Nitpick: you have stated that tobacco companies are suing Australia using a HK-AUS trade agreement to get them to "revert the labelling law". That's simply not true: they are suing for compensation, not trying to force a change in the law (they'd have to try and get the law struck down as violating some other constitutional law to do that).

> I'm definitely a big champion of capitalism, but these investor-state dispute settlements seems really wrongheaded

Why? Can you at least see the underlying motivation for them?

As it happens I don't like tobacco companies at all. I'm very sympathetic to what Australia is doing and think other countries should adopt the same idea. Nonetheless, I'm OK with the idea of Australia paying compensation to Phillip Morris and other cigarette companies in this case, even though these companies are quite loathsome. The reason is the higher principle might still be worth it.

The rationale for ISDS is simple: politicians answer to citizens, citizens want jobs and a growing economy. Period. They want that more than anything else. In hard times "the economy" is always at the top of voters concerns. Politicians know this and will do almost anything to juice the economy e.g. quantitative easing. One of the ways to boost the economy is to increase trade, it's classical economics and it seems to work. Hence there's always some free trade agreements being worked on somewhere.

Free trade is a great idea. However in the developed world most of the easy, low hanging fruit has already been picked. Tariffs are mostly gone. The remaining bottlenecks to trade are often things like differing technical standards or different regulations, which are hard to fix.

One bottleneck is that business values a stable and predictable business environment nearly as much as citizens value jobs, however "stable and predictable" is obviously in tension with the desire politicians have to change things around at a moments notice in order to try and win votes. In particular, businesses fear sudden and arbitrary banning of their business model or sudden seizure of their assets.

This holds back trade: company executives say to themselves things like, "our factory is in the USA and lots of our customers are in the EU so we have high shipping costs. We could set up a factory in the EU but that will take five years and be a very expensive and complex project. If we do it and after seven years the laws change such that it's no longer economic for us to do that, we're screwed. And we don't trust the politicians over there not to screw with us, so maybe we'll just stay as we are". Result: Europeans have fewer jobs so are less happy, they pay more for the imports so are less happy, the company doesn't expand so it's also less happy.

With ISDS maybe the decision looks like this instead: "we should set up a factory in the EU, because even if the laws there change and suddenly our factory can't operate or doesn't make sense any more, we'll be compensated and can use the compensation money to smoothly transition our business somewhere else ..... so let's do it".

So by agreeing to compensate companies for changes in the political environment, the hope is that there will be more trade, more investment, more jobs and thus more happy wage-earning citizens.

Of course, politically this is a hard sell because people like to think that if their elected politicians start whacking a foreign company doing business in their country it's because the dirty foreigners are immoral and nasty and generally deserve it .... and not, say, because their votes are easily bought by a bit of crafty populism. But then again, they really want the jobs too. So we'll have to see how this works out.