Uruguay wins dispute over its tobacco control policies

An arbitral tribunal has rejected cigarette multinational Philip Morris’ challenge against tobacco control measures adopted by Uruguay, in what has been described as a landmark decision that affirms states’ rights to protect public health.

by Chakravarthi Raghavan

GENEVA: The government of Uruguay has won the case in an investor-state dispute brought against it over its tobacco control policies by the tobacco company Philip Morris at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

The transnational tobacco giant had claimed violation of its trade and investor rights under an investment agreement between Uruguay and Switzerland, where the company is headquartered.

Philip Morris had challenged tobacco control regulations which Uruguay had put in place and implemented in order to comply with the country’s obligations under the Framework Convention on Tobacco Control (FCTC).

The tobacco company had first presented its claim in February 2010, following implementation by Uruguay of regulations requiring health warnings to cover 80% of the main surface of tobacco packages and limiting tobacco manufacturers to one unique package per cigarette brand.

Landmark ruling

According to a fact sheet by Foley Hoag LLP, Uruguay’s lawyers before the ICSID arbitral panel, the panel ruled in Uruguay’s favour against the tobacco giant, and ordered Philip Morris to pay Uruguay’s fees and other costs, an award in excess of $7 million.

Specifically, the fact sheet said, the tribunal rejected Philip Morris’ challenge to two regulations adopted by Uruguay to protect public health against tobacco-related death and diseases, and prevent the false advertising of tobacco products.

The specific regulations upheld by the tribunal: (1) prohibited tobacco companies from marketing cigarettes in ways that falsely present some cigarettes as less harmful than others – because, in truth, no cigarettes are safe to smoke and none are less harmful than any others; and (2) required tobacco companies to use 80% of the front and back of cigarette packs for graphic warnings of the health hazards of smoking.

According to the law firm, the panel ruling is a landmark decision because it affirms the sovereign rights not only of Uruguay but of all states to adopt laws and regulations to protect public health by regulating the marketing and distribution of cigarettes and other tobacco products.

The ruling enables Uruguay (as well as other states committed to protection of public health) to take additional measures to reduce tobacco consumption, and related deaths and illnesses, by further restricting the false and misleading marketing of cigarettes and other tobacco products.

To that end, Foley Hoag LLP added, Uruguay itself will soon require all tobacco products to be sold in generic or plain packages, with even larger warnings of the harms caused by smoking, in an effort to further reduce smoking levels.

It is now inevitable, it added, that many other states, which had been awaiting this decision before adopting similar regulations, will follow Uruguay’s example.

The ICSID panel ruling, the law firm said, erects a barrier to “the cynical use of international arbitration by Philip Morris and other tobacco companies to stop States from taking reasonable measures to protect public health. Not only have Philip Morris’ claims against Uruguay been rejected, but the company has been ordered to pay Uruguay’s legal fees.

“Its strategy of misusing the arbitration process to dissuade States from adopting meaningful regulation of tobacco marketing has failed. States need no longer fear the risks or costs of such a challenge to their sovereign rights.”

Uruguay put in place these tobacco control measures under President Tabare Vazquez, an oncologist, who has direct knowledge of the death and disease that smoking causes. As a result of these tobacco control regulations and policies, smoking rates in Uruguay have been reduced from approximately 35% to approximately 23% between 2005 and 2014. Among youth, the rate has fallen to 8.2% as of 2014.

The two regulations challenged by Philip Morris were adopted in 2008 and 2009. In March 2010, Philip Morris filed its demand for arbitration with ICSID, which is part of the World Bank. Because Philip Morris International is incorporated in Switzerland, it sought arbitration under the terms of a bilateral investment treaty between Switzerland and Uruguay.

One of the regulations prevented tobacco companies from selling different versions of the same brand of cigarettes. Known as the “single presentation requirement,” it stopped Philip Morris, for example, from selling Marlboro, its leading brand, normally sold in red and white packages, in gold, blue, or green and silver packages.

Uruguay considered (and proved to the ICSID tribunal) that the use of multiple variants of the same brand was intended to falsely communicate to consumers that some variants were less harmful than others, when the company knew this was untrue.

The other regulation obligated tobacco companies to increase the size of required health warning labels on the front and back of cigarette packs from 50% to 80% of the pack. Many states have adopted similar regulations, because it has been proven that larger health warnings are more effective.

Specific legal findings

Following extensive written pleadings, oral hearings on the merits of the case were held in October 2015 before an ICSID arbitral tribunal presided over by Piero Bernardini of Italy. The other arbitrators were Gary Born of the United States and James Crawford of Australia (currently a judge on the International Court of Justice in The Hague).

Uruguay’s lead defense counsel were Paul Reichler, Lawrence Martin, Andrew Loewenstein and Clara Brillembourg of the Washington, DC law firm Foley Hoag LLP.

The Uruguayan government delegation at the oral hearings was led by Miguel Angel Toma, Secretary of the Presidency, accompanied by, among others, the Minister of Public Health, Jorge Basso, and Uruguay’s Ambassador to the US, Carlos Gianelli.

In specific legal findings, the ICSID panel ruled:

l     Uruguay did not violate any of its obligations under the Switzerland/Uruguay bilateral investment treaty, or deny Philip Morris any of the protections provided by that treaty.

l     Uruguay’s regulatory measures did not “expropriate” Philip Morris’ property. They were bona fide exercises of Uruguay’s sovereign police power to protect public health, developed by highly trained tobacco control experts and physicians in the Ministry of Public Health with the support of experts from civil society.

l     The measures did not deny Philip Morris “fair and equitable treatment” because they were not arbitrary; instead, they were reasonable measures strongly supported by the scientific literature and had received broad support from the global tobacco control community.

l     The measures did not “unreasonably and discriminatorily” deny Philip Morris the use and enjoyment of its trademark rights, because they were enacted in the interests of legitimate policy concerns and were not motivated by an intention to deprive Philip Morris of the value of its investment.

l     Uruguay’s courts did not “deny justice” to Philip Morris. Instead, the tribunal found that Philip Morris had received due process and fair treatment from the Uruguayan courts when it challenged the regulations before those courts.

[A post on the International Economic Law and Policy Blog (worldtradelaw.typepad.com) said the ruling was a two-to-one ruling, with one panellist dissenting. The full text of the ruling is available at www.tobacco freekids.org/content/press_office/2016/2016_07_08_uruguay.pdf.]

The ICSID panel decision has come just as tobacco plain packaging measures by Australia have been challenged at the World Trade Organization (in disputes raised by Cuba, the Dominican Republic, Honduras and Indonesia). There are also pending investor-state dispute settlement/arbitration processes raised under a bilateral investment treaty between Australia and Hong Kong-China.

What effect the present ruling will have on the WTO proceedings or on the separate investor-state dispute process remains to be seen. It is also uncertain whether it will have a bearing on wider international concerns raised over plurilateral trade and investment treaties with investor-state dispute provisions, such as the Trans-Pacific Partnership (which is pending acceptance in the US Congress) and the Transatlantic Trade and Investment Partnership (under negotiation between the US and the EU). (SUNS8280)                                           

Third World Economics, Issue No. 619/620, 16 June – 15 July 2016, pp12-13