To conclude recent negotiations over the Trans-Pacific Partnership (TPP), Australia’s trade minister, Andrew Robb, had a few things to say about investor state dispute settlements (ISDS). Namely that “a lot of the statements that have certainly been made in Australia [about ISDS clauses] amount to deliberate scaremongering”.

ISDS clauses enable foreign corporations to sue a host country for laws or policies, or even court decisions, they find inconvenient and objectionable. This has the effect of giving foreign investors more rights than local investors; more influence than local citizens.

This was why the former Labor government did not conclude the bilateral trade agreement with Korea (Kafta) – it contained an ISDS clause. Our concerns were far from scaremongering, but the Coalition government didn’t share them, and signed the agreement back in April. The TPP also contains ISDS clauses that have been extensively criticised. Robb expects it to be concluded by the end of the year.

ISDS clauses present a sovereign risk to national governments and court systems. It wasn’t always so. They were originally created to protect businesses that invested in foreign jurisdictions where there may not have been robust democracies and legal systems, so that investors would have international redress if there was a coup, a takeover of their investments or some other unforeseen negative impact on their business in the nature of sovereign risk.

Over time, the reasonable shield offered by ISDS clauses has become a sword, used by multinational corporations to extract profit and market advantage, against the legitimate interests and values of a nation, its government and people.

Some claim that no harm has been caused by Australia having already entered into a number of bilateral agreements that contain ISDS clauses. Robb remarked that we have “progressively engaged with now 28 countries with investment agreements which include an ISDS ... and the sun is still coming up every morning”.

In fact, Australia is currently being sued by tobacco company Phillip Morris, pursuant to an ISDS clause in an obscure agreement with Hong-Kong in relation to our plain packaging laws (after Phillip Morris lost the case before the Australian High Court). El Salvador is being sued by an Australian mining company, OceanaGold, for refusing to issue it with a gold mining licence as a result of justified environmental and community concerns related to the last gold mining venture at that site (which left the local river running yellow with arsenic and other chemicals).

These are just two of the 568 challenges made under ISDS clauses since 1993. They demonstrate the perilous course the Abbott government has chosen for Australia.

Then there’s the chilling effect ISDS clauses can have on a government’s willingness to regulate. Canada withdrew a proposal for plain packaging of tobacco, following the threat of ISDS arbitration under Nafta. Here in Australia, rural communities have successfully campaigned for improved state government regulation of coal seam gas mining, yet the inclusion of ISDS clauses in Kafta may mean that Korean mining investors could prevent further regulation.

The arbitration panels that decide the outcome of ISDS disputes aren’t independent: they’re made up of investment law experts, most of whom also represent investor complainants. Panellists can be an advocate one month and an arbitrator the next. They are paid by the hour. Consequently, most cases take from three to five years. ISDS has no system of precedents or appeals, so decisions can be inconsistent and unfettered.

The submission by the Australian Fair Trade and Investment Network (Aftinet) to the joint standing committee on treaties quoted Juan Fernandez-Armesto, an arbitrator from Spain, who observed:

When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. Three private individuals are entrusted with the power to review, without any restrictions or appeal procedure, all actions of the government, all decisions of the courts and all laws and regulations emanating from Parliament.

Proponents of Kafta point to supposed safeguards in more recent agreements with ISDS clauses, which aim to protect public welfare in areas like health, safety and the environment. However, a number of submissions to the treaties committee pointed to examples where these so-called safeguards have not deterred investors from suing, and where tribunals have ignored the intended limitations.

A submission made by 100 legal experts to the European Commission regarding an ISDS clause in the proposed TPP between the EU and the US concluded that the safeguards, which are more extensive than those in Kafta, would not be sufficient to uphold health and environmental legislation.

Robert French, chief justice of the high court of Australia, highlighted his concerns about the impact of ISDS clauses on our judicial systems, when he quoted Professor Brook Baker of North Eastern University law school’s assessment of the Eli Lilly case:

After losing two cases before the appellate courts of a western democracy should a disgruntled foreign multinational pharmaceutical company be free to take that country to private arbitration claiming that its expectation of monopoly profits had been thwarted by the court’s decision? Should governments continue to negotiate treaty agreements where expansive intellectual property-related investor rights and investor-state dispute settlement are enshrined into hard law?

Submissions to the treaties committee noted that the combination of stronger intellectual property rights and ISDS clauses in Kafta will also have a stifling effect on innovation and research, and on the protection of public health and access to reasonably priced medicines.

For all these reasons it’s no wonder that ISDS was comprehensively rejected by the Productivity Commission in 2010; that Labor’s platform opposes it; and that in government, Labor refused to negotiate a treaty with Korea that contained such a clause.

There are a number of trade agreements in prospect, including one with China as well as the Trans-Pacific Partnership Agreement, and these could also include ISDS clauses. The prospect of Australia’s regulatory framework, policy settings, and community values being chiselled away by legal action pursued in the interests of large multinationals or even state-owned foreign entities should be of enormous concern to all Australians.

By entering into an agreement with ISDS clauses the Abbott government is being reckless or grossly negligent as to the likely serious and negative consequences. Let us hope it will not cost the country too dearly.