Australian Financial Review | 4 February 2021
How Google could sue Australia for billions
by John Kehoe
Google and Facebook could sue the government for billions of dollars over a proposed law to force the digital giants to pay publishers for displaying news content, by seizing on investment clauses in the Australia-Singapore trade agreement, international treaty experts and Senator Rex Patrick have warned.
The government’s proposed media bargaining code could be vulnerable to a challenge in international arbitration by the Silicon Valley companies under so- called investor-state dispute settlement (ISDS) rules.
ISDSisaninternationalarbitrationprocedureto allow foreign investors to take legal action against governments for breaching investment agreements they have signed with other countries, for example, for expropriating property, denying fair procedure or discrimination.
Australia has signed dozens of investment protection treaties with other countries, including the 11-country Comprehensive and Progressive Agreement for Trans- Pacific Partnership that the the US failed to join.
Tobacco giant Philip Morris seized on an ISDS clause in the 1993 Hong Kong- Australia trade deal to sue the Australian government over its plain packaging cigarette laws in 2012.
Philip Morris lost after the international arbitration tribunal declined jurisdiction to hear the matter, but the legal dispute ran for almost five years at a cost to the government of about $40 million – a legal bill that was repaid by Philip Morris.
Pakistan was ordered in 2019 to pay $US5.8 billion to Australian mining company TethyanCopperCompany after its application for a mining lease was rejected –
breaching an ISDS agreement.
Chain of ownership question
Henry William Lawyers’ international arbitration lawyer, Max Bonnell, said Google would need to prove its investment into Australia came from a jurisdiction that Australia had signed an investment protection treaty with, such as Singapore.
“There’s a lot of ‘ifs’ depending on the Google corporate structure, but potentially a claim could exist if there is a legitimate chain of ownership back to Singapore or another jurisdiction where the entity had investment treaty protections,” he said.
“But if the owner of Google Australia is Google US, there is no investment treaty protections.”
The Australia-United States Free Trade Agreement does not include an ISDS rule, though it does have other investment rules that the US government and the US Chamber of Commerce have warned could be breached by the crackdown on the technology giants.
Google has told a parliamentary inquiry that its regional head office in Singapore serves 30 countries in the region.
The search engine giantsendsalargeshareofitslocaladvertisingrevenueto a Singapore subsidiary that passes the income to its California headquarters.
Google would also need to establish a breach of any investment treaty, such as discriminatory treatment that breaks the “fair and equitable treatment” standards, Mr Bonnell and trade experts said.
The mandatory digital code specifically targets Google and Facebook as designated digital platforms, not other competitors such as Microsoft’s Bing or Twitter.
Treasury’s deputy secretary for markets group, Meghan Quinn, told a parliamentary committee this week that the government had held “extensive discussions” with the Office of the US Trade Representative to explain the details of the reform package.
She noted there were investment provisions connected to the Australia-US free trade agreement.
Asked by Senator Patrick if the government could be left vulnerable to a multibillion-dollar claim by Google via ISDS action under the Australia-Singapore agreement, Ms Quinn said: “We’ve certainly looked at all the legal implications – both domestic and international.”
Australian Fair Trade and Investment Network convener Patricia Ranald – who has lobbied against including ISDS in trade deals – said ISDS allowed companies to claim the loss of past and future profits.
Dr Ranald said the Singapore-Australia Free Trade Agreement last year had its e-commerce rules updated, which restricted government access to source code and foreshadowed a restriction on governments requiring access to algorithms.
The mandatory bargaining code requires the digital giants to give news publishers a
14 days’ notice before major changes to their algorithms that could affect the
rankings of news stories.
A corporate dispute lawyer said the digital giants could explore alleging under bilateral investment treaties that the government had “expropriated” their investments in Australia by hurting their profits.
Multibillion-dollar ‘risk to economy’
Senator Patrick said he was inclined to support the proposed digital mandatory code but he was concerned this “might be a multibillion-dollar risk to the Australian economy”.
A powerful coalition of American government and business organisations has attacked the government’s crackdown on Facebook and Google, saying it discriminates against Silicon Valley technology giants and breaches the Australia- US Free Trade Agreement.
The US Chamber of Commerce warned in a submission to a parliamentary committee last month that the code “explicitly targets and discriminates” against US companies and “violates” the non-discrimination obligations Australia has undertaken in the Australia-United States Free Trade Agreement and the World Trade Organisation’s General Agreement on Trade in Services.
The Office of the US Trade Representative raised concerns that the
“discrimination” in favour of local traditional media publishers “could raise concerns with respect to Australia’s international trade obligations”.
Trade and Investment Minister Dan Tehan said last month: “The clear advice that I have is that the digital code isn’t in breach of our free trade agreement with the US.
“Obviously advice was sought on that and advice was given to show that it is consistent with our free trade agreement.”