Print edition : May 17, 2013

A demonstration at Jantar Mantar in New Delhi on April 10 against the proposed free trade agreement. Photo: Shiv Kumar Pushpakar

The India-E.U. free trade agreement could lead to the bypassing of established legal procedures and the limiting of the government’s role in enacting progressive, pro-people legislation, thus posing a threat to the sovereignty of the country.

WHILE negotiations are on between India and the European Union (E.U.) to sign a free trade agreement (FTA), a number of contentious issues about public health, access to medicines, and sovereignty remain unresolved. The secretive manner in which the negotiations are being carried out has raised legitimate concerns of public health activists, lawyers and generic pharmaceutical companies about the E.U. trying to push for greater powers for multinational corporations (MNCs) at the cost of larger public concerns. The negotiating text of the agreement has not been made public yet; however, sections of the text leaked on websites such as those of Medecins Sans Frontieres and Knowledge Ecology International, an international non-governmental organisation that tracks debates on intellectual property policy, indicate draconian provisions that will considerably consolidate and strengthen the monopolies of MNCs lobbying for a stricter patent regime.

On April 10, public health activists and a number of groups representing cancer patients and people living with HIV (human immunodeficiency virus) joined a protest in Delhi demanding that the government reject the E.U’s demands in the proposed FTA. Following high-level dialogue with E.U. members recently, Minister of Commerce and Industry Anand Sharma said that the talks on the India-E.U. FTA and the broad-based bilateral trade and investment agreement (BTIA) were progressing “very well”. The proposed BTIA extends “investor protection” to MNCs, which will then have the power to initiate legal proceedings in arbitration councils against the Indian government for any pro-public interest legislation they perceive as hurting their investments. In fact, in the past decade, there has been a noticeable increase in the number of investor-state disputes in which states have had to pay compensation after being sued by investors under bilateral investment treaties. Most of these disputes are addressed at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). There have been several instances in recent times of FTAs and bilateral investment treaties being used as instruments to challenge and overturn progressive legislation by governments in developing countries.

Speaking to Frontline, Nagesh Kumar, chief economist of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), said: “In the ongoing negotiations, India should not agree to any additional conditions beyond TRIPs [Trade-Related Aspects of Intellectual Property Rights]. The Patents Act is already TRIPs-compliant and it leaves some space for not allowing evergreening of patents. If this space is taken away, it will adversely impact access to affordable medicines produced by generic companies. India has earlier taken a position against investor-to-state arbitration. There are instances where investor-to-state arbitration has led to huge liabilities incurred by the state. A treaty that leads India to move away from its earlier position can be very damaging.”

Enforcement provisions

The most contentious provision in the proposed FTA is the one that allows the enforcement of intellectual property rights (IPRs) through a set of draconian measures that threaten access to medicines. The leaked text of the negotiations is available on the portal of Knowledge Ecology International. In an analysis of the enforcement provisions on its website, Medecins Sans Frontieres states: “These stricter enforcement measures proposed by the E.U. go beyond the requirements of the 1994 TRIPs Agreement and will negatively impact millions of people relying on affordable generic medicines produced in India.”

As of now, trademark and copyright piracy is already covered by the TRIPs Agreement. The FTA text, however, proposes stringent enforcement mechanisms for patent infringements. Article 22 of the proposed text allows for the issuing of injunctions and the seizure of medicines merely on the suspicion of patent infringement. It states: “The judicial authorities shall have the authority to order prompt and effective provisional measures to prevent an infringement of any intellectual property right from occurring, and in particular to prevent the entry into the channels of commerce in their jurisdiction of goods, including imported goods immediately after customs clearance and to preserve relevant evidence in regard to the alleged infringement.”

The text provides for freezing the assets of generic drug companies in case of an allegation of patent infringement. In Article 30 of the text, the E.U. has asked for broader enforcement measures to eliminate “international trade in goods infringing intellectual property rights”. This poses a grave threat to the export of affordable generic medicines to the developing world from India as they could even be seized for suspected trademark infringement.

