Big Tobacco v Australia: dangers looming in the Trans Pacific Partnership Agreement

Big Tobacco will exploit the proposed investment provisions in the TPPA to undermine regulatory attempts. AAP

With the tabling of the Plain Packaging Bill in Parliament this week, Australia again stands at the forefront of the struggle against Big Tobacco.

But this stance is under attack in a whole new set of trade negotiations, the Trans Pacific Partnership Agreement. If successful, this attack could be the harbinger of tobacco-related harm to a number of countries on the Pacific Rim.

Australia pioneered tobacco control with advertising restrictions, controls over second-hand smoke and social marketing campaigns.

It was an early driver for the World Health Organization’s ground-breaking Framework Convention on Tobacco Control. This treaty commits parties to implementing measures to reduce the demand for and supply of tobacco products.

We lead the world again with the bill for plain packaging legislation – no other country has yet introduced such extensive laws.

But the struggle has now shifted to the field of trade negotiations and is being played out on two fronts.

Threat 1: The Australia-Hong Kong Investment Treaty

The immediate issue is Philip Morris’ threat to sue the Commonwealth over plain packaging under the expropriation and investor state dispute settlement (ISDS) provisions of the 1993 Australia-Hong Kong Investment Treaty.

Expropriation, in ordinary usage, means dispossessing property owners of their property. But it has a much broader meaning under trade law.

Expropriation, under Article 6 of the Australia-Hong Kong investment treaty, includes an investor being “deprived of their investments” or the introduction of measures having an equivalent effect.

If expropriation is proved, compensation equivalent to the loss in value must be paid. Because the treaty also includes an “investor state dispute settlement” provision, Philip Morris Asia can sue Australia directly rather than depending on Hong Kong to lodge a grievance.

Actually, Philip Morris has a global strategy. In 2010, Uruguay introduced a number of tobacco control measures including regulations mandating that health warnings cover 80% of each cigarette pack.

Uruguay also banned the use of misleading terms such as light and mild to describe certain types of cigarettes.

Subsidiaries of Philip Morris International responded by filing for arbitration under the Switzerland-Uruguay bilateral investment treaty.

Philip Morris claimed that the Republic of Uruguay expropriated its intellectual property and unfairly limited its ability to realize its investment. The case is still under way.

Looming behind this is the threat posed against tobacco regulation among all of the Pacific Rim countries by the proposed Trans Pacific Partnership Agreement (TPPA).

Much more is at stake if expropriation and investor state dispute settlement (ISDS) provisions are included in this agreement.

Threat 2: The Trans Pacific Partnership Agreement (TPPA)

The TPPA is a regional agreement currently being negotiated between nine countries - Australia, the United States, New Zealand, Chile, Singapore, Brunei, Peru, Vietnam and Malaysia.

Negotiations are expected to conclude in 2012 with the bulk of the text to be agreed by the end of 2011.

The TPPA will create binding obligations on member countries. If the United States government succeeds in its efforts, these obligations will include expropriation and ISDS provisions.

Not only will this greatly limit Australia’s capacity to regulate for public health, it will hobble regulators in all of the participating countries.

It will put a heavy price on any policy decisions that impact the value of foreign investments in ratifying countries.

Lessons from the Metalclad v Mexico case

The wider implications of these provisions can be seen in the Metalclad case in Mexico where similar provisions under the North American Free Trade Agreement (NAFTA) were invoked.

Metalclad, a United States waste disposal company, was denied a permit to dump hazardous waste in a landfill site close to the local drinking water source near Guadalcázar.

In 1997, Metalclad sued the Mexican Government in accordance with the NAFTA and was eventually awarded $15.6 million in compensation.

Australia’s position

The Productivity Commission’s 2010 review of bilateral and regional trade agreements recommended avoiding ISDS provisions in trade agreements for a range of reasons. These include a lack of economic justification as well as exposure to potential risks.

The Gillard Government’s Trade Policy Statement, released in April 2011, contains commitments to “preserve the right of Australian governments to make laws in important public policy areas.”

It also explicitly excludes provisions that might prevent health warnings or plain packaging from being applied to tobacco products.

Regional impact

The United States government is applying pressure on all negotiating countries to include investment provisions in the TPPA.

And Big Tobacco will surely be among the first to use these to undermine tobacco control around the Pacific.

This is not just about Australia – the Australian market for tobacco is shrinking anyway and the proportion of our population that smokes has been falling by about 1.5% a year since 1990.

The bigger issue is the much larger developing country markets where Big Tobacco is condemning millions of children to addiction.

If Australian negotiators give in to US pressure in the TPPA negotiations, the regulatory capacity of developing countries to protect their citizens from Big Tobacco will be seriously weakened.