25 January 2014

Tobacco and the TPPA

'Safeguards for Tobacco Control: Options for the TPPA' by Robert Stumberg in (2013) 39 American Journal of Law & Medicine 382 [PDF] comments that
With tobacco trade, the past is prologue. In the 1980s, the U.S. government used domestic trade remedies (“Super 301”) to pry open markets for U.S. tobacco companies. The targets included Japan, South Korea, Taiwan, and Thailand. A grateful tobacco industry donated a renovation of the Treaty Room in the U.S. Department of State, declaring at the dedication: “Tobacco is intimately and historically associated with American diplomacy.”  Thailand responded by banning imported cigarettes on grounds that the imports were more addictive and marketing of imports was driving up consumption. The United States then challenged Thailand for violating the General Agreement on Tariffs and Trade (GATT). The GATT panel ruled against Thailand, finding that the import ban failed to satisfy the health exception of GATT Article XX.
Studies showed that liberalizing tobacco trade in the 1990s resulted in lower tariffs, lower prices, aggressive marketing, and greater tobacco use—in the range of ten percent for all four countries. The same results held true for China, India, Indonesia, Malaysia, Pakistan, and the Philippines. By 1997, the mounting evidence of a “tobacco epidemic” — and the overt connection with trade agreements — prompted an apparent shift in U.S. policy. The U.S. Congress adopted the Durbin and Doggett Amendments, which prohibit federal agencies from promoting “the sale or export of tobacco or tobacco products” or seeking “the reduction or removal by any foreign country of restrictions on the marketing of tobacco or tobacco products, except for restrictions which are not applied equally to all tobacco or tobacco products of the same type.” In 2001, President Clinton issued Executive Order 19393 to make clear that this policy applies to all executive agencies and “the implementation of international trade policy.” Limiting trade negotiators aimed to promote coherence between health and trade policy.
In 2003, congressional leaders documented how the Office of U.S. Trade Representative (USTR) negotiated Korean tariff reductions on behalf of Philip Morris International (PMI), agreed to zero tobacco tariffs on the last day of negotiations on the U.S.-Chile Free Trade Agreement (FTA), and proposed ten of eleven amendments sought by PMI to weaken the draft Framework Convention on Tobacco Control (FCTC). Since the Doggett Amendment has been in effect, the USTR has negotiated with eighteen countries to eliminate tariffs on processed tobacco leaf and cigarettes. The United States continued to expand market access for tobacco-related services and extended investor rights to tobacco companies. Writing for the Council on Foreign Relations, Thomas Bollyky summarizes the legacy of twentieth century trade policy for tobacco: Tobacco companies are aggressively exploiting trade and investment agreements to expand their market in low- and middle-income countries. Lower tariffs reduce the price of imported cigarettes in countries without good taxation systems to compensate. Multinational tobacco companies use dispute resolution . . . to block tobacco marketing and labeling regulations far more modest than those in the United States. Young women, who have historically smoked less than men in most parts of the developing world, are a major target of industry marketing campaigns.
Now the U.S. government is leading negotiations among eleven countries on a Trans-Pacific Partnership Agreement (TPPA), “a true 21st century trade agreement” that “will reflect U.S. priorities and values.” The open question is whether a priority is to support tobacco trade as it contributes to 6 million deaths per year—one billion deaths in a twenty-first century epidemic. The TPPA has six chapters that might provide material support to the tobacco industry.
As trade agreements evolve through regional negotiations, the first global health treaty is emerging as a force to exercise, rather than restrict, regulatory authority. The FCTC does not directly regulate; it obligates countries to achieve a common foundation of taxes and tobacco-control measures. A stream of recent work makes a strong case that trade agreements provide the “flexibilities” that governments need to implement the FCTC. This Article accepts that premise.
Yet the frameworks for trade promotion and tobacco control intersect with many points of overlapping coverage. At most of these intersections, the tobacco industry lobbies or litigates to shrink the policy space to regulate. This Article explores options for protecting that space: Part II outlines how the TPPA might strengthen the trade framework to the benefit of the tobacco industry. It also highlights the role of international litigation in the industry’s campaign to chill implementation of tobacco-control measures. Part III explains the options for Trans-Pacific Partnership (TPP) countries to safeguard tobacco-control measures—exclusions and exceptions—and how to evaluate them. Parts IV and V walk through the syntax of those safeguards. For each element of a safeguard, it parses the purpose, shortcomings, and alternatives to current practice. The focus is on the WTO’s baseline health exception and alternatives for a tobacco exception, including one vetted by U.S. negotiators. The conclusion highlights the simplicity and effectiveness of exclusions compared to exceptions.
