Trade, Health, And Tobacco Exceptionalism: The TPP Tobacco Carve-Out

Source from:  Health Affairs Blog 11/11/2015

Last Thursday the White House notified Congress of its intent to sign the Trans-Pacific Partnership (TPP), the trade agreement reached in October between the U.S. and 11 other Pacific Rim countries, not including China. The notification and release of the agreement's text commences a lengthy period of Congressional and public review. Among the issues that will receive close attention is the so-called tobacco carve-out.

The tension between free trade and public health is both ancient and enduring. From a free-trade perspective, public health regulations often appear as barriers to trade, sometimes with good reason. Nations have long tried to justify protectionist policies as necessary for the protection of health. Conversely, from a public health perspective, trade pacts frequently seem to favor trade over health by limiting access to vital medicines and erecting formidable barriers to public health regulations.

Investor-State Dispute Systems

Especially problematic, from a public health perspective, is the inclusion in many trade agreements of dispute resolution mechanisms that allow commercial interests to challenge state regulations without going through a nation's ordinary legal system. These so-called investor-state dispute systems (ISDS) provide a special path for individuals and companies who believe that their economic rights protected by the treaty have been harmed. The ISDS allow these individuals and companies to bring claims before private arbitrators rather than judges. Importantly the "law" that is applied in these cases is not the full domestic law of the nation, with its well-established means for balancing public health and individual interests. Rather the law that is applied is the law of the treaty, which is designed to end protectionism and promote trade.

On their face, these ISDS are designed to protect foreign commercial interests from the home-state bias that may appear in some judicial systems. In practice, however, as a recent report from the Columbia Center on Sustainable Investment explains, ISDS create "a privileged and powerful avenue through which foreign investors can challenge the actions of host governments whether at the local, state, or federal level."

In recent years, Phillip Morris has sought to use ISDS procedures to challenge tobacco control regulations as denying fair and equitable treatment, and violating intellectual property protections, as required by multilateral and bilateral trade agreements. For example, although the High Court of Australia has upheld that nation's tobacco plain packaging law, Phillip Morris Asia continues to pursue a claim before an ISDS that the packaging law violated a trade agreement between Australia and Hong Kong. That case has yet to be decided.

Other claims brought by countries such as Honduras are pending against Australia under the World Trade Organization Dispute Settlement Mechanism. Phillip Morris has also brought an ISDS claim challenging Uruguay's plain packaging law.

The prospect that similar challenges could be brought under the TPP, including to federal, state, and local tobacco control laws, led public health advocates to urge that tobacco control laws be exempted from the ISDS process created by the treaty. Initially it appeared that the United States, which has often supported the interests of the tobacco industry in trade matters, and has failed to ratify the World Health Organization (WHO) Framework Convention on Tobacco Control, would resist those demands.

But when the White House announced the TPP in October, it surprised many observers by stating that the treaty would include a carve-out for tobacco. This carve-out will allow a state to elect to deny the benefits of the ISDS with respect to claims brought by investors, but not states themselves, "challenging a tobacco control measure of the Party." As a result, the U.S. could, but need not, choose to prevent tobacco control laws from facing challenges by tobacco companies in the TPP's ISDS.

Looking Ahead

The inclusion of the tobacco carve-out in the TPP should be viewed as a great victory for public health. But it is not the end of the story, either for the TPP, tobacco control, or other health regulations.

For the future of TPP, the carve-out represents a serious threat: Tobacco supporters in Congress, including Senate Majority Leader Mitch McConnell, have voiced concerns about the carve-out and their opposition may doom the agreement. For tobacco control, it remains uncertain whether the U.S. will exercise the election allowed by the carve-out. The carve-out also leaves unanswered the fate of tobacco control laws in other treaties' ISDS, as well as the broader question of how the goals set forth in the WHO Framework Convention on Tobacco Control can be truly realized given existing trade agreements.

For public health more broadly, the carve-out may serve as the exception that proves the rule, essentially reinforcing that all other health regulations will remain subject to dispute resolution systems designed to favor trade over health. Tobacco may be exceptional in that, according to the WHO, it is the "only legally available product that kills up to one half of its regular users." But it is not the only product that causes widespread disease. How to protect health from these other products, in this era of free trade, remains to be determined. Enditem