The EU-Australia Trade Deal: Trade, Trust and Investment Protection

Trade Without Traditional Investment Protection

As appears from the European Commission’s Chapter-by-Chapter Summary, the agreement with Australia covers traditional trade areas but, notably, not investment protection. It does not contain a dedicated investment chapter with the standard provisions on investment protection and investor–state dispute settlement (ISDS), which have typically featured in EU agreements with many trading partners, either as part of broader trade deals or as standalone investment protection agreements.

That said, the agreement does include a chapter on Trade in Services and Investment, which appears to focus primarily on market access commitments and non-discrimination obligations, both among domestic and vis-à-vis foreign service providers and investors. This reflects a more targeted approach to investment-related issues, prioritising openness and the equality of the competitive opportunities over legal protection mechanisms.

In addition, the agreement contains a chapter on Good Regulatory Practices, aimed at enhancing transparency and fostering the exchange of best practices between the parties. The Commission’s Summary also refers to “reviews of regulatory measures,” although it remains unclear whether such reviews will be limited to intergovernmental processes or whether they will confer any procedural rights on service providers and investors. The former seems more likely.

Rethinking ISDS: A Question of Trust

With respect to investment protection and ISDS, mechanisms the EU has not abandoned in principle, the Commission explains their absence by pointing to the high level of mutual trust in the respective legal systems of the EU and Australia. This is a notable position, particularly in light of the Commission’s longstanding efforts to promote investment protection and to reform ISDS through the introduction of a standing, two-tier investment court system, including at the multilateral level. To date, the EU has concluded several agreements incorporating such provisions, including with Canada, Vietnam, Singapore, and more recently Chile, Mexico, and Indonesia. Negotiations on a separate investment protection agreement with India are also ongoing following the conclusion of their trade deal earlier this year.

Australia, for its part, has accepted ISDS provisions in a number of its trade agreements, including those with Korea, Chile, and Singapore, as well as in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (or CPTPP) which includes countries such as Canada, Japan, New Zealand and more recently the United Kingdom, although Australia did exclude ISDS in relation to last two mentioned countries. Australia also maintains 15 bilateral investment treaties (BITs), including with several EU Member States (the Czech Republic, Hungary, Lithuania, Poland, and Romania) most of which were concluded in the 1990s and remain in force. This raises the question of whether these older-generation treaties, as such heavily criticised for insufficient consideration of public interest concerns, will persist or be reconsidered in light of the mutual trust now emphasised by both parties.

What is particularly striking is that the EU and Australia appear to place greater trust in each other’s legal systems than in those of countries such as Canada, Singapore, or Chile, despite the fact that these are all high-income economies with strong rule-of-law credentials and consistently high rankings in indices such as Transparency International’ Corruption Perceptions Index, in some cases outperforming certain EU Member States.

Towards a More Nuanced EU Investment Policy

As noted in an earlier blog, the EU has been gradually diversifying its approach to trade and investment agreements. Moving away from the traditional model of investment protection and ISDS, at least in certain cases, is a welcome development, especially given the largely untested nature of the EU’s new-generation investment provisions and the uncertainty surrounding how they will balance investor protection against states’ regulatory autonomy when disputes arise.

A greater emphasis on market access, non-discrimination, investment facilitation, transparency, and regulatory cooperation may ultimately prove more sustainable and better aligned with contemporary policy objectives than reliance on expansive investment protection frameworks, particularly where such frameworks fail to distinguish between sustainable and non-sustainable investments and risk insufficiently safeguarding the regulatory autonomy of states.
 

Looking Ahead

There is little doubt that the absence of investment protection and ISDS in the EU–Australia agreement reflects, to a significant extent, Australia’s cautious stance on these issues rather than the EU’s approach. Nevertheless, this experience may provide an important opportunity for the EU to reassess its own approach. In particular, it could serve as a catalyst for a more nuanced and differentiated investment policy, one that prioritises economic openness and regulatory space, while carefully reconsidering the role, scope, and necessity of investor protection mechanisms in agreements between mature legal systems.

In this light, it may also be timely for the EU to revisit its approach in the context of its agreement with Canada. The Comprehensive Economic and Trade Agreement (CETA), signed nearly a decade ago, remains only provisionally applied and has yet to be fully ratified, with the inclusion of investment protection and ISDS provisions continuing to cause political resistance. The EU’s willingness to forgo such provisions in the case of Australia in order to secure the conclusion of a long-dragging negotiations raises a legitimate question as to whether a similar reconsideration might be warranted in respect of CETA. If mutual trust in well-functioning legal systems can justify their exclusion in one case, it is difficult to see why the same reasoning would not apply in another.