Stumberg concludes
Six chapters of the TPPA potentially threaten tobacco-control measures. They expand market access or protect the industry with WTO-plus rules that can be used in later rounds of litigation:
1. Investment—expands investor-state arbitration for U.S.-based tobacco companies.
2. Intellectual property—adds a new right to use trademarks with a place name (e.g., Marlboro).
3. Cross-border services—expands the service sectors to which trade rules apply (e.g., packaging, distribution, and advertising); potentially limits domestic regulation.
4. Regulatory coherence—promotes industry stakeholder participation in decision-making; promotes regulatory impact assessments that the industry uses to litigate.
5. Technical barriers to trade—potentially limits how governments cooperate in setting standards or guidelines for tobacco control.
6. Tariffs—expands market access in countries with high tobacco tariffs (Vietnam).
Six elements of the GATT/GATS exception create a complex formula for defending tobacco measures:
1. Scope—Based on the U.S. model for free trade agreements, the baseline health exception applies to selected chapters of the agreement, but not to specific rules being used to litigate against tobacco-control measures (including the investment chapter, among others).
2. Protection—Tobacco investors use MFN to incorporate rules from outside the primary agreement that provide more favorable treatment. The draft TPPA investment chapter excludes procedural treatment from MFN, but MFN would still apply to substantive investor rights.
3. Deference—There are no terms of deference to non-WTO treaties in the WTO exception.
4. Nexus—The necessity test creates uncertainty with stages that enable litigation to challenge the contribution of a measure, weigh that contribution against its trade restrictiveness, and identify less restrictive alternatives. Some scholars predict that investment arbitrators would apply the necessity test with less deference than trade panels.
5. Objective—Some measures serve multiple purposes, including non-health purposes like revenue or business licensing; their connection to protecting health may be indirect.
6. Additional restrictions—Even a “necessary” measure can be challenged as having a discriminatory effect in the market as applied. This works against incremental change and measures that freeze the market at its current stage of development.
The exception provides opportunities to litigate each element. Win or lose, the threat of costly litigation has long been part of the tobacco industry’s strategy to constrain implementation of tobacco-control measures.
To create a safe harbor for its agency regulations, the United States informally proposed a tobacco exception. This, however, does not protect legislation or measures adopted by tax, licensing or customs authorities. In place of the necessity test, it requires scientific evidence, a burden of proof that necessity does not require. The U.S. proposal would not protect against the WTO dispute the United States lost, the WTO claims against Australia, or the investment claims against Australia or Uruguay.
This article identifies alternatives for each element in the U.S. proposal. Here is the original summary compared to alternative elements in several possible combinations:
Original summary of the U.S. proposal— Language in the general exceptions chapter that allows health authorities to adopt regulations on specific tobacco products or classes that impose origin-neutral, science-based restrictions in order to safeguard public health.
Alternatives - several of many possible combinations— Nothing in this Agreement prevents a party from adopting or enforcing . . .   measures that contribute or aim to reduce use of tobacco products or its harms. . . . measures that it considers appropriate for science-based protection of public health. . . . measures that it considers appropriate to reduce use of tobacco products or its harms. Nothing in this Agreement applies to measures that contribute to or aim to reduce tobacco use or its harms.
Additional interpretive clauses – For greater certainty, . . . this exception applies in addition to other exceptions; it has no effect on operation of those exceptions. . . . this exception applies to all obligations including any duty to compensate for direct or indirect expropriation. . . . if this exception applies to a measure, it is consistent with MFN treatment.
The more elegant alternative to a complex exception is to simply exclude tobacco-control measures. An exclusion is better protection than a defense; it contains litigation. If the political will is lacking for a full exclusion, there are several ways to draft a partial exclusion. TPP countries could follow Australia’s lead by opting-out of ISDS (generally or with respect to tobacco-control measures), and countries can take reservations from rules on market access and discrimination in the chapters on services and investment.
Even if Uruguay and Australia win their trade and investment disputes, the precedent will not end such litigation. Defenses that rest on trade flexibilities or exceptions flex in both directions; they provide a defense and also an opportunity to to balance trade against health interests. Further, the tobacco industry will continue to have an advantage in resources to litigate for the purpose of chilling or diverting tobacco-control measures.
Whether it supports or opposes effective safeguards for tobacco control, the U.S. government will play a decisive role. Upon passage of Tobacco Control Act in 2009, President Obama committed his administration to work with the WHO and other nations “to fight this epidemic on a global basis. He acknowledged the “constant and insidious barrage of advertising.”  Yet in the years since, U.S. negotiators have worked to expand market access for advertising and distribution, expand trademark protections, reduce tariffs, and expand investor rights—all to the benefit of tobacco companies at home and abroad. The TPP is an opportunity to strike a balance in favor of health and against tobacco litigation.