[Andy Ho] Will TPP send tobacco regulations up in smoke?

By Korea Herald
  • Published : Aug 15, 2013 - 19:33
  • Updated : Aug 15, 2013 - 19:33
In 2010, 14.3 percent of adults in Singapore were smokers. The goal is to reduce this to under 10 percent by 2020.

However, a soon-to-be multilateral free trade agreement threatens our local anti-smoking efforts. This is the Trans-Pacific Partnership. Moving this month in Brunei into its potentially final round of talks, the TPP will establish an FTA encompassing Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

Drafts of the FTA reveal controversial provisions that will constrict the capacity of TPP states to fight smoking. All TPP states except the U.S. have ratified the 2005 Framework Convention on Tobacco Control, which obligates states to have anti-smoking measures like banning cigarette ads.

The U.S. is the only party to propose a specific TPP text on tobacco. Since Big Tobacco supports the TPP, the U.S. Trade Representative’s proposal must be quite mindful of its interests.

Tariffs aren’t a big U.S. concern. Actual duties charged on its tobacco are very low because of bilateral FTAs that the U.S. has with some TPP states such as Australia, Brunei and Singapore (zero tariff), Chile (5 percent) and New Zealand (6 percent).

In this sector, the U.S. concern instead is to use the FTA to empower its tobacco companies to hobble non-tariff anti-smoking efforts in TPP states, so they can sell more smokes in each state. In this, the U.S. seems to have settled on a three-pronged strategy.

The first prong involves making the “health exception” ― which all FTAs have ― harder to apply when it comes to trade in tobacco.

All FTAs that comply with World Trade Organization law, as the TPP will, have an explicit health exception. This means that any measure restricting trade or investment, such as curtailing the use of brands, will violate WTO law on intellectual property rights.

But if that measure is justified for health reasons ― smoking causes killer diseases ― then, though it busts WTO law, it is a permissible “exception.”

Why? While selling smokes in plain packaging, say, won’t make them any healthier, it could reduce smoking rates and thus reduce their adverse health impact.

In sum, plain packaging or cigarette ad bans hamper tobacco firms from using their brands to capture smokers, so they are barriers to trade and investment. But they are allowed under the health exception as they reduce the health impact of trade in tobacco.

For a state to institute anti-smoking measures based on this health exception, WTO law only requires that such measures “materially contribute” to reducing smoking, in this case. This is a threshold intentionally set low as a long time must pass before a measure’s impact is ascertained.

But the U.S. is unhappy as it would hamper tobacco firms from selling more. So it has proposed that TPP states instead be allowed to set only those anti-smoking measures that are proven to be “science-based.”

This is a much higher threshold that will make it harder for states to justify their anti-smoking measures, as social science criteria are inherently contestable.

Also, it is hard to isolate the long-term effects of older measures from the effects of newer measures. To show that plain packaging, say, will reduce smoking rates ― which only Australia has instituted and that just since last December ― becomes well nigh impossible. So it likely won’t be allowed under the U.S. proposal.

For good reason then, in its 2009 comments on the TPP submitted to the USTR, tobacco giant Philip Morris International supported “negotiations that promote science-based regulations.”

The second prong is this: Tobacco firms won’t ordinarily have a place or a say in anti-smoking policy formulation by a state agency. But with the TPP, this could come to pass as it will include an investor-state dispute settlement mechanism.

This means that a tobacco firm is to be seen as a foreign direct investor requiring a “stable and predictable regulatory environment (to protect its) legitimate expectations” of profits, as PMI puts it.

But the branding and packaging restrictions in Singapore and Australia, said PMI, upset that regulatory environment. These measures hobble its use of its brands to distinguish its smokes from that of its competitors, thus causing it to lose brand equity. Under ISDS, this would amount to “indirect expropriation” of its equity by the two states.

Another approach written into ISDS is investor expectation of “fair and equitable treatment.”

Here’s what it means: In its 2009 comment, PMI decried Singapore’s health minister on being empowered to ban any marketing “term, without stipulating its basis” and “ban any and all tobacco products, based on his concept of levels of harm, rather than evidence-based analysis.” PMI said this “overly broad” delegation of authority denied it from receiving “fair and equitable treatment.”

Such investor expectation of “fair and equitable treatment” can be met only if there is “regulatory transparency,” the U.S. argues in the third prong of its tobacco strategy. This sees the U.S. pushing for TPP states to be required to offer assessments of the impact of their own regulatory policies.

Moreover, states must also engage affected companies in such assessments. This means that companies will have the right to participate in regulatory processes that impact them. Thus, tobacco firms will gain a structured say in domestic policy processes that may affect their investments.

Still, this might only go so far if all they got was a place at the table where anti-smoking policies were crafted. Instead, the TPP will require each state to set up a national-level body coordinating across ministries to formally review its old anti-smoking policies and approve new ones to comply with “best practice” regulations.

These, in practice, mean “market-centric” and “light-handed” U.S. practices: For instance, plain packaging won’t pass muster since it isn’t allowed in the U.S.

Finally, a special committee at not the national but TPP level will be set up to monitor national compliance with all requirements.

Moreover, the TPP will require state regulators to notify and disclose to the public all their relevant analyses, data and documentation. So not just anti-smoking activists but tobacco firms will be empowered to collect and collate such information. And when these firms or their proxy states ever sue, they will use such information against the regulator’s own anti-smoking policies.

So by offering Big Tobacco many access points within domestic regulatory processes, the TPP will constrain how states make anti-smoking policy decisions. And if states won’t listen, the industry can sue them at WTO or investment tribunals up to the appellate body.

When sued, states will be disadvantaged as these forums have a poor track record of not quite grasping health issues that intersect with trade or investment. If states lose, they must compensate affected companies for lost profits. So if PMI wins a case against Singapore, taxpayers will pay it a huge compensation and parts of the Tobacco Act will be repealed.

To avert this, states can try to keep the tobacco sector out of the TPP completely as the U.S.-Jordan FTA did. But this can occur only if the USTR perceives a moral duty to reject the objections of Big Tobacco, a very powerful lobby in U.S. politics it must reckon with.

By Andy Ho

Andy Ho is a columnist at the Straits Times. ― Ed.

(The Straits Times/Asia News Network)