O’Neill Institute Colloquium 2011
Tobacco and Trade
Matthew Myers — President, Campaign for Tobacco-Free Kids
Tobacco is a unique product: kills ½ of longterm consumers when used exactly as intended. There’s no such thing as a safe level. It’s addictive, and US courts have found that the industry manipulates the nicotine in its products to enhance the addiction. Virtually all new users are children; long-term users start as children. If it were introduced today, tobacco would be banned.
When trade lawyers say tobacco is just a legal consumer product, that’s just an historic accident, and we don’t have to ignore 60 years of knowledge in making trade policy. From the day that anyone learned that tobacco caused disease, the industry engaged in a campaign of deception, undermining government efforts, selling products without regard to social cost. 1600-page decision in US v. Philip Morris so found.
This industry has demonstrated by its behavior that it’s willing to let anyone die to sell its product. Magnitude of harm is also unique: #1 case of premature preventable death in the US and now globally. Kills more than 400,000 in the US annually. More than 8 million Americans suffer from tobacco-related disease. Nearly 90% of lung cancer deaths, 1/3 of cancer deaths, and 1/5 of heart disease deaths are tobacco-related. Nearly $100 billion in health care costs in the US annually. This is a miniscule fraction of the global impact. 100 million people worldwide died from tobacco in the last century. 2000-2025, 150 million deaths predicted; a billion people in the 21st century.
Framework Convention on Tobacco Control, 2003, ratified by more than 170 nations: the only global health treaty.
Industry response: undermine public health actions, challenge them in court, and, when it has no national cause of action, use global trade agreements to claim the right to continue prohibited activities.
Framework Convention and US agree: strong warning labels on packs; tobacco industry shouldn’t be allowed to mislead consumers with terms like light and low tar, because consumers think those products are safer and the science shows they’re not; comprehensive ban on tobacco advertising, promotion and sponsorship consistent with a country’s constitution. We don’t want the industry to use the Marlboro Man to promote tobacco.
In 2009 the US finally granted the FDA broad authority over tobacco: allowing regulation of sale, marketing, and content of tobacco products for public health purposes. Applies to all cigarettes, not to protect the US tobacco industry.
Industry’s response to ban on “light” and “low tar” was to change packaging and identify different types with different colors. Stunning degree of uniformity across the brands and the world, backed by heavy ad campaign so that by the time the words disappeared consumers had the cues from color. Sent documents to retailers: when someone asks for “light,” give them the blue package. In countries that were slower in banning the terms, they ramped up the false advertising. In China, 2007: “a little lower means more loving care! Low harm cigarettes give you more loving care!” Claimed a guarantee of health for your smoking life. The picture has a father cuddling a baby!
Using cigarette packs as billboards. Marketing cigarettes to women in Russia as symbols of liberation.
US trade policy has never been in sync with US public health policy or the public health policy of our trading partners. In the 1980s and 1990s, used trade policy/threatened sanctions to force open the doors of countries with restrictions/local companies that were less efficient at selling cigarettes. In 1997 Congress banned some US personnel from promoting tobacco abroad, and in 2001 Clinton signed an executive order to the same effect for everyone. Stopped the USTR from initiating trade actions, but didn’t stop the US from including tobacco in all its free trade agreements, with bad consequences: no longer needed tobacco-specific promotion.
Tobacco companies have turned to trade law as the last resort after losing in democratic institutions, even though measures were not designed to discriminate against foreign trade or protect domestic industry.
Indonesia and the US: in the Act giving authority to the FDA, Congress was worried about a series of new products targeted to youth. Thus Congress said that there ought to be an immediate ban on flavored cigarettes, including clove cigarettes predominantly made in Indonesia. They’d just entered the market; no adult would be caught smoking a strawberry cigarette. But Congress saw menthol as different—over 25% of smokers smoke menthol, including ¾ African-Americans. So seemed to play a different role in youth use and also in terms of millions who were currently addicted. Thus, Congress banned all other flavored products and instructed FDA to examine menthol and determine what the response should be.
Response: Indonesia claimed trade violation: ban on clove cigarettes was discriminatory and unnecessary to protect the health of the public. The overwhelming majority of the other flavors were made in the US. The claim was brought under the Agreement on Technical Barriers to Trade, not GATT, so GATT’s Article XX allowing an exception for actions “necessary to protect human, animal or plant life or health” didn’t apply.
Panel rejected Indonesia’s claim that the ban was unnecessary to protect public health. Extensive scientific evidence supported the conclusion that banning clove and other flavored cigarettes could contribute to reducing youth smoking. But, the US lost because the ban failed to give national treatment to clove cigarettes, treating them less favorably than menthol. The products were “like products” within the meaning of the trade agreement.
