MASTER THESIS
To what Extent Can Investors Challenge the Measures against
Sugar-Sweetened
Beverages in Investment Arbitration?
Name: Gintare Matonyte Student number: 12348937
E-mail: gintarematonyte@gmail.com Supervisor: Prof. dr. S.W.B. Schill
Master track: International Trade and Investment Law Amount of words (including footnotes): 12797
Abstract
The increasing number of obesity and overweight encourages states to tackle this health issue. The main mean to challenge obesity has become the measures against sugar-sweetened beverages. While on one hand the measures are adopted to improve public health and fight the occurring issues, on the other hand, the measures negatively affect investors in the soft drink industry. The enacted measures by states vary by its design, structure, and coverage. The thesis attempts to overview the possibility to challenge the measures against the sugar-sweetened beverages in investment arbitration. In doing so, a couple of fiscal and non-fiscal measures are presented. Subsequently, the relative to investment law rationale are discussed by focusing on the existing arbitral jurisprudence. Therefore, the paper addresses the possible arguments of states such as the state’s regulatory space and tax carve-outs. Finally, the paper discusses the application of the non-discrimination element.
Table of Content
Abstract………2
Table of content………...……3
List of abbreviations………4
I. Introduction……….………5
II. The measures against the SSBs………...………8
2.1. The fiscal measures……….………..……8
2.2. The non-fiscal measures……….………....13
III. The basis of jurisdiction in case of the challengeable measures against the SSBs…………..15
3.1. The affected investor………...………..15
3.2. The affected investment………17
IV. The general obstacles to challenge the measures under IIAs ……….18
3.1. The policy space of the state and the public health………18
3.2. The tax carve-outs clauses in IIAs and their application in relation to the measures against SSBs………23
V. The non-discrimination application ………..…………..26
5.1. The “like circumstances”………...……….27
5.2. The reasonable justification………..………..32
VI. Conclusion………..……….35
List of Abbreviations
BIT Bilateral Investment Treaty
EFSA European Food Safety Authority
FET Fair and Equitable Treatment
FOP Front-of-pack labelling
GATT General Agreement on Tariffs and Trade
HFCS High fructose corn syrup
IIA International Investment Agreement
MFN Most-Favoured Nation
NAFTA North American Free Trade Agreement
NCDs Non-communicable diseases
NT National Treatment
SSB Sugar-Sweetened Beverage
WHO World Health Organization
I.
Introduction
The World Health Organization (WHO) adopted the guideline that suggests taking the measures for the prevention of non-communicable diseases (NCDs). According to the WHO, free sugar intake is a risk factor for NCDs as the growth of overweight and obesity is an epidemic.1 For instance, in 2016 more than 1.9 billion adults were overweight while of these over 650 million adults were obese. To put it simpler, 13 percent of the world’s adult population was obese.2 Additionally, NCD, like dental caries, places “a heavy burden on healthcare budgets in many countries”.3 Likewise, dental caries is considered the fourth most expensive disease to treat as it consumes 5-10 % of healthcare budgets in industrialized countries.4 The study linked the consumption of free sugar to oral health issues and had calculated that in 2010 direct oral health care expenditure in the world reached 297.67 billion US dollars.5 Hence, WHO, recognizing the detrimental effect on health, proposed to its member states to reduce the intake of free sugars.6
Subsequently, WHO in 2017 once again highlighted the adverse consequences of high sugars intake on human health. Nevertheless, in 2017 WHO identified the main culprit of the high sugar intake and concluded that “sugary drinks” are mostly to blame for obesity, diabetes and tooth decay as one can of sugary drinks consists of about 10 teaspoons of table sugar. Following, WHO suggested its member states to adopt the fiscal measures against those drinks. WHO provided the definition of “sugary drinks” indicates the expansive understanding of such drink. Pursuant to WHO, sugary drinks involve “all types of beverages containing free sugars and these include carbonated or non-carbonated soft drinks, fruit/vegetable juices and drinks, liquid and powder concentrates, flavored water, energy and sports drinks, ready-to-drink tea, ready-to-drink coffee, and flavored milk drinks”. Despite the WHO suggested definition, many countries, which adopted measures against beverages with the high intake of sugar, have chosen the narrower scope of the tackled beverage. While in 2017 WHO concluded that the most effective action for reducing sugar
1 World Health Organization, “Guideline: Sugars intake for adults and children”, (2015), Geneva: WHO, p. 6. 2 World Health Organization, “Obesity and overweight” (16 February 2018) <https://www.who.int/news-room/fact-sheets/detail/obesity-and-overweight>, accessed 29 May 2019.
3 Ibid 1.
4 FDI World Dental Federation, “A practical guide to reduce sugars consumption and curb the epidemic of dental
caries” (2016) FDI World Dental Federation, p. 11.
5 T. Meier, P. Deumelandt, O. Christen, G. I. Stangl, K., Riedel, M. Langer, “Global Burden of Sugar-Related Dental Diseases in 168 Countries and Corresponding Health Care Costs”, (2017), Journal of Dental Research, Vol. 96(8), p 847.
consumption is, as in tobacco case, the taxation of sugary drinks,7 the complexity of the protection of public health and the food industry itself requires more than one implemented measures for the achievement of governments objectives, and thus successfully challenge public health concerns.8
With the globalization and the growth of investment flaws, the entry of food and beverage companies into various foreign markets has been increasing, resulting in the greater number of foreign direct investment in the primary production, food processing, and retail sectors of these markets.9 Evidentially, the beverage industry potentially may cover multiple business sectors and may have a significant impact on a state’s economy. In particular, in Brazil Coca-Cola has invested in the refinement of cane sugar, production of beverage concentrates, bottling of sugar-sweetened beverages and in refrigeration. Similarly, in Ecuador, the investment by Coca-Cola was extended to advertising.10 Moreover, the value of food and beverage industries’ investments in foreign markets can reach even higher numbers. To illustrate, over the period of 10 years, Coca-Cola and Unilever, another food and beverage company, has planned to invest almost 1 billion US dollars in Myanmar.11
Consequently, the global public health concerns and investments in sweetened beverages industry might intermingle and result in the adverse impact on investments and foreign investment flows. To take one example, in 2016 Coca-Cola withheld further investments in Portugal based on the soon to be introduced sugar tax on beverage drinks.12 Moreover, due to the enacted ‘beverage tax’, in Philadelphia, the US, Coca-Cola recorded 32 percent decrease in sales in the city,13 and some retailers even blamed this levy for the bankruptcy of their business.14
7 World Health Organization, Sugary drinks – a major to obesity and diabetes, (2017), Geneva: WHO, page 1-2. 8 Tania Voon, “Evidentiary challenges for public health regulation in international trade and investment law” (2015)
Journal of International Economic Law, p. 4.
9 Sharon Friel,Libby Hattersley,and Ruth Townsend, “Trade Policy and Public Health”, The Annual Review of
Public Health (2015). 36:325–44, p. 330.
10 Anne Marie Thow and Benn McGrady, “Protecting policy space for public health nutrition in an era of international investment agreements”, in Bull World Health Organ, v.92(2); 2014 Feb 1, p.140.
