[Ip-health] Livemint: India rejects clause on litigation

Shailly shailly.17 at gmail.com
Sun Jul 3 23:21:02 PDT 2011

LiveMint, 4 July 2010

*The clause allows European businesses investing in India to take
international legal action against the govt*

Asit Ranjan Mishra

New Delhi: Despite a demand by the European Union (EU), India is unlikely to
allow a clause in a proposed trade pact with the bloc that permits an
overseas investor to sue a host country at an international dispute
settlement agency.

EU wanted the inclusion of such a clause, known as an investor to state
dispute settlement mechanism, in a draft investment chapter under the
proposed trade and investment agreement, negotiations for which started in
2007.Mint has reviewed a copy of the draft.

India has rejected the EU’s demand on the contentious issue, as a result of
which negotiations on the investment chapter of the pact have not moved
forward, according to two persons outside the Indian government with
knowledge of the development. They requested anonymity.

Commerce secretary Rahul Khullar declined to comment on the matter. “As a
matter of principle, India does not negotiate through the media,” he said.

The controversial clause, if agreed upon, would allow European businesses
investing in India to take international legal action against the government
for damages over policies such as banning of dangerous chemicals, domestic
health policies such as tobacco control legislation and measures to reduce
prices of essential medicines.

While customary international law requires foreign investors to sue
governments in domestic courts for any claims, or at the World Trade
Organization dispute panel, such bilateral agreements on investment allow
foreign investors to seek legal action at international arbitration bodies
such as the United Nations Commission on International Trade Law or at the
World Bank-affiliated International Centre for Settlement of Investment
Dispute for alleged breaches of treaty obligations.

Hong Kong-based Philip Morris Asia Ltd, owner of Australian affiliate Philip
Morris Ltd, recently threatened to sue Australia at a global forum on the
government’s cigarette packaging norms, which the firm said would violate
that country’s obligations under a bilateral investment treaty with Hong

An Australian draft legislation that aims to make tobacco products less
attractive to consumers would prohibit all logos, along with different
colouring and layout, on cigarette packs. It would also require that health
warnings cover a substantial portion of each package, the International
Centre for Trade and Sustainable Development said on 29 June.

Although other countries, including New Zealand, the UK and Uruguay, have
previously attempted to adopt similarly strict requirements for cigarette
packaging, Australia would be the first country to actually implement such
measures. Losing the case, however, could cost Australia billions in
unexpected public spending, the centre said.

The Australian government has announced it will not include a clause that
allows an overseas investor to sue the country at any global arbitration
body in any of its future bilateral trade agreements.

The EU-India draft investment chapter also seeks to cover intellectual
property in the definition of investment, which civil rights groups say
could drag the government to international arbitration if a foreign rights
holder says the value of its intellectual property is impacted by government

Such provisions could pose a national risk and may put public policymaking
in jeopardy, the groups said. India should reject the EU’s demand for
inclusion of intellectual property in the definition of investment and the
so-called investor to state arbitration clause, according to Leena
Menghaney, public health lawyer and India campaign coordinator for
non-profit Medecins Sans Frontieres.

“The health ministry’s measures to make patented drugs more affordable,
tobacco control measures such as bigger pictorial warning on cigarette
packets, or banning a carcinogenic chemical could trigger claims of
compensation worth millions of dollars by multinational pharmaceutical,
tobacco and chemical companies against the government of India under
investor to state arbitration proceedings on the ground that such measures
damage their investments and profits,” she said.

Companies have initiated litigation against a number of countries across the
world, including Canada, Uruguay and now Australia, on similar issues,
Menghaney added.

“Governments have been pressurized either to withdraw the public health
regulations or have been sued for high amounts by investors citing violation
of investment provisions in BITs (bilateral investment treaties) and FTAs
(free trade agreements),” she said.

Both the EU and India want the FTA to cover investment as it is important
for companies from both sides to ensure there is a right environment for
businesses to work together, EU trade spokesman John Clancy said in an
emailed response to questions.

“The precise scope and coverage of these provisions have still to be
settled,” Clancy said. “Intellectual property rights as part of the
investment definition and an investor to state dispute settlement mechanism
are standard features of bilateral investment treaties, including those
concluded by India, so it is only to be expected that negotiators will want
to consider whether to include such provisions also in an EU-India

“Any suggestion that such a standard provision in a future FTA would
restrict the right of either party—India or the EU—to protect public health
and regulate for reasons of public policy are wholly unjustified,” he added.

The so-called investor to state dispute resolution mechanism is indeed a
common feature in some FTAs India has signed, according to Abhijit Das, head
of the Centre for WTO Studies. “One of the reasons of having an investment
chapter in an FTA is to have such a provision,” he said.

However, after the latest instance of Philip Morris suing the Australian
government, Das said there is increasing awareness of the possible
repercussions of such a clause in trade agreements.

Such a clause may also benefit Indian companies that are increasingly
looking for acquisitions overseas, he pointed out. However, Das cautioned
that India should seek to keep such clauses off the agenda even if it
protects domestic companies, “as in such cases the government might be at
the receiving end”.

“There is also concern that the international arbitration tribunals are
loaded against developing countries,” Das said.


Shailly Gupta

Medecins Sans Frontieres
Campaign for Access to Essential Medicines

C 236 Defence Colony, New Delhi, India
Tel: +91 11 46573731, +91 11 46573730

M: 9899976108

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