Efforts by the tobacco company Philip Morris to claim hefty compensation for Australia’s plain packaging laws under secretive legal processes should alarm those with a concern for public health, according to Dr Patricia Ranald, Convenor of the Australian Fair Trade and Investment Network (AFTINET) and Research Associate, University of Sydney.

The case also has implications for rural health and our access to affordable medicines, she says, and shows the critical importance of excluding investor state disputes from trade agreements.


Why the Philip Morris case raises the alarm for rural health and wider public health concerns

Dr Patricia Ranald writes:

The Philip Morris company is suing the Australian government in an international tribunal under the terms of an obscure Australia Hong Kong investment agreement, alleging that Australia’s 2011 tobacco plain packaging legislation will harm its business and that it deserves to be compensated millions, if not billions of dollars.

The plain packaging legislation had the support of all parties in the Australian Parliament. Tobacco companies, including Philip Morris, then challenged the legislation in the High Court and lost. They alleged that the legislation was a violation of the Australian Constitution because it was an acquisition of their intellectual property on unjust terms, and they deserved compensation.

The High Court found in 2012 that there was no acquisition of property, that plain packaging was justified as a public health measure and that the tobacco companies did not deserve compensation. See http://www.austlii.edu.au/au/cases/cth/HCA/2012/43.html

Despite the democratic passage of the legislation through the Parliament and its validation by the highest Australian court, Philip Morris is still seeking to overturn these democratic decisions using a process contained in an obscure Hong Kong-Australia investment agreement.

Known as investor state dispute settlement, this process allows a single foreign investor to sue government for damages in a specially constituted international tribunal if a law or policy harms their investment.

And why Hong Kong? Philip Morris is a US-based company, but the US-Australia free trade agreement does not have investor state dispute settlement, which was hotly debated during the negotiations in 2004, and even the Howard government did not agree to it. Philip Morris rearranged its assets to become a Hong Kong investor in Australia, so that it could use the process in the Hong Kong agreement. See http://aftinet.org.au/cms/sites/default/files/Leesburg%20Ranald%20forum%20paper%20090912.pdf

Why does Philip Morris think it can win after losing in the Australian High Court?

Quite simply, the rules of international investment tribunals suit international investors, because they lack the transparency and independence of national court systems. The hearings and transcripts are not made public unless both parties agree. The tribunals lack judicial independence, since advocates can also be arbitrators, and arbitrators are paid by the hour. There is no system of precedents, and no appeals, so decisions lack consistency. And the tribunal’s main focus is whether the investor has been harmed, not whether the legislation is in the public interest.

A recent study by the Transnational Institute in Amsterdam has documented many case studies of these problems, with cases involving public health and environmental regulation.  Even if investors lose, governments have to pay millions in arbitration costs and legal fees. See http://www.tni.org/ProfitingFromInjustice.pdf

As the case progresses, information only emerges if tribunal publishes its rulings on procedural matters, which it did in December. See http://www.pca-cpa.org/showpage.asp?pag_id=1494.

So we discover that the Australian Government requested that the hearings to be open to the public (and for transcripts of those proceedings to be published). But Philip Morris refused to agree, so under the rules the request was denied.

Clearly it believes that its own case would suffer if exposed to public scrutiny. The government is publishing its own submissions on a public website www.ag.gov.au/Internationallaw/Pages/Investor-State-Arbitration—Tobacco-Plain-Packaging.aspx

The Government is challenging the jurisdiction of the tribunal, as well as the substantive issues. Future hearings are scheduled for February, July and September, so it promises to be a long drawn out process. Since both the arbitrators and advocates are paid by the hour, this means the legal fees alone will amount to millions of dollars.

Given this experience, it is no wonder that the Australian government now has a policy to oppose investor state disputes in any trade agreements. It is sticking to this policy in the Trans-Pacific Partnership agreement (TPPA) negotiations with the US, New Zealand and Asia other Asia-Pacific countries, and in its negotiations for the Korea-Australia free trade agreement.

Rural health concerns

Some farmers’ organisations have been lobbying the government to abandon its policy for the Korea free trade agreement, because they want the agreement to be concluded quickly, to give them greater access to Korean markets. See http://www.beefcentral.com/p/news/article/2413

This is a mistaken and short-sighted argument, which if successful would come back to haunt rural communities. Investor state disputes would mean that Australian public policies in areas like regulation of land use, quarantine rules and low medicine prices through the Pharmaceutical Benefits Scheme and other policies which benefit Australia’s rural communities could be challenged, at a cost of millions to the taxpayer.

Two recent cases lodged under the investor dispute rules of the North American Free Trade Agreement demonstrate the potential harm to rural communities.

A US mining company is suing the Quebec provincial government for S250 million over their decision for a moratorium on hydraulic fracking for coal seam gas. Farmers in NSW have influenced the NSW government to have a similar moratorium to examine the environmental and land use implications of hydraulic fracking.

If Australia agrees to ISDS, the NSW decision could be challenged by a single foreign investor. See http://www.thestar.com/news/canada/politics/article/1288637–ottawa-faces-250-million-suit-over-quebec-environmental-stance

The second case involves the cost of medicines. US pharmaceutical company Eli Lilly has lodged a claim against a Canadian decision to deny a patent for a “copycat” drug, and to allow cheaper generic versions of the drug on to the market. This benefits both Canadian consumers and the Canadian public health system.

If Australia agrees to ISDS, foreign pharma companies could challenge our patent laws and even the procedures of our Pharmaceutical Benefits Scheme, which ensures that medicines remain affordable to all. Affordable medicines are vital to public health in rural communities See http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/eli-lilly-fights-canadas-move-to-strip-drug-patent/article6082557/

Investor state dispute rights are threat to national democracy and sovereignty, and should continue to  be excluded from all trade and investment agreements.

• Dr Patricia Ranald is Convenor, Australian Fair Trade and Investment Network (AFTINET) and Research Associate, University of Sydney. For more information see www.aftinet.org.au

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