Out Of A Dilemma: Banning The Non-Violation Clause Under TRIPS

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By Daniele Dionisio

Author’s Summary: The non-violation nullification of benefits is a clause that could be used if a WTO member deems that another member’s actions caused an unexpected loss of benefits, even if there is no violation of a WTO agreement. Developing countries are wary of this provision and the moratorium on its use under TRIPS is up for debate and probable renewal at the WTO Ministerial Conference in Geneva this week.

On the Horns of a Dilemma

The non-violation nullification of benefits (hereinafter non-violation or NV) provision allows World Trade Organization members to bring disputes to the WTO, which are based on the loss of an expected benefit caused by another member’s action, even if such action does not constitute violation of a WTO agreement. These disputes are called non-violation complaints or claims.

NV provisions exist in many bilateral trade agreements also involving developed country members, such as in the Australia-United States Free Trade Agreement (AUSFTA) [pdf] Article 21.2 (c).

NV complaints based on actions that do not conflict with WTO agreements are measures provided under Article XXIII, subparagraph 1(b), of the General Agreement on Tariffs and Trade 1994 (GATT) and Article XXIII of the General Agreement on Trade in Services 1995 (GATS), and regulated under Article 26 of the WTO Dispute Settlement Understanding (DSU).

While NV complaints are intended to help preserve the balance of profits struck during deals, for the time being WTO members have agreed not to initiate them under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). According to TRIPS Article 64.2, this moratorium was to last for the first five years of the WTO, but has been extended since then from one ministerial conference to the next.

As a follow-up to instructions to the TRIPS Council laid down in paragraph 11.1 of the 2001 Doha Decision on Implementation-Related Issues and Concerns, most WTO members at the 2003 Cancun Ministerial suggested banning the NV clause in TRIPS, or extending the moratorium. Unfortunately, no consensus was reached at that time, nor did it arise from TRIPS Council discussions to what extent and how these complaints could be incorporated into the WTO’s dispute settlement procedures.

It is now up to the 15-17 December WTO Ministerial Conference to tackle these questions at a time when developing countries are wary of the NV clause. Meanwhile, some developed countries would like to see the moratorium renewed, while others agree that the NV clause should be allowed in TRIPS to discourage members from getting around their commitments.

A Measure of Exceptionality

As a tool backed by the developed countries, NV claims are a matter of controversy. It is feared that they put unpredictability and precariousness in international trade law, and serve ‘behind doors’ cross-retaliation lobbying, i.e., by threatening a dispute in one trade area to achieve a gain in a different one [pdf].

These insights suggest that the NV matter should be cautiously approached and managed as an exceptional issue to minimize unintended interpretations and avoid dipping trade into uncertainty.

In this respect, the imbalance in the capacity of WTO members to engage in legal claims alerts that the balance of benefits from NV complaints under TRIPS would disproportionately favour the developed members.

Article 3.2 of the WTO Dispute Settlement Understanding requires dispute resolution panels to align with public international law while settling NV complaints. This includes paying attention to Article 26 of the Vienna Convention on the Law of Treaties [pdf], which states: “Every treaty in force is binding upon the parties to it and must be performed by them in good faith.”

Coherently, along with an inquiry into whether the claiming party was induced into error by the other party about a fact or situation that the former could not reasonably have anticipated during transactions, other requisite elements of a NV claim have been identified [pdf]:

1. That a ‘measure’ has been applied by a party subsequent to the entry into force of the relevant trade agreement
2. That a ‘benefit’ was reasonably expected by the other party as being negotiated in return for some textual agreement
3. That as a result of the application of the measure that benefit has been ‘nullified or impaired’
4. That the nullification or impairment was contrary to the legitimate or reasonable expectations of the complainant at the time of the negotiations
5. That such claims will only be used in extremely rare circumstances (for example proven bad faith during negotiations), due to their capacity to upset the certainty of the international trading order

Putting Developing Countries at Risk?

WTO developing members would be put at risk should the NV clause be allowed in the TRIPS agreement. As a result, these countries might face pressures to reverse already enacted policies or measures under the threat of NV claims.

NV complaints could be used to threaten developing members’ use of flexibilities laid down in the TRIPS agreement. As regards access to medicines, the implementation of TRIPS flexibilities by developing members under Articles 30 or 31 (i.e., to grant compulsory licenses or CLs) could be charged with keeping patent owners from their legitimate or reasonable expectations. And it would come as no surprise should members claim that price cuttings of medicines under CLs deprive them of foreseen patent protection benefits. While such an NV claim would likely incur rejection under Article 8.1 of the TRIPS Agreement, this may not bar a member from bringing it to a dispute resolution panel [pdf].

