NuCoal case key to US FTA deal

Much has been written in the past few years about free trade agreements. Most recently the federal government has taken a leadership position in concluding Trans Pacific Partnership Mark 2 (which is the old TPP without the US), and has been extolling its virtues.

Foreign Minister Julie Bishop encouraged US President Donald Trump to reconsider his decision to not join the TPP, and Trump said he would consider joining if he got a better deal.

In reality, however, there are issues standing in the way of any US change of mind. And those issues go directly to whether Americans can trust Australian law to protect their investments in this country.

These were not publicly spoken of before Trump was elected, and when he walked away from TPP1, there was no need.

But the fact is the US will not enter any new FTA, or any revised FTA, while any matters under the existing FTA remain unresolved. This is US policy. And there are issues unresolved under the current FTA.

One of these is the expropriation of the Doyles Creek coal exploration licence by the NSW government in January, 2014.

US shareholders of ASX-listed NuCoal Resources, which held the Doyles Creek asset, have been, and still are, demanding the Australian government allows them to enter arbitration in the International Court of Justice to seek compensation from the Australian government.

The reason the Australian government is on the hook over the expropriation is not obvious, but under the existing FTA between the US and Australia, the Australian government took responsibility for any acts of the Australian states that contravened the FTA. So even though the NSW government was the “expropriator” of the asset, it is the Australian government that has to pay. Several meetings have been held on this matter between the governments of Australia and the US and more are planned. It is difficult to see how Canberra can avoid its responsibility in this case.

The past four years of discussion have demonstrated that the basic facts — there was an expropriation, and there was no compensation paid — are recognised by both governments.

The method of the expropriation, by the passing of a NSW law that excluded NuCoal from access to due process, is the major point at issue.

It is high time that this matter was resolved. The Australian government should be pressing the NSW government to compensate NuCoal, because the expropriation was a deed of the NSW government and was not the fault of the Australian government.

In recent times even a member of the Liberals in the NSW upper house gave a speech to this basic point. The compensation amount in question, while substantial, is minuscule when the benefits of having the US in the overall TPP arrangements are considered. The US government, on behalf of its investors, cannot be, and worse still be seen to be, a second-class citizen where trade matters with Australia are concerned.

FTA matters with China, Korea, ASEAN and now 10 more countries are resolved promptly, but the US has to come cap in hand because its FTA isn’t as good as theirs. Undoubtedly this is not the way we should be treating our biggest investor.

The NuCoal issue is an example of why the Trump administration is sceptical of trade agreements that his administration inherited.

If one of the US’s strongest allies won’t ensure a fair hearing for US investors that have been harmed, as called for under an existing agreement, then their negotiating demands for stronger/fairer agreements is rather understandable.

The US won’t rejoin any TPP while this matter sits unresolved.

Gordon Galt is chairman of NuCoal Resources Ltd.

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