The Significance of the Trans-Pacific Partnership’s Tobacco Exception - Global Trade Magazine
  April 21st, 2016 | Written by

The Significance of the Trans-Pacific Partnership’s Tobacco Exception

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  • Should TPP be approved, the tobacco exception will set a powerful precedent for future trade agreements.
  • Investor-state dispute settlement provisions have become a tool to bring suit against tobacco control measures.
  • The TPP exception demonstrates tobacco’s exceptional status as a public health issue.

In early February, after years of negotiations, the United States and 11 partner nations signed the Trans-Pacific Partnership (TPP), a sweeping free-trade agreement. With the fight for congressional approval of the agreement looming—amid a larger debate over free trade in a populist election cycle—it is easy to overlook an innovative and significant TPP provision on tobacco.

Of great interest to public health organizations and industry alike, and the result of years of advocacy and careful negotiation, TPP’s tobacco exception adds a subtle but historic wrinkle to the complex rules of international investment. Built on the unique global consensus against tobacco, the exception puts daylight between the interests of the tobacco industry and those of the private sector more generally.

The design of the exception, which applies to manufactured tobacco products but not leaf tobacco, should disaggregate corporate and agricultural lobbying interests within tobacco as well. Should TPPbe approved, the exception will set a powerful precedent for future trade agreements.

At issue are investor-state dispute settlement (ISDS) provisions, which allow investors to enforce international investment agreements directly by pursuing dispute settlement proceedings against foreign governments. ISDS has become a tool, particularly in the hands of Philip Morris, to bring suit against tobacco control measures. In 2010, Philip Morris International, based in Switzerland, cited a Switzerland-Uruguay bilateral investment treaty to initiate proceedings against two Uruguay tobacco regulations: single presentation (any one company must sell cigarettes under a single brand, with no sub-brand differentiation) and expanded health warnings (formerly 50 percent, now 80 percent, of total package space). Philip Morris is seeking the elimination of these laws and $25 million in damages; the case is still pending. In 2011, Philip Morris Asia cited a 1993 Hong Kong–Australia bilateral investment treaty to bring suit against Australia’s plain packaging requirements, which prohibit company brands, logos, and colors in favor of drab wrappers and large graphic health warnings. Late last year, the Permanent Court of Arbitration in Singapore declined jurisdiction to hear the case, allowing Australia’s laws to stand on procedural grounds.

In the context of future ISDS challenges, a Philip Morris statement noted accurately that “there is nothing in [the Australia] outcome that addresses, let alone validates, plain packaging in Australia or anywhere else.”

Like other trade and investment agreements, TPP grants private investors significant power to bring government policies to arbitration. But “for the first time in any trade agreement,” TPP exempts anti-tobacco measures from these ISDS challenges. If an investor challenges tobacco control under TPP and the government invokes the exception, the arbitrator will dismiss the case. One clever feature of this exception is that it does not explicitly carve tobacco out of the agreement’s other provisions—which might imply something about the many past agreements without such special treatment for tobacco—but simply does not allow challenges to proceed, whatever their merits (provided they are even-handed in their treatment of domestic versus imported tobacco products).

More than anything, the TPP exception demonstrates tobacco’s exceptional status as a public health issue and sets it apart from other sectors that may fear ISDS reform. There are public health cases to be made against any number of global products, and there is wide-ranging opposition to ISDS more generally. That tobacco was singled out and dealt with, over the vigorous objections of industry, demonstrates a unique consensus on the medical and economic dangers of smoking. Tobacco is the world’s leading cause of preventable death, responsible for nearly six-million deaths each year. It is the target of an unprecedented global public health treaty, the Framework Convention on Tobacco Control, which entered into force in 2005; the United States has signed the convention, and all other TPP governments have fully ratified it. According to Thomas Bollyky of the Council on Foreign Relations, who has been a clear and insightful voice on tobacco and TPP, “Tobacco is also the only legal consumer product with a binding U.S. executive order, signed in 2001 and still in force, prohibiting U.S. executive branch agencies from promoting its sale or export.”

