After 30 years extracting gold, committing environmental and human rights abuses, the operator of Porgera mine is suing the PNG government for not extending its licence. It is using an Investor State Dispute Settlement (ISDS) clause in a Free Trade Agreement to sue, a clause made famous when US multinational Philip Morris tried to sue Australia over its tobacco plain packaging laws. Australian mining companies are increasingly using ISDS processes and are being awarded billions based on dubious calculations of potential lost profits by unaccountable international tribunals. Patricia Ranald reports.
When people living near the Australian-owned Chatree gold mine in Thailand started raising concerns about high levels of manganese and arsenic in their blood, the Thai government ordered the closure of the mine and others in the country pending further studies. The community was concerned about the use of arsenic and other toxins in processing the ore at the Chatree mine.
When Thailand refused to extend the Chatree mine’s licence, the Australian company that owns the mine, Kingsgate Consolidated, sued Thailand using provisions in the Thailand-Australia free trade agreement. The company is reportedly claiming billions of dollars from the country in lost future profits.
Then there is the Australian mining company Tethyan Copper Company Ltd, which had an exploration licence with the intention of opening a mine in Pakistan. The Pakistan federal government refused to grant a mine licence because of anomalies in the way the provincial government had granted the initial exploration licence. Using provisions in an Australia-Pakistan investment treaty, Tethyan Copper took legal action against Pakistan in 2012. Last year an international investment tribunal ruled that Pakistan should pay Tethyan Copper US$5.8 billion in compensation.
The Pakistan award made headlines around the world because the compensation payout was more than 25 times the US$220 million the company had invested in the project and included an unknown payout for ‘lost future profits’. The amount is almost equivalent to the US$6 billion emergency loan the International Monetary Fund had just granted Pakistan to deal with its economic crisis, and therefore potentially cancels any benefit from the IMF loan.
The reasons these mining companies could take legal action against the national governments is because of Investor-State Dispute Settlement (ISDS) processes in trade and investment agreements.
$12m bill for tobacco fight
ISDS processes, effectively a right by corporations to sue governments, became notorious in Australia when the US corporation the Philip Morris tobacco company shifted some assets to Hong Kong and used an Australia-Hong Kong investment treaty to sue the Australian government over its tobacco plain packaging laws. Philip Morris Asia claimed billions in compensation as a result of the new laws but eventually the claim was dismissed, although Australia still had to pick up the tab for $12 million in legal costs.
ISDS processes enable foreign (but not local) investors to bypass national courts and sue governments for compensation in international tribunals if they can argue that a change in a domestic law or policy has reduced the value of their investment, or that they were not consulted about the change.
While ISDS processes give additional legal rights to international corporations that already have enormous market power, they place no obligations on those corporations to abide by human rights or environmental standards.
This has led to many cases where the pursuit of profit is at odds with health and environmental regulation. While these cases are often sent to arbitration to be resolved, the arbitrators are not independent judges but practising advocates with potential, or actual, conflicts of interest. Other criticisms of the process include a lack of transparency and the length of proceedings, high legal costs, astronomical awards and lack of precedents and appeals leading to inconsistent decisions.
Moreover, corporations also take part in what is known as forum shopping. The US-based Philip Morris used its Hong Kong subsidiary to take Australia to court because the Howard government had not agreed to include ISDS in the 2004 US-Australia free trade agreement. It took nearly five years for the tribunal to decide that Philip Morris was not a Hong Kong company and throw out the case.
There are now 1023 reported ISDS cases globally. As of October 2019, 46 cases had awarded more than US$100 million, while 10 cases had awarded more than US$1 billion. Investment law expert George Kahale has noted the growth of third-party funding of ISDS cases, in which speculative investors fund cases in return for a share of the claimed compensation. Professor Kahale argues that such funding fuels the growth of “surrealistic” claims and are “more about making money than obtaining justice”.
And now Australian mining companies are increasingly using investor rights in trade and investment agreements to sue developing countries. All of the seven recorded cases from Australia involve mining companies.
Like Philip Morris, Tethyan Copper Company undertook a similar forum-shopping exercise. Tethyan is owned by the giant Canadian Barrick Gold Corporation and Chilean Antofagasta PLC. Neither Canada nor Chile has an investment treaty with Pakistan, so Tethyan used its Australian subsidiary to lodge the claim because of the Australia-Pakistan investment treaty.
Papua New Guinea in line of fire
But there is more to this story of Barrick Gold and ISDS. On July 10, the Canadian company announced that its Australian subsidiary, Barrick (PD) Australia Pty Ltd, was using the ISDS in a bilateral investment treaty between Papua New Guinea and Australia to claim compensation for the PNG government’s refusal to grant an extension of the company’s expired 30-year lease at the controversial PNG Porgera gold mine.
Canada does not have an investment treaty with PNG, so Barrick’s use of an Australian subsidiary appears to be another exercise in forum-shopping.
The Porgera gold mine has a documented record of decades of environmental and human rights abuses. Human rights experts have strongly argued that the company should tackle these abuse claims before regaining its social licence to operate. Yet despite its record, Barrick is seeking compensation because its lease has not been extended. Based on the Tethyan case, Barrick could claim for huge losses of expected future profits.
More recently we saw the absurd example of Clive Palmer shifting assets to Singapore and threatening to use the Singapore-Australia FTA to sue the Australian government over a mining licensing dispute with the Western Australian government.
Growing criticism of ISDS has triggered attempts at multilateral reform with reviews of ISDS put in place by the United Nations Commission on International Trade Law (UNCITRAL) and the International Centre for Settlement of Investment Disputes (ICSID), which oversee the international tribunals.
The Australian Department of Foreign Affairs and Trade (DFAT) is also conducting a review. Submissions from community organisations have argued that the use of ISDS in Australian trade and investment treaties and forum shopping to obtain huge awards contradict Australia’s commitments to human rights, undermine its aid and development programs, and harm Australia’s reputation and relationships with developing countries. The PNG claim could harm relations with our largest Pacific Island neighbour.
ISDS has been excluded from the Australia’s current trade negotiations with the EU and from the giant Regional Comprehensive Economic Partnership negotiations with China, Japan, South Korea, New Zealand and the 10 ASEAN countries. Community organisations argue that ISDS should also be excluded from all Australia’s bilateral investment treaties and other trade agreements.
Dr Patricia Ranald is an honorary research associate at the University of Sydney and Convener of the Australian Fair Trade and Investment Network who has published widely on corporations and the social impacts of on trade and investment agreements.