The Turnbull government is considering adding a controversial provision to the Japan-Australia free-trade agreement that would allow foreign corporations to sue the Australian government.



It has been negotiating with Japan’s government about the plan but no conclusion has been reached.

The provision is called an “investor state dispute settlement” (ISDS).



ISDS provisions allow foreign corporations to sue the Australian government in an international tribunal if they think the government has introduced or changed laws that significantly hurt their interests.

The tobacco giant Philip Morris used an ISDS provision in the Hong Kong-Australia investment treaty, signed in 1993, in its failed attempt to sue the Australian government over the introduction of plain-packaging laws by the former prime minister Julia Gillard in 2012.

If such a provision is added to the Japan-Australia agreement, it means all four of the major trade deals signed by the Abbott-Turnbull governments will include the same provision – the deals with Japan, China, South Korea and the Trans-Pacific Partnership, which includes Pacific rim countries including the US.

A spokesman for the trade minister, Steve Ciobo, confirmed negotiations had begun.

“Japan and Australia have commenced the review – nothing has yet been agreed,” the spokesman said.

A spokesman for the Department of Foreign Affairs and Trade has also confirmed that Australian and Japanese officials have met to discuss the ISDS provision, with no decision taken.

The negotiations have been triggered by a relatively unknown clause in the Japan-Australia agreement, which was signed by the Abbott government in 2014.



The clause states that if Australia’s government signs any future trade deal with another country that includes an ISDS provision then the Japan-Australia deal would be subject to an automatic review “with a view to establishing” an ISDS provision in it.

The trigger for such a review was the China-Australia free-trade agreement, which came into force on 20 December 2015, because it included an ISDS provision.

The relevant text of the Japan-Australia agreement, article 14.19 (2), says: “The parties shall ... conduct such a review if, following the entry into force of this agreement, Australia enters into any multilateral or bilateral international agreement providing for a mechanism for the settlement of an investment dispute between Australia and an investor of another or the other party to that agreement, with a view to establishing an equivalent mechanism under this agreement.”

It also states that negotiations between Australia and Japan must begin “within three months” of a new trade agreement between Australia and another country coming into force, “with the aim of concluding it within six months following the same date”.

It means negotiations over an ISDS provision had to begin before 20 March 2016, with the aim of concluding by 20 June 2016 – less than two weeks before the election date.

Labor has already said if it wins government it will review the free-trade agreements signed by the Abbott and Turnbull governments that include ISDS provisions, with the hope of removing them.

It means a Labor government would also have to review the agreement with Japan if an ISDS provision was added to it.

On Tuesday Ciobo criticised Labor’s plan to review Australia’s trade agreements, warning it would wreck the government’s hard-won efforts.

“Bill Shorten and Labor are threatening to tear up Australia’s free-trade agreements with China, Japan and South Korea, three of our four largest export markets, putting thousands of jobs and growth opportunities for small businesses at risk,” Ciobo said.

“By reopening our trade agreements, to backtrack on our commitments on dispute settlement, Labor will jeopardise preferential access for all Australian businesses into foreign markets.

“Renegotiating these deals, that are already delivering jobs and growth, puts the significant benefits the Coalition secured for Australia at risk.”