I did some previous posts (see, e.g., here) about the investment claim brought by Philip Morris against Uruguay under a Uruguay-Switzerland BIT. Todd Weiler, who knows a thing or two about investment claims, has written a legal opinion for Physicians for a Smoke Free Canada, in which he examines the possible legal claims and concludes that they are likely to fail.
As background (from the previous post), here's how Philip Morris explained the Uruguayan measures and its concerns about them:
Under Ordinance 514 (3) the Ministry of Public Health took the drastic step to prohibit any brand variations. Until the enactment of the Ordinance, Abal Hermanos sold multiple product varieties under each of its brands such as “Marlboro Red,” “Marlboro Gold,” “Marlboro Blue” and “Marlboro Green”. Article 3 has forced the company to cease selling all but one of those product varieties under each brand that it owns or licenses, leading to a withdrawal of 7 out of the 12 product varieties that were previously sold in Uruguay. The companies believe that arbitrarily removing brands has simply led to consumers changing to local brands or contraband and counterfeit cigarettes, when they can no longer find their preferred products legally for sale in Uruguay. Illegal cigarettes are an increasingly serious problem in Uruguay, according to the Tobacco Atlas of 2009 - one in four products consumed are counterfeit or contraband - among one of the highest levels in the world.
A second measure, Decree 287/09, expands the size of the mandatory warning labels on cigarette packaging from 50% to 80% of the front and back of the package. No other country in the world imposes such a high requirement, which makes it virtually impossible for the companies to use their brands and trademarks to promote their own products or even distinguish them from other brands. The companies consider that the previously mandated 50% health warning is more than a sufficient amount of space to clearly communicate the well-established health effects of smoking.
Todd looked at these measures (and one other) under the following provisions of the BIT in question (the language quoted here is from an unofficial English translation of the BIT):
- "Each Contracting Party shall protect within its territory investments made in accordance with its laws and regulations by investors of the other Contracting Party and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale and, should it so, happen, liquidation of such investments."
- "Each Contracting Party shall ensure fair and equitable treatment within its territory of the investments of the investors of the other Contracting Party."
- "Neither of the Contracting Parties shall take, either directly or indirectly, measures of expropriation, nationalization or any other measures having the same nature or the same effect against investments of investors of the other Contracting Party, unless the measures are taken in the public interest, on a non discriminatory basis, and under due process of law, and provided that provisions be made for effective and adequate compensation.
(emphasis added) He also considered the relevance of the WHO Framework Convention on Tobacco Control (FCTC).
I don't think I can do his legal analysis justice with a quick summary here, so I'll just say read the full opinion if you want the details. Here's a key part of his conclusion:
Even if one ignores the devastating impact of the FCTC upon PMI’s claim, the bottom line is that the BIT provisions available to PMI all require international tribunals to show deference to the legitimate and good faith exercise of regulatory authority by a Host State. Given the circumstances of its case, it is highly doubtful that PMI could ever surmount such a threshold.
In some ways, Todd's opinion will likely be reassuring to those who fear that investment treaties will place excessive constraints on domestic regulation. If he is right about the likely result in this case, it appears that there are at least some limits on the degree to which these treaties intrude into domestic policy-making.
At the same time, though, the mere existence of this claim, and the fact that some good lawyers thought it was credible enough to merit filing it, suggests that the scope of interference with domestic policy-making can be quite high. There are two reasons for this. First, some of the legal standards have the potential to be very broad (in the sense that they place significant constraints on the ability of governments to act). And second, somewhat related to the first point, it is not always clear how broad the standards are because they are so vague.
As an illustration of this, two of the standards at issue in the Philip Morris complaint are that measures be "reasonable" and that they be "fair and equitable" (the latter is a standard BIT provision, the former less so, as I understand it). In some sense, these standards seem innocuous: Of course we want governments to act "reasonably," and to be "fair" and "equitable"!
But how easy is it to meet these standards? No matter what view you take of the proper role of government in society, you can probably think of numerous examples where particular government actions that affected you seem "unreasonable," "unfair" or "inequitable." If we were to enforce such requirements generally, or even just in the case of "investors" and "investments," what would the impact on government regulation be?
In addition, these terms are not easy to pin down with a precise definition. As a result, when interpreting these standards, international tribunals have a lot of discretion as to how closely they want to scrutinize governments' behavior, which leads to a good deal of uncertainty as to the scope of internaional investment law. That's bad because uncertainy itself is bad (and can make the varying tribunal decisions seem a bit arbitrary). But it's also bad, going back to the first point, because it could lead to overly broad standards being adopted (if the tribunal members choose to go that way), which makes these treaties intrude quite far into domestic law-making.
Not that any of these are new issues, of course. They have been talked about a great deal in various contexts. But I think this Philip Morris tobacco regulation claim provides a good illustration of the potential problems.
