American Journal of Law & Medicine

Safeguards for Tobacco Control: Options for the TPPA



As noted above, an exception strikes a balance. It enables a country to present an affirmative defense of a measure that would otherwise violate a trade or investment rule. From a health perspective, an exception creates policy space to protect the public interest. From a trade perspective, an exception "weighs and balances" trade-promotion objectives so as to screen out all but the most efficiently designed health measures.

This Article explains two reasons why the WTO health exception does little to limit litigation. The first is complexity: it requires four stages of analysis, some of which have several sub-stages. (134) The second is the vagueness of text, which gives dispute panels broad discretion to interpret terms like "necessity." (135) The combination of vagueness and complexity invites the tobacco industry to generate its own science and finance its government allies to repeatedly test the exception's meaning in an evolving field of law. (136)

The practice in U.S. FTAs is to incorporate the general exception of GATT Article XX and GATS Article XIV. (137) This approach links the TPPA into both the GATT/GATS text and WTO interpretations of the text. The exception reads a follows:

GATT/GATS exception on health measures

   Subject to the requirement that such measures are not applied in a
   manner which would constitute a means of arbitrary or unjustifiable
   discrimination between countries where like conditions prevail, or
   a disguised restriction on trade in services, nothing in this
   Agreement shall be construed to prevent the adoption or enforcement
   by any Member of measures ... (b) necessary to protect human,
   animal or plant life or health;.... (138)

TPPA negotiations will seek to retain the language for general exceptions in recent FTAs. The question is, which recent FTAs? On the crucial element of scope, eight TPP countries are parties to FTAs that expand the health exception to cover the investment chapter.

After scope, there is little variation among the elements, which are incorporated by reference from the GATT/GATS exception. This article assumes that the GATT/GATS template will not be altered. The purpose of reviewing it is to explain why TPPA drafters should consider adding a tobacco-specific exception or exclusion in addition to the baseline exception. For each element of the GATT/GATS syntax, the following sections explain the shortcomings (usually complexity and vagueness) and then identify alternatives that could be applied to a tobacco exception.

1. Scope

In the U.S. model for exceptions in FTAs, the general exception is not truly general. The scope element incorporates the GATT/GATS exception by reference and applies it to selected chapters including market access for goods, technical barriers to trade, and cross-border services, among others. It does not apply the exception to chapters on investment or intellectual property. (139)

The scope alternatives are to (a) add the investment chapter to the scope of the exception as eight TPP countries have already done, and (b) add as well the intellectual property chapter and others that tobacco companies could use to challenge tobacco measures.

Chart 3 shows precedents among TPP countries for applying the exception to the investment chapter; few have FTA chapters on IP.

The missing actors on this list are the United States and Chile. (140) The USTR takes the position that even if an exception applies to the investment chapter, the language of an exception ("nothing in this chapter prevents ...") does not apply to the obligation to compensate investors for indirect expropriation. (141) This issue is discussed below in Part IV(B) (scope and protection of a tobacco-specific exception).

2. Protection

The GATT/GATS exception provides that "nothing shall be construed to prevent the adoption or enforcement by any contracting party of measures...." (142) The first phrase implies that this exception is an exception and not an exclusion. (143) That is, it applies to "construing" obligations of a chapter, an analysis that only arises if a chapter covers a measure and if there is a prima facie claim that the measure violates a rule of that chapter. These are the first steps of analysis that the WTO's Appellate Body applies when a country defends a measure under GATT or GATS. (144)

The protection afforded by the GATT/GATS exception is broad in two respects. First, its coverage of measures is all-inclusive: "any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form." (145) Second, the exception covers both present and future measures--those adopted and enforced--at any stage of the lawmaking process.

a. Shortcomings

Burden of litigation Even considering its inclusive terms of protection, the shortcoming of this element is its nature as an exception. It functions as an affirmative defense; it requires the effort and expense of litigation.

