Under the secretive Trans Pacific Partnership Agreement, Australia could be forced to pay foreign corporations not to dig up or destroy its coastline or native forests, writes Tom Warne-Smith.

What would you do if an international company decided to stick a toxic waste dump next to your house? Lodging an objection with your council is a good start - but what if the company could claim millions of dollars in damages if the council said no?

That's exactly what happened in Mexico when the municipality of Guadalcazar refused to issue a permit to build a waste dump because of the impact on the 800 surrounding residents and $16.6 million in 'compensation' was awarded to the dump's US owners.

Get ready, because the laws that let this happen are coming to Australia too.

A range of experts have recently highlighted the alarming potential consequences of the Trans Pacific Partnership Agreement (TPP). This 'free trade' agreement between countries will more than likely contain secretive Investor State Dispute Settlement (ISDS) clauses, allowing foreign companies to sue national governments when changes to domestic laws affect the company's investments, and so limiting governments in the regulations they can make to protect the public.

A lot has already been said about the disastrous effects of these clauses on public health initiatives, like plain packaging for cigarettes. While the thought of paying Philip Morris so Australia can have a law to protect the health of Australians is bad enough, the effects on our environment could also be devastating.

When Germany's Hamburg Environmental Authority issued a licence imposing water quality standards on a coal-fired power plant, energy giant Vattenfall commenced investor-state arbitration against the German government, seeking about €1.4 billion, plus arbitration costs and interest. Ultimately Germany and Vattenfall settled the dispute, with Germany agreeing to weaken environmental standards in favour of the corporation. Vattenfall has now started proceedings claiming a reported €3.7 billion in compensation as a result of the German government's decision to phase out nuclear power.

Under Australian federal environmental law there are a number of provisions which allow our environment minister to vary or revoke approvals for projects like mines in certain circumstances, such as when there is new evidence about the environmental effects. An Australian licence holder has to accept the minister's decision. But under the new rules, an international investor would be able to seek compensation for any loss of profits from the project.

This opens up a legal nightmare. Imagine that there's been a bushfire, and an endangered Australian species has suffered a huge loss of habitat. If any Australian government then wanted to change a permit to stop a foreign company from clearing habitat that had become vital to the survival of this species, we would have to pay the company 'compensation'. Similarly, if our government made a decision to protect a rural community from coal seam gas extraction, a foreign investor could potentially take Australia to court and be compensated for their loss of earnings.

Frighteningly, all of this is happening in secret. We don't know exactly what the TPP will contain. Around the world, no one knows the full extent of the impact that ISDS clauses have had, because when an investor-state case goes ahead, the arbitration decisions are often kept secret. What we do know is that simply having these clauses in place creates the significant risk of 'regulatory chill'; a reluctance by governments to act because of the risk of an investor-state dispute. Even in claims when the investor corporations are unsuccessful, governments often end up having to pay half the cost of the arbitration and their own legal expenses.

Worse still, the liability created by ISDS clauses continues even if we decide the treaty is a bad idea after all. While our government could subsequently withdraw from the treaty, as other governments have commenced doing after losing ISDS disputes, the companies that had already invested would continue to be protected by the ISDS for typically another 20 years.

The potential benefits from these clauses to Australians are very limited. Australian businesses have apparently never used the ISDS provisions in Australian treaties. The Productivity Commission, in a 2010 report into ISDS clauses, recommended that our government "avoid the inclusion of investor-state dispute settlement provisions in [international agreements] that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors" - advice that the Abbott Government appears to be ignoring in the TPP negotiations.

Do we really want to create an Australia where we have to pay a foreign corporation not to dig up or destroy our coastline or native forests? Our laws should protect Australians and the places we love - not the profits of foreign multinationals.

Tom Warne-Smith is a Policy & Law Reform lawyer at the Environment Defenders Office (Victoria). View his full profile here.