Leaked TPP investment chapter shows risks to Australia’s health


10 Apr 2015

Amid ongoing speculation about the prospects for the Trans Pacific Partnership Agreement (TPP), Wikileaks published another confidential chapter last week, this time on investment. And like almost everything we know about the secretive negotiations for the agreement, the leaked chapter provides plenty of cause for concern.

The leaked late-stage draft of the investment chapter contains information about the agreement’s investor-state dispute settlement (ISDS) clause. Clauses like this give investors direct access to international arbitration, where they can bring claims against a government over regulatory measures they think may damage their bottom line.

The chapter has a footnote saying Australia is exempt from ISDS, but that may change “subject to certain conditions”. The leaked draft doesn’t indicate the exact nature of these conditions, and the footnote remains in brackets, indicating the issue has not yet been settled.

The Minister for Trade and Investment, Andrew Robb, has repeatedly said the TPP will not adversely affect health policy. In a recent interview with ABC TV, he said the government had insisted on carveouts for health and environmental public policy decisions from investor-state dispute settlement clauses.

But the leaked draft shows these carveouts (which are still under negotiation) are limited to specific areas such as the Pharmaceutical Benefits Scheme, Medicare Benefits Scheme, Therapeutic Goods Administration and the Office of the Gene Technology Regulator.

ISDS health concerns

An independent health impact assessment of the TPP negotiations conducted by Australian academics and non-government organisations published in February 2015 found the ISDS clause presents a significant threat to health policy.

Part of the problem is that the TPP defines investments very broadly to include intangible assets and intellectual property, such as trademarks and patents. These kinds of assets are at the heart of current ISDS cases contesting Australia’s plain packaging laws and Canada’s decisions about what medicines can be patented.

Such claims can result in large-scale costs for taxpayers. Not only do the awards for investor-state cases often amount to hundreds of millions of dollars, according to the OECD the average cost of fighting a claim is US$8 million.

Another issue that has health advocates worried is the potential “chilling effect” of investor-state dispute settlement mechanisms; the prospect that governments may be deterred from implementing innovative health policies and laws that may be contested by corporations using ISDS clauses.

Director-General of the World Health Organization, Margaret Chan noted in 2012 that legal actions against Uruguay, Norway and Australia were “deliberately designed to instill fear” in countries trying to reduce smoking. Uruguay has publicly acknowledged that it would have had to drop its tobacco control law and settle with Philip Morris if it didn’t have financial support from a foundation set up by Michael Bloomberg.

Protecting health?

In addition to the carveouts for specific health programs, the TPP contains purported “safeguards” to protect health and the environment. But these safeguards have also drawn strong criticism, in particular, from eight health and community organisations who wrote to the trade minister last week to outline their concerns.

One of the main concerns centres on the safeguard related to “indirect expropriation”. While Australian law protects against direct expropriation – the seizure of assets by government – the TPP goes further to include instances where a government’s actions have a negative impact on an investment, but do not result in a transfer of property to the state.

The broader scope of expropriation under ISDS in the Hong Kong – Australia bilateral investment treaty, for instance, has enabled Philip Morris to contest Australia’s tobacco plain packaging through international arbitration even though the High Court determinedthat there had been no acquisition of property by the state under Australian law.

To safeguard against abuse of this provision, the TPP includes an annex that appears to exempt “non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment…”. But any protective effect intended by this clause may be undermined by the added phrase “…except in rare circumstances.”

This loophole, which invites corporations to argue that their circumstances are rare, is being used in a case against Costa Rica over a national park established to protect the nesting grounds of the endangered giant leatherback sea turtle. Nine US investors lodged a dispute, seeking over US$36.5 million in compensation, when Costa Rica suspended development permits for beachfront land within the national park boundaries. The case has yet to be decided.

Another proposed exemption – this time for compulsory licenses – is also highly problematic. Compulsory licences are important mechanisms for ensuring access to medicines, as they allow patents to be bypassed in circumstances such as public health emergencies. But the wording of the exemption in the TPP would allow corporations to argue a compulsory license is not compliant with World Trade Organization rules. Or with the intellectual property chapter of the TPP, which actually provides more expansive rights for corporations. This could create a situation where WTO rules could be interpreted and enforced outside the more flexible and accountable state-state dispute settlement mechanism of the WTO itself.

Other safeguards, such as the explicit link drawn between a clause promising investors “fair and equitable treatment” and customary international law (international obligations that arise from established state practice), may also prove insufficient. Such a safeguard was introduced by the parties to the North American Free Trade Agreement in 2001but this did not prevent the tribunal in the recent Clayton/Bilcon case from finding that customary international law in this area has evolved over time in a manner that is more in line with the investor’s interpretation, than with that of Canada’s government. The tribunal has yet to make a decision on damages, but the company is seeking US$300 million.

The problems and loopholes characterising the latest leaked TPP draft throw doubt on the government’s claims that it’s taking the concerns of health stakeholders as seriously as the interests of big transnationals. And they highlight exactly why it’s vital for the draft text to be made public and subjected to independent scrutiny before it is signed. Indeed, it would be safer to exclude ISDS from the TPP altogether.

Minister Robb asks us to trust his assurances that Australian health policy will not be negatively affected by this trade agreement. But this latest leaked draft does little to inspire such trust.

This article was first published on The Conversation.

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