Philip Morris initiates arbitration against Uruguay over new labeling requirements, taxes

By Fernando Cabrera Diaz

May 11, 2010

Tobacco giant Philip Morris International (PMI) has initiated an ICSID arbitration against Uruguay over new rules requiring that 80% of cigarette pack surfaces be devoted to graphic warnings of the dangers associated with smoking.

The company alleges that the labeling requirements and recent tax increase harm its investments and infringe on its trademarks in violation of the Switzerland-Uruguay bilateral investment treaty.  U.S.-based PMI, which has its international headquarters in Lausanne, Switzerland, has turned to the Switzerland-Uruguay BIT to launch its arbitration.

Over the last two years the Uruguayan government has engaged in a public health campaign to lower the smoking rates among its population, which was as high as 50%. As part of the anti-smoking campaign the government implemented a series of measures that it claims are directed at protecting public health. Among these is a new rule increasing mandatory graphic warning labels on cigarette packs to 80% of the pack.

According to a report in the Uruguayan newspaper El Pais, a source with Abal Hermanos, PMI’s subsidiary in Uruguay, said that the new rule prevents the company from displaying its brands in a reasonable manner.

Another disputed measure adopted by the Uruguayan government, Resolution 514, limits tobacco companies to marketing only one type of cigarette per brand.

Resolution 514 will prevent tobacco companies from marketing “light” or “mild” cigarettes.  These cigarette labels are being banned in many countries, including recently in the United States, for leading to consumer perception that they are safer than other cigarettes. Studies have shown that smokers increase the amount of smoke they inhale when smoking cigarettes with lower amounts of nicotine and tar in order to achieve their normal dose, meaning “light” cigarettes are not considered safer.

In response to these labeling rules,  PMI has adopted color-coded labeling, changing Marlboro Lights, which have traditionally come in a gold pack, to Marlboro Gold, and Marlboro Ultra-Lights, which come in a silver pack, to Marlboro Silver.  This color-coded approach, which is now limited in Uruguay by Resolution 514, has been criticized as circumventing the rules against “light” and “mild” labeling.

Under the resolution, which went into effect on March 1, 2010, Abal Hermanos can only sell one type of PMI’s signature Marlboro cigarette in Uruguay, and not its usual range of Marlboro Red, Gold, Green and Blue. According to the Abel Hermanos source, the company has had to pull 5 of the 12 Philip Morris products it marketed in the country.

Morgan Rees, Director of Regulatory Communications for PMI, said it is the first time that the company has been deprived of its intellectual property rights in such a drastic manner, anywhere in the world.

Of note, Uruguay is a signatory of the World Health Organization’s Framework Convention on Tobacco Control (WHO FCTC).  One of the objectives of the FCTC is “to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke by providing a framework for tobacco control measures to be implemented by the Parties…”

Under the FCTC warnings on tobacco packages “should be 50% or more of the principal display areas but shall be no less than 30% of the principal display areas.”

At the same time signatories of the FCTC agree to adopt measures that prevent tobacco product packaging and labeling from promoting a product by any means “that directly or indirectly creates the false impression that a particular tobacco product is less harmful than other tobacco products. These may include terms such as “low tar”, “light”, “ultra-light”, or “mild.””

Switzerland, which is also an FCTC signatory, recently implemented new cigarette labeling restrictions that require a minimum 56% of cigarette packages to be devoted to warnings.  Swiss law now also bans the use of the terms “light” and “mild” from appearing on packages.

Sources:
“Tabacalera demanda a Uruguay en el exterior,” Fabián Tiscornia, El País,
February 27, 2010.

“Coded to Obey Law, Lights Become Marlboro Gold,” By Duff Wilson, The New York Times, February 18, 2010, available at:
http://www.nytimes.com/2010/02/19/business/19smoke.html

WHO Framework Convention on Tobacco Control: http://www.who.int/fctc/text_download/en/index.html

Tobacco Labeling Resource Centre, Country Information for Switzerland: http://www.tobaccolabels.ca/currentl/switzerl