22 May 2014

Canada acts to protect public interest, the EU declines: unfinished business of CETA is a bad sign for TTIP

Perhaps the Canadian trade minister should replace Karel De Gucht, argues Gaëlle Krikorian


Although, it was announced several months ago that the Comprehensive Trade and Investment Agreement (CETA) between the EU and Canada had concluded, it was only recently that we learned that negotiations were in fact stuck and that no deal has been reached. Why is that? In part because Canada has refused EU demands on investor-state dispute settlement (ISDS) and intellectual property rights provisions. These negotiations tell a worrying tale: it’s the story of European citizens' interests being protected by the Canadian government while the European Commission keeps itself busy pleasing a handful of multinationals. Nothing about this story reassures us in the way the EU-US TTIP negotiations are being conducted or about the Commission’s understanding of ISDS mechanisms.

Negotiations with Canada were launched in May 2009. On October 18, 2013 an announcement was made with Canada's Prime Minister Harper and President Barroso that an "Agreement in Principle" on CETA had been reached -- although it was not exactly clear at the time what an "Agreement in Principle" was. Since then, no information has been provided by the European Commission regarding the contents of the deal. No text has been released. Some chapters have been leaked, but these do not include recent texts on ISDS. When rumours began to spread that the investment chapter in CETA was going to be the template used by the Commission in other free trade agreements, we became seriously concerned.

Canada requested that arbitration procedures in certain intellectual property (IP) areas be excluded from the scope of the ISDS mechanism in CETA. It is not hard to understand why the government of Canada is suspicious of such rules. In 2012 the pharmaceutical company Eli Lilly launched an attack on Canada claiming that the invalidation of a patent on one of its drugs amounted to an expropriation of the "exclusive rights" conferred by the patent. The claim was based on the Investor-State Dispute Settlement chapter of the North American Free Trade Agreement (NAFTA), the alleged objective of which is to guarantee fair and equal treatment to foreign investors and protect them from expropriation of their investments.

The origin of Eli Lilly action dates back to a 2010 decision by the Canadian Federal Court to invalidate the patent of the drug Strattera® (atomoxétine), a treatment used for Attention Deficit Disorder, on the basis that it was lacking "utility" and did not fulfill the "inventive promise" of the patent when it was granted. The company argued that the Canadian Federal Court's decision was not in compliance with patent treaties and international obligations and was a breach of NAFTA investment rules. It demanded 100 million Canadian dollars in compensation for damages.

In 2011 a Federal court decision voided the patent for Zyprexa® (olanzapine), another Eli Lilly drug, used against schizophrenia. Here again the judge found that the drug did not meet the utility criteria as it was not superior to other drugs on the market for the treatment of schizophrenia. The company amended its complaint against Canada to include the case of Zyprexa® and brought its demand to 500 million Canadian dollars.

Lately the volume of patents filed every year has become innumerable. Too often patents are granted without enough vigilance from patent office examiners, resulting in insufficient quality. In this context, the possibility to invalidate them in court is an indispensable last resort. It is one of the only ways to halt illegitimate monopolies and allow generic competition. And it is obvious why large pharmaceutical multinationals would want to fight it.

Canada has also been threatened by multinationals in other fields under free trade provisions. In the most recent example, Lone Pine Resources Inc., has taken a lawsuit against a moratorium on hydraulic fracturing for natural gas in the province of Quebec and is seeking 250 million Canadian dollars in compensation. The Canadian government have already spent at least 160 million Canadian dollars in awards or settlements over Investor-State Disputes.

So, Canada would like CETA to exclude certain type of decisions on IP in the scope of what can be considered as "expropriation". The EU has strongly opposed this request. EU Trade Commissioner Karel De Gucht explained during a discussion with the EU trade ministers on May 8 that he had made clear to the Canadian Trade Minister that the Canadian request was not acceptable to the EU (see Inside U.S. Trade, 09/05/C2014). The European Commission recently responded to questions submitted by members of the European Parliament. When asked if it will use the "CETA model" for the investment protection chapter in other FTAs, the Commission responded in writing:

"Even though the Commission does not use a particular model agreement stricto sensu with any trading partner, we are very satisfied with the outcome of the CETA negotiations as reflected in the text of the investment chapter and intend to propose the innovative elements contained therein which improve the clarity of interpretation of our obligations and reform the ISDS system in all our future negotiations with other countries."

It seems to us that EU citizens should be somewhat envious of Canadians, whose government have had a little more commonsense when it comes to the protection of the public interest than that of DG Trade on this matter. De Gucht should take note. The Commission has opened a public consultation on investment protections in the US-EU trade deal. Although it does not seem to be obvious for DG Trade, clearly the EU should not try to settle any deal on the ISDS mechanism in CETA while this consultation on TTIP has not yet been concluded. If the "CETA model" is anything to go by, things are not looking good for agreements like TTIP. 

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Carole Hawkins

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