Threat of MFN claims--In its investment claim against Uruguay, PMI used the MFN clause in an effort to invoke more favorable procedural treatment in investment agreements outside of the primary treaty. (146) PMA used an umbrella clause to expand its argument that Australia has a duty to comply with obligations outside of the primary treaty--in this case, trademark treaties. (147) The question here is whether a safeguard can limit the extent to which MFN supports treaty shopping. (148)

In the draft TPPA investment chapter, the MFN clause excludes procedural rights; MFN remains available for expanding substantive investor rights. (149) In fact, investors have most frequently and successfully sought to expand their substantive rights using MFN clauses. (150) For example, in MDT Equity Sdn. Bhd. v Republic of Chile, arbitrators ruled that MFN applied to the FET clause of other Chilean agreements because those clauses were more favorable and more specific (they required issuance of development permits). (151) In several cases, arbitrators accepted jurisdiction based on MFN comparison to prior agreements, but then they ruled that the investor did not prove that the prior agreement actually provides more favorable treatment. (152)

Arbitrators have rejected MFN claims when the primary treaty would not grant jurisdiction to a claim. (153) Likewise, they have rejected MFN arguments that a prior agreement is more favorable because it does not have a limiting provision contained in the more recent primary agreement (e.g., a narrower definition of investment). (154)

This logic supports the value of exclusions because they make clear that a type of measure (e.g., tobacco control) is outside the jurisdiction of ISDS. The intent to limit jurisdiction (and the reach of MFN clauses) is not explicit with respect to an exception. (155) Investors have also sought to invoke MFN in order to gain access to umbrella clauses or obligations to comply with international law, which occur in the BITs of TPP countries. (156)

The point of comparison here is that an exclusion clearly blocks MFN treatment; an exception may not.

b. Alternatives

The alternative to the U.S. approach to defining the scope of the GATT/GATS--listing selected chapters--would be to paraphrase the language of GATT and GATS: "nothing in this Agreement prevents.... , (157)

The MFN threat can be avoided by providing an explicit interpretation clause to limit its reach. For example, the clause could provide that if a measure is justified under the exception, it does not constitute less favorable treatment.

3. Deference

The GATT/GATS health exception provides no explicit terms of deference to a defending government. The agreement establishing the WTO speaks only to which agreement prevails if there is a conflict among WTO agreements. (158) A question of deference can arise when interpreting the health exception, or more broadly, when defending a measure on grounds that the measure implements treaty obligations under the FCTC. The literature on a treaty-based defense refers to the analysis in terms of conflicting norms or treaty conflict.

The complexity of analyzing conflicting treaty norms exceeds the scope of this article, so a few general observations must suffice. From a health perspective, the prospect of conflicting norms means that a country could defend a measure on grounds that it implements the FCTC. A treaty conflict arises only if both parties in a trade dispute are FCTC parties; all TPP countries are FCTC parties except for the United States, which signed but did not ratify the FCTC. (159)

Several commentators agree that a dispute panel should favor a defense based on treaty conflict by finding that the FCTC prevails over a trade agreement. (160) It is more likely that a dispute panel would follow the principle of effective interpretation and find that trade obligations should be read narrowly to avoid a conflict with the FCTC or vice versa with the FCTC being read narrowly to avoid a conflict. (161) The literature describes these options in terms of broad versus narrow views of treaty conflict. When interpreting conflicts among WTO agreements, WTO panels have taken the narrow view in two disputes (162) and the broad view in one. (163)

The narrow view is that there is a treaty conflict only when it is impossible for a country to comply with explicit mandates or prohibitions in two treaties at the same time. (164) The tobacco industry including Philip Morris International, British American Tobacco, and regional companies--is waging a lobbying and litigation campaign to argue for the narrowest possible interpretation of FCTC obligations, thus limiting the scope of possible "conflicts." (165) A number of WTO delegations have echoed this theme. (166) The industry's "narrow" argument is that a country can avoid conflict with a trade obligation by not exercising its authority to implement an FCTC recommendation. (167)

Yet even under the narrow view, a country can defend a tobacco-control measure, particularly when an FCTC article requires a type of measure and the guideline interprets the requirement and recommends best practices to accomplish it. (168) In this context, the guidelines are "a subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions." (169) For example, Article 13 requires a "comprehensive" ban on advertising, which the guidelines interpret with a review of forms of advertising (promotion, sponsorship, display, packaging, etc.) and recommendations for each form, including plain packaging, to implement this FCTC requirement. (170)

There is a strong argument that an FCTC recommendation is not soft. The plain language of the FCTC creates a framework of common measures, some of which are required and some of which are encouraged. The principle of effective interpretation requires deference to FCTC recommendations and guidelines; otherwise the purpose of the convention to serve as a framework would be thwarted. If that were not enough, the guidelines are a subsequent agreement as noted above. (171)

The broad view is that there is a treaty conflict--and hence a defense is available--when objectives and recommendations of two treaties run counter to each other. (172) Several commentators take the broad view that a country can defend a measure that is within the scope of FCTC articles, protocols and guidelines as they evolve over time. (173)

