Revista de Derecho Público

INTRODUCTION

Some countries have started to take internal measures to restrain people from smoking. This policy is meant to protect public health since it is proven that cigarettes are harmful for health. This measures taken by several countries may vary but they are in general related to three aspects: mandating the cigarettes packages to include pictures illustrating the bad effects of smoking; to require the portion of the prescribed health message to take an important part of the cigarette packaging; and to prescribe that each cigarette brand should have a “single presentation” a rule that prohibits a brand to sell multiple product varieties under each of its brands. The tobacco industry, mainly Philip Morris International (PMI), has reacted to this kind of measures by implementing legal actions against the States that have taken this measures on the basis that they have violated the investment and trade rules that should protect investors under the Bilateral Investment Agreements (BITs) that those countries that have signed and ratified with the country where Philip Morris has its headquarters. Since hundreds of countries have signed BITs with USA or Switzerland (just to mention two of the countries where PMI is located), the fact is that PMI is entitled to sue several countries based on the rules set in this agreements. They have thus an option to contest the legality of the health rules adopted by the countries in an international arbitration court. But still the legal conflict remains intact since it is not clear that the health provisions are violating the investment protection provisions. And even if an arbitration tribunal reaches a decision in a case regarding this particular issue

(like the PMI vs. Uruguay case), a second tribunal can reach a different solution if the facts or the BIT provisions are slightly different, or even if they are similar since they do not follow necessarily the precedent rule. To this extent, this ICA will try to explore the attitudes, behaviors and context from a conflict analysis approach and to map the different actors and issues at stake for a better understanding of the dispute and by so doing to be able to get to some recommendations on how to reach a more permanent solution to this conflict.

1. METHODOLOGY

This conflict analysis focuses on a legal conflict about restrictions on the tobacco industry. The main purpose is to analyse the different actors that play a role here since there are various and diverse interests behind the scene. For this work, two models have been combined. First, an actor mapping has been done to define the key players. During this process, special attention was given to the positions and needs of these actors. The next step was to apply the ABC triangle model to better evaluate and understand the context, attitudes and behaviours of the various actors. The information that came out of the analysis using these models allows us to make recommendations for a proper answer on the possible solutions to this conflict.

2. BACKGROUND - The PMI vs. Uruguay case

Philip Morris has seen the sales of their cigarettes brands decreasing in the United States in the last years. As a consequence they tried to expand their market share in countries where there were no rules restricting the use on tobacco. But in the last decade, several countries have decided to implement some domestic rules to protect public health and thus causing an impact on the tobacco giant. The strategy then used by the company was to take advantage of the existing Bilateral Investment Agreements (BITs) passed between those States and the State in which PMI had its headquarters to sue the countries that have adopted the health restrictions on tobacco and get them on trial in an international arbitration on the grounds that certain rules of the BITs regarding investments had been violated by the health rules and that in such cases the BIT foresees the possibility for the investor to grab the jurisdiction of the International Centre for Settlement of International Disputes (ICSID) as a tool to settle the dispute. This strategy and the elements at stake in this controversy are clearly shown in the still ongoing PMI vs. Uruguay case:

In 2010, PMI initiated international arbitration proceedings against Uruguay, a small country in South America, claiming that the country had violated multiple provisions of the Uruguay-Switzerland BIT. PMI has a branch in Switzerland. The BIT, which is one of more than twenty Uruguay has entered into, provides protection for the investments made in this country, including brands, intellectual property, and ongoing business enterprises. PMI claims that two regulations implemented by Uruguay in 2009 breach the protections guaranteed by the BIT and damage their investments in the country. PMI is making these claims before the ICSID. The first stage on jurisdiction has been already completed and the tribunal ruled that it does have jurisdiction according to the referred BIT provisions. The parties are currently briefing the merits of PMI’s claims that Uruguay breached the BIT. The decision is expected on the first half of 2016.

The two Uruguayan regulations that PMI opposes are:

1) The “single presentation” requirement.

According to Philip Morris[1] , this regulation “restricts competition to the detriment of foreign investors because it prohibits sales of more than one variation of cigarettes under a single brand name”. For example PMI mentions that because of this Marlboro Red, Blue and Green cannot be sold at the same time. Only one of these variants may be in the market. As a result PMI stresses that it was forced to withdraw 7 out to 12 cigarette varieties form sale in Uruguay.

2) The 80% Health Warning Requirement.

As pointed out by PMI, until 2009 health warnings labels in Uruguay covered 50% of cigarette packaging, an amount PMI didn’t oppose. Uruguay increased the size to 80% on both the front and the back of the pack. According to PMI this requirement violates the BIT agreement passed by Uruguay because it leaves virtually no space on the pack for the display of legally protected trademarks.

