As an example, the critics point to the perceived conflict between the goal of free trade in tobacco and the capacity of governments to regulate tobacco for public health purposes. As evidence, they cite two trade and investment cases related to tobacco regulation: (1) a recent World Trade Organization decision that found a U.S. anti‐smoking law—purported to be about deterring youth smoking—to violate trade rules; and (2) pending litigation on an Australian law requiring that cigarettes be sold in plain, nondescript, brown packaging, in order to deter smoking, where the complaints allege violations of trade and investment agreements (through the infringement of trademarks and on other grounds).
Partly in response to these cases, health advocates have argued that international trade and investment rules should exclude tobacco completely, or, at the least, the rules should be applied more flexibly to tobacco in order to ensure that regulation for health purposes is allowed.
This paper examines some of the perceived tensions between free trade and regulation of tobacco for health purposes and concludes that most of the concerns about trade and investment agreements undermining domestic regulation are unfounded and that special rules for tobacco are unnecessary. Free trade itself does not raise national sovereignty concerns, nor does it interfere with domestic policymaking to any significant degree. Although there may be valid concerns about some of the more recent additions to trade and investment agreements (i.e., rules that go beyond fighting protectionism), the core of these rules constrains domestic regulation only to the extent that such regulation discriminates against imports and does not preclude legitimate domestic policymaking.
Trade and Investment Disputes Relating to Tobacco: Protectionism vs. Legitimate Health Regulation
As with many industries, governments have protected domestic tobacco producers from foreign competition. To take a blatant example, a U.S. law that required domestic cigarette makers to use a certain amount of domestically grown tobacco was challenged successfully in the GATT in the early 1990s.1 While some protectionism is obvious, other forms can be disguised or hidden and can only be seen after examining the market at issue closely. The recent U.S.—Clove Cigarettes case is such an example. This case involved a U.S. law that prohibits cigarettes from having any characterizing flavors other than tobacco or menthol. The logic behind the measure was that adding flavors to cigarettes makes them less harsh, and thus easier for young people to try. Of great importance for this dispute was the fact that the ban on flavored cigarettes applied to clove cigarettes, a type of cigarette produced mainly in Indonesia, but not to menthol cigarettes, which are a significant American product. Indonesia filed a complaint at the WTO. Ultimately, the WTO’s Appellate Body found that even though the measure “does not expressly distinguish” between imported and domestic like products, “it operates in a manner that reflects discrimination against the group of like products imported from Indonesia.” Accordingly, the Appellate Body found a violation of the “national treatment” (i.e., non‐discrimination) obligation.2
In general terms, the Appellate Body’s finding of violation in the Clove Cigarettes case is based on the notion that the exclusion of (mostly American) menthol cigarettes from the law, while the competing (mostly Indonesian) clove cigarettes are prohibited, constitutes protectionism. Even though the statute is origin neutral on its face, and does not have explicitly different rules for imports and domestic products, there is clear evidence of the discriminatory nature of the statute. This discrimination may be disguised or hidden in purported health measures, but it can be uncovered by looking under the surface, as the Appellate Body did here.
Critics of the decision expressed concern that this ruling undermines the ability to regulate tobacco for health purposes. In reality, though, the only problem with the measure was its discriminatory nature. If the law had banned menthol as well, a move that health advocates supported, it would very likely have been found to be consistent with the rules.
Drawing a line between protectionist and nonprotectionist laws can be difficult. As the Clove Cigarettes case shows, some measures that are ostensibly intended for nonprotectionist ends are in fact examples of disguised protectionism. But the characterization of measures as protectionist or not is crucial for establishing appropriate trade and investment rules, and thus must be examined carefully. While Clove Cigarettes fell on one side of the line, other cases may fall on the other. A good example is several overlapping cases, which are in their early stages, related to Australia’s laws on “plain packaging” of cigarettes. Here, the critics of trade and investment agreements may have a legitimate reason to be concerned about the impact of these agreements on domestic sovereignty.
A number of countries have considered requiring that cigarettes be sold in plain packaging. Australia was the first country to adopt laws in this regard. Instead of the usual packaging, the legislation will force cigarette companies to sell their cigarettes in a logo‐free drab dark brown package. As explained by the Australian Department of Health and Ageing, plain packaging will
- increase the noticeability, recall, and impact of health warning messages,
- reduce the ability of packaging to mislead consumers to believe that some products may be less harmful than others, and
- reduce the attractiveness of the tobacco product for both adults and children.3
Cigarette companies object strongly to such laws, and have brought (or convinced governments to bring) challenges in both Australian and international fora. With regard to international disputes, both trade and investment agreements have been invoked. The first case was brought by a subsidiary of the cigarette maker Philip Morris International (PMI) under the Hong Kong–Australia bilateral investment treaty. In its Notice of Claim,4 filed in June of 2011, PMI put forward a number of arguments, including the claim that the law deprived it of “title to the intellectual property and goodwill” and “the commercial value of its investments in Australia.” PMI argued that it is clear that there is no credible evidence that plain packaging legislation will have the claimed effect of enhanced public health.5
At around the same time that the investment claim was made, several countries raised objections in WTO Committees.6 Then, in March, April, and July of 2012, dispute settlement proceedings began, as Ukraine, Honduras, and the Dominican Republic filed consultation requests.7 Their key legal claims are that, as a result of the law, trademark rights are not being properly protected. With regard to “trade” arguments, the complainants alleged that the law constitutes an unnecessary obstacle to trade and is more trade restrictive than necessary to achieve the stated health objectives. They also alleged that various “discrimination” (i.e., protectionism) provisions of WTO law had been violated. However, the basis of these latter claims is unclear, as it is not obvious how the plain packaging laws treat foreign products or producers less favorably than domestic competitors.
At its core, the case against plain packaging, unlike the case of Clove Cigarettes, does not seem to be about protectionism. Rather, the main allegation is that the measure violates trade and investment rules that deal with issues other than protectionism, such as intellectual property and the protection of foreign investments. As a result, health advocates appear to have a point about the scope of these rules in relation to legitimate health regulation.
Is Tobacco Special? The Argument for Excluding Tobacco from Trade and Investment Agreements
Cases like Clove Cigarettes and plain packaging have led to renewed calls by health advocates to “carve out” tobacco from trade agreements. This argument is based largely on several U.S. legal and policy documents.
During the 1980s and early 1990s, U.S. trade policymakers worked actively to open foreign markets for U.S. cigarette exports, targeting both discriminatory measures and nondiscriminatory public health measures that had an impact on trade.8 However, during the Clinton years, this policy began to change.9 In 1997 Congress attached an amendment to an appropriations bill—known as the Doggett Amendment—which stated the following: