You may recall in my previous post about the Trans-Pacific Partnership (TPP) that if it is adopted as per the leaked 2011 draft, corporations will have the ability to sue foreign governments if those corporations deem that the foreign government’s local laws are adversely affecting their ability to make a profit.
Many of these laws would be intended to protect a country’s citizens for various reasons. For example: patent protections on pharmaceutical drugs; protections against predatory practices; safety regulations and standards; measures designed to protect or support local industries (and those taxpayers’ livelihoods) …you get the idea.
I have sad news.
The same article that would allow a corporation to sue a foreign nation’s government already exists in The North American Free Trade Agreement (NAFTA). If one company’s preferred way to make a profit is outlawed or objected to by another country’s laws, policies or practices, the solution is increasingly becoming to circumvent those local laws by filing for “Investor-State Arbitration” (ISA) through NAFTA’s Chapter 11, instead of the company conscientiously re-evaluating the company’s profit expectations.
Once an ISA is filed, an international tribunal is formed – not subject to any one country’s laws – that then arbitrates a decision in the case. The tribunal is only used one way, in a corporation suing a government. A government cannot use the tribunal in the other direction to hold a corporation responsible for …well, anything.
This came to my attention yesterday when I learned that Indiana-based pharmaceutical giant Eli Lilly and Company (NYSE: LLY) is currently using NAFTA’s Chapter 11 to sue Canada’s taxpayers for $500 million.
Here’s how it happened:
Canadian patent law requires a different standard of scientific proof of the efficacy and risks of a drug during the research stages (because research is where these things are determined, of course).
Once a drug moves through trials and into production, it’s expected that the research and clinical trials have been properly completed and the drug companies can provide sufficient evidence of the drug’s efficacy and risks. Manufacturers of generic drugs can challenge the patent on a drug once the research is complete, if they feel that the research has not been adequately conducted.
Such a challenge happened for Zyprexa and Strattera. The Canadian court was not satisfied that Eli Lilly had met the scientific standard for their clinical testing, so they revoked the patents. It should be noted that for many other drugs and many other companies in many other countries using remarkably similar laws, this is not a problem.
In response to the patent revocation, Eli Lilly filed for a Chapter 11 ISA, claiming that Canada’s patent laws are TOO stringent, requiring too much scientific proof of a drug’s efficacy. Can you believe that? The nerve of some governments, actually wanting its drugs to be effective and safe, and standing between “Big Pharma” and their citizens with things like scientific standards of evidence.
(It seems there was good reason for concern. In 2009 Eli Lilly settled a $1.4 billion American suit over Zyprexa, “the largest criminal fine ever imposed on a corporation“, hence demonstrating the need for the protective aspect of stringent requirements in patent law. …but I digress.)
So, how did Eli Lilly arrive at the $500 million figure?
The company claims it’s an estimate of how much profit they would have made off of Strattera and Zyprexa in Canada if the drug patents had been approved. The profit that Eli Lilly made in 2011 in Canada apparently was not lucrative enough for their investors, but a closer look reveals something different.
After the patent revocation, Eli Lilly appealed to the Canadian Supreme Court and initially filed for ISA in March of this year, seeking $100 million in lost profits. That’s a little more reasonable.
After Canada’s Supreme Court declined to hear Eli Lilly’s patent appeal, the amount was then immediately and arbitrarily jacked to $500 million.
It seems to me like Eli Lilly wants to punish Canadian taxpayers for not padding their realized profit at the risk of their health and lives.
Makes perfect sense to me.
It doesn’t end with Eli Lilly. Lone Pine Resources out of Delaware is one of several companies that have applied under NAFTA Chapter 11 provisions to sue Canada for millions of dollars. $250 million, in Lone Pine’s case. Why? Quebec currently has a moratorium against fracking so that they can properly study the controversial practice, and Lone Pine wants to frack for natural gas in the shale there. Think about this for a moment. If successful, Lone Pine could make $250 million off Quebec shale gas without ever putting a single drill in the ground or extracting a single drop of bitumen, paid for by Canadian taxpayers.
Sounds like a great deal, where do I sign up?
But let’s experiment. It’s expected that China will eventually join the TPP group. Remember the whole lead paint in Chinese toys thing? Turns out that paint with lead in it is 1/3 the price of paints approved for use in the United States. Under TPP, Chinese toy manufacturers might launch lawsuits on American taxpayers because American laws banning lead paints endanger its “expected future profits”. I’m not speculating on whether such a case would be successful, I’m just demonstrating the principle of how it works, and I think the problem becomes self-evident.
By the way, I spoke with Gen briefly about this. She asked me to add that she is morbidly embarrassed about this and that on behalf of all the fine Americans she knows, she apologized and implored the world to not hate Americans because they simply are unaware of what’s going on or why they should be concerned about this.
I fully understand the sentiment, but Canadian and Mexican companies are also guilty of filing ISAs, many of them frivolous or downright evil. This Foreign Affairs, Trade and Development site lists NAFTA ISA filings against Canadian taxpayers. The U.S. Department of State has a site detailing the ISAs filed against the U.S. Government (Kenex Ltd. v. U.S.A. was an interesting one) and also filed against the Mexican government, and this one summarizes all NAFTA ISAs nicely up to and including 2010 in an easily-readable PDF. The table on page 22 of that PDF shows that Canada filed the most ISAs (28 versus 19 each for the U.S. and Mexico). Search for the James Russell Baird or Methanex Corp. entries. Thankfully, one is inactive and one was dismissed, but the fact they were issued at all is almost criminal.
So yes, corporations will use TPP to sue foreign governments. They are already doing so under existing trade agreements. They haven’t been tremendously successful in doing so, but successful or not, such cases end up costing hundreds of thousands, sometimes millions of dollars in legal fees just for processing the cases. The TPP article is not improved over the NAFTA agreement and will involve a lot more countries.
There has been much criticism of NAFTA’s Chapter 11, particularly on the “chilling effect” it can have on a government’s efforts to enact new laws and protect the public interest, health and safety. Also, broad interpretations of the investor protection provisions are leading to an increase in the use of those provisions not as originally intended, but aggressively and punitively in increasingly outrageous suits. Look for that trend to continue with the TPP.
Once again, it’s a case of investor protection trumping personal protections.
If you want to protest the Eli Lilly lawsuit, you can do so via an online petition at sumofus.org
And now if you don’t mind, I need to find a way to vent a little steam.