Investment protection: Philip Morris vs Uruguay

In 2010, Philip Morris filed a complaint against Uruguay over its anti-tobacco legislation. The tobacco giant sued for US$25 million in compensation. On 8 July 2016, Uruguay received a favourable award. Why this lawsuit should never have existed.

For years now Alliance Sud as well as numerous NGOs and governments, especially in Latin America, have been militating against investment protection agreements that grant rights to investors while imposing only obligations on States. Recently, these agreements have been giving rise to ever more instances of multinational enterprises bringing actions against States, thereby showing contempt for public interests, whether regarding health or the environment.

Attack over anti-tobacco legislation

The case of Uruguay is exemplary in this regard. In 2010 Philip Morris filed a complaint with the International Centre for the Settlement of Investment Disputes (ICSID), a World Bank arbitration tribunal. In July 2013 the ICSID decided that it had jurisdiction in the case.

Philip Morris was seeking US$25 million in compensation, as in its view, Uruguay had introduced an overly-restrictive anti-tobacco law. The world's most renowned cigarette manufacturer, whose operational headquarters is in Switzerland, is challenging an ordinance in Uruguay whereby only one kind of any brand (e.g. Marlboro red, gold or silver) may be offered at a particular point of sale, and 80% of the surface of a packet must be covered with warnings against nicotine addiction. Philip Morris based its case on the investment protection agreement in force since 1991 between Switzerland and Uruguay.

Switzerland can and must intervene

In 2014, Alliance Sud called on Switzerland to draw up an interpretative note on the case brought by Philip Morris against Uruguay.  Such an expert opinion should have clarified whether Uruguay was entitled, under the investment protection agreement, to take steps against nicotine addiction.

The investment agreement stipulates that both States recognise each other's right to prohibit economic activities so as to protect public health. Berne therefore bears special responsibility in this case and must act. It must insist that pursuant to international agreements, the contracting parties ought to be entitled to take all regulatory measures that safeguard the public interest without having to risk being sanctioned by foreign investors in consequence.

Total success for Uruguay

The wait ended on 8 July 2016 when the ICSID tribunal ruled in favour of Uruguay on all claims and ordered Philip Morris to pay Uruguay US$7 million and to cover all fees and expenses of the Tribunal. Alliance Sud and the NGO Friends of the Earth (Uruguay) welcomed the ruling, while underlining that this lawsuit should never have come about in the first place. It had a deterrent effect with respect to other anti-tobacco measures in Uruguay itself and on legislation in other countries such as Costa Rica, Paraguay or New Zealand. Without the strong political will of Uruguayan President Vasquez and the financial support of a private foundation, Uruguay might well have buckled under the pressure from Philip Morris already in 2010.

The Investor-State Dispute Settlement mechanism is unbalanced and must be abolished. Instead, States are keen to introduce this mechanism into the Trans-Atlantic Trade and Investment Partnership (TTIP) between the USA and the EU, as is already the case with the Trans-Pacific Partnership (TPP) and the EU–Canada agreement (CETA).