11 Mike Esterl and Shibani Mahtani, “Coke and Unilever Invest $1 Billion in Myanmar” (WSJ, 2013) <https://www.wsj.com/articles/SB10001424127887324423904578525140634650424> accessed 30 May 2019. 12 Brendan de Beer, “Coca-Cola cancel €40m Portugal investment due to ‘Soda Tax’” (https://www.theportugalnews.com,2016) <https://www.theportugalnews.com/news/coca-cola-cancel-40m-portugal-investment-due-to-soda-tax/40229> accessed 30 May 2019.
13 Jay Moye, “Beverage Tax Slows Philly Coke’s Retail Sales by 32%, Leading to Workforce Reduction” (https://www.coca-colacompany.com, 2017) <https://www.coca-colacompany.com/stories/business/2017/beverage-tax-slows-philly-cokes-retail-sales-by-32> accessed 30 May 2019.
14 Laura McCrystal, “Is Philly Soda Tax Solely to Blame for Closing of West Philly Shoprite?” (https://www.inquirer.com, 2019) <https://www.inquirer.com/news/philadelphia-soda-tax-shoprite-closing-haverford-20190117.html> accessed 30 May 2019.
Following the introduction of the measures affecting the sweetener beverage industry, the legal actions against the state policies and adopted measures has been becoming or has become a common practice. Yet the challenges against the implemented measures in the public health space are exceptional under the international investment agreements (IIAs). The absence of the claims under IIAs does not necessary indicates the irrelevancy of IIAs in the public health policies. Therefore, lack of claims under IIAs could be explained due to the fact that public health nutrition has started to regulate recently.15 Moreover, the outcome of the infamous Philip Morris cases in investment arbitration could be considered as one of the reasons for the avoidance to bring claims related to public health policies under IIAs.
Evidencing the collusion of the public health policies regardless of sweetened drinks and the investors rights under IIAs, this paper aims to assess the prospects of foreign investors to challenge the adopted measures against sugar-sweetened beverages (SSBs) in investment arbitration and thus discusses the question to what extent investors can challenge the measures against SSBs in investment arbitration and on what legal standings.
The thesis commences with the presentation of the measures that governments have adopted or yet considered. In the light of dominance of fiscal measures against SSBs, the fiscal measures and non-fiscal measures is discussed separately. The comparable legislations were selected based on their differed coverage and designs, trying to overview the most debated ones. In order to understand how the fiscal measures imposed on SSBs work, the Section II also reviews economists’ views and studies related to the measures against SSBs. The third Section will provide a short overview of the affected investors and investments by the measure. The fourth Section of the thesis will analyze the general obstacles such as the state’s regulatory autonomy and tax carve-outs, for the investors to successfully challenge the measures. In case of the regulatory space, the Philip Morris v. Uruguay and its dissenting opinion of Arbitrator Gary Born is addressed. In order to provide the answer on whether the adopted measures may constitute a breach of the guaranteed standards under IIAs, the non-discrimination element is discussed in the fourth Section. There main focus is on the like circumstances and the possible justification of differential treatment. The analysis in this Section is heavy based on the cases ADM v. Mexico, Cargill v. Mexico, Corn Product v. Mexico and Cargill v. Poland. Finally, the conclusion of the thesis attempts to answer the research question based on the presented findings.
II.
The measures against the SSBs
Due to the complexity of the objectives, a number of measures should operate in conjunction.16 Taking into account the suggestions from health care advocate to adopt more measures on SSBs, this Section overviews these measures.
2.1. The fiscal measures
The economists claim that individual consumers are not perfectly rational actors due to their lack of information and self-control. In turn, the consumers may suffer from a failure to make consumption’s choices that maximize their welfare. In order to increase social welfare and help consumers, governments enact public policy measures that attempt to discourage the consumption of unhealthy commodities. The most appealing measure is an excise tax, also known as “sin tax”.17
The general target of the excise tax is to minimize costs on the society by modifying the behavior of individuals and raising the revenue.Nonetheless the objectives of excises, this measure is often criticized by being regressive as it affects mostly lower income individuals. And most importantly, excise tax might be seen as an ineffective mean to reach main objectives.18 The levy on food with a high intake of sugar became a prevalent mean worldwide, however, there is not any uniform and universal taxation model. Notably, the fiscal measures on products with sugar vary their design, scope, and context. In order to assess the prospect and feasibility of investors to challenge the enacted fiscal measures against sugar-sweetened beverage drinks in investment arbitration, the following table presents adopted and implemented highly debatable taxes on sugary products in various countries.
The health related taxes on sugary food.
Country (a year of the introduction of tax) The purpose of the tax
The taxed products The tax type
The tax rate
Encourage healthier eating habits;
Soft drinks with more than 8 g/100 ml of sugar,
Volume based tax
The tax rate
varies depending on the product. For instance
16 Ibid 8, p. 4.
17Jonathan Cummings, “Obesity and Unhealthy Consumption: The Public-Policy Case for Placing a Federal Sin Tax on Sugary Beverages”, 34 SEATTLE U. L. REV. 273 (2010), p. 273.
18 Johnathon Gruver, “Taxing sin to modify behavior and raise revenue, Expert voices” (2010), NICHM foundation, available at: https://www.nihcm.org/pdf/ExpertVoices_Gruber_April2010.pdf.
Hungary19* (2011) Encourage manufacturers to change recipes to healthier one; Create a revenue for public health.
concentrates and syrups, pre-packed products with added sugar, chocolates, sugar-sweetened cocao powder, flavored beer or alcoholic drinks, fruit preserves.
soft drinks taxed around 0.02 euro per litre, and confectionery around 0.40 euro per kilogram.
France20** (2012) Discourage the consumption of SSBs; Direct consumers to choose other drinks All non-alcoholic beverages containing added sugar or sweeteners Volume based tax
7.53 cent per liter
Mexico21 (2014)
Discourage intake of unhealthy food; Raise the revenue.
All sugar-sweetened beverages, excluding beverages sweetened with non-caloric sugar substitutes and dairy products; Foods with a caloric density of 275 kcal per 100 g or higher (for example, chocolate, confectionary products and snacks). Volume based tax
1 peso per litre (average about 10-12 % of the price) and 8% tax on the food based on calorie density threshold.
19 European Commission, Health Equity Pilot Project, “The impact of taxes on ‘junk food’ in Hungary Case Study”, (2017), p. 3.
