: unequal commitments on market access, at Australia's expense. Australian investors wearing sneakers will now be racing Chinese investors in cars.

This lopsidedness flies in the face of the usual principle of reciprocity in investment chapters of trade deals, and is very hard to reconcile with the government's rhetoric. DFAT's website actually claims that the ChAFTA "provides improved access and protection for Australian investors and investments in China".

Moreover, on the "protection" part of DFAT's claim, the ChAFTA is also unequal in China's favour. If we read the agreement a little further, we see in Article 9.5 that China has excluded from the deal ALL its existing discriminatory measures with respect to Australian investors in China. In other words, China has committed to do nothing differently in its rules on intellectual property, taxes, permits, and so on, where they favour Chinese over Australian companies.

In contrast, Australia has excluded only those existing discriminatory measures that are listed specifically in the ChAFTA. That obviously is not reciprocal. China can maintain its protectionist and discriminatory measures for Australian investors; Australia commits to market access and a level playing field for Chinese investors.

In case anyone is looking to hold the government to account for its negotiating decisions, we suggest three key questions.

1. Why did the government accept an investment chapter that is unequal on market access and non-discrimination, in China's favour?

2. Why did the government punt the most controversial aspects of ISDS to a future committee?

3. Why did the government ensure it could keep key documents and hearings in ISDS – especially in Chinese investors' claims against Australia – from the public?

The government should have very good answers to these questions. If not, one can safely conclude – based on the ChAFTA investment chapter – that the government gave in to China by granting significant advantages to Chinese investors while getting precious little in return. In other words, Australia got Chafted.

Kyla Tienhaara is a research fellow at the Regulatory Institutions Network, Australian National University.

Gus Van Harten is a professor at Osgoode Hall Law School in Toronto and the author of Sold Down the Yangtze: Canada's Lopsided Investment Deal with China.