In recent years, that has put not only tobacco companies but also the U.S. Chamber of Commerce on the wrong side of a true consensus in public health. As the New York Times reported last year, “the chamber and its foreign affiliates are pressuring governments around the world to turn back antismoking legislation. That pits [it] against groups like the World Health Organization, whose officials refer to the chamber as a tobacco industry front group.” Though it strongly supports TPP, the chamber lobbied against the tobacco exception, arguing that “singling out one product will open a Pandora’s Box as other governments go after their particular bête noirs.” Judging by TPP’s final text, this scenario did not play out in the agreement’s negotiation; should Congress approve TPP, this slippery-slope logic will be put to the test in future agreements and likely come up short.

The nature of a tobacco-specific exception serves to disaggregate lobbying interests. While other industries may be concerned about further reforms to ISDS, linking arms with tobacco is not their fight of choice. The Chamber of Commerce represents 3 million businesses across all sectors; already, pharmacy giant CVS pointed to pro-tobacco advocacy to explain its withdrawal from the chamber last year. As tobacco companies fight health warnings worldwide, the U.S. chamber’s many health care members are lobbying for “prevention-oriented care” and “wellness and chronic disease management programs in the workplace to improve health and productivity.” Any industry concerned with worker availability and health care costs has interests fundamentally at odds with those of tobacco, and some sectors, including major pharmaceutical and oil companies, have made substantial financial and programmatic commitments to global health.

In TPP, the separation of interests goes one step further. When protesting antismoking measures, politicians and corporate advocates often put forward tobacco farmers as the sympathetic face of a contracting and increasingly outsourced industry. But the TPP exception is limited to “manufactured tobacco products” and makes clear that “a measure with respect to tobacco leaf…is not a tobacco control measure.” Of course, the end goal of plain packaging and other measures is to reduce demand for tobacco. But in the near term, TPP actually lowers tariffs and other barriers to the trade of tobacco leaf, benefiting farmers and helping distinguish agricultural interests from corporate ones.

When judging the importance of the tobacco exception in TPP, it is worth emphasizing what it does and does not change. ISDS first appeared in a free-trade agreement in 1959. As early as 2003, the UN Conference on Trade and Development listed more than 2,000 bilateral investment treaties worldwide, involving 176 countries. The TPP language does not change the status of tobacco under any of these previous agreements—which, as the Australia and Uruguay cases demonstrate, may still provide grounds for complicated, lengthy, and expensive arbitration. That said, the tobacco exception is a major development, and it provides a precedent that reaches beyond its immediate protections for TPP governments. Should the Congress approve TPP, the exception will set a new default for ISDS negotiations. Why aren’t antitobacco measures explicitly allowed in this agreement as they are in TPP, the largest regional trade agreement in history? This tough question alone is the start of a powerful new norm.

The tobacco exemption has complicated public health advocacy on TPP. Early in the agreement’s negotiations, TPP was, from the perspective of many anti-tobacco organizations, something to be feared. Across 12 countries with a combined population of 800 million people, TPP promised lower tariffs on tobacco products and stronger trademark protections that might imperil packaging bans and other public health measures. Now, though tariff reductions and other protections for tobacco leaf remain, the inclusion of a precedent-setting ISDS reform has some anti-smoking groups advocating for TPP approval. For Chris Hansen, president of the American Cancer Society Cancer Action Network, the exception strikes a smart balance: “This provision,” he says, “is tailored to give the TPP parties the protection they need to save lives, while not interfering with the intended broader trade and economic goals of the agreement.”

Early reporting suggested that “lawmakers from tobacco-producing states and business groups are aiming to torpedo” TPP in response to the exception. But Congress receives only an up-or-down voteon the entire agreement, and—in a major, possibly election-year vote on a sweeping free trade deal—it is difficult to imagine an antitobacco provision overwhelming political and economic interests in one direction or the other. Taken as a whole, TPP’s future is uncertain. The early months of the 2016 election cycle have exposed intense opposition to trade on the left and right. Of five remaining major party candidates, only John Kasich has expressed clear support for the agreement, and it is unclear when TPP will receive a vote in Congress.

The case against global tobacco is best made in the terms of free trade itself. Keep in mind the goals of free trade—economic growth and expanded productivity—and tobacco stands out as a product that not only kills but also keeps workers from the workplace and costs the world many billions of dollars each year in health care expenditures. Keep in mind the mechanism of free trade—that operating unencumbered, it makes goods more available and more affordable. In the absence of narrow, smart exceptions, it promises to do the same for tobacco, the world’s leading single cause of death.

Seth Gannon is an adjunct fellow with the Global Health Policy Center of the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues.


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