If a dispute panel finds a treaty conflict, there are strong arguments that the FCTC (2004) would prevail over the WTO agreement (1995). The customary interpretation is that a later treaty in time prevails over an earlier one, (174) and a specific treaty (FCTC) prevails over a more general one (WTO). (175) With respect to subsequent agreements like the TPPA, Article 2 of the FCTC reverses the presumption that a later treaty prevails (among FCTC parties). FCTC parties may enter into agreements that are "relevant to or additional to the Convention and its protocols, provided that such agreements are compatible with their obligations with the Convention and its protocols ..." (176)

Moving beyond treaty conflict, the recent panel report in United States--Clove Cigarettes sheds positive light on using FCTC guidelines to interpret the GATT/GATS health exception. The panel readily accepted the FCTC guidelines as evidence of "a growing international consensus" on the need to restrict additives that make cigarettes more palatable. (177) As this pertained to whether a measure is necessary under Article 2.2 of the TBT Agreement, it bodes well for deference to FCTC guidelines when determining whether a measure is necessary under the health exception. (178)

The panel in Clove Cigarettes did not defer to the United States in its attempt to justify less-favorable treatment of clove flavoring compared to menthol, which the panel viewed as like products. (179) The panel did not even consider survey evidence that the United States relied on to explain exclusion of menthol simply because the opposing surveys used different parameters. (180) The Appellate Body confirmed that a dispute panel does not need to give any particular weight to evidence of a defending party. (181)

Some analysts argue that dispute panels should defer to a defending government because panels lack scientific expertise, (182) or that panels should defer to the scientific evidence embodied in the FCTC and its guidelines. (183) Tthe panel's lack of deference to the United States in Clove Cigarettes, however, suggests that governments should expect no deference when justifying discrimination, and some science may not be enough. (184)

a. Alternatives

Self-judging exception The security exceptions of GATT and GATS provide a model for how to draft a self-judging exception, for which a dispute panel must defer to the defending government. The exception covers measures that a party "considers necessary" for the stated purpose. (185) The Colombia-Belgium BIT provides a self-judging exception for measures a party "considers appropriate" for compliance with environmental law. (186)

Whether a dispute panel could review a country's use of a self-judging exception is uncertain. Article 26 of the Vienna Convention requires a country to carry out its obligations in good faith. Some analysts therefore believe that a self-judging exception is subject to a good-faith review. (187) Others interpret the explicit deference as requiring that a panel should not even be established. (188)

Yet another interpretation of self-judging exceptions is that a dispute panel must determine whether the exception applies. (189) This approach could be codified with explicit language: "The jurisdiction of a dispute panel is limited to determining whether this exception applies to the measure."

A self-judging health exception would provide more than strong deference; it would minimize litigation as well. Yet because of its clarity and power, a self-judging exception may not be politically feasible unless it applies to an objective that is narrower than protecting health. For a tobacco-specific exception, the self-judging objective could be "to reduce use of tobacco products or its harms." (190)

4. Nexus

The nexus of the GATT/GATS exception is necessary; it links a measure and its objective, as in "measures ... necessary to protect ... health." (191) This nexus enables countries to defend a health measure while ensuring that the necessity test screens all but the most efficiently designed health measures that might otherwise distort trade more than is necessary. In other words, it serves to shrink the broader class of health measures to those that satisfy the necessity test. (192)

The necessity test was drafted when most health measures were designed to have direct causal effect on communicable diseases. More recent measures often aim to suppress non-communicable diseases (NCDs) such as those caused by smoking. They govern an indirect chain of causal connections, from production of harmful products to marketing, packaging, distribution, and consumption. (193) Some analysts are optimistic that the WTO's interpretation of necessity will accept the indirect connection between tobacco measures (more so than other NCD measures) and their objective of influencing health outcomes. 194 Others anticipate ongoing legal conflict over tobacco trade, "where measures are unprecedented, precautionary or part of a policy package whose effect is cumulative." (195)

Before a WTO dispute panel, the analysis of whether a measure is necessary involves the first three stages in a four-stage process (the fourth being additional restrictions in the chapeau). The first asks whether a measure fits within the scope of protected health measures. 196 If so, the second "balances and weighs" three factors to determine prima facie whether a measure is necessary: the importance of values or interests at stake, the contribution of the measure to the objective, and the restrictive effects of the measure on international trade. (197)

In Brazil--Tyres, the Appellate Body accepted that in making its prima facie defense, a government could defend a measure as contributing to a cumulative package that protects public health. (198) Moreover, it can prove the contribution a measure makes with a qualitative theory or logic model; scientific evidence of a measure's effectiveness is not required. (199)

