Down to Earth | 2011-2-28

Unholy smoke!

Latha Jishnu

Inclusion of intellectual property in bilateral investment agreements is
injurious to the health of developing nations

Most readers might find it difficult to credit what follows. This is a story
of how bilateral and multilateral investment treaties are being used to
satisfy corporate greed, how large corporations, even those in the unsavoury
business of selling cigarettes, can sue countries for passing public health
laws intended to protect their citizenry from health hazards and killer
diseases.

It’s also a tale of how the World Trade Organization’s (WTO) principle of a
government-to-government dispute settlement mechanism is being replaced by a
direct challenge to nations by foreign investors.

Don’t believe me? Here’s what Philip Morris International, the world’s
second largest cigarette company and manufacturer of brands such as Marlboro
and Red & White, did. Last year, it sued tiny Uruguay for its regulation
that requires tobacco companies to cover 80 per cent of their cigarette
packs with pictorial tobacco-warning labels and to use plain or coloured
packaging.

Former President Tabare Vazquez, an oncologist, had banned smoking in public
buildings five years ago and his successor José Mujica banned tobacco
advertising and the sale of products branded ‘light’ or ‘mild’.

In February last year, Philip Morris filed for arbitration at the World
Bank’s International Centre for Settlement of Investment Disputes using a
1988 investment protection treaty that Uruguay had signed with
Switzerland—the company’s operational headquarters is in Switzerland—to
claim damages for infringement of its intellectual property (IP) rights.
Specifically, it claims that Uruguay has expropriated its IP without
compensation; has failed to treat its investment fairly and equitably; and
has unreasonably impaired the use of its investment. It has sought
undisclosed damages from the tiny Latin American country—the company
describes these as substantial—in the first-known investment treaty claim
against tobacco regulations.

Uruguay is not the first country to have strict regulations on cigarette
packaging and it is telling that Switzerland itself has restrictive
regulations. Long before the case was filed against Uruguay, the tobacco
giant had investigated the case against plain packaging and a legal
consultant appointed by it had found that “a plain packaging measure would
create a two-tier system: one which severely restricts the use of trademarks
and is only applicable to tobacco companies, and another which affords the
minimum standards of protection to all other products. Such discriminatory
treatment of trademarks is expressly prohibited by the TRIPS Agreement.”

The report by Lalive, the consultant, cites a long list of tobacco-related
cases that have been filed by various countries at WTO’s disputes settlement
body. So why has Philip Morris chosen to file its claim against the
government in Montevideo? Was it because it had no hope of persuading
Switzerland to approach WTO? Or was it because a case against Uruguay would
act as a deterrent to other nations like Australia, which is scheduled to
introduce plain packaging measures in 2012?

This is where the story takes an unbelievable turn. Right now, Philip Morris
is engaged in a high-profile campaign to have a clause inserted in the
Trans-Pacific Strategic Economic Partnership Agreement (TPPA) that is being
currently negotiated so that it can sue Australia and other signatories to
the pact if they introduce plain packaging! The TPPA is being negotiated by
Australia, New Zealand, Singapore, Brunei, Vietnam, Malaysia, Chile, Peru
and the US, and the cigarette company has asked the US Trade Representative
to weigh in on its side.

What Philip Morris wants is an investor-state dispute settlement provision
inserted in the trade agreement that would allow it to sue governments that
introduced legislation “impeding foreign investment”. This has created a
huge ruckus in Australia and New Zealand; a paper submitted by the latter
warned partner countries that they need to be cautious about IP provisions
in any agreement. The Auckland government is particularly concerned about
the inclusion of IP because of its impact on use of generic medicines in
public health programmes.

In a far-reaching suggestion, New Zealand has urged negotiators “to maintain
an open dialogue” with groups opposed to strengthening of IP rights and
warned that it is assuming a significant political dimension in many
societies. This is of particular relevance to India, which is tying up free
trade agreements (FTAs) with several countries. Health workers, agriculture
experts and the generic medicines industry have been putting out a series of
warnings on the inclusion of IP in such FTAs, the most pernicious being the
ongoing negotiations with the European Union. IP as investment is a new
addition to the EU FTAs, and India needs to watch out for potential claims
of expropriation under the investment chapter.

As the Philips Morris case shows, any corporation can potentially sue the
Indian government in a bid to block sovereign actions for protecting the
wellbeing of its people. Be warned: IP in bilateral investment treaties is
injurious to the health of most nations.