REUTERS | David Gray

After Philip Morris II: states maintain their regulatory powers to control the plain packaging of cigarettes

The two Philip Morris cases, involving restrictions on the presentation and sale of cigarettes through plain packaging measures, have been used by anti-investor-state dispute settlement (ISDS) groups as the prime examples for creating the myth that treaty arbitration causes states not to adopt certain measures for the protection of public goods. They argue that it has resulted in so-called “regulatory chill”.

However, the first Philip Morris case against Australia was kicked out at the jurisdictional phase because, in the view of the majority of the arbitral tribunal, the restructuring of the Philip Morris subsidiaries into a Hong Kong entity occurred only after the dispute arose. Accordingly, the Australian plain packaging legislation remains unaffected in force.

On 8 July 2016, another arbitral tribunal rendered a decision on the merits of a dispute, this time involving similar plain packaging measures adopted by Uruguay. In this Philip Morris II award, the majority tribunal again sided with the state; therefore, the challenged legislation remains in place.

The silence of the anti-ISDS groups regarding the outcome in both Philip Morris disputes is remarkable and in stark contrast with the mythical proportions attributed to these cases as perfect, real life examples of “regulatory chill”. Moreover, it is claimed that the “regulatory chill” effect is enabled and facilitated by the possibility of foreign investors bringing claims against states, which presumably intend to protect public goods and which are fearful of the damages they may have to pay to investors when ordered by presumably rigged, private and secret tribunals.

However, as it turned out again, the “regulatory chill” argument simply remained unconvincing and failed yet again. The weakness of the “regulatory chill” argument has also been confirmed by the recent in-depth analysis of EFILA.

The truth is that both arbitral tribunals did a decent job: they considered and weighed all arguments, allowed amicus curiae briefs and extensively discussed relevant case law. In other words, they did what every arbitral tribunal normally does; namely, they delivered justice. However, personally, I believe that the minority views in both cases had more merit. In particular, the majority in the Philip Morris II case gave practically unlimited deference to state measures, which, in my view, went beyond what is necessary.

Be that as it may, the bottom line is that the whole hysteria surrounding the alleged undermining of policy space exemplified by the Philip Morris cases was clearly exaggerated, and ultimately, wrong.

The clear conclusion from these cases is that states continue to maintain their regulatory powers to control the plain packing of cigarettes, without having to fear that this could be challenged successfully by affected foreign investors before international arbitral tribunals.

EFILA Nikos Lavranos

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