Uruguay has strong restrictions, a world leader in reducing tobacco use. Tobacco companies redesigned cigarette packages. Domestic and foreign companies responded by color coding and instructing retailers how to transfer the information. Uruguay responded by expanding the size of the warnings to 80% of the package and also mandated that each brand could only have a single representation, so that color coding wouldn’t work. Philip Morris then sued Uruguay before a World Bank panel on investment disputes under a treaty between Uruguay and Switzerland. Claimed violations of TM rights, expropriation of their property, and diminished value of investment in Uruguay. Threatened to bankrupt Uruguay by claiming damages in the billions. Country decided to stand and fight, because other countries recognized that Philip Morris was trying to make an example of Uruguay. 80,000 customers in Uruguay when they brought the case; not about Uruguayan profits. Philip Morris has also announced intent to sue Australia over proposed plain paper packaging. Also last week announced that it would close its only manufacturing plant in Uruguay because “it could no longer make a profit”—another way to punish Uruguay.
Indonesia case taught US an important lesson: it could lose too. (US just asked for extension of time to appeal.)
Benn McGrady — O’Neill Institute Trade and Health Program Manager
Relevant questions: what’s the right level of regulation (global, local, etc.), and what are the substantive standards for what counts as a health reason? These determine the level of national sovereignty. Could reallocate authority or tinker with the substantive standards to achieve regulatory goals.
Indonesia example: not enough reason to distinguish between menthol and clove cigarettes. Changed the balance between enforcing trade commitments and domestic regulatory autonomy. Gov’ts have been reluctant to bring claims because of the potential for backlash to their own regulatory autonomy, but this is the first real test of the Agreement on Technical Barriers to Trade. There are WTO committees where members can raise issues and put pressure on other countries to remove barriers; if nothing happens, may result in a formal dispute. In 12-18 months, there have been 4-5 issues in the TBT and TRIPs councils relating to tobacco and noncommunicable diseases more generally, including Australia’s plan. Canada implemented measures similar to those in the US, questioned by a number of tobacco-growing countries; Brazil is in a similar position.
Thailand wants to be the first country to implement graphic warnings on alcoholic beverage: gave notice to the TBT committee. This is of great interest to alcohol-producing countries, pressuring Thailand not to use warning labels at all. Australia is arguing that its tobacco regulations are lawful, but at the behest of its wine/alcohol industry, has criticized the Thai proposals. Emblematic of failures of coordination within government. Trade authorities respond to industry; health authorities argue that they can regulate.
Under bilateral treaties, the terms may specify that private companies can bring claims to protect their investments; this is common but not universal. (Australia now takes the position that it will never sign another treaty that allows private companies to bring claims, even though it’s a capital exporter that would like protections when its companies sign agreements with, say, Angola.) 100 years ago, more traditional international law approach was that gov’t would have to bring claim on behalf of its nationals: only WTO members/governments can bring WTO claims. There’s a problem of policy coordination, but at least the government can view the system as a whole. But in the investment context this was deemed a flaw; gov’ts didn’t want to bring claims on behalf of domestic consituencies very often because of political and other costs. That changes everything: whereas there’s been restraint at the WTO, int’l investment agreements are more likely to have challenges. There have been some claims against environmental health measures, but nothing comparable to the Philip Morris direct attack on public health measures.
Philip Morris argument: Uruguay’s acts constitute unfair expropriation for which it seeks compensation. Similar claim against Australia will be made: expropriating not only the TM but also their business; significant interference with use of their investments.
My Q: how do you think about the TM aspects of the tobacco companies’ arguments?
McGrady: rightsholders don’t have the right to use the TM. TM rights are a negative right: to exclude third parties from using the mark. Uruguay and Australia may be indirectly affecting the use of the right, but not prohibiting the registration. There would be no valid claim under TRIPs, which requires a country to object. An expropriation agreement under an investment treaty, which allows private companies to object, would require interpretation of whether domestic law has a positive right to use a TM. If there is a positive right, then the expropriation argument would be stronger, but there’s still a balancing question.
Australian rule deals with abandonment issues by providing that tobacco companies won’t lose marks for nonuse as a result of the rule, so the negative TM right would remain.
Myers: we’ve seen with big warnings that companies are still able to use their logos—even in Uruguay where the 80% restriction is in effect—Marlboro or Camel is small but visible. TM argument in Uruguay is very weak. No other country has threatened Uruguay under TRIPs. Only threats from other countries come from when regulation tinkers with the product itself.
(My reaction: the TM right asserted requires some careful back-and-forth between the abstract idea of a property right in a TM and the idea of brand value, with the tobacco companies appealing to the former and then the latter as suits their interests.)