Just Because Australia Won Its Plain Packaging Case Against Philip Morris Doesn't Mean Corporate Sovereignty Isn't A Threat

The challenge by Philip Morris to Australia's plain packaging law for tobacco products is perhaps the best-known example of how companies try to use corporate sovereignty provisions in trade agreements to force nations to change their policies -- in this case, one designed to save lives. That case was also notable for the way that it had been brought: since Philip Morris was very unlikely to win by invoking the trade agreement between Australia and the US, it used one between Australia and Hong Kong -- a classic case of treaty shopping. Last week, we heard that the case had been dismissed. An article by Kyla Tienhaara in The Sydney Morning Herald explains:

it appears that Australia was able to convince the tribunal that Philip Morris should not be permitted to plead the merits of its case because it engaged in "treaty shopping". In other words, it was an American investor when plain packaging was introduced and only adopted a "flag of convenience" in order to access arbitration.

It's great news that Australia won't be forced to pay huge punitive fines for proceeding with its health policy. But, predictably, people are already pointing to this result as "proof" that corporate sovereignty isn't really a problem, as in this column published by The Conversation:

A tobacco company sued a government for enacting laws designed to improve public health. They used a little understood mechanism -- ISDS -- to sue, despite having lost in Australian courts. International trade law disputes rarely have such a clear-cut villain. It is natural to distrust the mechanisms they relied on. However, this victory -- in the first ISDS claim brought against Australia -- should allay those concerns.

The author concludes:

Australia's victory over Philip Morris should take much heat out of this debate. The bogeyman has been slain.

Leaving aside the rather important fact that it is not possible to extrapolate from a single data point -- and that there are dozens of other ISDS cases where governments have lost and been hit with massive fines -- there are couple of aspects to note here. First, as Tienhaara writes in her article:

the dismissal of the case on procedural grounds means that we will never get a ruling on the substance of Philip Morris' claims. As such, the award contributes nothing to the bigger debate about the conflict between investment protection and public policy.

That's the key issue -- whether companies can use corporate sovereignty provisions to trump laws enacted democratically. The defeat on a procedural issue leaves open the possibility that other ISDS cases will succeed where Philip Morris failed, and cause governments to repeal laws rather than pay massive fines. In particular, both TPP and TAFTA/TTIP are likely to give far stronger rights to tens of thousands of companies to sue governments directly, without needing to invoke obscure treaties with third parties. Tienhaara points out a further reason why the defeat of Philip Morris does not signal that corporate sovereignty is no longer a threat:

poor countries are in the worst position because they can't afford even a preliminary defence in an ISDS case. It has been reported that Australia has spent [AU]$50 million [about US$35 million] defending plain packaging in arbitration. Uruguay has been mired in its own dispute with Philip Morris for even longer than Australia and has to rely on funding from a foundation set up by former New York mayor Michael Bloomberg because it can't afford to pay its legal fees. The high cost of ISDS makes the threat of arbitration a potent tool for the tobacco companies.

In other words, it is not necessary for companies to win all or even most corporate sovereignty cases: the mere threat of them winning is likely to be enough to dissuade many governments from proceeding with policies that could result in them paying huge awards. The ISDS bogeyman may have taken a hit with Australia's win, but it is most certainly not slain.

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