MAI --- Constitutional Validity in the High Court
(Concise Overview)

[ 82 ] [ Full article start ] [ Contents ] [ Home ] [ Foot ] [ Open Letter ] [ 84 ]                                     By David Keane
August 1998

This shortened article provides a concise summary and overview of the full article MAI --- Constitutional Validity in the High Court by David Keane, so to highlight the issues in State and Commonwealth government that are touched upon in the full article.

In short, there are many who consider these issues to be the most critical that Australia has faced since Federation in 1901. If MAI is signed, these issues will affect everyone to an immense degree, having precedent with respect to degree of impact, only at times of World War. And yet about these issues there remains a governmentally approved and endorsed policy of silence and lack of public information.

What is MAI?

The Multilateral Agreement on Investment (MAI) has been negotiated officially in secret since 1995 by representatives of OECD, the 29 richest nations in the world, together with corporate lobby groups. A leaked draft copy has found its way to internet, leading to mounting opposition which forced the Commonwealth government to establish hearings on MAI before the Joint Standing Committee on Treaties, which in its Interim Report has strongly criticised Treasury officials for a lack of openness, and for inadequate information shared with State governments, municipalities and the public. Why this secrecy?

The negotiating committee for MAI is due to meet again in October 1998 to finalise the treaty so that it can be ratified. Under the MAI agreement, if signed;

The article MAI --- Constitutional Validity in the High Court, has an appendix in which various critical sections of the MAI document are presented. The MAI agreement is written in clear words that are legally binding and enforceable.

The main article, besides describing in more detail the nature of the MAI agreement, presents and develops three main points;

(1) Most aspects of State legislature will become subject to MAI.

(2) There are presented 4 separate grounds of argument as to why the MAI agreement would be ruled as invalid in the High Court.

(3) Under the Australian Constitution, the States have a right to collect income tax, and can determine how they may raise their own revenues, and thus could lead the way towards a truly equitable economic relationship between Commonwealth and States.

Let us then look in brief at each of these three points, and their implications.

Impact Upon State Legislature and Governance

There is scarcely a government instrumentality these days that does not have at least a part private investment. This is particularly true of State governments, because the unfair economic impositions by the Commonwealth make it essential for States to attract private participation in all spheres of government for them to be able to survive difficult economic times.

If a foreign investor thinks a country where it has invested is in breach of MAI, the investor can directly challenge the host country (Australia) through a special international corporate tribunal. The tribunal will decide whether the Australian government is breaching the agreement and if so, can advise it to change the laws and award damages which could run up to millions of dollars. Virtually anything to do with financial management is subject to legal challenge in this way. This may include financial support by State governments for public facilities such as public hospitals or public schools, or laws protecting heritage buildings or measures to prevent toxic waste dumping or environmental protection of rivers, flora and fauna.

What sort of cases may go before such tribunals and what sort of amounts will be involved? As MAI is not yet operative we can only draw parallels from such treaties as NAFTA (which facilitates a level playing field for investment in North America), upon which MAI has been modeled. The Canadian government banned a petrol additive called MMT, considering it to be a dangerous toxin. But after Ethyl Corporation sued for $251million, on grounds of restricting foreign investment guaranteed under the NAFTA treaty, the Canadian government was forced, to avoid the damages payment, to make a public statement that MMT was safe, and that Canada would allow use of the petrol additive.

All nations intending to sign MAI are invited to "lodge specific reservations" of exemption or special consideration under MAI. In a special Treasury document released Feb 20th 1998, Treasury declared that they had 16 headings of special reservations, which if accepted by the international drafting committee may, perhaps only for a temporary period (the intention is that these reservations should be rolled back according to a set timetable), grant special consideration in these areas. All 16 headings related to Commonwealth areas of concern. In the Treasury list, no mention is made of the main State areas of government, such as hospitals, schools, universities, water works, power supply, transport, agriculture, art and culture, betting and lotteries, construction, conservation, health services, consumer affairs, environmental protection, land management, law enforcement, local government, planning, sport and recreation, tourism, and others. In effect, whether by State government consent and complicity, or by the States being kept in the dark, nearly all areas of State government will be subject to MAI and open to legal challenge by multinationals to ensure that State Governments provide them a level playing field.

