Dangerous side effects: The public health impacts of investor-state dispute settlement
On 3 December 2013, Members of the European Parliament (MEP) Linda McAvan (S&D) and Carl Schlyter (Greens) hosted a debate in the European Parliament on the 514 cases that corporations have brought against governments. Some of the examples presented included the international tobacco giant Philip Morris suing the governments of Uruguay and Australia for introducing plain cigarette packaging. This debate is particularly relevant in light of current negotiations between the EU and the USA, Thailand and India, as well as the recently agreed Free Trade Agreement (FTA) with Canada - the first ever EU FTA to include an investment chapter. The event was co-organised by EPHA, the Seattle to Brussels Network (S2B), and MSF Access Campaign.
Mr Lauge Poulsen from the University of Oxford set the scene for the discussion: He explained that of the approximate 3.000 global bilateral investment treaties, many include an investor-state arbitration: a tool to protect against expropriation. He went on to say that, recently, private companies are not following local processes and instead directly attempt to secure an investor-state dispute settlement (ISDS), which involves three arbitrators (private lawyers, not judges) with the paradox that only the investor can file a claim, with governments unable to do so against the investor.
When the Tobacco Plain Packaging Act became law in Australia last year, Philip Morris Asia challenged the law under the 1993 Agreement between Australia and Hong Kong for the Promotion and Protection of Investments. Australia will most likely win, but will have to pay legal costs, estimated at 20 million Australian dollars (€14.600.000). As this case reflects, ISDS can increase costs for introducing tobacco control legislation. "Under ISDS proceedings, the investor should always pay if they lose and the states should be able to block claims" argues Mr Poulsen.
PRESENTATION: The Relevance of Investment Treaties for Tobacco Control (by Lauge N. Skovgaard Poulsen, PhD, University of London, SOAS & University of Oxford, Nuffield College).
Helle Aagard, from Medecins Sans Frontieres (MSF) Access Campaign, pointed out that ISDS gives pharmaceutical companies a tool to fight Trade Related Aspects of Intellectual Property Rights (TRIPS) flexibilities, such as compulsory licensing. She also said that arbitrators are provided with too much discretion and flexibility and that there is a lack of clarity with the legal hierarchy of treaties, which ultimately narrows the policy space for governments to protect health.
A case presented during the debate was the 2012 patent denied in Canada, when Eli Lilly, an American global pharmaceutical company, filed an ISDS challenge under the The North American Free Trade Agreement (NAFTA). There is a provision in Canadian law that a patent needs to demonstrate utility. Canada invalidated the patent after assessing its utility, so Eli Lilly filed a claim for compensation of 500 million Canadian dollars. Ms Aagard argued that this will have a chilling effect on other countries using TRIPS flexibility, particularly as the case was filed against a "western government". "MSF does not support measures that prevent access to medicines and advocates for Intellectual Property to be excluded from definition of investment. The EU should protect public health," concluded Ms Aagard.
PRESENTATION: The potential impact of ISDS on access to medicines. (By Helle Aagard, from Medecins Sans Frontieres (MSF) Access Campaign)
Carlos Bermeja Da Costa, from the European Commission Directorate General for Trade (DG Trade), said that in many free trade agreements state to state settlement are also included. "The problem is a lack of clear definition that gives wide definitions for arbitrators," Mr Da Costa argued. He went on to say that the problem is the lack of definition, not the definitions themselves. According to him, the European Commission intends to include non-discrimination and fair and equitable treatment clauses on the EU FTAs.
Mr Da Costa also pointed out that a claim should only be given when substantial effects on profits have occurred, and that another way to curb frivolous claims is to make the loser pay. "The Commission has also clarified that compulsory licensing, in accordance with TRIPS, is not expropriation. This has already been done with Canada and will be in a FTA with Singapore as well. The Commission intends to strengthen transparency with codes of conduct for arbitrators and ethical guidelines," concluded Mr Da Costa.
Bernard Merkel, from the EU Directorate General for Health & Consumers - European Commission (DG SANCO), explained that DG Sanco does not intend to reduce standards nor impair regulatory powers. He went on to say that the US and EU do not want to inhibit the regulators`ability to carry out public policy. DG SANCO will work with DG Trade and follow the inclusion of ISDS.
Mr Merkel said that the American Business Community has already expressed dissatisfaction with the Tobacco Products Directive: "If there is a possibility for the tobacco industry to challenge legal regulation, they will use it". In relation to pharmaceuticals, Mr Merkel pointed out that in the TTIP there are regulator to regulator meetings.
Ms Roos van Os, from the Centre for Research on Multinational Corporations (SOMO), an independent, not-for-profit research organisation presented a civil society perspective. According to him,civil society relies on very limited information, mandates and negotiating texts are not disclosed. Big business often has easier access to policy makers. For issues like the violation of due process and abusive treatment of investors, the provision is used as a ’a catch all’ and it can be interpreted by tribunals in a very incoherent way. For example, the Comprehensive Economic and Trade Agreement (CETA) with Canada proposed a closed list, but the EU wanted a clause. The compromise is limited in scope, but reintroduces uncertainty, which could cause problems in the future.
Many civil society organisations (CSOs) do not understand when an ISDS is an applicable solution. A judicial framework exists in many countries where the EU is negotiating a FTA. This bypasses national systems in favour of private systems if there is no exhaustion of local remedies. "Another problem is there is no cooling off period between lawyers/arbitrators," concluded Ms Roos
PRESENTATION: A critical assessment of the EU’s attempts to reform ISDSs. (by Ms Roos van Os, Centre for Research on Multinational Corporations (SOMO)
In the debate, Mr Poulsen, a representative from Thai civil society shared how the EU-Thai FTA is being used to hinder access to medicines, tobacco control, and alcohol-related harm measures, in contradiction to the Nobel Peace Prize the EU recently received. Mr Poulsen pointed out that there are ways to protect investors from expropriation, such as insurance, so he wondered why should companies be able to sue governments outside national courts?
A Trade Union representative pointed out that an ISDS provides increased safeguards compared to domestic protection for domestic companies. that the public pays for lost profits. NGO representatives were not convinced that the codes of conduct and guidelines were strong enough tools to enhance transparency, and that arbitrators will work for a profit and judge definitions in agreements.
The NGOs also stressed that no-one anticipated when FTAs were first drafted, in the Bilateral Investment Treaties, that the corporations could use ISDS mechanisms in the way they are now being used.
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