A dispute panel's consideration of a measure's restrictive effect on trade is a particular concern for tobacco control because a number of countries ban particular tobacco products or services. After finding that a partial ban violates market access commitments under GATS, the Appellate Body accepted a U.S. ban on Internet gambling services as necessary to protect public morals. (200) Yet, the ban did not survive the exception's additional restrictions (in the "chapeau"); it was held to constitute unjustifiable discrimination. (201)

If a measure passes the second stage as prima facie necessary, the third evaluates whether less-restrictive measures are reasonably available. (202) The challenging country carries the initial burden of identifying alternative measures, (203) and if it does, the burden shifts to the defending country to show that the alternatives are not "reasonably" available. (204)

Even if the answer is yes at stage three, the fourth stage analyzes whether the measure satisfies the chapeau requirements that a measure cannot constitute "arbitrary or unjustifiable discrimination" or a "disguised restriction" on trade. (205) This is covered below under additional restrictions to the nexus tests.

If the WTO Appellate Body sustains the approach and degree of deference that it upheld in Brazil-Tyres, it will enable governments to defend their policy space to adopt tobacco measures "whose individual effects would be hard to correlate to explicit public health targets." (206) That assumption, however, depends on the kind of measure, the specific product or se rvice it regulates, the objective, the surrounding policy framework, the available science, and whether the Appellate Body chooses to extend the logic of Brazil-Tyres to that entire context.

a. Shortcomings

Scope--Before focusing on the nexus element, it bears repeating that the flexibility of the necessity test, as summarized above, only comes into play if the health exception applies to a dispute. The GATT/GATS health exception does not apply in the investment claims against Uruguay or Australia or in the WTO claims against Australia that are based on the TBT Agreement. (207)

Necessity in investment disputes--There is no report of any proposal in the TPP negotiations to extend the GATT/GATS health exception to the investment chapter. Assuming that such a proposal is made and adopted, however, how would investment arbitrators apply the necessity test? Some analysts predict that when interpreting investment treaties with a health exception, arbitrators may show little deference to a defending country, which will be expected to defend its measure with scientific evidence. (208) A TPPA arbitration panel would be ad hoc and not necessarily schooled in WTO jurisprudence. Even if arbitrators follow the steps of the necessity test, they would balance the interests in a different legal context for investment than for trade, particularly with respect to the impact of a measure on investor expectations. (209)

Uncertainty of interpretation--In Brazil-Tyres, the Appellate Body used the vagueness of the necessity test to steer its interpretation in a progressive direction: necessity does not require scientific evidence; it does accept the indirect contribution of cumulative measures, and it places the burden of identifying alternative measures on the complaining country. (210) But the future meaning of necessity remains unpredictable for several reasons. Most generally, the power to interpret necessity as falling within a broad range--somewhere between indispensible and making a contribution--is in the hands dispute panels of the WTO or a regional agreement like the TPPA. (211) Uncertain meaning of the health exception can "foment regulatory-chill." (212)

In Brazil-Tyres, the Appellate Body accepted Brazil's cumulative measures as complementary parts of a whole policy. In prior and subsequent decisions, this has not always been the case. (213) In United States-Gasoline, the Appellate Body evaluated the necessity of individual sections of the gasoline regulation; the effect of the entire clean air policy could not justify individual provisions. (214) In Australia Salmon, the Appellate Body evaluated the necessity of individual measures because they applied to different preparations of the same type of fish. (215) Most recently, the panel in China--Audiovisual Products required China to establish the contribution of each type of measure in its content review policy for achieving its objective, its restrictive impacts on trade, and the weighing and balancing of factors. (216)

When defending a tobacco measure, it is difficult for a country to produce scientific evidence that a discrete measure contributes to a health outcome. Except in rare circumstances, public health scientists cannot isolate population health data to study the effect of a discrete measure. (217) Moreover, they cannot prove the effect of a particular law before it is adopted. (218) They must study the effect of "a series of comprehensive anti-smoking measures" over an extended period of time. (219)

In addition to these trade law variables, the unique language and legislative history of a tobacco measure can drive the interpretation of necessity. A broadly stated objective, like protecting people from the "devastating health, social, environmental and economic consequences of tobacco consumption," (220) might leave a measure vulnerable on grounds that less-restrictive alternatives are available to achieve the desired result. (221) The industry argues that the availability of alternatives increases to the extent that a measure is part of a cumulative scheme; one alternative might substitute for another. (222) For example, PMI argues "[g]iven ... the wide range of effective measures to reduce smoking incidence, plain packaging is neither an appropriate nor proportionate step to address smoking related issues."(223)