Speaking about the far-reaching impact of such provisions, Y.K. Sapru of the Cancer Patients Aid Association said, “The Supreme Court’s judgment keeping Section 3(d) alive and intact has captured global attention, sparking off global debates on the need for developing countries to protect only genuine innovations in medicines, not evergreening. Having failed to get its way at the Supreme Court in the Novartis case, we can expect the E.U. to push its industry’s demands for changes in the Indian law to curb the Indian judiciary.”

Investor protection

The investment chapter in the negotiating text is particularly problematic as it provides foreign investors extensive investment protection and limits the powers of the Indian government to formulate progressive legislation in the public interest. An analysis of the investment chapter by Medecins Sans Frontieres highlights the grave risks posed by this provision: “This arbitration mechanism gives foreign investors, including foreign IPR holders, the right to circumvent normal legal processes and bring a case directly to a secret arbitral tribunal.” Anand Grover, senior counsel for the Cancer Patients Aid Association in the Novartis case and director of Lawyers Collective, told Frontline: “The provisions for investor protection in the proposed India-E.U. FTA will completely obliterate the sovereignty of India and judicial processes in India which would otherwise have jurisdiction in these matters.”

In fact, in the past decade there has been a manifold increase in the number of investor-state disputes, leading to states being dragged to arbitration councils and sued for exorbitant sums of money, sometimes running into millions of dollars. In several of these instances, the state has been sued for framing legislation that addresses larger public concerns.

A report titled “Profiting from Injustice” published in November 2012 by the Corporate Europe Observatory and the Transnational Institute notes that the number of investment arbitration cases has surged in the past two decades from 38 cases in 1996 to 450 in 2011 (according to data registered at the ICSID). It further notes that the amount of money involved has also expanded dramatically. In 2009-10, 151 investment arbitration cases involved corporations demanding at least $100 million from states. The study also notes that arbitrators earn hefty salaries, as much as $1 million in one reported case. It states, “These costs are paid by taxpayers, including in countries where people do not even have access to basic services. For example, the Philippines government spent U.S. $58 million defending two cases against German airport operator Fraport: money that could have paid the salaries of 12,500 teachers for one year or vaccinated 3.8 million children against diseases such as TB, diphtheria, tetanus and polio.”

The assertion of private investor rights has proved particularly harmful for the public interest in the developing world as most arbitrators tend to defend investor rights above the public interest. The study cites a number of instances of progressive legislation being challenged by private corporations. In 2001-02, Argentina froze utility rates of energy and water in response to a financial crisis. It was sued by 40 investors, including giant companies such as CMS Energy (U.S.), Suez S.A. and Vivendi S.A. (both France), Anglian Water (United Kingdom) and Aguas de Barcelona (Spain), who demanded multimillion-dollar compensation packages for revenue losses. In 2007, Italian investors sued South Africa over the Black Empowerment Act, which required mining companies to transfer a portion of their shares to black investors. The dispute, settled under South Africa’s Bilateral Investment Treaty in 2010, provided the investors with new licences with much lower requirements for disinvestment of shares. In another instance, the tobacco giant Philip Morris sued both Uruguay and Australia in 2010 for their anti-smoking laws. The company argued that large warning labels on cigarette packets prevented it from displaying its trademarks and caused a loss in market share.

Against the backdrop of an increasing number of investor-state disputes causing a threat to the public interest, several governments, such as those of Bolivia, Ecuador and Venezuela, have terminated investment treaties and withdrawn from the ICSID. Argentina has refused to pay arbitration awards. In 2011, Australia announced that it would not include investor-state dispute settlement provisions in trade agreements.