According to PMI these measures go beyond the tobacco regulations enacted in virtually every country and have not been shown to reduce smoking rates.

In the view of Uruguay the key issue to defend the adoption of the health measures is the fact that the country is mandated by the international World Health Organization (WHO) Framework Convention on Tobacco Control agreement to take steps to cut down on smoking rates. And, contrary to what Philip Morris says, multiple studies have found that the government’s anti-smoking practices have been successful in achieving that goal.

Also the defense of Uruguay is based on its sovereign right to protect public health from the harm of the tobacco consumption and to safeguard the human rights of its people to health and life.

International lawyers, policy makers as well as the tobacco industry closely watch the case. Other parties have substantial interests in this and have already taken actions to defend their interest, may this be on the side of the tobacco industry or on the side of the rightfulness of the adoption of health measures.

While there is no public timeframe for the ICSID’s arbitration process, Philip Morris says it expects a decision in the Uruguay case in the first semester of 2016.

3. ACTORS ANALYSIS AND RELATIONSHIPS.

Following the mapping conflict analysis we can agree that the issue in this conflict is about the applicable rule of law: either the existing investment BIT agreement one (also related with trade in some cases), or the domestic one based on its compliance with the WHO Convention. According to this both obligations are derived from an international treaty that has been signed and ratified by the State that adopts the provisions so that no legal hierarchy issues among the rules are at stake in this case. It then seems that the application of one rule over the other is a matter of proving the facts, the harm and the specific rights of each party without arguing on having an automatic best right based on having a “better” rule of law.

The two main parties or actors will be:

A) The government of a State with tobacco adopted restrictions based on health provisions, such as plain packaging conditions or single brand presentation.

B) The tobacco company located in a State that has signed a BIT with the State that is imposing the health restrictions and understands that the measure is unfair, useless and is illegally affecting their sales.

Other important actors can be placed on one side or another since they have connections with the above mentioned main actors and have a role to play in the conflict:

C) The tobacco industry suppliers have their interest connected with the cigarette consumption, like the industry that sells machines needed for the manufacturing of the packaging, among others. These are usually private companies.

D) The tobacco producers States, like Cuba or Honduras are also actors that are sided with the tobacco industry since they sell them the main element for the production of cigarettes.

E) The World Trade Organization (WTO) is an international organization that focuses on facilitating trade among its member States. It has also a settlement of disputes mechanism in case a controversy raises between member States because of the violation of one of the agreements signed under their framework. Only States can be a part of the WTO and use its dispute mechanism. In our case of study, since the tobacco health measures might affect the Intellectual Property agreement of the WTO (TRIPS), this organization can receive claims on the violation of this agreement by any State that thinks that is has suffered a significant harm in relation with the measures. States like Honduras and Cuba have initiated procedures against countries that have taken tobacco health restrictions measures on that basis. PMI cannot go to the WTO since it is not a State but it has been affirmed that they are financing these countries in their claims.

On the side of the States that have adopted health restriction provisions we will also find other actors connected with their interest.

F) The World Health Organization (WHO) is a substantial allied of this position since the Tobacco Framework Convention has been signed in this framework. It is a relevant actor that supports the legality of the health restrictions.

G) NGO´s like Stop Tobacco or other private institutions such as the Bloomberg Foundation are also influencing the scene fighting for a tobacco free environment. The latest has financed the cost of the lawyers that Uruguay has hired to defend from the PMI claim at the ICSID[2] .

H) The countries that have not yet been sued by PMI, but also have BITs passed and have recently adopted health restrictions provisions are likely to stand as actors that support the legality of the adoptions of these rules. Australia was an example of this since PMI filed and lawsuit against the country last year.

Other actors play in the scene in sort of an impartial way but participating very actively:

I) The law firms defending both main parties;

J) The ICSID as an arbitration institution set up in the World Bank framework that is referred usually by the BITs to solve the conflict. Hundreds of cases are handled by this international arbitration institution. Usually three arbitrators appointed by the parties from a pre established list are the responsible to settle the dispute.

Finally, following the mapping system, we need to introduce the outside actors:

K) Schools of law. Universities. Academia. They have an influence in the arguments the lawyer will use in their claims. I am personally here in this section.

L) Non smokers individually considered as builders of public opinion.

M) Smokers individually considered as builders of public opinion

As mentioned in the methodology, this mapping of the actors involved has to be complemented with the context, attitudes and behaviours taking place regarding this issue.