With respect to medicines, many other forms of government regulation could be argued not to conflict with the TRIPS agreement, yet to make pointless or erode the expectations of the patent owners.

High risk sectors include tariffs on medicines, as would be the case should a country that has agreed to reduce tariffs on an imported product later subsidize home manufacturing of the same medicine. A NV complaint against this country would be allowed to re-establish the conditions of competition in the original transaction.

Additionally, the sectors relevant to packaging and labelling requirements, and to intellectual property (IP) protection enforcement measures, may also result as risk target areas, since they might affect the patent holders’ access to the market of medicines.

As regards the aforesaid sectors, allowance of the NV clause under TRIPS would unfortunately add strength to TRIPS-plus measures reportedly bound up with controversial ACTA (Anti-Counterfeiting Trade Agreement) and TPP (Trans-Pacific Partnership) international deals now under fire of criticism.

Criticism of these deals includes the concern that they make no distinction between the wilful infringement of trademark on a commercial scale, the only targeted counterfeiting case in the TRIPS Agreement, and the non-fraudulent civil trademark infringement wherein the names or packages of medicines look accidentally similar.

Regrettably, while this confusion undermines trade in legitimate generic medicines (i.e., the only inexpensive lifeline for treatment in the resource-limited countries), it could allow customs authorities to seize in-transit generic medicines on simple allegations of counterfeiting.

Under these circumstances, should the NV clause be allowed in TRIPS, it would make it easier for a claim to be lodged against a WTO member for nullifying or eroding benefits by applying IP protection rules or packaging and labelling models that, despite full alignment with TRIPS requirements, are deemed to be insufficiently stringent or fraudulent. These prospects look like they would be worryingly reliable now that on 12 November 2011, TPP negotiators agreed to reinforce and develop existing WTO’s TRIPS rights and obligations.

This would also be the case for allowance for export agreed upon through a 2003 WTO waiver (the “August 30th Decision”), voted as a permanent amendment on 6 December 2005, which is still awaiting ratification by members), that permits export under CLs to countries unable to manufacture key medicines themselves.

Should the NV clause be allowed in TRIPS, it would likely act as a boost for NV complaints against members using the waiver on the grounds of a loss of expected benefit to the patent holders.

These concerns are to the point at a time when 2.5 billion people rely on less than $2 per day in resource-limited countries where key medicines are under unaffordable prices thanks to prolonged patent regimes now exacerbated by free trade agreements and governments’ choices, turning IP agendas into policies which protect monopolistic interests [pdf] at the expense of unbiased access to lifesaving medicines.

Banning the NV Clause under TRIPS

Taken together, the non-transparent dynamics bound up with the NV clause compound fear that its allowance under TRIPS or, as more probable, the renewal of its moratorium (as an alleged tool of cross retaliation) would be something that ultimately backs the developed economies rather than making headway on the right to health in resource-limited countries.

It is therefore a matter of urgency that the NV clause be lifted under TRIPS.

The questions highlighted here join together trade and health priorities as key issues for non-discriminatory solutions at the 15-17 December 2011 WTO Ministerial Conference in Geneva. These should align with the WTO’s principles of non-discriminatory treatment by and among members, improved public welfare, and commitment to transparency.

In this connection, WTO’s unlikely banning of the NV clause under TRIPS would mean a refusal of equivocal positions while helping counter the drive of international trade for ever more stifling IP protection rules.

Daniele Dionisio is a member of the European Parliament Working Group on Innovation, Access to Medicines and Poverty-Related Diseases. He is reference advisor for “Medicines for the Developing Countries” for the Italian Society for Infectious and Tropical Diseases (SIMIT), and a member of the Italian Global Health Watch. He also is former director of the Infectious Disease Division at the Pistoia City Hospital (Italy). Dionisio may be reached at d.dionisio@tiscali.it

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  1. Wolf Meier-Ewert says

    In describing the debate around non-violation complaints under TRIPS it is worth mentioning paragraph 10 of the August 30th Decision (and paragraph 4 of Article 31bis), which explicitly ban Members from challenging measures under the waiver through non-violation and situation complaints. Members ensured that the use of the waiver could not be challenged in such a manner – and this applies even if such complaints were to become applicable to the TRIPS Agreement in general.

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