The defeat of Big Tobacco on plain packaging is good for democracy 

Smoking is on the wane and its demise is being hastened by the rise of less toxic alternatives like e-cigarettes (so long the EU doesn’t go and ban them). And it does feel rather illiberal for the Government to creep further and further into decisions about product marketing.

Despite all that, I’m glad that the tobacco industry lost this case. For all the flaws in the plain packaging policy, it is just that: policy passed by a lawfully elected government. The tobacco companies lobbied against it and they lost. The courts are not the right place to start overhauling policy.

This case not only affirms British democracy, but also has implications for free trade. In its lawsuits against Australia and Uruguay, Philip Morris did not choose to attack government policy in those country’s own courts. It tried something new and altogether more troubling: using international courts established by trade agreements to try and undermine national sovereignty.

In the case of Uruguay, Philip Morris used its Swiss subsidiary to sue Uruguay under the bilateral investment treaty between the two countries. For Australia, Philip Morris appears to have shopped around for the most favourable jurisdiction it could find and then decided to sue the Australian Government from Hong Kong under the bilateral investment treaty between those two countries.

Bilateral investment treaties are there to allow companies to invest and trade abroad with more confidence. As well as reducing any trade barriers, they try to establish fair rules of the game and also set out what courts and what authority will be used to settle any disputes that arise.

In extreme cases, they are meant to ensure that companies that have their assets expropriated by governments, like YPF in Argentina, get their case heard in a neutral court and at the least, get compensated for their loss. This should boost investment, as it makes companies feel more comfortable doing business in places where they might not otherwise trust the local legal system to defend their rights.

What these agreements are not meant to do is serve as sticks with which to beat sovereign states that decide their own legitimate priorities.  Companies might not like it, but governments do have the right to adopt rational or irrational policies that don’t favour their business, whether that involves banning fracking, abolishing subsidies for wind farms or barring advertisements.

That is why Philip Morris lost its case against Australia and is likely to lose against Uruguay. But not all countries have the resources to fight large companies. In Uruguay’s case, Michael Bloomberg rode to the rescue by funding a defence that the country would otherwise not have been able to bring. Philip Morris has also threatened lawsuits against Togo, Namibia and the Solomon Islands. It could be that some poorer countries might decide it is easier to just abandon their laws than fight.

This is unacceptably aggressive and damaging behaviour by the tobacco industry. It fits into a history of unscrupulousness that started with the reluctance to acknowledge that its products cause cancer.

Fortunately, there is a global consensus that we cannot allow trade agreements to be hijacked by ridiculous lawsuits. Although the industry lost its cases, trade agreements have started to include specific provisions excluding tobacco from their remit, says Thomas Bollyky, a senior fellow at the US Council on Foreign Relations and a former trade negotiator. This gives the industry the special treatment it has earned.

These carve-outs are in addition to protections that already exist allowing governments to make policy in the public interest, including on health and environmental grounds, without exposing themselves to claims from private companies.

Despite all these protections, however, lawsuits like the one thrown out today damage the reputation of business and trade. That can have tangible consequences, eroding popular support for trade deals.

The EU’s mooted trade agreement with the US is a case in point. Democratic protections would all be written into the deal, but that has not stopped the spread of misconceptions like the idea that the agreement would threaten the NHS (it wouldn’t) or force France to repeal its irrational ban on fracking (it wouldn’t). These fears are unfounded, but they will probably still be enough to sink the deal.  

Few would deny that Governments should respect property rights. It’s reasonable for companies to lobby against policies they don’t like. But businesses have a responsibility not to bring vexatious and groundless lawsuits that attempt to undermine national sovereignty. Following its defeat, the tobacco industry ought to withdraw from the field and reconsider its tactics.