'Children’s Cereal Company v. Mexico & the Trend of Corporate Influence Over Policymaking Through Investor-State Dispute Settlement Claims', 30 November 2021

"In September, a children’s cereal company threatened to sue Mexico over its adoption of a food packaging regulation. The details of the claim, including the identity of the company, remain unknown. What we do know about the case sheds light on a trend of corporate use of investor-state dispute settlement to block public health measures, shape the rules that govern their conduct, and potentially frustrate sustainable development and the realization of human rights. 

The food industry’s marketing of ultra-processed foods has had incredible success in Mexico. Preschoolers there now receive about 40% of their calories from ultra-processed foods. As the Mexican diet has shifted towards products high in sugar, salt, and fat over the past 40 years, non-communicable diseases associated with unhealthy diets are now among the main causes of mortality in the country. Meanwhile, diet-related chronic diseases have exacerbated vulnerability to COVID-19, contributing to over 284,000 confirmed COVID deaths as of October 25, 2021.

In response to these diet-related health concerns, in March 2020, Mexico amended a food packaging regulation called NOM-51. The amendment provided that, as of April 2021, certain unhealthy products would be prohibited from putting children’s characters, animations, and other marketing materials on their packages – images specifically designed to appeal to and establish unhealthy habits among young children.

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In September 2021, an “unidentified manufacturer of children’s cereals” reportedly notified Mexico that it would invoke protections under the US-Mexico-Canada Free Trade Agreement (USMCA) to challenge the NOM-51 before an arbitral tribunal.

Investor-state arbitration, often referred to as investor-state dispute settlement or ISDS, is a mechanism established under free trade agreements (FTAs) and other international treaties that allows private investors to sue governments directly, alleging that governments have violated their treaty obligations by unduly interfering with companies’ business plans and profits. While not much is known about the threat, some generalizations can be made about the stakes. One is that, on average, ISDS claims cost governments USD 5 million per case to defend; another is that, from 2017 to 2020, tribunals ordered governments to pay an average of USD 315.5 million each time they were successfully sued. The threat of ISDS alone can make governments less willing to adopt, maintain, or implement public interest measures. ISDS claims, especially if they are successful, can significantly raise the costs of policy action, with both budgetary and distributional implications. ISDS, therefore, gives companies a powerful additional tool in their arsenal to thwart health measures that threaten their growth and profitability..."