Reforming International Investment Treaty Practice: Comparing Policy Innovation in Australia and Uruguay

ABSTRACT The Philip Morris lawsuits against Australia and Uruguay in the early 2010s highlighted the need to reform international investment agreement (IIA) practices to ensure that governments do not give up their regulatory autonomy for foreign investment. We undertook a policy analysis to reveal how interests, ideas and institutions shaped reform in IIA treaty practice to protect health policy autonomy in Australia and Uruguay after the Philip Morris investor‐state dispute settlement cases. Arbitration appears to have had different effects on how the two governments approach IIAs. Interest‐based, ideational and institutional conditions at play in Australia and Uruguay help explain this phenomenon: differently perceived risks and benefits arising from the different economic contexts and consequently negotiating powers, varying policy paradigms that shaped domestic negotiations and distinct international institutional networks the two countries are members of and facilitated policy diffusion. These conditions shaped whether there was enough political will to overcome path dependency and adopt stronger health safeguards. We found that a power imbalance between negotiating countries may trump efforts to adopt health safeguards. It is vital that more powerful governments adopt a paradigm shift that frames investment policies as tools to drive progress in social and environmental dimensions in addition to economic domains.