In future, under MAI, the two first questions governments will need to ask when choosing to enact legislation or regulation, is;

(a) Do we have the approval of all multinational corporations with investment interest in the given area?

(b) If we regulate in a way that economically disadvantages investors, are we prepared to pay the immense compensation costs out of public taxation revenue?

With such immense economic considerations being supreme, the democratic voice of the public during and between elections will become a minor consideration to governments.

The choice before State Governments is either to become a servant of MAI, or to challenge the validity of MAI in the High Court. Pressure from States must be placed on the Commonwealth before October 1998, so to minimise the damages that might accrue from Australia signing MAI.

High Court Grounds for Appeal Against MAI

The main article provides extensive argument about each of four grounds for challenge, with frequent reference to preceding cases and statements on critical issues by justices of the High Court.

David Keane, the author of this article, has no professional qualifications and so is unqualified to take the legal case any further.

As the MAI agreement has the effect of limiting the power of governmental bodies to legislate and regulate, it will be the onus of the States to initiate any challenge against MAI in the High Court. It is difficult to envisage how individual citizens could gain standing in the High Court to argue against MAI.

In this introductory letter only a brief outline of each ground is possible.

Ground No (1). The MAI agreement is in essence and substance a contractual agreement, rather than a treaty. The Commonwealth has no power to make such contracts with respect to the general areas of government controlled by the States.

There are numerous precedents of High Court decision, in which the substantial effect of a law (or government action) is decisive. It is argued that the substantial nature of MAI is as an economic contract.

Ground No 2. To resolve any MAI cases, a special international corporate tribunal must decide with respect to powers vested in the State. Under the Australian Constitution, authority to decide on matters touching the division of power between the Commonwealth and States can only be vested in the High Court.

On this point, the High Court has always been consistent and strong.

Ground No 3. The Commonwealth government cannot, through a single executive action, take control and usurp the basic powers of States nor destroy the democratic and federal system which has been fundamentally guaranteed in our Constitution.

Only during times of World War, when the defence power was given an extreme interpretation by the High Court, has the Commonwealth government been allowed to encroach in such a wide and general way upon the powers and responsibilities of the States.

Ground No 4. The Commonwealth government has no Constitutional authority to financially pressure the States, nor to enforce compliance with any MAI agreement by selectively administering money derived from collection of taxation, or by directing the manner by which the States should acquire their revenues..

The simple fact is that the Commonwealth government does not have exclusive authority under the Australian Constitution to collect income tax. If State collection were ever challenged in the High Court, the High Court would have to permit the States to collect income tax. The present situation arose when in 1942, under conditions of "hot war" and the expanded defence power, the High Court held valid the Commonwealth action of forcing the States out of the income tax field. That system has since the end of the war been maintained by its own economic and political momentum. Since then, the States have lacked the political will to reassert their constitutionally guaranteed right to collect income tax, or share equitably from its revenues.

Federal Economic Equity Between Commonwealth and States

Revenue raising and distribution are intimately connected, and have both been dominated and controlled by the Commonwealth, since in 1942 the Commonwealth compelled the States to abandon income tax. Recently, due to this imbalance we have seen the States in crisis after crisis, because their expenditure exceeds their revenue, and they are forever dependent upon the Commonwealth for handouts. In particular,

All these things have happened because of the timidity of the State governments in asserting their constitutionally valid authority with respect to income tax. Is there a State government courageous enough to admit to its constituency that it has the constitutional right to collect income tax and thus force a creative federal solution to all these problems?

It is sufficient that one of the Premiers take the lead, by publicly expressing discontent at the present tax reform and revenue distribution arrangements, publicly claiming that the States have a right to collect income tax, or at least share in its revenue, and inviting other States to a general meeting to discuss joint action by the States.

If a truly federal arrangement in economic sharing is to emerge, it is vital that the States challenge the assumption that the Commonwealth must have a dominant financial position. Even though the States have a constitutional right to collect income tax, they should not bargain for economic dominance themselves, but for an enduring arrangement in which the Commonwealth and States share revenue raising and distribution. There is no other way forward. The Commonwealth and States have to learn to work together in harmony in economic management.

The difficulties and complexities involved are considerable, but the danger in not taking action is great. These issues are discussed further in the main article, MAI --- Constitutional Validity in the High Court.

David Keane
August 1998

Postal address: PO Box 582 Gosnells W.A. 6110
E-mail address:

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