20 The French General Tax Code “Du Code général des impôts” (2013).
21 The Mexican special taxes on production and servicesLey del Impuesto Especial sobre Producción y Servicios
France22 (2018)
Encourage manufacturers to reduce the content of added sugar in the beverages Non-alcoholic beverages containing added sugar, excluding nutrition for infants and soya based beverages The sugar based tax, it gradually increases based on sugar’s content
The range varies from 3.0 to 23.5 euros per hectolitre;
The sugar contains intervals are from 1 or less than a kg per hectoliter to 15 and more than a kg per hectoliter;
In case the amount of sugar exceeds 15 kg per hl, the additional
kilogram of sugar cost is extra 2 euros. United Kingdom23 (2018) Encourage companies to reformulate soft drinks minimalizing sugar intake. Drinks containing 5 g or more sugar per 100 ml, exempting highly milk based (75 % of milk) sugar sweetened drinks, pure juice Tier tax rate depending on sugar’s contain; 1) 5 g per100 ml (amounted to 18 pence by litre) 2) 8 g per 100 ml or more (amounted to 24 pence by litre) Philippines24 (2018) Curb the consumption of SSBs due to diabetes and obesity problems; Raise revenue for complementary health programs that address problems of diabetes and obesity Non-alcoholic beverages containing caloric or non-caloric (artificial) sweet substances, excluding milk and milk replacement products, 100% natural fruit and vegetable juice, coffee (ground, instant soluble, pre-packed powdered), drinks sweetened with coconut sap sugar Two tier tax rate depending on type of sweet substance 1) 6 Philippines pesos per liter for using purely caloric, non-caloric sweeteners or a mix of caloric and non-caloric sweeteners 2) 12 Philippines pesos per liter
for drinks “using purely high fructose corn syrup or in combination with any caloric
22 The French General Tax Code “Du code général des impôts” (consolidated version 24 May 2019). 23 The United Kingdom’s The soft industry levy regulation (2018).
or non-caloric sweetener. *The Public Health Product tax was introduced in 2011 but its scope was changed, here represent latest data; Notable, the tax includes not only sugar but salt and methylxanthines in energy drinks.
**The tax was amended in 2018.
Admittedly, the legislated laws imply the diversity of the coverage of fiscal measures against unhealthy food. According to various legislations, there are two main dominating trends in the scope of imposed taxes.
Firstly, the categories of taxed products differ. Contiguous to sugary drinks, Mexico and Hungary legislations impose taxes on another category of sugary food such as chocolate or confectionery. Notably, the selected tax approaches of both countries imply the different assessment of sugary products. In Hungary case, the non-beverages with the high amount of sugar equated to the sugary drinks as the chosen method how to amount tax is the same for non-beverages and beverages, while in Mexico case the non-beverage products fall into the threshold of the caloric density. Still, both countries approaches indicate the acknowledgment of the harmfulness of high intake of sugar rather than singling out a particular product.
Secondly, the provided legislations indicate the distinctive approaches to added sweet substances in the beverages. Some countries took the narrow approach by limiting levy only on added sugar in beverage, others included sweeteners in the scope of tax on sweetener drinks too. For instance, before the amendment of the law in France, the scope of the levied beverages embraced all drinks with added sugars and sweeteners, however, the following amendment limited the scope to only beverages with added sugar. Similarly, United Kingdom imposed tax only on sugar-sweetened beverages and Mexico emphasized the detrimental effect of sugar in beverages by exempting beverages sweetened with non-caloric sugar substitutes from the levy. Moreover, the tendency to exclude various drinks with high intake of sugar or sweeteners from tax is mutual among countries, likewise, Philippines did not levy on drinks sweetened with coconut sap sugar or in France case – soya based drinks.
Equally to the scope of the tax, the scales of tax diverge leading to the several potential outcomes of the taxation, for instance, the reduced number of consumption, the prices increase or change of receipts. Shortly, the economists studies defined three types of taxes on sweetened drinks; 1) the volume-based tax scaled by the volume of the taxed drink; 2) the sugar-based tax
depending on the content of sugar in the beverage;25 3) the tiered tax that separates sugary drinks into couple categories based on various criteria (in UK case – content of sugar and in Philippines case – type of sweetener) and scales the different tax rate for the various categories.26 Nonetheless, these type of taxes provide the contrasting fiscal treatment of sugary drinks. To illustrate, in Mexico or Philippines the tax on the sweetened beverage would be identical regardless of low or high sugar intake, contrary to UK or France where the scale of tax differs based on the consistency of sugar, therefore the beverage with the low intake of sugar levied less than a high intake of sugar. Interestingly, some jurisdictions provide the threshold, which also differ, for imposing the tax on sweetened beverage drinks.
This diversity among the jurisdictions and lack of similar models in levying sweetened beverages question the necessity of fiscal measure and highlight the arbitrary and contradictory outcomes of justification of the fiscal measure against sweetened beverages. The states grounded the tax on a sweetened beverage on the necessity to challenge the adverse effects of sugar on health, thereby further reduced the consumption of sweetened drinks and encourage manufacturers to alter the receipts of drinks. Yet the basis and various modifications of the tax suggest doubtful results of the tax and more importantly the different thresholds and boundaries question the integrity and necessity of the levy on particular products.
The studies and research on the effect on implemented sugar taxes, in fact, observed the reduction of the intake of sugary drinks. According to the 2016 study, the sales of SSBs in Mexico decreased by 7.3% per capita.27 In 2012, after the introduction of a sugar tax in France, the consumption of soft drinks decreased by 3 to 3.5 litres/person per year. Despite the results, the study highlighted the trend of demand of the non-taxed juice and levied drinks prior tax entering into force, concluding that the implementation of the tax was not necessarily caused the changes in demand. Hungary registered the reduction of 14% from 2011 to 2013 for non-alcoholic beverages, however, the trend of the decrease existed from 2007 to 2011 (15%).28 Thus, the data
25 Hunt Allcott, Benjamin Lockwood, Dmitry Taubinsky, “Should we Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence”, NBER Working Paper No. 25842 (2019), p. 17.
26 Mac Taylor, “Taxation on sugary drinks”, Report, Legislative analyst’s office (2018), p. 9.
27 Ben Chapman, “An Analysis of the “Sugar Tax” — Evidence and Policy Implications” (Medium, 2018)
<https://medium.com/@Ben_Chapman/an-analysis-of-the-sugar-tax-evidence-and-policy-implications-b22091c2c9c1> accessed 8 June 2019.
28 ECORYS, “Food taxes and their impact on competitiveness in the agri-food sector”, final report (2014), Ref. Ares(2014)2365745 - 16/07/2014, p. 37-38.
on the decreased numbers of sweetened beverage drinks consumption due to taxes on them is uncertain as other factors were not assessed.
Still, the main question regardless of the declared aim and purpose of such measure remains whether sugar tax causes a positive impact and outcome on health. The existing studies provide contradicting results and conclusions. One of the few analysis based on modeling studies rather than actual experience concluded the possible progressive effectiveness of the tax on sweetened beverages for the consumers’ behavior modification leading to the improvement of the health by lowering the frequency of NCDs and their associated risk factors.29 Other studies present counterpointing results emphasizing the complexity of the analysis due to the limited and largely equivocal evidence base, suggesting that the public health case for using economic instruments to promote dietary and physical activity behavior change may be less compelling.30 More importantly, many studies avoid assessing the possibility of substitution of other products and subsequent health implications of any such substitution effects. Considering the conflicting studies, it is possible to conclude that the impact of SSBs is highly uncertain and questionable on whether it is possible to achieve health goals. Subsequently, the introduction of such tax by governments could be considered as highly speculative.31
2.2. Non-fiscal measures
Notwithstanding the current prevalence of the fiscal measure on SSBs, the state policies are not limited to the implementation of the fiscal measures. Arguably, taking successful examples from tobacco cases, states are trying to adopt various strategies to reduce unhealthy behavior by consumers, in other words, to reduce the consumption of SSBs.32 Besides the economic incentives on SSBs, subsequently, the states started to implement the numerous non-fiscal measures. The study shows Latin American countries have enacted at least 24 non-fiscal measures, the majority being mandatory to curb the consumption of SSB from limiting the retail of SSBs in schools and
29 International tax and investment center, “The impact on selective food and non-alcoholic beverage taxes”, Issue paper (2016), available at: https://www.oxfordeconomics.com/my-oxford/projects/341055, p 10.
