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Why bilateral investment treaties are the last refuge of Big Tobacco

The tobacco industry has no recourse other than to pursue its challenge to the Australian government’s plain cigarette pack legislation via international trade agreements in the wake of yesterday’s High…

Uruguayan chancellor Luis Almagro, whose his country will join efforts with Australia to face Phillip Morris. EPA/SASHENKA GUTIERREZ

The tobacco industry has no recourse other than to pursue its challenge to the Australian government’s plain cigarette pack legislation via international trade agreements in the wake of yesterday’s High Court ruling.

Legal opinion suggests the legislation doesn’t violate the World Trade Organization’s (WTO) multilateral trade agreements pertaining to protection of intellectual property or technical barriers to trade. But it’s far more difficult to predict the outcome the investment protection claim under the terms of the Hong Kong-Australia bilateral investment treaty.

What are bilateral investment treaties?

Bilateral investment treaties differ from the WTO – there’s no public health exemption and investors, as opposed to countries, initiate complaints. The dispute resolution mechanism is overseen by arbitration bodies dominated by private-sector adjudicators utilising contract law to rule on market access issues. This process has been described as making the WTO dispute settlement mechanism seem “evenly balanced by comparison."

The events leading up to Philip Morris Asia’s announcement that it would claim compensation for loss of income related to plain packaging seem to do little to support its case. Most significantly, Philip Morris Asia acquired Philip Morris Australia nearly a year after the government’s announcement that plain packaging was about to be introduced. Nonetheless, the threat posed by the bilateral treaty should not be underestimated.

The power of bilateral trade agreements

The tobacco industry has been aware of the potential of bilateral trade and investment agreements, and of regional treaties that contain similar investment protection mechanisms for some time. Following the mixed outcome of its campaign to force Thailand to drop restrictions on imported cigarettes in the late 1980s, industry officials reassessed their reliance on the General Agreement on Tariffs and Trade (GATT), the forerunner and a key component of the WTO, as a means to expand their operations beyond their traditional markets in North America, Western Europe and Australia.

The United States Trade Representative (USTR) had previously used GATT to force open the domestic cigarettes markets of Japan, South Korea and Taiwan on behalf of the leading US tobacco corporations. Thai opposition to USTR demands eventually led to GATT arbitration that ruled against import restrictions, but in favour of enactment of comprehensive tobacco control legislation.

Dismayed at the outcome, industry officials argued that they had been dragged into the arbitration process “kicking and screaming” and took note of “the ineffectiveness of the GATT process, as compared to bilateral trade negotiations” to overcome obstacles to investment and operations in other restricted markets.

Philip Morris v Uruguay

In February 2010, Philip Morris International announced it had filed an arbitration claim against Uruguay for alleged breaches of the Swiss-Uruguay bilateral investment treaty. The alleged breach was domestic legislation requiring that 80% of cigarette packs display graphic health warnings.

As well as providing an explicit example of industry use of bilateral treaties that has been described as an “early test-case of the little-used intellectual property protections contained in BITs”, the case also serves as an explicit reminder of the potential implications of trade agreements for global tobacco control.

Efforts to include language that prioritised “health over trade” in the WHO’s Framework Convention on Tobacco Control, although supported by a majority of participating member states, were successfully opposed by a small group of high-income countries, including the United States, the United Kingdom, Germany and Japan, all of which are home to leading transnational tobacco corporations.

The effective silence of the FCTC on its relationship with trade agreements has created uncertainty regarding its potential effectiveness. And further work is needed to contend with the challenges to tobacco control created by agreements such as the Hong Kong-Australia bilateral investment treaty.

Read other articles on plain packaging published since the High Court decision:

Join the conversation

11 Comments sorted by

  1. Ben Harris-Roxas

    logged in via LinkedIn

    Great piece Ross. Are there any ways forward for the FCTC or is it dead in the water?

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    1. Ross MacKenzie

      Lecturer in Health Studies at Macquarie University

      In reply to Ben Harris-Roxas

      Thanks Ben.
      The FCTC has a lot of merit in a number of areas, but there has to be a re-engagement with trade issues. The current situation creates uncertainty regarding its long-term effectiveness as trade agreements that were signed after the Convention came into force could take precedence based on the “later in time” guidelines often followed in disputes.

      A good, if unlikely, starting point would be US ratification of the FCTC given the role played by PM in the expansion of the industry over the past 30 years or so, and its strategy of utilising agreements to undermine national legislation.

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  2. James Jenkin

    EFL Teacher Trainer

    The Conversation has published 25 articles in support of plain packaging - and not one against.

    I'm just curious whether there are any defensible alternative views.

    Advocacy for plain packaging seems less clear-cut than, say, advocacy for immunisation, because it makes predictions about behaviour. I'd be surprised if any initiative designed to change what we do had a high success rate. (If it did, the advertisers would be onto it in a flash!)

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    1. Daryl Deal

      retired

      In reply to James Jenkin

      Merchants of doubt, much do we?

      Extract from the CDC Fast Facts "Smoking & Tobacco Use"

      "Tobacco use is the leading preventable cause of death.

      Worldwide, tobacco use causes more than 5 million deaths per year, and current trends show that tobacco use will cause more than 8 million deaths annually by 2030.

      In the United States, tobacco use is responsible for about one in five deaths annually (i.e., about 443,000 deaths per year, and an estimated 49,000 of these smoking-related deaths…

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    2. James Jenkin

      EFL Teacher Trainer

      In reply to Daryl Deal

      Sorry Daryl if I was unclear. I'm not saying smoking's OK.

      I'm asking - does plain packaging work?

      I'm not trying to be a 'merchant of doubt'. I'm suggesting we need rigour, not just something that sounds nice and common sense. Otherwise you might end up with an unintended consequence - like cheaper cigarettes, and more teenagers smoking. The road to hell and all that.

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  3. Chris Booker

    Research scientist

    And what implications would the Trans Pacific Partnership currently being drafted have? My understanding is that it opens up a much wider ability for foreign influence on domestic policy under the guise of obligations to the trade agreement?

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  4. John Harland

    bicycle technician

    Perhaps this might awaken the electorate to the signing away of sovereignty in trade treaties.

    As a nation we appear to have been weak in negotiating such treaties in general and weakened the capacity of our governments to govern for Australians.

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  5. Daryl Deal

    retired

    The major problem here, is that the companies so called paper assets were transferred to the Hong Kong affiliate, long after the legislation was passed and all the Australian Directors were fully aware of that fact, prior to the transfer.

    It is one of those "oops, we have kicked our own goal moments"!

    Sadly, as we all know, we are dealing with a global monopoly, that has long history of shirking and evading both the letter of the law and taxes simultaneously, because they can.

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  6. Sebastian Poeckes

    Retired

    What would happen if Oz thumbed its nose at a negative determination and said that Oz health matters will be decided in Oz, not by some overseas mob? (In the nicest possible way of course).

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    1. Clifford Chapman

      Retired English Teacher

      In reply to Sebastian Poeckes

      This is the top question, really, because it does ask who has the absolute right, when push comes to shove, in such matters.

      Irrespective of a so-called individual person choosing to smoke legally manufactured products, if democratically elected governments can't be the final arbiters, then democracy does not give us the freedoms it should.

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  7. Simon Starr

    Lawyer at Starrausten

    Bilateral investment does indeed seems like the last refuge, looking at its nature and how it has been sustaining all these past years. It has brought about massive investment returns on several countries in their tobacco industries and it does seem like a long-term plan. Many countries are in favour of this type of bilateral investment and the concept will stay for sure.

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