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September 09, 2010

No new jobs, just blackened lungs, in Uruguay v. Philip Morris dispute

One of the main claims made by proponents of the investment rules in FTAs or "bilateral investment treaties" (BITs) is that, in Scott Linicome's words...

the FTA investment provisions that they're carping about are actually designed to encourage mutual investment in FTA partner countries - i.e., to help the countries give each other money for silly things like factories and jobs - by providing certain basic protections for that investment.  

Notably, very few of the dispute cases I've read about involve new investment or new jobs. In some cases, as with the S.D. Myers case we discuss here, there simply is no major job creating investment at issue - maybe only a storefront office. In other cases, a foreign company has merely acquired a local company, so no new jobs are created.

In still other cases, a foreign investor had invested in a country long before the bilateral investment treaty 
was signed, but then subsequently utilizes the BIT to attack non-discriminatory regulations they don't like.

That's the case with the recent challenge by tobacco company Philip Morris under the Swiss-Uruguay BIT Picture1 against Uruguayan public health measures. Philip Morris, Inc. - a U.S. corporation at the time - bought up Abal, a Uruguayan tobacco company, during Uruguay's military dictatorship in 1979. In 1991, Switzerland and Uruguay inked a BIT. In 1999 and 2008, the ownership of Abal was shuffled around to Switzerland-based holding companies. In 2010, Philip Morris launched a case against Uruguay's public health measures, which went into effect in 2008 and 2009.

In other words, the implication of the BIT was not more jobs created in Uruguay, but a platform for a long existing entity to challenge Uruguay's efforts to reduce smoking deaths - and maybe, just maybe, put a chill on anti-tobacco legislation in other developing countries - now a primary market for Multinational Big Tobacco.

You can find Philip Morris' request for arbitration here, a legal analysis by investor-state expert Todd Weiler here, a piece by Juan Antonio Montecino and Rebecca Dreyfus here, and an earlier analysis by Luke Eric Peterson here.

A few quick points, in no particular order:

  • Philip Morris argues that an "indirect expropriation" ("taking") of their investment in Uruguay has occurred through the requirement to have a health warning that takes up 80% of the packaging space. (You can see a full rundown of the Uruguayan labels here.) Regardless of what one thinks of the packaging, there has been no transfer of value to the government, and thus no taking under any reasonable standard.
  • As Juan and Rebecca note, Uruguay is not an outlier in this regard, as even Switzerland and the US have required labels. And Todd Weiler shows there is a lot of evidence that labels help deter smoking, as do limitation on the proliferation of brands - a key aspect of this case. This seems to be a case of Uruguay getting targeted because it is going farther than other countries, even if it is doing so for good reasons.
  • Moreover, these requirements fall on all tobacco companies, not just ones that happen to be foreign-owned.
  • Philip Morris makes a sweeping argument that it has a right to a stable and predictable regulatory framework in line with its expectations. This is one of the most ridiculous aspects of agreements with investor-state mechanisms, which capture this notion under the "fair and equitable treatment" standard. Any progressive social change in history has upset some monied interest's expectations!
  • In a very troubling development, Philip Morris tries to effectively incorporate the investor-state mechanism into the WTO, by saying that Uruguay violates the BIT because it allegedly violated the WTO's TRIPS agreement!
  • Philip Morris is also attempting to get around some of the procedural protections that Uruguay enjoys under the Swiss-Uruguay BIT, by invoking other treaties that include lower procedural safeguards. This opportunistic use of the so-called "most favored nation" treatment gives an indication of why the U.S. and other countries that are attempting to reform a given FTA or BIT really need to be reforming all of them at the same time, or at least limiting this type of usage of MFN principles.

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