30 Ibid 29, p. 9. 31 Ibid 29, p. 12.
32 Frank J. Chaloupka, Lisa M. Powell and Jamie F. Chriqui, “Sugar-Sweetened Beverages and Obesity: The
public contracting restrictions to a stricter labeling regulations.33 Following two dominating non-fiscal measures will be presented: the warnings about the effects of SSBs and the ban of SSBs.
Starting with the labeling, a couple of approaches could be seen towards sugar treatment and specifically SSBs in labeling commodities. Generally, many jurisdictions have compulsory requirements for nutrition labeling in the back-of-pack.34 For instance, the EU obliges to expose the content of sugar in the nutrition declaration reasoning to the importance of labeling for an attempt to achieve a high level of health protection for consumers and guarantees their right to the information and admits that consumer’s choices can be influenced by among others health considerations. 35 Despite the regulation’s permit of voluntary front-of-pack labelling, the specific format of FOP should be followed and more importantly, an additional form of expression and presentation of the nutrition declaration (like colours, symbols) is allowed under certain conditions set forth in the Regulation. Thus, some member states started adopting the health rating systems on consumable food products (for example, traffic light system).
Although, recent studies and attempts to implement the new labeling practices do not constraint by nutrition declaration. The introduction of textual warnings on SSBs labels is growing and the idea to pass similar requirements to tobacco is suggested by a couple of studies. Noteworthy, Venezuela established a mandatory textual warning in SSB labels alerting the risk of consumption of SSB.36 Evidentially, California state passed the bill which requires to put an alert on the drinks with added caloric sweeteners containing a certain amount of calories label stating that “Drinking beverages with added sugar(s) may contribute to obesity, type 2 diabetes, and tooth decay”.37 Nevertheless, similar mandatory warning was attempted to introduce on the advertisement of SSBs by San Francisco in 2015, however, the Soda warning ordinance was revered by the appeal court stating that it is contrary to a commercial speech protection. In its ruling, the Court held that the warning was not purely factual or uncontroversial due to the lack of emphasis on the consumed quantity or other life choices adding that the black box warning
33 P. Bergallo, V. Castagnari, A. Fernandez, R. Mejia “Regulatory initiatives to reduce sugar-sweetened beverages
(SSBs) in Latin America” (2018) PLoS ONE 13(10): e0205694, p. 3.
34 European Food Information Council, “Global update on nutrition labeling”, Executive summary (2016), available at https://www.eufic.org/images/uploads/files/ExecutiveSummary.pdf.
35Regulation (EU) No 1169/2011 of the European Parliament and of the Council of 25 October 2011 on the
provision of food information to consumers (OJ L 304, 22.11.2011, p. 18–63;).
36 Ibid 33, p. 13;
37 Patrick McGreevy, “A Bill to Put Health Warnings On Soda and Sugary Drinks Advances in California” (latimes.com, 2019) <https://www.latimes.com/politics/la-pol-ca-warning-label-sugary-drinks-advances-20190523-story.html> accessed 8 June 2019.
overshadows the other visual elements in the advertisement.38 Similarly, the Colombian government consumer protection agency based on a soda company’s complaint was forced to remove the television advertisement showing the link between sugar and obesity and prohibits to discuss sugar related health risks.39 Overall, the alert system on SSBs is anticipating the coming trend of implementation of warnings and the foreseen legal challenges against labeling measures.
Following, the ban on SSBs could be discussed. Remarkably, the prohibitions to retail SSBs at the first place targets mostly children through limiting the sale of SSBs in schools and with the further suggestions to remove SSBs from the children menus in the restaurants. Whereas so far, the prohibition to sell SSBs targets only relatively small target groups in particular locations such as schools or hospitals. Singapore considers to implement the unprecedented measure – to ban the sale of pre-packed beverages with a high content of sugar.40
III. The basis of jurisdiction in case of the challengeable measures
against the SSBs
In order to start arbitral proceedings, it is mandatory to establish jurisdiction ratione personae and ratione materia. The tribunals acknowledged the necessity of a “legally significant connection” between the measure and investor/investment. The connection has to indicate “something more than the mere effect of a measure on an investor or an investment”.41 Being mindful of the complexity of the beverages industry, this Section seeks to present the affected investors and investments by the imposed measures against the SSBs.
3.1. The affected investors
The soft drink industry contains two main manufacturing systems that bring the SSBs to the market. One producer is responsible for the manufacture of a beverage basis such as concentrates, while other – for an end-product production.42 Moreover, the sugar producers and/or
38 Sarah A. Roache and others, “Big Food and Soda versus Public Health: Industry Litigation against Local Government Regulations to Promote Healthy Diets”, 45 FORDHAM URB.L.J. 1051 (2018), p. 1078-1983.
39 Matthew Du and others, “Sugar sweetened Beverage Taxes: Industry Response and Tactics”, Yale, J Bio Med., 2018 Jun; 91(2), p. 185-190.
40 Nationwide Ban, Tax nn High-Sugar Drinks among Measures Proposed by Govt; Public Consultation Kicks Off [Today Online]' (Gov.sg, 2019) <https://www.gov.sg/news/content/public-consultation-sugar> accessed 8 June 2019. 41 Methanex Corporation v. United States of America, UNCITRAL Arbitration Rules, First Partial Award, 7 August 2002, para. 147.
distributors, retailers are highly involved in the SSBs industry.43 Notwithstanding the fact that the producers of SSBs are the main subjects to the restrictive regulations, the measures might affect other participants in SSBs production and realization in the market. Therefore, the following observation provides a short overview on whether and to some degree, the specific actors in the SSBs production and realization might be impacted by the fiscal and non-fiscal measures.
As a starting point, sugar’s demand is expected to be influenced by the sugar taxes on SSBs and inter alia the consumption of sweetened beverages.44 Consequently, sugar producers could possibly be affected by fiscal measures. The best indicator of such standpoint is arbitral challenges against Mexico where the sugar producers/distributors brought claims against soft drink tax. Despite the HFCS producers/distributors were not directly subjected to the tax, the Tribunals acknowledged the impact of the tax on the HFCS producers/distributors.45 A similar approach could be taken in case of the prohibition of SSBs. However, in light of a fiscal measure and the prohibition of the SSBs, the affected sugar producers/distributors would highly depend on the coverage of the measure. In particular, the decisive criteria should be the interrelationship between the targeted sweetener with the measure and the sugar producer’/distributor’ business activity. Yet, in order to successfully establish the link between supplier and a measure, a “legally significant connection” requests producer/distributor producers to show a substantial impact of the measure. The possible and specific labelling requirements for the SSBs would do not have a direct or indirect effect on sugar’ producers or distributors.
