In February 2010 Philip Morris International initiated an international law suit challenging two of Uruguay’s tobacco control laws. The panel of 3 arbitrators published their ruling on July 8, 2016, dismissing all Philip Morris’ claims and awarding Uruguay its legal costs ($7 million).

The outcome of this international investment arbitration has global significance. These web pages provide information and summaries about the claim and the key issues of wider global significance that arise out of the tribunal’s ruling.

The Claim

In February 2010, three subsidiary companies of Philip Morris International filed an international arbitration lawsuit against Uruguay, claiming that two of the country’s tobacco control laws violated a Bilateral Investment Treaty (BIT) between Uruguay and Switzerland. The case was heard at the International Centre for the Settlement of Investment Disputes (ICSID), an arbitration panel of the World Bank based in Washington. Prior to Philip Morris’ claim at ICSID, legal challenges brought by the company against the same tobacco control laws had already been dismissed by Uruguay’s Administrative Court and Supreme Court.

The two laws challenged by Philip Morris required 80% graphic health warnings on cigarette packs, and limited tobacco brands to a single brand variant.

Philip Morris alleged that the 80% health warnings left insufficient room on the packs for it to use its trademarks and branding as they were intended; and that the Single Presentation Requirement (SPR) meant it could not market some of its brands such as Marlboro Gold. Philip Morris therefore alleged that Uruguay had breached the terms of the BIT because:

  • The Challenged Measures ‘Expropriated’ the property rights in Philip Morris’ trademarks without compensation;
  • The Challenged Measures were arbitrary because they were not supported by evidence to show they would work and the government did not follow effective due process when adopting the measures. Uruguay therefore did not accord Philip Morris’ with ‘Fair and Equitable Treatment’;
  • The Challenged Measures did not meet Philip Morris’ ‘Legitimate Expectations’ of a stable regulatory environment or to be able to use their brand assets to make a profit;
  • The Uruguayan courts had not dealt properly or fairly with Philip Morris’ domestic legal challenges such that there was a ‘Denial of Justice’.

Uruguay's Laws Under Challenge

In 2008 and 2009 Uruguay adopted two new laws, the first to address the tobacco industry’s use of brand variants that falsely imply some cigarettes are less harmful and tobacco industry tactic of replacing misleading terms with colors; and the second to introduce more effective health warnings, and to implement Uruguay’s obligations under the WHO Framework Convention on Tobacco Control. Details of these laws can be found here.

The two ‘Challenged Measures’ were:

1. Large graphic health warnings covering 80% of the front and back of cigarette packets.

2. The Single Presentation Requirement (SPR) which limits each cigarette brand to a single variation. This eliminates brand families and variants such as ‘gold’, ‘silver’ or ‘blue’ which replaced misleading terms such as ‘light’ and ‘mild’. The SPR addresses evidence that these variants can mislead consumers and falsely imply some cigarettes are less harmful than others.

The Tribunal’s Award

A full summary of the aspects of the award that are significant for tobacco control in other countries can be downloaded here.

This highly anticipated award addressed a number of fundamental legal issues concerning the balance between investor rights and the space available for states’ to regulate for public health under international investment law. While there is no doctrine of binding precedent for arbitration rulings, the development of an investment treaty case law and jurisprudence means that the wider value of each award can be very significant.

Significant aspects of the tribunal ruling include:

  • The importance of the WHO Framework Convention on Tobacco Control (FCTC) in setting tobacco control objectives and establishing the evidence base for measures, and confirmed that states therefore need not recreate local evidence for FCTC policies.
  • That sovereign states have a wide ‘margin of appreciation’ and that tribunals should give significant deference to sovereign states’ decisions to adopt public health measures. Tribunals should not second guess complex public policy decisions.
  • It is sufficient that a measure is an attempt to address a public health concern and is taken in good faith. A state need not prove a direct causal link between the measure and any observed public health outcomes.
  • Manufacturers and distributors of harmful products such as cigarettes can have no expectation that new and more onerous regulations will not be imposed – rather the expectation should be of progressively more stringent regulation.

The ruling sets an extremely high bar for any foreign investor (such as a tobacco company) seeking to bring an investment arbitration challenge against a non-discriminatory public health measure taken in good faith. WHO FCTC member states that are implementing the obligations or recommendations of that treaty can rely on this ruling to defend their tobacco control measures.

If Philip Morris had succeeded against Uruguay it would have been a green light for the tobacco industry to commence investment treaty claims challenging large health warnings and tobacco plain packaging laws around the world. The potential for a global ‘chill’ on the efforts to reduce tobacco use would have been enormous. The significance of Uruguay’s win should be measured against the global impact that a loss in this case would have had.

Following Uruguay’s example, many more countries around the world have implemented strong packaging and labeling measures, as called for by the WHO Framework Convention on Tobacco Control. See a complete list of countries here.

The Tribunal Process

The most common way to resolve disisputes under an international investment treaties is by an investor-state arbitration, heard by an ad hoc tribunal are resolved by a panel of 3 international lawyers appointed by the parties. In this case, Uruguay appointed James Crawford, Philip Morris PMI appointed Gary Born, and the chair, Peiro Bernardini, was appointed by ICSID because the parties could not agree a third arbitrator. Gary Born produced a dissenting opinion that would have awarded the case to Philip Morris, had the majority agreed with him.

The panel of three arbitrators published their ruling on July 8, 2016, dismissing all Philip Morris PMI’s claims. The ruling is final and cannot be appealed.

