Investment agreements a hidden danger for access to medicines

Brussels 2011 'Week of Action' exposing the threat of Bilateral Investment Treaties to democratic governance and public interest.

Till now, AEFJN and many other organizations working for access to medicines for all in developing countries had directed their attention to the link with Intellectual Property Rights (IPRs), as the strengthening of IPRs impacts adversely on the price of medicines and thus the access to generics.


Pharmaceuticals and other companies have taken countries to international arbitration for “non appliance” of certain investment provisions. This has revealed that Investment Agreements represent a greater threat to access to medicines and health care than the strengthening of the IPRs in Trade Agreements.


Companies suing states


In 2007, after Merck, the patent holder of the antiretroviral medicine efavirenz, failed to accept the 60% price reduction requested by the Brazilian government, the latter issued a compulsory license allowing the import and production of generic versions of this medicine. The decision allowed the drug to reach 2.8% more patients and the price of efavirenz was reduced by 93%. Merck considered the issuance of a compulsory license as an “expropriation” of its intellectual property right on Brazil-Netherland’s investment Treaty, and filed an injunction against the Brazilian state.


In 2012 Eli Lilly & Co. sued the government of Canada demanding $100 million in compensation for the Canadian court decision that stripped the company of its patent for Strattera, a medicine used to treat attention-deficit disorder. The patent was declared invalid according to the Canadian law that a patent applicant must disclose evidence of the “utility” of the new medicine. Eli Lilly refused doing it and claimed the court decision for Strattera violates Canada’s obligations under NAFTA’s[1] investment chapter.


The number of international ‘investor-state’ arbitration cases has grown rapidly from 5 cases in 1995 to 337 in 2010, and 62 new cases filed in 2012. At the same time the rate of investor wins is also growing: in 2012 70% of claims were decided in favour of the investors.


The way towards the current Investment Treaties


In 1995, the OECD[2] started secret negotiations on the Multilateral Agreement on Investment (MAI). In 1997, a draft made public drew extensive criticism from civil society and developing countries. The MAI was considered a threat to national sovereignty as it would weaken national laws, such as labour standards, human and socio-economic rights and environmental protection, while protecting multinationals and facilitating their worldwide expansion.


Since then developing countries have been reluctant to sign Multilateral Investment agreements. To counteract this, the World Bank and Western countries invited developing countries to build a right “investment climate”, as a means to attract investments. Developing countries wishing to attract investments signed many Bilateral Investment Agreements (BITs), without noticing that these agreements protected investors. Other countries signed Regional or Bilateral Trade Agreements containing Investments chapters similar to the BITs. 


Investment agreements and access to medicines


In the last decade quantities of Bilateral Investment Treaties and Bilateral and Regional Trade Agreements containing investment chapters have been signed all over the world between developed and developing countries.


The threat to health services and access to medicines in the Investment agreements comes from the fact that the definition of “investment” has been enlarged to include IPRs and the liberalization of trade and services. Therefore the protection that the host country should guarantee to investors is extended to the pharmaceutical companies owning patents on medicines. This gives them the right to take the host government to an international arbitration whenever the IP holder alleges the value of its IPR is affected by government regulation. Investment agreements give to Intellectual Property Rights, already highly protected, another level of protection, namely protections as investments. As this strengthens international standards of Trade-Related Intellectual property rights (TRIPS), these agreements are considered “TRIPS-plus.” The host country may be obliged to adopt higher standards of IPR legislation than internationally required. 


Since the protection of investments prohibits the direct or indirect “expropriation” of an investment, any pharmaceutical company owning a patent could claim that denying or revoking patents, issuing compulsory licenses and registering generics while referencing clinical data or doing so before patent expiration, all violate their legitimate expectations for profit. Then when their patent is revoked, as has been the case lately with Novartis and Bayer in India, or when a country issues a compulsory license for one of their products they could take the government to international arbitration.


Conflict of interests


The imbalance in most investment agreements is evident: all obligations are on the host state and protect the investor, while the home state and investors have no obligations. The vague, short and imprecise language of the obligations of the host state has led to contradictory interpretations to the advantage of the investors.


The conflict of interests between the profit-making private companies and the public interest and development goals of some nations is evident. The new trend of strengthening IPRs through investment protection tips the balance even more in favour of the pharmaceutical industry. The investment provisions undermine the host governments’ ability and freedom to regulate in the public interest, e.g. to protect public health, promote access to medicines or the social determinants of health such as a clean environment or access to water and sanitation. The application of the investor protections in India could be deadly to millions of patients and seriously undermine access to generic medicines, as the country is the main provider (80%) of generics used in developing countries.


The right to sue governments directly is a dangerous escalation of corporate power, especially considering that investor rights are enforceable through a very powerful dispute settlement mechanism (investor-State arbitration). The average cost for a government taken to arbitration by an investor is over $8 million/case. Many countries cannot afford that. Yet pharmaceutical companies will use all legal means to get the profits coming from the monopoly of their patents.


Which one is prevailing, TRIPs or BITs?


In 1995, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement introduced intellectual property law into the international trading system. In 2001, developing countries, through the Doha Declaration, benefited from TRIPS flexibilities (compulsory licensing; parallel importation; provisions for exceptions to patent rights and data protection) for protecting public health and promoting access to medicines for all.


The current incorporation of Intellectual Property regulations (IPRs) into Investment Treaties can affect the TRIPS flexibilities which are vital for public health. According to Investment treaties’ provisions, investors could consider the use of TRIPS flexibilities as an indirect privatisation and demand standards of compensation that are in contradiction with the aims and standards of the TRIPS Agreement (adequate remuneration). The provisions can limit the government’s capacity to implement the TRIPS Agreement and shape a country’s health policy.


What will happen in the long term?


Many countries taken to international arbitration realize that their Trade and Investment Treaties represent a serious threat: either by having to pay huge amounts as compensation or by preventing them from legislating in the public interest.


In the long term the protection of investors may be rejected completely, as they are becoming a real threat to rich and poor governments alike. Some countries are taking measures: Brazil has not ratified its investment agreements.  Ecuador and Bolivia have withdrawn from ICSID[3]; Ecuador, el Salvador and Venezuela have taken a unilateral decision of Renunciation of BITs. South Africa and Norway have established a moratorium till their renegotiation. EU member states have terminated internal investment agreements. COMESA, US, Canada and ASEAN are very careful when drafting new BITs; Australia excludes the investor-state protection; Philippines; India and Malaysia question their BITs.


The BITs are yet another instrument taking power from the state to give it to investors. If we want a fair world for all, these agreements will have to be completely transformed to allow countries to defend the public interest.


Begoña Iñarra
AEFJN Executive Secretary



[1] North American Free Trade Agreement (NAFTA)

[2] Organization for Economic Cooperation and Development (OECD)

[3] International Centre for Settlement of investment Disputes (ICSID)




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