As the measures against SSBs focus mostly on the SSBs’ manufacturers, they are directly affected by all adopted measures. The manufacturers identified the potential adverse effect of all type of measures on their business, financial condition or results of operations.46 While there is a clear convergence between the measures and manufacturers, the successful challenge would depend on the effect of measures, the assortment of production, producers’ capability to change recipes, the type of investments and other factual circumstances.
https://www.foodpolitics.com/wp-content/uploads/SoftDrinkIndustryMarketing_11.pdf, page 5.
43 See: The Coca-Cola company, Annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934, 2019, available at https://s22.q4cdn.com/984101753/files/doc_financials/annual_2018/2018-Annual-Report-on-Form-10-K.pdf, p. 2,7.
44 OECD-FAO, “Agricultural outlook 2018- 2027”, chapter 5, Sugar (2018), p. 140, 142, available at: http://www.agri-outlook.org/commodities/Agricultural-Outlook-2018-Sugar.pdf.
45 Cargill, Incorporated v. United Mexican States, ICSID Case No ARB(AF)/05/2, Award, 18 September 2009, para. 147.
46 PepsiCo, “Pepsico Reports fourth-quarter and full-year 2018 Results; Provides 2019 Financial Outlook” (2019), p. 14 and Ibid 43, p. 9.
Finally, despite the involvement in the realization of SSBs to the consumers, the retailers would be highly unlikely be seen as affected by the measures related to the SSBs. Those businesses are not directly subjected to the SSBs related measures and most likely would lack the link between the measures and their business.47 In contrast to sugar producers/distributors, the retailers have a chance to alter the assortment and their business partners without substantial costs.
3.2. The affected investment
Most bilateral treaties contain a general phrase defining investment (such as “all assets”) and several groups of illustrative categories.48 In the SSBs industry context, various forms could be considered as an investment in light of the IIAs given definition. Therefore, this Subsection introduces a short analysis of investment that could be considered as affected by the measures.
While the connections between the investment and the measure could be not easy to uncover, the relationship could be marked if the measure identifies the claimant by name, or if it is clear that the measure was directed towards and motivated by the claimant’s activities.49 In this regard, the manufacturers’ assets would fall under the coverage of investment definition. Critically, such test might be seen as too expansive. The other proposition is to distinguish measures based on the effect on investment.50 In this setting, the fiscal measures might hypothetically result in the adverse effect on the company’s economic value. Depending on the given definition of investment in the Treaty, the affected investment by the measure could vary. For instance, in NAFTA investment is defined broadly and involves such segments like ownership and other interests in an enterprise. The interests arising from the commitment of capital or under contracts where the remuneration depends on the production, revenues, or profits of an enterprise such as may occur under license or franchise agreements.51 Therefore, the expectation of profit, reduction in the value of company and brand value could be considered as to some degree affected investments by the fiscal measures. The most restrictive measure the ban of SSBs might affect claims to money as an
47 Ibid 41, para. 147.
48 Rudolf Dolzer and Christoph Schreuer, “Principles of International Investment Law” (2nd edn, 2002). p. 63.
49 A. Davies, “Scoping the Boundary Between the Trade Law and Investment Law Regimes: When Does a Measure Relate to Investment?” (2012) 15 Journal of International Economic Law 15(3), p. 815.
50 Ibid 49, p. 808.
51Daniel M Price, “An Overview of the NAFTA Investment Chapter: Substantive Rules and Investor-State Dispute Settlement” (1993) 27 INT'L L, p. 728.
investment. Claims to money may arise as a result of the sale of goods.52 Furthermore, the specific labeling requirements might impinge the intellectual property rights of the SSBs’ manufacturers.53
IV. The general obstacles to challenge the measures under IIAs
The investment liberalization and growing investments in beverages sector recognizes the involvement of the industry in policy making whereas limiting the ability for governments to “design, choose, and implement public policies” and thus successfully achieve health-related objectives.54 Many deliberate about the significance of the protection of the state’s policy space in IIAs and thus addressed the existing approaches, like carve-outs, to ensure the balance between states regulatory autonomy to eligibly address the public health concerns through adopted regulations and measures protection of investment.55 The following parts in this chapter will address firstly, the scope and limitations of police power doctrine in investment arbitration and secondly, tax carve-outs.4.1.
The public health and policy space of the state
In case when investors accuse the state of a breach of their rights under treaty obligations due to the enacted laws and regulations, in most cases states as their defense would invoke police power doctrine. The right to regulate is recognized by the treaties and case law. Still, the police power doctrine associates mostly with the expropriation, although, it may be invoked in other types of breaches of investor’ right. Thus, before the infamous Phillip Morris cases, the police power doctrine was primarily linked with the environment protection and the broad definition of the public interest in general, including public health.56 Following, there will be presented examples of the treaties provisions to assess and illustrate the extent and limits for investors to challenge the measures adopted against SSBs.
52 Ibid 45, para 147.
53 The IIAs define intellectual property as protected investment.
54 Sharon Friel and others, “Trade policy and public health”, (2014), Annu. Rev. Public Health 2015. 36:325–44, p. 329.
55 Ibid 10, p. 141.
56 Alain Pellet, “Police Power or the State’s Right to Regulate” in M. Kinnear, G. R. Fischer, J. R. Almeida, Luisa
Fernanda Torres, M. Uran Bidegain (eds.), Building International Investment Law – The First 50 Years of ICSID, Kluwer Law International, Alphen, 2016, p. 447.
To illustrate, in the older BITs concluded by Swiss Confederation with other states, the preservation of regulatory space would be laid down in the case of expropriation.57 Contrary to the limited scope of the right to regulate in public interest space in older IIAs, the new generation treaties offer broader and less limited policy space while singling out the specific areas where the state may have the prerogative to adopt measures that would constraint the investors’ rights. To give an example, in 2014 concluded the BIT58 between the Swiss Confederation and Georgia Article 6 provides the unchanged provision for the expropriation allowing the state to expropriate investors assets unless it is done among other conditions due to the public interest. Notwithstanding the Article 6 of the Switzerland-Georgia BIT, the innovative and the extremely broad approach toward the preservation of regulatory space through Article 9 which states that “nothing in Agreement shall be construed to prevent a Contracting Party from adopting, maintaining or enforcing any measure consistent with the Agreement that is in the public interest, such as measures to meet health (…) concerns or reasonable measures for prudential purposes.” The
alteration in the drafting treaties implies the straightly limited possibility to challenge measures related to the health concerns in investment arbitration and explicitly allowing the parties to the Treaty to legislate regulations limiting the commercial freedom of the industry that is seen by governments as harmful to the public health as long as the adopted measures are consistent with the agreement. Therefore, the requirement of adopted measures in public interest matter to be consistent with the agreement and the conditions for the application of such measures still allow investors possibly challenge measures themselves.
In light of the provided example of BIT between the Swiss Confederation and Georgia, generally the investors of the beverage industry might be able to address the requirement of measure being non-discriminatory and reasonable, additionally set condition for the application of measure be justifiable and non-arbitrary. Turning to the adopted measures against the SSBs, many governments emphasized their aim to reduce the consumption of SSBs in order to challenge obesity issue despite the implications of the adverse attribution to public health of the various
57The Swiss Confederation and the Dominican Republic BIT, entered into force in 2006, Article 6 states: “Neither
of the Contracting Parties shall take, either directly or indirectly, measures of expropriation, nationalization or any other measures having the same nature or the same effect against investments of investors of the other Contracting Party, unless the measures are taken in the public interest, on a non-discriminatory basis, and under due process of law, and provided that provisions be made for effective and adequate compensation.”
58 Agreement between the Swiss Confederation and Georgia on the Promotion and Reciprocal Protection of Investments (2014).
sources. Thus, the broad range of the definitions which beverages are identified as detrimental to the human health and the contrasting scientific studies allows investors to question the reasonableness of a measure and in any way, the measures were not adopted in an unjustifiable manner.
The current tendency of the restriction for bringing a claim concerning the public
health-related measures in investment arbitration strongly expressed in the new model Dutch BIT59
Article 2(2) stating that “the provisions of this Agreement shall not affect the right of the
Contracting Parties to regulate within their territories necessary to achieve legitimate policy objectives such as the protection of public health”. This provision confirms states’ prerogative to enact laws and regulations in the public health area while leaving only the slim prospects to challenge measure that falls into the category of the public health concerns.
The newly suggested approach in the new model Dutch BIT brings conditions, like a necessity, for challenging the adopted measure in the field of the protection of public health similarly exposed in the GATT Article XX under General exceptions. Therefore, according to the new model Dutch BIT, the challenge of measure may be successful only if the adopted measures are not necessary to achieve objectives of the state and moreover the objectives of state policy must be legitimate. In the case of the adopted measures against the SSBs, the legitimacy of policy objectives in most cases would be impossible to dispute. International organisations such as WHO affirmed the concerns over public health, especially inducing to address the weight gain and obesity issue among the sensitive category, i.e. children. However, the expressed purpose of the measures could lead to misinterpretation of the objective. For instance, the statements confirm the aim to discourage the consumption of the targeted beverage or shift consumers toward other types of drinks may direct to question whether the declared objectives of the regulations that may affect investor are legitimate and justified. Notwithstanding the requirement of the legitimacy of policy objectives, the condition of necessity must be met. The requirement of necessity in the case of SSBs due to the complexity of the targeted issue, the size of food industry, the supply in the markets, the countless compositions and receipts in beverages industry, limitation to study and analyze specific consumer’s behaviors concepts a way to bring claims by the affected investors
under the relevant IIAs. While WTO jurisprudence is rich in interpreting the equivalent condition
of necessity under Article XX of GATT,60 the case law of the investor-state tribunals on the necessity requirement is limited and the existing awards typically touch the question of the state responsibility.
Thus, in the case of the challenges of such measures against SSBs, the tribunals may need to address not only the design of the measure but also the question of the possible effect of implemented measure to the public health. In Philip Morris v. Uruguay, the Tribunal neglected the necessity to assess the effectiveness of Single Presentation Regulation while highlighting the reasonableness condition which was explained through the objective of the measure, namely,
“attempt to address a real public health concern”.61 The Tribunal in Philip Morris v. Uruguay sets
a minor threshold for the measure possibly concerning public health justification. However, such approach in case of SSBs could be questionable as the link between possible harmfulness and the caused diseases by the SSBs and the consumption of SSBs is convoluted to establish.
Consequently, the health concerns related to Philip Morris cases accommodate
increasingly a favorable outcome for the states in a matter of safeguarding public health and safety. The Tribunal in Philip Morris v. Uruguay recognized states right to regulate and safeguard public health “as an essential manifestation of the State’s police power”.62
Notwithstanding Philip Morris Tribunal’s seemingly has taken extensive interpretation of the right to regulate, the case law suggested and characterized the limits and boundaries of exercising states policy space. Within the IIAs’ bounded obligations, the investment protection obligations undertook the right to regulate and therein must be honored, emphasizing the difference between the compliance with already existing laws and regulations and ex ante regulations.63 This tribunal view hints the importance of legitimate expectations of the investor, yet in case of the public on-going debates about the detrimental effect of SSBs would be problematic to invoke it. Still, the Tribunal’s ruling directs states to their obligations under the concluded treaty that cannot be merely underwritten in the light of the public health concerns.
60 Bryan Mercurio, “International Investment Agreements and Public Health: Neutralizing a Threat Through Treaty Drafting” (2014) 92 Bulletin of the World Health Organization, p. 522.
61 Philip Morris Brads Sarl., Philip Morris Products S.A. and ABAL Hermanosa S.A. v. Oriental Republic of Uruguay, , ICSID Case No. ARB/10/7, Award, 8 July 2016, para 409.
62 Ibid 61, para 291.
63ADC Affiliate Limited and DC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award of the Tribunal, 2 October 2006, paras 423-424.
No one denies the state’s right to implement measures in public health area although according to the Saluka Tribunal the ‘permissible’ and ‘commonly accepted’ regulations that fall within the regulatory power of states has had been yet to identify in a comprehensive, definitive and precise manner by international law.64 Arbitrator Gary Born, the one of arbitrator in infamous Philip Morris v. Uruguay case, in his Concurring and Dissenting Opinion stressed the importance and necessity to comprehensively and thoughtfully analyze and consider the nature of the governmental measure, the character and context of the governmental judgment, the relationship between the measure and its stated purpose, and the measure’s impact on protected investments.65 Thus, those implications of the Arbitrator Gary Born leads to suggestions that the rationale of reasonableness cannot be justified just to the bare statement of the state about the governments’ policy aim to protect its population’s health. Following, the assessment of the likelihood of particular mean effectiveness and its weighing of costs and benefits should be appraised.66 The Tribunal acknowledged that exercising their powers state may make controversial choices that potentially result in mistakes, misjudged facts and adopted solutions that are ultimately ineffective or counterproductive.67
Admittedly, in the first section of this paper presented state policies and enacted means regardless the public health attempt to tackle globally acknowledged and widely discussed health issue. Yet the broad range of the proposed and already implemented means indicates the inevitability for the Tribunal to assess the possibly challenged measures against SSBs in the comprehensive and detailed manner, thus not neglecting appraisal of the effectiveness and consequences of the measure.
The different approaches by the arbitrators to the essential concept of police power doctrine that sets boundaries to what extent investors can challenge governments adopted measures in international fora implies the continuous controversy.68 Thus, the predictions in case of the challenged measure against SSBs could be limited. Overall, the new generation IIAs adopted provisions highlighting the state right to regulate and the following chosen path of Philip Morris
64 Saluka Investments BV v. The Czech Republic, UNICTRAL, Partial award,17 March 2007, para 263.
65 Concurring and Dissenting Opinion Co-Arbitration Gary Born (English) in Philip Morris v. Uruguay, 8 July 2016, para 142.