Length of Proceedings: The arbitration took over six years, with the arbitration request registered in March 2010 and the award issued July 2016;

Costs: The government of Uruguay had to spend around $10 million in legal fees – the tribunal ordered Philip Morris to pay $7million of this. Philip Morris’ costs were in the region of $17 million and arbitration costs were $1.5 million. Overall, the costs amounted to over $28 million in a case where the damages claimed by Philip Morris were $25 million. This further implies that Philip Morris brought the case to create a wider regulatory chill in governments worldwide, rather than because of a genuine concern or legitimate over its investments in Uruguay.

WHO, FCTC Secretariat and PAHO Intervene:

During the course of the arbitration case, the Tribunal granted permission to the World Health Organization and the Secretariat to the WHO FCTC to file a joint amicus curiae brief to provide evidence in support of Uruguay’s measures and information about the WHO FCTC; and to Pan-American Health Organization (PAHO) to file a separate amicus curiae brief about tobacco control in the region of the Americas. The tribunal relied on these important amicus briefs throughout its ruling and they are now publicly available [link to ‘related links and resources’ page].

The length and huge cost of international arbitration means that just the threat of a dispute from multinational corporations can lead to ‘regulatory chill’ where governments, particularly in small countries, decide to delay or set aside their plans for measures in the public interest. For instance, New Zealand delayed its tobacco plain packaging laws for over two years pending the outcome of an investment arbitration challenge by Philip Morris to Australia’s tobacco control laws.

What are International Investment Treaties?

Philip Morris claimed that Uruguay’s laws violated a bilateral investment treaty between Uruguay and Switzerland, where Philip Morris has its operations center.

Bilateral investment treaties (BITs) are agreements between two states that are intended to encourage direct foreign investment by providing certain protections and promises to investors from the other state. For instance most BITs guarantee that a government:

  • will not take a foreign investor’s property (expropriation) except by lawful means and with proper compensation;
  • will not treat them differently from domestic investors;
  • will treat them in a ‘Fair and Equitable’ way which means not acting arbitrarily and providing a stable regulatory environment; and
  • will provide minimum standards of due process and justice.

More detail on these typical clauses and how they operate is provided by the WHO FCTC Knowledge Hub.

There are over 3300 such treaties across the world with most nations have signed up to these protections for foreign investors, however, these treaties were never intended to allow corporations to interfere with the rights of sovereign nations to pass laws designed to protect public health.

Modern Free Trade Agreements (FTAs) often include an investment chapter which provides the same protections and guarantees to investors located in the other state parties to the FTA.

Most IIAs contain a dispute settlement clause which allows a foreign investor from one state to bring a claim against a host state where the investor believes that state has violated the investment protections under the IIA. These are called Investor-State Dispute Settlement clauses or ISDS. The case is heard by an ad-hoc tribunal of arbitrators who will issue a binding judgement. There is no centralized set of procedures or court system for these disputes and the arbitrators are appointed by the state and the investor involved in the dispute. If the arbitrators find there has been a breach of the IIA obligations then the usual remedy is to award compensation which can amount to millions of dollars. Investment treaties usually include Investor State Dispute Settlement (ISDS) provisions. These allow foreign investors (often large corporations) to challenge states at international arbitration tribunals if they think that a government measure, including public health measures that impact on their investments, infringes their rights under a treaty.

Accessing Legal and Technical Assistance on Trade and Investment Law

Anti-Tobacco Trade Litigation Fund

In response to the growing threat from the tobacco industry under trade and investment treaties, Bloomberg Philanthropies and the Bill and Melinda Gates Foundation on March 18, 2015, announced the creation of the Anti-Tobacco Trade Litigation Fund. The fund is available to support low- and middle-income countries that have been sued by tobacco companies in arbitration under international trade agreements. Managed by the Campaign for Tobacco-Free Kids, the fund will provide financial and technical assistance to governments committed to defending their laws to reduce tobacco use.

CTFK lawyers can directly assist government health officials and civil society representatives to:

  • understand trade and investment law as it relates to tobacco control measures;
  • respond to allegations and threats that a tobacco control measure breaches international trade and investment obligations;
  • assess the potential risks and liabilities under trade and investment law for a particular government and its proposed measures;
  • ensure tobacco control measures are adopted and implemented in a robust manner that minimises the risk of legal challenge.
  • build capacity to facilitate coordination and cooperation with Ministries of Trade so as to raise the priority of public health and tobacco control within government trade policy and investment treaty design.

More information on the fund can be found here.

For further information and assistance contact Robert Eckford: reckford@tobaccofreekids.org

The McCabe Centre for Law and Cancer / WHO FCTC Knowledge Hub

The McCabe Centre for Law and Cancer contributes to the effective use of the law for cancer prevention, treatment, supportive care and research. The McCabe Centre is the designated the WHO FCTC knowledge hub in relation to legal challenges to implementation of the WHO FCTC. More information on trade and investment law as it relates to tobacco control can be found on the site along with details of all the relevant cases and disputes.

World Health Organisation Tobacco Free Initiative

The WHO Tobacco Free Initiative produced a publication in 2012 on “Confronting the tobacco epidemic in a new era of trade and investment liberalization”. This document explores the ways in which the tobacco industry exploits international trade and investment agreements and sets out steps that governments can take to mitigate the risks.

The WHO Tobacco Free Initiative can provide assistance to governments on these issues via its country or regional offices.

Resources

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