The context shows us a scenario where the tobacco companies are facing a challenge for an industry that moves millions (in 2009 PMI revenues were bigger than the GDP of Uruguay) and employs thousands of workers in different countries. We can also see that the existing investment agreements are a powerful tool they have in their hands. Many countries have signed these agreements to attract investors and are now bound by the provisions established therein regarding giving national treatment to foreign investors. Besides, the possibility to file a claim against the country for a non compliance of the BIT in an international arbitration jurisdiction, avoiding the domestic jurisdiction is also a big advantage for the investor. In this context the PMI vs. Uruguay case appears as been crucial for PMI3 . They are concerned that the measures imposed by Uruguay’s practice of both imposing heath warnings that cover 80% of the package and allegedly infringe trademark will spread to other countries. Some countries like United Kingdom and France and considering adopting similar provisions. A controversy in that sense following Australia’s enforcement of logo-free plain packaging was dismissed on the jurisdiction phase after PMI intended to trial the country in the international scene. Although international arbitration are not governed by rules of precedent, if PMI were to be successful in its claim against Uruguay, more claims against other countries my likely follow, especially against developing countries. I has to be known that only Switzerland, one of the countries where PMI is located, has signed over 120 BITs with other States.

On the other hand to understand the context we have to take into account that currently there is a strong pressure for governments to take measures against tobacco consumption. An international Convention among more than 100 countries has been signed in that sense in the WHO framekork. On the other hand Public health spends a lot of money dealing with illnesses provoked by smoking and prevention seems to be the wisest way to deal with this addiction. The government has to have a response and among the possibilities the government has at hand are the provisions we have seen that can be taken to lesser consumption.

Regarding the attitudes of the actors in this conflict PMI is claiming for unfair and illegal playing regarding their investment that leads with a substantial harm and diminishes the confidence in the country. There is a fear to continue with investments if this trend continues. The attitude is aggressive. Other actors connected with the tobacco industry have also taken positive actions: some companies lobbying and the tobacco producers trying to take advantage of the WTO agreements and disputes settlement mechanism when it comes to Intellectual Property.

On the contrary the States affected by these attitudes focuses on their sovereignty and the need to protect what they consider a superior value. There is an attitude of “doing the right thing” given by the confidence that fighting tobacco is a superior aim. Protecting health is also more popular for a government than protecting the rights of a multinational foreign company. No matter if the investor might fire some employees this seems to be a smaller price to play. Besides, the WHO (and also the Pan American Health Organization in the PMI vs. Uruguay case) strongly backed up this attitude, together with some NGO´s. This put all of them in the “right basket” of the human right advocacy, a much more comfortable position in comparison with the multinational tobacco company that only looks for markets to sell a deadly product. However is has to be said that PMI is only looking for a fair treatment of a legal investment according to the rules and not making any smoking advocacy.

The behaviour of the main actors has been clear: PMI has had a strategy o using the legal tools at hand and to bring into a trial a small country (Uruguay) trying to make an example of the outcome of this issue if favourable. PMI also helps the tobacco producer countries with the legal costs to fill claims in the WTO against the countries that take provisions that might affect intellectual property and thus the tobacco consumption. PMI has had a quite predictable and consistent behaviour up to now, that would only change with a negative outcome in the lawsuit vs. Uruguay. On the other hand Uruguay has had to face the legal claim and have been seeking for the support of the international health organizations and NGOs, playing the role of the weak part being attacked by a huge company that does not care about health.

4. RECOMMENDATIONS

a) To specifically consider this kind of rule conflict in the BIT agreements and to include a clause to avoid the contradiction with the WHO Health Convention on Tobacco. This will mean both to revise the existing BITs and to take this into account in the future BITs that may be signed in the future. The revision may lead to give preference either to the investment/trade rule or the health provision. The issue here is not what rule has to prevail but to avoid to conflict between the rules.

b) To take the same actions in the new trade agreements that are been negotiated like the Trans Pacific Partnership treaty (TPP) or the Transatlantic Trade and Investment Partnership (TTIP) to avoid making the issue multilateral. This might need coordination with other parties of these agreements that are in the same situation to gain power in the international negotiations.

c) To strengthen the WHO forum in tobacco consumption control to make it more visible, with more impact in the international community so that it can have an influence on government of the States that deal with the negotiations of the trade and investment agreements.

d) To explore possible solutions that may include the tobacco industry, like proposing them to design and sell other products that are healthier such as electronic cigarettes or to involve them in developing other alternatives to this addiction that may result in an economic profit for them but avoiding the negative impact of smoking. An example of this may be to support a campaign that would emphasize on the fact that if everybody would smoke only 5 cigarettes per day this would not be bad for health. For that purpose they could design a new package of 5 cigarettes. The government could also support this intermediate solution as a transition that may be useful for both parties.

Despite what has been mentioned on the recommendation a) and d), it would be desirable in my opinion to see that the health provisions finally prevails despite the interests and needs of certain States and the Tobacco industry and that this could be reflected in the agreements, and in any transitional agreement.

Rotary Peace Center, Chulalongkorn University, Bangkok

January-March 2016.