66 Ibid 65, para 144.
67 S.D. Myers, Inc. v. Government of Canada, UNICTRAL, partial award, 13 November 2000, para 261.
68 Noam Zamir, “The Police Powers Doctrine in International Investment Law:, 14 MANCHESTER J. INT'L ECON. L. 318 (2017), p. 326.
Tribunal, tend to constrain the application of investment protection in the public health-related measures. Nevertheless, despite the high threshold to bring a claim against measure adopted in the concern of public health, some advocates for the exemption of the health-related measures from
the IIAs’ scope.69
To sum, the challenges against the public health policies are rare under IIAs. Still
notwithstanding the Philip Morris the final result and the reasoning behind it70 and the limited
protection of engaged in beverages industry, due to the fact that beverages are only one part of the food chain, where the effect of it is still highly discussed, the composition of weight gain’ and obesity’s issue makes the challenge of the measure against SSBs possible.
4.2. The tax carve-outs clauses in IIAs and their application in relation to the
measures against SSBs.
While a tax is considered as a key element of a state’s sovereignty, the excessive or unlawful taxation of an investment may cause harm to the investment and thus could qualify as a breach of the treaty.71 Most IIAs contain a tax carve-outs clauses that limit IIAs’ application to the fiscal measures. Some treaties carve out tax completely, while others consider tax measures in the same manner as any other measure.72 The scope of tax carve-outs, however, varies in different degrees and ways. Following, it could be discerned a few approaches to taxation carve-outs in IIAs.73 The possibility to challenge the fiscal measures on SSBs under IIAs given protection will be discussed.
In case, when the IIAs contain the absolute carve-outs which exclude the scope of treaty application from taxation, the investor would not be able to bring any claim against the measure under the relevant IIAs that could be identified as taxation regardless its design, stricture, application, and consequences.
69 Ibid 60, p. 521. 70 Ibid 10, p 139.
71 Yuri Bogdanov and Yulia Bagdanov v. Republic of Moldova, SSC case No. V091/2012, Final Award, 16 April 2013, para 167.
72 Thomas Wälde, National Tax Measures Affecting Foreign Investors Under the Discipline of International Investment Treaties, Proceedings of the Annual Meeting (American Society of International Law), Vol. 102 (APRIL 9-12, 2008), p. 55-59.
73 Matthew Davie, Taxation-Based Investment Treaty Claims, Journal of International Dispute Settlement, 2015, 8, p.202–227.
Some IIAs apply to taxation with some limitations. According to those type of IIAs, the claims could be brought in case of expropriation, breaches of MFN and National treatment standards, however, the given protection in IIAs to taxation matter excludes fair and equitable treatment. The following approach of tax carve-outs allows the broad application to taxation, thus permitting the challenges against the imposed fiscal measures in case of the breach of fair and equitable treatment. Finally, some IIAs do not contain any carve-outs, accordingly all safeguards in the relevant IIAs could apply in case of the dispute. Notwithstanding the absence of tax carve-outs in some treaties, “evolving tax regulation, improved tax collection, and even increase of taxes are, in principle, legitimate exercises of fiscal sovereignty” unless such state policy breaches investor’s protection standards provided in the IIAs.74 Overall, the differential design of tax carve-outs permits investors to bring claims under expropriation, breach of fair and equitable treatment standard and discrimination.
To argue indirect expropriation in case of fiscal measures on SSBs would be impractical and those claims probably would have a slim chance of success. Leaving aside the public purpose and discriminations arguments, while claiming the indirect expropriation, an investor would face the challenge to the display substantial deprivation of the value of its investment.75 Most importantly, the numbers of soda drinks sale reduction after introduced tax are relatively low,76 thus, high arguably those numbers could entail the substantial deprivation as a mere reduction in profit would not rise to the level of expropriation.77 Secondly, the majority of manufacturers do not limit their assortment with SSBs, for instance, the range of the produced and sold beverages varies from ones with added sugars to artificial sweeteners and natural water. Looking from the retailers’ perspective, some accuse the taxation on SSBs for store’ closing stating that the imposed levy resulted in the net annual loss of more than 1 million US dollars.78 These claims, however, should be undoubtedly rejected as the object of the soda tax is the manufacturer rather than the retailer. First of all, the levy on SSBs from the retailer perspective cannot be considered as
74 Ibid 72, p. 55-59.
75 CMS Gas Transmission Company v The Argentine Republic, ICSID Case No ARB/01/8, Award, 12 May 2005, para 262.
76 As example, in Mexico 7.3% per capita, Hungary 15%, while the biggest fall of soda drinks sales after introduction of soda tax was fixed in Philadelphia amounted around 38 percent.
77 Peter D. Isakoff, “Defining the Scope of Indirect Expropriation for International Investments”, 3 Global Bus. L.
Rev. 189 (2013) available at https://engagedscholarship.csuohio.edu/gblr/vol3/iss2/4; p. 203. 78 Ibid 14.
discriminatory. In light of such circumstances, for tribunals ruled that taxation on SSBs caused indirect expropriation is highly unlikely.
In case of the application of fair and equitable treatment standard on the taxation matter, the tribunals held that the standard would be breached if the tax could be amounted as ‘arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety’.79 The case law settled conditions for the breach of fair and equitable treatment equivalent to other types of measures. Due to the various designs, scopes, and applications of the SSBs’ taxes and the elements of the FET such as discrimination, sectional prejudice, and unfairness it will be discussed in the next chapter.
Finally turning to the discrimination in the context of the MFN or National treatment standards violation, along with the received treatment ‘less favourable than’, the tribunals also analyze the measure’s adverse effects on the relevant investors and their investments and less significantly the intent of the Respondent state.80 The NAFTA tribunals considered the differential taxation regimes on soft drinks and syrups. Mexico imposed 20 percent excise tax on soft drinks and syrups that used any sweetener other than cane sugar. The Tribunal assessed that this tax established a different regime for two groups of soft drinks and syrups. One group amounted of a 20 percent excise tax, while the other exempted, following it the high fructose corn syrup was subjected to higher taxes than cane sugar. Following it, the Tribunal concluded that the tax was discriminatory as it was designed to afford protection to the production of cane sugar. The Tribunal emphasized that the taxation is dissimilar, however, imposed on directly competitive products.81
Similarly, the Philippines regulation on taxing sweetened beverage drinks offers dissimilar taxation means. Firstly, two different rates imposed on beverages that contain high fructose corn syrup and non-HFCS, furthermore, the drinks sweetened with coconut sap sugar are exempted from taxes, however, coconut palm sugar contains the same amount of calories and carbohydrates as regular cane sugar, additionally both sugars contain the same elements as glucose, fructose, and
79 Waste Management Ltd v United Mexican States, ICSID Case No ARB(AF)/00/3, Award, 30 April 2004 para 98. 80 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States (2007), ICSID Case No. ARB (AF)/04/5, para 209.
sucrose.82 Notwithstanding this, the coconut sugar industry increasingly growing in the Philippines.83
In conclusion, in most cases, the existing tax carve-outs in IIAs do not withdraw the possibility to challenge fiscal measures imposed on SSBs. The existing case law however limited only to discriminatory treatment where the objective of the measure was to protect local industry.
