by CCPA, CEO, FOEE, FUE, TNI
In February 2010, multinational tobacco company Philip Morris International (PMI) launched an investment arbitration lawsuit against Uruguay under the country’s bilateral investment treaty (BIT) with Switzerland. PMI claimed that the Uruguayan government’s anti-smoking legislation, specifically the ban on selling more than one type of cigarette under a single brand name (single presentation) and the requirement that graphic warnings about the risks of smoking cover at least 80% of the cigarette pack, “go far beyond any legitimate public health goal” and deprive PMI’s trademark of its commercial value. PMI demanded US$25 million in compensation.
Why is the case interesting?
There are three reasons that make this case particularly interesting:
1. An attack on public health
The lawsuit against Uruguay is a shocking example of how big business can use investment arbitration to challenge a government’s sovereign right to regulate in the interest of public health. Public health experts agree that tobacco control measures, such as those implemented by Uruguay, have a direct effect on reducing smoking. Uruguay’s actions followed the advice issued by the World Health Organisation (WHO) and the guidelines issued under the binding Framework Convention on Tobacco Control (FCTC). The WHO and other public health specialists have praised Uruguay’s public health policy and acknowledged that it contributed to a decline in deaths from lung cancer of 15%. The WHO has announced that it will support Uruguay’s position in the arbitration proceedings by “providing evidence of the relationship between large graphic health warnings, bans on misleading branding and the protection of public health”.
2. Dangerous regulatory chill
Uruguay has been at the forefront of the fight against tobacco. It has enacted some of the most advanced anti-smoking legislation worldwide. PMI’s decision to sue Uruguay (an insignificant market in the context of PMI’s worldwide sales) is part of a global strategy to warn and scare other countries that dare to contemplate tighter regulation for the tobacco industry. When governments see the costs involved in these lawsuits, they tend to think twice about regulatory measures. When PMI first threatened to sue Uruguay, the government considered relaxing its new legislation to meet the tobacco company’s demands. This lawsuit, together with a similar one against Australia, has already caused other countries including New Zealand to postpone their plans to introduce stricter rules on cigarette packaging.
“The claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action, but with a well-deserved reputation as a worldwide leader in tobacco control”
Todd Weiler, investment arbitration lawyer
3. Carve out clauses do not secure the right to regulate
This case is emblematic in showing how governments’ attempts to protect public health measures from the scope of investment protection treaties by adding exceptions does not necessarily prevent investors from suing. Article 2(1) of the Uruguay-Switzerland Bilateral Investment Treaty includes restrictive language designed to exclude public health measures from the scope of investor protection. The article states: “The Contracting Parties recognize each other’s right not to allow economic activities for reasons of public security and order, public health or morality, as well as activities which by law are reserved to their own investors”. This did not prevent PMI from suing. It also shows that investment tribunals are not likely to discard a case due to such exception clauses. During its initial defence, Uruguay argued that the case should be dismissed because the article was “carving out from the BIT’s protection any actions it might need to take for reasons of public health, even if they restrict investors’ economic rights”. The tribunal deciding the case dismissed this interpretation, arguing that the restriction only referred to the phase when an investor enters the country and that it no longer applied after the investment was made.
“While there is language in trade deals that purports to protect governments’ right to regulate, many arbitration panels have ignored or narrowly interpreted these provisions, making them practically useless”
Dr. David R. Boyd, professor at Simon Fraser University
last update: April 2021