KAFTA enables Korean miners to sue states over environmental regulation

After all the publicity about the Japan-Australia trade deal, parliamentary hearings by the Joint Standing Committee on Treaties begin quietly this week to determine whether the Korea-Australia Free Trade Agreement negotiated recently is in the national interest.  A separate Senate Inquiry is also being held over the next month, followed by a parliamentary vote on the implementing legislation.

KAFTA is attracting more parliamentary scrutiny than most trade deals mainly because it includes special rights for foreign investors to sue national, state or local governments for damages in international tribunals if they can claim that a law or policy “harms” their investment. 

 Photo: FDC

Known as Investor-State Dispute Settlement or ISDS, the disputes are heard in international tribunals without the protections of national legal systems. There is no independent judiciary because arbitrators can be practising advocates and there are no precedents or appeals, so decisions can be inconsistent. 

The Philip Morris tobacco company is currently using ISDS in an obscure Hong Kong investment agreement to sue the Australian government over plain packaging legislation.

The Howard government did not include ISDS in the US-Australia Free Trade agreement and the previous ALP government opposed it after advice against it from the Productivity Commission. The present Coalition government has agreed to include it in KAFTA but did not agree to include ISDS in the Japan trade deal signed last week.

The Trade Minister claims that there are “safeguards” in KAFTA that will prevent foreign investors from suing governments over laws that deal with public welfare, health and the environment. But the key “safeguard” clause begins with the words "except in rare circumstances”.  This leaves a huge loophole that recent cases have used to advantage.


Another “safeguard” is a more limited definition of "fair and equitable treatment" for foreign investors. But tribunals have ignored these limitations and applied the previous higher standard. A third “safeguard” is a reference to the general protections for “human, animal or plant life” based on a clause in a World Trade Organisation Agreement. But the use of this article has been successful only in one out of 35 cases in the WTO that have tried to use it to safeguard health and environmental legislation.

These same “safeguards” have been included in other recent trade agreements, including the Peru-US Free Trade Agreement. But they have not prevented cases against environmental regulation. The US Renco mining company is using ISDS in the Peru-US Agreement to sue over a local court decision that it was responsible for pollution from its lead mine.

The US Lone Pine mining company is using ISDS to sue the Quebec government for $250 million because it conducted an environmental review of shale gas mining. Both cases are continuing and will take years to resolve. Even if governments win they will have paid millions in legal fees.

So if Parliament approves implementing legislation for the KAFTA, Korean mining investors in Australia will be able to sue local, state or federal governments over regulation won through the democratic process. This is not a theoretical issue. In NSW farmers and rural communities have succeeded in persuading the state government to enact some environmental regulation of mining projects but many believe more regulation is needed, 

Three of the most controversial mining projects about which there will be continuing regulatory battles are owned by Korean investors: the Kores Wallarah 2 coal mine on the Central Coast, the POSCO mine in the Southern Highlands and the Kepco mine in the Bylong Valley.

NSW ICAC investigations have revealed that Kores engaged notorious Liberal donor and lobbyist Nick di Girolamo to convince Liberal ex-premier Barry O’Farrell to backflip on a 2011 election promise not to approve the Wallarah 2 mine, a promise based on local community concerns about the impact of mining on water catchments.

The $800 million mine was approved post-election but has since been delayed by a legal challenge by a Local Aboriginal Land Council. This project is now so mired in scandal that approval may be withdrawn. If KAFTA proceeds, Kores could use ISDS to sue for damages over withdrawal of approval.

Community opponents of the POSCO-owned Hume mining project in the Southern Highlands have commissioned a critical scientific study of mining impacts on aquifers. The Kepco mine in the Bylong Valley has received only conditional state government approval because the project met only one of 12 environmental and other criteria. The approval process has been severely criticised by the New South Wales Farmers Federation.

In short, all of these projects face strong community opposition and possible further regulatory processes, which could be challenged by Korean investors using ISDS if KAFTA proceeds. This potential challenge to democratic regulation means all parliamentarians need to question whether KAFTA is in the public interest and whether ISDS should be excluded from KAFTA and all trade agreements.

Dr Patricia Ranald is a  Research Associate at the University of Sydney and Convenor of the Australian Fair Trade and Investment Network.