Philip Morris vs Uruguay: only a partial victory

Article as analysis
Uruguay has won the year-long lawsuit concerning its anti-smoking policy against Philip Morris. The ruling might have been completely different, however.

On 8 July 2016 an arbitration tribunal ruled in favour of Uruguay, which had been sued by Philip Morris over its anti-smoking policy, under the terms of that country's Bilateral Investment Treaty (BIT) with Switzerland. The ruling might have been completely different, however. Switzerland should rebalance its bilateral investment treaties to the benefit of host countries.

Philip Morris had filed a suit in 2010 with the ICSID, a World Bank arbitration tribunal. The tobacco multinational, whose international operations are based in Switzerland, challenged Uruguay's introduction of the single package policy, which prohibits the sale of more than one type of cigarette per brand (e.g. Marlboro Red, Green, Gold), thereby forcing Philip Morris to withdraw seven of its 12 products and to devote 80% of the surface of each packet to warnings about the dangers of smoking.

The case had caused outrage among NGOs around the world, including Alliance Sud, which together with the NGO Friends of the Earth Uruguay began to take action. One crucial fact is that the Secretariats of the World Health Organization (WHO) and of the WHO Framework Convention on Tobacco Control had submitted an amicus curiae – a letter by a third party shedding new light on the case – explaining that the measures taken by Uruguay were in compliance with the said Convention.

The arbitrators upheld Uruguay on all counts and ordered Philip Morris to pay the tribunal's operating costs and part of Uruguay's legal expenses, in the amount of USD 7 million. More specifically, they ruled as follows:

  1. Uruguay had not violated any of its obligations under the BIT with Switzerland.
  2. The regulations introduced by Uruguay were not an expropriation of Philip Morris but bona fide measures designed to safeguard public health.
  3. They did not violate the "fair and equitable treatment" of Philip Morris, as they were not arbitrary. On the contrary, they were reasonable, science-based measures supported by the international community.
  4. They did not impair Philip Morris in the enjoyment of its patents in an unreasonable or discriminatory manner, as they pursued legitimate interests and were not aimed at depriving the multinational of the value of its investment.

Implications of the ruling

What does this crushing defeat of one of the world's leading cigarette manufacturers mean for the future of the anti-smoking campaign and the investor-state dispute settlement process in general? Does this ruling mean that the system is working, as its defenders claim, and that no further lawsuits will be filed against public health protection measures in the future? Nothing is less certain.

Most analysts acknowledge that the lawsuits filed by Philip Morris have had a chilling effect when it comes to anti-smoking measures planned by other countries – Costa Rica, Paraguay, New Zealand, among others – which have either hesitated or decided against regulating, for fear of being challenged. Besides, the tobacco giants will probably not hesitate to bring actions against the poorest countries, especially in Africa, which are their principal future markets.

It should also be underlined that this ruling does not set an international law precedent that will bind arbitrators in similar cases in the future, as there is no case law in arbitration. Arbitration is by definition unpredictable and random given the diverse range of jurisdictions (the ICSID in this case, but there are many others), of arbitrators and the vagueness of legal standards. Moreover, it should be borne in mind in this particular case that one of the three arbitrators (the one chosen by Philip Morris) disagreed with the ruling and published a dissenting opinion. Investment protection agreements should therefore be rebalanced in favour of host countries – starting with Switzerland's agreements.