This is an annex to the document: KEI comments on six references to “mutually agreed terms” in the WHO pandemic agreement negotiating text: A/INB/9/3 Rev.1, 22 April 2024, which is available as a PDF here:
KEI.MutuallyAgreedTerms.A_INB_9_3Rev1.22April2024draft
Annex on Investor-State Dispute Settlement (ISDS)
Depending upon how ultimately stated, restrictions on state actions to force the transfer of technology may lead to actions by private investors through an Investor-State Dispute Settlement (ISDS) arbitration or an investment court system (ICS).
If a country has agreed to limit measures on technology transfer to mutually agreed terms in a World Health Organization (WHO) treaty or agreement, and then implements compulsory measures that contradict these terms, the situation could potentially lead to an ISDS claim under a different agreement, such as a bilateral investment treaty (BIT) or a free trade agreement (FTA) that includes ISDS provisions.
The key issue is whether there is a contradiction between the country’s obligations under the proposed WHO agreement and its obligations under another treaty which includes ISDS provisions. Investors might argue that the compulsory measures violate the agreed terms of technology transfer, and are contrary to the investor’s reasonable expectations of the protection of its technology.
The investor would need to demonstrate that the host country’s actions constitute a breach of the treaty’s exclusive reliance on mutually agreed terms, and that as a consequence, more compulsory measures represent a direct or indirect expropriation, on the grounds that the compulsory measures directly impacted the value of its investments.
An example of such a claim occurred when Australia introduced plain packaging for tobacco products in 2011. Philip Morris filed claims under the Australia-Hong Kong Bilateral Investment Treaty (BIT) asking for 4.1 billion USD in damages, a case decided on procedural grounds.
“The Philip Morris v. Australia case was not examined on the merits. The tribunal found that the claims by Philip Morris were inadmissible because the initiation of the arbitration constituted an abuse of rights, as the corporate restructuring by which Philip Morris acquired its investment in Australia occurred when there was already a reasonable prospect that the dispute would materialize. Therefore, according to the tribunal, the restructuring was carried out for the sole purpose of gaining treaty protection.” Stefanie Schacherer, International Investment Law and Sustainable Development: Key cases from the 2010s, IISD, October 2018. https://www.iisd.org/system/files/publications/investment-law-sustainable-development-ten-cases-2010s.pdf. referencing Philip Morris v. Australia, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, December 17, 2015, https://www.italaw.com/sites/default/files/case-documents/italaw7303_0.pdf
Philip Morris also brought a similar case against Uruguay on the grounds that the regulation of the packaging of tobacco products breached the investment standard because of the company’s legitimate expectation that the regulatory environment would not drastically change. In a split decision, Uruguay eventually prevailed in the dispute, benefiting from the obligations to regulate in the WHO Framework Convention on Tobacco Control. According to commentary by IISD, “At the same time, it is not clear whether the same approach would be taken with respect to other areas of public health or environmental protection, where the scientific evidence and consensus are not as clear and where no international legal frameworks like the World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) exist.” Stefanie Schacherer, International Investment Law and Sustainable Development: Key cases from the 2010s, IISD, October 2018. https://www.iisd.org/system/files/publications/investment-law-sustainable-development-ten-cases-2010s.pdf. Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, http://www.italaw.com/cases/460
It is important to note that in the Philip Morris/Uruguay case, the WHO Framework Convention on Tobacco Control obligations was helpful for Uruguay to defend its regulatory policy. But if the Pandemic Accord has pro-industry restrictions on mandates to transfer technology, the opposite will be the case.
An example of where a state lost an ISDS case over the reasonable expectations involved a claim by a waste management firm against Mexico over a non-renewal of a permit to operate a landfill for hazardous industrial waste. Tecnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2
Following the Philip Morris litigation against Australia and Uruguay, negotiators for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) included in Article 29.5 an exception to investor claims for tobacco control measures:
Article 29.5: Tobacco Control Measures/11/
A Party may elect to deny the benefits of Section B of Chapter 9 (Investment) with respect to claims challenging a tobacco control measure/12/ of the Party. Such a claim shall not be submitted to arbitration under Section B of Chapter 9 (Investment) if a Party has made such an election. If a Party has not elected to deny benefits with respect to such claims by the time of the submission of such a claim to arbitration under Section B of Chapter 9 (Investment), a Party may elect to deny benefits during the proceedings. For greater certainty, if a Party elects to deny benefits with respect to such claims, any such claim shall be dismissed.
/11/ For greater certainty, this Article does not prejudice: (i) the operation of Article 9.15 (Denial of Benefits); or (ii) a Party’s rights under Chapter 28 (Dispute Settlement) in relation to a tobacco control measure.
/12/ A tobacco control measure means a measure of a Party related to the production or consumption of manufactured tobacco products (including products made or derived from tobacco), their distribution, labelling, packaging, advertising, marketing, promotion, sale, purchase, or use, as well as enforcement measures, such as inspection, recordkeeping, and reporting requirements. For greater certainty, a measure with respect to tobacco leaf that is not in the possession of a manufacturer of tobacco products or that is not part of a manufactured tobacco product is not a tobacco control measure
Negotiators should include language in the Pandemic Agreement that provides assurances that nothing in the agreement creates an obligation on parties that can be construed to create a claim in an investor-state dispute settlement (ISDS) mechanism.