Uruguay Takes on Tobacco Giant Philip Morris

A man holds a cigarette and a pack with a picture of a cancer patient printed on it at a street in Montevideo, Uruguay, Monday Nov. 15, 2010. Philip Morris International Inc., the world's second-biggest cigarette company, is pursuing a claim before World Bank arbitrators alleging that Uruguay is violating its trade agreement by requiring that anti-smoking warnings cover 80 percent of cigarette packages. (AP Photo/Matilde Campodonico)

It started as a David vs. Goliath type of battle: Philip Morris International, the world’s second largest tobacco company, against the second smallest nation in Latin America, Uruguay – whose population equals the state of Oregon.

The tobacco giant is suing Uruguay, alleging the country is violating Switzerland’s trade agreement by requiring that anti-smoking warnings cover 80 percent of cigarette packages. If World Bank arbitrators agree, Uruguay could be forced to pay the company millions of dollars.

But Uruguay – whose Gross Domestic Product is $44 billion – refuses to back down from Philip Morris, whose market capitalization equals $108 billion. And now the country is getting backing all across the world in its fight against tobacco.

This past weekend, Uruguay received unanimous support from health officials from 171 countries, encouraging President José Mujica to take on Philip Morris. Media mogul Michael Bloomberg, the New York City mayor who is a multibillionaire, called the president to say his foundation would help foot Uruguay’s legal bills.

"The tobacco industry is keenly focused on Uruguay because Uruguay's leaders did the right thing around hard-hitting packaging laws," Bloomberg said in a statement, adding that 5 million people die each year from tobacco-related illnesses.

Uruguay has imposed some of the world’s most restrictive anti-tobacco policies – and it was the first in South America to ban smoking in private and public enclosed spaces. The country requires 80 percent of every cigarette package to show graphic images of smoking consequences, from diseased lungs and rotten gums to a cartoon image of a mother blowing smoke at her baby’s face.

With several dozen other countries now requiring graphic warning labels on up to 50 percent of the package, Philip Morris is seeking to block the trend by asking World Bank arbitrators to find Uruguay in violation of its trade agreement with Switzerland, where the company has a headquarters.

"The Uruguayan government has done something which no other government has done, [it] doesn't seem to make any sense to us from a public-health perspective and has clearly damaged our investment there," company spokesman Peter Nixon said.

He said the company's monetary claim would be "substantial," although he declined to give a specific dollar amount.

In a statement, the company says its lawsuit has nothing to do with packaging or stringent tobacco laws. They claim they are only challenging uneven enforcement of contraband cigarettes, which they claim is creating a huge black market in cigarettes.

“Our lawsuit is not a question of public health versus business, Even Hurwitz, Senior Vice President Corporate Affairs said in a statement.”We are challenging regulations which are not fairly applied to all companies, add further fuel to Uruguay's huge black market in cigarettes and have not even been shown to reduce smoking prevalence."

The U.S. Food and Drug Administration last week proposed similarly graphic warning labels showing corpses, cancer patients, diseased lungs and rotting teeth and gums to cover 50 percent of each pack sold in the U.S., starting in 2012.

Since Canada introduced warning labels covering half of a cigarette pack in 2000, its smoking rate has declined from about 26 percent of the population to about 20 percent.

But Uruguay is "a little country," the president said.

Mujica, a former leftist guerrilla who became a determined pragmatist in prison during the country's dictatorship, worried openly only weeks ago about having to hire $1,500-an-hour lawyers in foreign capitals.

He acknowledged that he is still a headstrong smoker. "This is an enemy that is never defeated," he said during a recent health conference.

"I was imprisoned for many years, and to annoy me they would deny me tobacco," he recalled. "One day I told the authorities: `I won't smoke again.' And I was seven years without smoking. When I finally got out, I started to smoke again. I would have smoked a broomstick."

"This fight isn't finished," he added. "There are many addictions that are menacing life, and they're all multiplied by the great addiction of our time: the excessive love of money."

The Swiss government said Friday that it has nothing to do with the dispute.

"Philip Morris initiated an arbitration case against Uruguay independently and without intervention from Switzerland. Swiss authorities are therefore not involved in the ongoing case. Nor is Switzerland considering initiating a state-vs.-state case against Uruguay," Rita Balddegger, a spokeswoman for the Swiss State Secretariat for Economic Affairs, told the AP.

Based on reporting from The Associated Press.