Phillip Morris Loses Lawsuit Against Uruguay on Tough Tobacco Rules

An international trade court ruled against Philip Morris International (PMI) in the company’s lawsuit against the government of Uruguay over tobacco-labeling rules. The International Center for Settlement of Investment Disputes' (ICSID) decision to side with Uruguay, a country with a GDP of $53 billion, and not with PMI and its annual revenues of $80 billion sends a signal: Small countries can implement public health policies however they want without the interference of multinational corporations backed by huge lobbying and legal budgets.

For a decade, Uruguay has been home to some of the toughest anti-tobacco laws in the world. Smoking is banned in all indoor public spaces and in outdoor areas adjacent to education and healthcare facilities. Tobacco taxes are high within this country of 3 million, and graphic warnings about health risks from smoking must cover at least 80 percent of the front and back of a pack of cigarettes. Cigarette makers are also prohibited from labeling their products as “light” or “low,” as public health policy makers argue that such labels deceive consumers about tobacco’s health risks.

PMI did not take kindly to Uruguay’s laws, and filed a lawsuit in 2010. The company cited an alleged violation of a 1988 trade agreement between Switzerland (PMI’s current base) and the tiny South American country.

Last year, the litigation finally found its way into ICSID’s docket, with arbitrators reaching their final decision on Friday. PMI sought $25 million in damages over what the company called a “decision to disregard its commitment to investors.” But instead, the ICSID ruled that Philip Morris had to pay Uruguay’s government $7 million in damages, along with all fees and expenses related to the litigation.

Reaction to the ICSID’s decision was swift. Former New York City Mayor Mike Bloomberg, now a leading anti-tobacco crusader who offered the Uruguayan government financial support in order to defray costs related to the litigation, celebrated Uruguay's legal victory.

“It shows countries everywhere that they can stand up to tobacco companies and win,” Bloomberg said in an emailed statement to TriplePundit. “Governments should always be able to protect people's health and safety, and we're committed to helping them when tobacco companies try to stand in the way.”

Action on Smoking & Health (ASH), which describes itself as the oldest anti-tobacco organization in the U.S., also applauded the decision.  ASH praised Uruguay and President Tabaré Vázquez, who spearheaded the laws during his previous term in office, for “prioritizing the health of his people and standing up to the bullying tactics of the tobacco industry.”

Victory aside, ASH’s executive director, Laurent Huber, warned that this would not be the last time tobacco companies would use an investor-state dispute settlement (ISDS) within a trade agreement in an attempt to influence government policy. “The global community needs to look in the mirror and ask itself: Why do we give tobacco multinationals special rules and special courts to sue governments?” Huber said in a press statement.

ASH has long hailed Uruguay’s laws as a leading case study in restrictive tobacco regulations, which the organization says are necessary in addition to taxation in order to decrease the consumption of tobacco and raise public awareness of smoking’s health risks.

On Friday, PMI said it would respect the ICSID panel’s decision. In an interview with the Associated Press, the company’s general counsel said the litigation was less about compliance and more about “clarification under international law.” In other words, look for small countries to remain spooked about enacting any aggressive public health laws designed to curb tobacco use. And the world’s largest tobacco companies will still find ways to sell cigarettes in the countries that can least afford to pay the healthcare costs that can result from smoking.

Image credit: Municipal Government of Montevideo