India rejects investor-state clause in FTA with EU

By Asit Ranjan Mishra, Mint, New Delhi

July 4--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 Kong.

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 regulation.

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 agreement."

"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.

http://www.americanchronicle.com/articles/yb/160945690

India rejects clause on litigation