Bilateral Investment Treaties Spark Global Concerns

The revised model text for bilateral investment treaties has addressed many concerns, but to avoid litigations, India must renegotiate existing treaties on the basis of the new norms.

- Joe C. Mathew

On December 17, 2015, US-based Philip Morris, the manufacturer of iconic cigarette brand Marlboro, lost a legal battle against the Australian government in an international arbitration tribunal. The company was trying to challenge an Australian law, which was legislated from a public health perspective to discourage the promotion of tobacco products. The Australian government had limited the use of brands, logos and trademarks on cigarette packs sold in the country. Philip Morris argued that the law harmed its investment interests in Australia.

The global tobacco giant was empowered to drag the Australian government before a tribunal set up under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules on the basis of an agreement that the country had earlier signed with Hong Kong. The Investment Promotion and Protection Agreement (IPPA), signed by Australia in 1993, had a provision for an investor-state dispute settlement (ISDS) mechanism. Foreign investors could invoke this provision to sue Australia or Hong Kong (depending on who invests where) if any policy or regulatory decision in the host country harms the business interests of investors.

Well, technically, the company that complained against Australia was not a US entity. It was Philip Morris Asia (PMAL), a Hong Kong-based corporate body that manages the parent company’s business interests in the Asia Pacific. PMAL also owns 100 per cent equity in its Australian affiliate, Philip Morris Limited. This made it possible for a battle between a Hong Kong company and the Australian government.