Another study, by the United Nations Conference on Trade and Development (UNCTAD) titled “Recent Developments in Investor-State Dispute Settlement” released in March 2013, states that the total number of treaty-based cases reached 518 in 2012, and the total number of countries that have responded to one or more such case increased to 95. It further states, “In 70 per cent of the public decisions addressing the merits of the dispute investors’ claims were accepted, at least in part. Nine public decisions rendered in 2012 awarded damages to the claimants, including the highest award in the history of ICSID (U.S.$ 1.77 billion) in Occidental [Exploration and Production Co.] vs Ecuador, a case arising out of the unilateral termination by the state of an oil contract.”

Other concessions

According to highly placed sources in the government who did not wish to be identified, the E.U. is also pushing for patent term extension, data exclusivity and patent linkage to be included in the FTA.

As of now, Article 33 of the TRIPs Agreement provides for 20 years’ patent protection from the date of filing of the patent application. According to informed sources, the E.U. is pushing for a patent term that takes into consideration the time taken for regulatory procedures, approvals and delays. This in effect means that if it takes 10 years for a multinational company to be granted a patent for a drug, it can ask for patent protection for 30 years. This will have an adverse effect on generic drug companies and access to affordable medicines.

Shiba Phurailatpam of the Asia-Pacific Network of People Living with HIV/AIDS said, “The majority of people living with HIV in the Asia-Pacific region are dependent on Indian generics. The impact of the E.U’s demands will be felt far beyond India’s borders.”

Patent linkage will prevent the government from granting marketing approval for generic versions of patented drugs. There has been a consistent demand for patent linkages by MNCs. Earlier this month, Merck Sharp & Dohme sought an injunction from the Delhi High Court against the sale of the generic drug Januvia launched by Glenmark Pharmaceuticals, alleging an infringement of intellectual property rights on the grounds that it had a patent for the drug.

Data exclusivity provides exclusive rights to technical data generated by innovator companies through clinical trials and prevents competitors from producing low-cost generic versions of the drug during the period of exclusivity. The TRIPs Agreement already provides for data protection. However, data protection is different from data exclusivity. Anand Grover explained: “Article 39(3) of TRIPs prevents unfair commercial use or marketing by generic companies of the data generated by clinical trials from innovator companies and submitted to the drug regulator. However, this is not the same as data exclusivity. As of now, Indian firms that make generic versions of innovator medicines get their approvals after proving that their product is bio-equivalent to the original drug. The drug regulator uses the data submitted by the innovator to decide the safety and efficacy of the generic drug. Data exclusivity will prevent this. The regulator will not be able to use the innovator’s data to make decision. This will in turn oblige generic companies to undertake clinical trials and delay the entry [into the market] of generic drugs.”

Concerns of other sectors

Other sectors of the economy, including the dairy industry, agriculture, and micro, small and medium enterprises, have also voiced a number of concerns about the FTA. There are legitimate concerns that the FTA heavily favours the E.U. and will lead to substantial duty cuts on the imports of agricultural and milk products and greater market access for the E.U.

In a statement, Praveen Khandelwal, secretary general of the Confederation of All India Traders, said: “The E.U.-India FTA will apparently involve cutting duties on more than 94 per cent of all goods (agricultural and industrial). This means more and more agricultural goods will have to be included.”

Naresh Sirohi, general secretary of Rashtriya Kisan Morcha, said that the agreement would threaten food security and self-sufficiency and pose a threat to the livelihoods of people.

In negotiating any bilateral trade agreement with the E.U., the Indian government should tread cautiously so as to safeguard domestic concerns and the public interest at large.

The recent Supreme Court judgment in the Novartis case was lauded worldwide for upholding the public interest and protecting access to affordable medicines. The judgment has wider ramifications not only for India but for the whole of the developing world as it recognises the importance of placing public concerns above MNCs. Any bilateral trade negotiation that encourages the bypassing of established legal procedures and limits the role of governments in enacting progressive, pro-people legislation will pose a serious threat to the sovereignty of the country and undermine democratic structures of governance.