V.
The non-discrimination application
The non-discrimination plays a central role for the MFN and NT obligations under IIAs. Additionally, the tribunals in numerous cases84 held that the discriminatory conduct of a state could entail a violation of the FET standard. Furthermore, for example, the Tribunal in Cargill v. Poland affirmed the identical meaning of discrimination in both standards.85 Therefore, this section discusses the element of non-discrimination in light of the measures against SSBs.
Evidentially, the measures pertinent to the improvement of public health vary in their design, the scope and the targeted group of products. In most cases, the regulatory distinction result in the implementation of measures against SSBs, rather than targeting other potentially harmful nutrients such as the saturated/trans fats and salt or others high in sugar products. Moreover, not all high in sugar beverages necessarily fall under the coverage of the measure. Therefore, some of them result in being excluded from the application of restrictive regulations. The given exemptions might differ based on the type of sugar and/or the amount of sugar.86 Those regulatory distinctions introduce the probability to challenge measures as discriminatory.
In investment law, discrimination implies specific state conduct that results in the benefit or harm to someone more in comparison with the generality.87 Hence, differential treatment should be found in comparison with other subjects. The distinct treatment in similar circumstances,
82 ACSM EP-C Natalie Olsen, “Coconut Palm Sugar For Diabetes: Is It Safe To Eat?” (Medical News Today, 2019) <https://www.medicalnewstoday.com/articles/317613.php> accessed 8 June 2019.
83 “PH Aims For Global Competitiveness In Coco-Sugar”, (Pna.gov.ph, 2019) <https://www.pna.gov.ph/articles/1045004> accessed 8 June 2019.
84 See: CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/08, Award, May 12, 2005; Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8 Award, 11 September 2007. 85 Cargill, Incorporated v. Republic of Poland, ICSID Case No. ARB(AF)/04/2, Final Award, 29 February 2008, para 521.
86 Anita George, “Not So Sweet Refrain: Sugar-Sweetened Beverage Taxes, Industry Opposition And Harnessing The Lessons Learned From Tobacco Control Legal Challenges” (2018) Health Economics, Policy and Law; p. 16. 87 ES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award, 2 September 2010, para 10.3.53.
however, is not sufficient to uncover unlawful discrimination in light of the IIAs conferred protection.88 The absence of reasonable justification must be envisaged too.89 In examining the establishment of discriminatory behavior of the state in case of the measures against SSBs, it is necessary to attentively consider factors such as the existence of like circumstances among competitors that must be materially similar90 and the possible justification of the accorded different treatment.
5.1. The “Like circumstances”
The tribunals had not discussed expansively the meaning of the similar circumstances in the context of the FET standard. Nevertheless, the concept of such circumstances is analyzed in-depth by adjudicators in case of the plausible NT and/or MFN violation. The term “like circumstances” varies on a case by case basis, and its evaluation should be grounded on the entire facts, setting surroundings and the legal context. Nevertheless, the concept of “like” does not have a fixed definition and asks to scrutinize the various elements.91 Thus, the taken approaches of determining whether the circumstances are held as “like” diverge.
The several NAFTA tribunals, for instance, had to deal with the adjudication of like circumstances in cases related to Mexico’s imposed tax on soft drinks that used sweeteners other than cane sugar. Generally, those tribunals underlined the importance of competitive relations between products. Thereby, the tribunals construed the adjustment that the domestic and foreign investors operate in the same business or economic sector and, moreover, HFCS is a substitute for cane sugar.92 Thus, the tribunals’ emphasis of the competitive relationships implies the contemplation of the WTO developed jurisprudence on the concept of “like products”. Albeit the seemingly similar “like products” approach in cases against Mexico imposed a tax on soft drinks with HFCS, the investor-state tribunals tend to cautiously use the WTO’s embraced methods for assessing like circumstances. Pursuant to the arbitral jurisprudence, the national treatment clause in IIAs “must be interpreted in an autonomous manner independently from trade law
88 Electrabel S.A. v. Republic of Hungary, ICSID case, No ARB/07/19, Award, 25 November 2015, para 175. 89 Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/2, Award, 4 April 2016, para 616.
90 Ibid 88, para 175. 91 Ibid 85, para 310.
92 See: Ibid 80, para 204, Corn Products International Inc., v. The United Mexican states, ICSID case No ARB(AF)/04/01, Decision on responsibility, para 121.
considerations”.93 More fundamentally, the Methanex Tribunal lucidly rejected the WTO based methodology for determining the likeness of circumstances.94 Indeed, the opted standpoint of Methanex Tribunal leads to the conclusion that the like circumstances could not be viewed the same way as like products. It follows that “like circumstances” are not like products, however, like circumstances could not be defined as like investors too.95 To complicate matters, some tribunals may invoke the public interest element in the assessment of “like circumstances”.96
Turning to the measures against SSBs, the determining factors for deciding on the essence of like circumstances would potentially be the elaboration of the business sector and the competitive relationship among the products. Even though both commercially related criterion may intermingle, and thus it would be difficult to accurately establish the competitive relationship between the business entities.
Following to the Cargill v. Poland tribunal’s observation, in order to confirm the presence of the “same economic or business sector”, the condition of the common market has a significant role. However, the Tribunal for the confirmation of the common market’s existence observed the characteristics of the products that were involved in the dispute and might be seen connected to the sugar. The Tribunal ruled that the partial overlap is sufficient for affirming the common market.97 To make this conclusion, the Tribunal in Cargill v. Poland underscored the need to identify the common characteristics and the end-use of the products. Although the SSBs could be undoubtedly attributed to the food sector, such generalization should be construed as too broad. Subsequently, the SSBs’ comparability with other unhealthy nutrients rather than beverages, logically should be eliminated. Due to the variations and differentiations in the beverages sector, the more complex inquiry is which non-alcoholic drinks could be ascribed to the same business and economic sector as SSBs, and consequently, considered being in a similar circumstance as the SSBs.
Alongside the examination of the similarities, the business due to the correlation between the measures against the SSBs and specific products, possibly the key step could become the
93 Bayindir Insaar Turizm Ticarest ve Sanayi A.S v. Islamic Republic of Pakistan, ICSID Case, No ARB/03/29, Award, 27 August 2009, para 389.
94 Methanex Corporation v. United States of America, UNICTRAL, Final award of the Tribunal on jurisdiction and merits, 3 August 2005, Part IV, Chapter B, para, 29.
95 Roger P. Alford, The Convergence of International Trade and Investment Arbitration, 12 SANTA CLARA J. INT'L L. 35 (2013), p. 42.
96 Ibid 67, para 250. 97 Ibid 85, para 317.
