The Wire - 14 March 2019
Investment protection proposals under RCEP threaten India’s pharma industry
By Prathibha Sivasubramanian
Despite earlier announcements that the negotiations at the Regional Comprehensive Economic Partnership (RCEP) were going to wind up by last November, the free trade agreement is still being straightened out.
The 25th round of negotiations for RCEP concluded in Bali this February. In this round, investment protection proposals were discussed.
But these investment proposals threaten India’s ability to ensure access to new medicines. India’s stated position on intellectual property rights in the context of free trade agreements, including the RCEP, is that it would not take any legal obligation, which mandates changes to India’s intellectual property laws.
India has reportedly objected to most of the proposals that came from Japan and South Korea to undertake obligations that go beyond the WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), especially in the context of patents.
For instance, one such proposal is to extend the duration of the patent term by as much as 20 years, considering the delay in marketing approval for medicines. Acceptance of that proposal would give additional years of patent monopoly to patent holders and delay the competition in the market via the entry of generic medicines. India’s acceptance of proposals in the RCEP investment chapter would be a significant deviation from its stated position of opposition to TRIPS-Plus proposals.
The objective of the investment protection is to provide protection to investors against the risk of what they may feel are arbitrary actions by host governments. This is done by creating a provision for compensation through the mechanism of investor-state international arbitration.
Investor protection treaties give very broad rights to investors without any corresponding responsibilities. They often undermine the host governments’ ability to regulate the actions of investors even for the protection of public interest.
What has been India’s stand on investment protection treaties?
Through the years, India’s position on investment protection treaties has been full of contradictions. India, starting from 1995, entered into as many as 84-investment protection treaties commonly known as bilateral investment treaties (BITs). India also undertook an obligation to protect investors’ rights under various free trade agreements (FTAs).
But then, after facing 4 to 5 international arbitration disputes seeking huge amounts as compensation under various BITs, India redrew its model BIT and also decided to withdraw from 58 BITs. India has also sent out certain clarifications with regard to the nature of the obligation to the remaining 25 BITs counter-parties, so as to reach an agreement and issue a joint interpretative statement in alignment with the 2015 Model BIT.
Under these circumstances, India’s willingness to negotiate investment protection provisions under the RCEP, which is contrary to India’s model law, is baffling.
Why is the RCEP pushing for investment protection?
One draft of the RCEP investment chapter was leaked in 2015. This document revealed that the definition of investment includes intellectual property rights (IPRs). Thus, the expanded definition of investment would give an opportunity to investors to challenge the measures adopted by host governments, to facilitate access to medicines, on the grounds that they undermine the investment and also enable them to seek compensation from the government through international arbitration.
Even though, there are deliberations to provide limited exceptions to investors’ right in order to safeguard public interest such as the issuance of a compulsory license, many other public interest safeguards in the Patents Act can be challenged through the investment protection provisions in the RCEP.
These safeguards include the revocation of patents, refusal to grant patent for nonfulfillment of patentability criteria, refusal of the court to grant an injunction, local working requirement of a patent and the obligation to submit information on local working of a patent, granting of marketing approval to generic medicines while the patent is in force, price control mechanism and bringing pro public-health changes to laws, policies and rules to facilitate access to medicines. Investors may allege that these measures constitute as indirect expropriation that undermines their investment and may seek compensation from host countries.
In the past, pharmaceutical companies used investment clauses in FTAs to threaten governments against using TRIPS flexibilities. For instance, in 2017 the US-pharmaceutical giant Gilead threatened to use the investor’s rights under the US-Ukraine BIT and claimed USD 800 billion from the Ukrainian government for allowing the registration of a generic version of Gilead’s Hepatitis C drug – Sofosbuvir.
Pharmaceutical corporations can also use several other provisions in the investment chapter of the RCEP such as those on “market access”, those requiring “fair and equitable treatment”, “expropriation” and “prohibition on performance requirement”. to threaten host governments.
In 2010-2011, a Canadian court revoked two new-use pharmaceutical patents (of drugs Zyprexa and Strattera) of Elli Lilly for lack of utility. In response to the invalidation of its patents, Elli Lilly initiated an investment dispute against Canada under the North American Free Trade Agreement (NAFTA).
The Company argued that it faced unfair and inequitable treatment due to the revocation of its patents. Even though the arbitral tribunal dismissed the pharmaceutical giants’ claims and awarded 5 million Canadian dollars for costs and legal fees, the Canadian government had already spent over 15 million Canadian dollars in attorney and expert-witness fees in this five-year-long battle.
The exorbitant damages and legal costs incurred for defending the public policy measures often create a chilling effect and prevent developing country governments to initiate measures to protect public health interests. What is more annoying and appalling about investment disputes is that a third party – the foreign investor – gets to question sovereign functions.
Investment treaties have been known to have extremely adverse effects on access to medicines in developing countries. India must be cautious while negotiating investment provisions in the RCEP, given the likelihood of such agreements to significantly compromise the government’s ability to protect the public interest and use TRIPS flexibilities.
It is important that India maintain consistency in its negotiating positions to ensure that its resistance to TRIPS-Plus provisions in the RCEP is not eroded under the investment chapter.