Burden of litigation--Given the uncertain meaning of measures necessary, a country must divert its own legal resources to defend a tobacco measure, hire legal advisors and expert witnesses, and pay costs of litigation that will exceed several million dollars over the course of several years. As noted above, it is the tobacco industry's strategy to generate opposing scientific evidence, assert that a measure does not contribute to positive health outcomes, and drain maximum resources from a defending country through litigation. (224)

b. Alternatives

More inclusive nexus--A health measure will survive a challenge in U.S. courts so long as it has a rational connection to protecting health, (225) apart that is, from regulation of tobacco advertising and display. (226) There are several nexus terms that approximate the rational-connection standard of review.

* Measures "for" protecting health (227)--The plain meaning of for is "with the purpose of ... conducive to." (228) Similar nexus terms in investment exceptions include "taken for reasons of," (229) "to," "directed to," and "designed and applied to." (230) Commentators have interpreted the variations of for to require only a rational connection between a measure and its objective. (231)

* Measures that "relate to" protecting health (232)--The plain meaning of relate is "connected." (233) The Appellate Body interpreted relating to, the nexus in GATT Article XX(e) and (g), to require a rational connection such as whether a measure is "primarily aimed at" achieving its objective. (234) Based on their plain-language definitions, for, to, and relate to are more inclusive than necessary. (235)

Among these alternatives, for and to are probably more inclusive because they have not been interpreted to mean primarily aimed at achieving an objective. This is important because some tobacco-control measures pursue multiple objectives. For example, a licensing requirement may promote tobacco control, but also customs, consumer protection, and other regulatory objectives.

5. Objective

The GATT/GATS objective of protecting "human, animal or plant life or health" (236) is stated in very general terms, and it has been applied to investment chapters or treaties by the eight TPP countries cited in Chart 3 in the section on scope.

When they are adopted, some customs, licensing, and tax measures may not explicitly address a health objective. (237) For example, measures to license retailers may have been adopted for consumer protection or tax purposes, and their connection to health may have evolved as a secondary or incidental function over time. As noted above, a defending government must establish that these measures make a contribution to protecting health--operating independently or in conjunction with other measures.

6. Additional Restrictions

Even if a measure passes the necessity test, it still needs to satisfy the additional restrictions in the chapeau, which require that measures "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on trade ..." (238) The necessity test considers the substance of a measure, while the additional restrictions consider how the measure is applied. A measure may well be necessary on its face but then fail to satisfy the additional considerations as applied. (239)

The purpose of these restrictions is to prevent countries from "abusing" the exceptions to defend measures that are intentionally protectionist (unjustifiable) or that have a protectionist effect (arbitrary). (240) The burden of proving that a measure is not applied to abuse an exception rests on the party invoking the exception. (241) That burden is "a heavier task than that involved in showing that an exception ... encompasses the measure at issue." (242)

In two recent decisions, Brazil--Tyres and U.S.--Gambling, (243) the Appellate Body found that bans (on importing retreaded tires and Internet gambling) were necessary to protect health, but the measures failed the test of arbitrary or unjustifiable discrimination. (244)

a. Shortcomings

Inability to freeze the market--When the U.S. Congress banned cigarette flavorings, except for menthol, the intent was to freeze the market to stop its growth among young smokers who were the targets of flavors like chocolate and bubble gum. (245) The flavor freeze had the effect of preventing Indonesia's clove cigarettes from entering the market, and Indonesia prevailed in its WTO discrimination claim based on Article 2.1 of the TBT Agreement (national treatment). (246) To the law's detractors, excluding menthol was "disguised protectionism," pure and simple. (247)

In United States--Gasoline, the Appellate Body found that discrimination is not justifiable if it can be foreseen and is not "merely inadvertent or unavoidable." (248) Similar to the U.S. law, Canada's 2009 Tobacco Act could also be described as a measure to freeze the market. It bans a select list of youth-oriented flavorings that account for less than one percent of the market, and like the U.S. law, it does not ban menthol. (249)

Upon losing the Clove Cigarettes case, the U.S. government explained that the dispute panel's interpretation of national treatment is "insufficient to allow for the type of legitimate incremental regulation commonly applied to situations such as the one presented here." (250)

Apart from preventing intentional disguise of protectionism, (251) there is confusion over what "disguised barrier to trade" adds as a restriction. …

Log in to your account to read this article – and millions more.