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Strange article lurking at back of FTA could bring nasty surprise

Canberra Times (Australia)

29 September 2004

Strange article lurking at back of FTA could bring
nasty surprise

By Thomas Faunce and Buddhima Lokuge

HIDDEN at the back of the 1000 page Australia-US Free Trade
Agreement, is a strange article, numbered 21.2(c). Usually,
in a legal document such as a treaty, dispute proceedings
only arise if a party has breached
a formal obligation in the text.

This unusual provision
changes all that. It is called a "non-violation
nullification or impairment of benefits" (NVNB) clause. It
is one of the most contentious and despised
provisions in international trade law, symbolising for many
the extent to which the World Trade Organisation disputes
process has been captured
by corporate multinationals.

The Australian Department of
Foreign Affairs
and Trade plain English guide to this NVNB article explains
that it permits dispute procedures where the actions of a
party, "while complying with the strict letter of the
agreement", go against its "spirit" and the legitimate
expectations of the other government.

What this guide to the
NVNB article fails to mention, however, is that those
chapters of the AUSFTA most fraught with danger for the
Pharmaceutical Benefits Scheme are specifically included
within its scope. Directly mentioned, for example, are
chapters two (which includes Annex 2C on Pharmaceuticals and
a side letter on the PBS) and chapter 17 (which includes the
"evergreening" drugs patent clause that spurred recent
Australian legislative amendments).

A handful of dispute
panel cases exist concerning a similar NVNB provision under
the General Agreement on
Tariffs and Trade. These emphasise that NVNB is really a
supercharged mechanism of commercially focused treaty
interpretation. The so-called Japan Film Case in 1998, for
example, established that for one party to
succeed in an NVNB claim, it had to prove to the relevant
dispute resolution panel, that it couldn’t have reasonably
anticipated the domestic legislation that nullified its
"legitimate expectations".

Developing nations, in particular,
have resisted the introduction of NVNB articles into the
convention on Trade Related Intellectual Property Rights.
They see such causes of action as make a treaty support
chiefly the commercial expectations of dominant US and
European corporations, not the rule of law, or principles of
social justice. At developing nation behest, a moratorium
has been placed on NVNB actions under TRIPS.

The Deputy US
Trade Representative has repeatedly identified AUSFTA
commitments as a means to pursue the legislated US agenda of
"eliminating" the PBS mechanism of establishing
the price for a medicine by reference to its overall
community value when measured against cheap generic
competitors. To this end, the new AUSFTA interpretive
principles on pharmaceuticals suggest that the relevant
"spirit" of that treaty chiefly emphasises reward of
pharmaceutical"innovation" and "research and development"
concepts that
conflict with universal access to affordable, essential
medicines, the basic principle of our PBS.

resolution proceedings will inevitably arise over the AUSFTA
, particularly in relation to those 50 or so references to
pharmaceuticals in its text. They may well arise under the
NVNB article, over the issue of whether the recent
amendments directed against brand name drug patent
evergreening, breach the "legitimate expectations" of the US
under the AUSFTA. The US has already
stated that such amendments may breach article 27.1 of TRIPS
that prohibits "discrimination"as to the field of technology
(i.e. pharmaceuticals).

The latter argument can, with careful
advocacy, be quite properly disposed of. The WTO
Canada-Generic Pharmaceuticals Case
established that article 27.1 of TRIPS does not prevent a
country from dealing in good faith with problems (such as
"evergreening" of brand name medicine patents) that only
exist in certain product areas.

In relation to the first
argument, however, it should be remembered that the current
PBS amendments only cover an important, but very narrow area
of problems for the PBS under the AUSFTA. If, before
ratification of this treaty, Australia also puts on record a
unilateral declaration of its already stated interpretations
of the many other contentious articles related to the PBS,
it will have, without in any way interfering with the legal
force of the treaty, have clarified in the national interest
what should be the enforceable "legitimate expectations" of
the US concerning the PBS. This may have a significant
bearing on its capacity to withstand dispute settlement
pressure under the AUSFTA and ensure the continuance of low
pharmaceutical prices in this country.

Dr Thomas Faunce is a senior lecturer of the Medical School
and a lecturer in the Law Faculty at ANU.

Dr Buddhima Lokuge
is a visiting
fellow at the Medical School and Regulatory Institutions
Network at ANU

 source: Australia National University (ANU)