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TOBACCO & TRADE: UPDATE ON GLOBAL TOBACCO TRADE LITIGATION

THE PUBLIC HEALTH LAW CENTER

1/23/2017 Tobacco & Trade 3

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FEATURED SPEAKER


Robert Eckford Associate Director Trade and Investment Law Campaign for Tobacco Free Kids International Legal Consortium

http://Global.TobaccoFreeKids.org http://Global.TobaccoFreeKids.org

International Trade and Investment Challenges

All you ever wanted to know about global trade and investment but

were afraid to ask!


I am a public health official / lawyer WHY SHOULD I CARE?


Tobacco products are traded internationally. Tobacco companies are foreign investors.


TRADE vs INVESTMENT TRADE agreements

– WTO - largest series of agreement – Many regional and bilateral FTAs – Concern tariffs and other barriers to trade – State to State dispute mechanisms

INVESTMENT agreements – Bilateral, multilateral or part of FTA – Over 3000 worldwide – Provides rights to foreign investors – Seek to encourage direct foreign investment – Investor-state dispute settlement (ISDS) mechanism


THE ‘SPAGHETTI BOWL’ OF INTERNATIONAL INVESTMENT TREATIES, SOURCE: UNCTAD



THREATS AND ALLEGATIONS

Tobacco corporations have for decades alleged that tobacco control measures breach international obligations. Typical arguments include: • Breach the WTO agreements • Breach International Intellectual property obligations • Expropriate property rights in their trade marks • Arbitrary because there is no evidence that they

work to reduce smoking rates • Breach freedom of expression / freedom to conduct

business • Disproportionate interference with a legal business.


International challenges to tobacco control

WTO disputes Australia – plain packaging (report due May 2017)

US – Measures Affecting the Production and Sale of Clove Cigarettes (2014)

Other Trade Disputes EU – BAT and JTI challenge to validity of TPD (May 2016)

Investment Arbitration claims (ISDS) Philip Morris v Australia (plain packaging) (Dec 2015)

Philip Morris v Uruguay (80% HW and SPR) (July 2016)


WTO Disputes


WTO Key Agreements • 159 Members

• GATT Agreement (Goods)

• Technical Barriers to Trade (TBT)

• TRIPS (Intellectual Property)

• DSU (Dispute Settlement Understanding)


Key principles of Trade Agreements

Any regulation that is or could be restrictive of trade must be 1. Non – Discriminatory ie origin neutral and not

disproportionately impact on products from one country.

2. Have a legitimate objective 3. No more restrictive than is necessary to

achieve the objective 4. Adhere to minimum standards for intellectual

property


US Clove

• Federal Food, Drug, and Cosmetic Act: Ban on flavoured tobacco included clove but excluded Menthol.

• Menthol cigarettes produced in the USA. Clove cigarettes were imported from Indonesia.

• ban origin neutral but in fact favoured US domestic market

• US accorded less favourable treatment to imported clove cigarettes than it accorded to “like” domestic menthol cigarettes. It therefore discriminated under TBT Art 2.1


The WTO dispute against Australia’s plain packaging

• Complaints made by Ukraine,

Honduras, Cuba, Dominican Republic and Indonesia in 2013.

• Ukraine withdrew its complaint in 2015.

• More 3rd Party submissions that any previous WTO dispute

• Decision due May 2017.


Australia - plain packaging

Main elements of claim are: • Article 2.2 TBT – is PP more trade

restrictive that is ‘necessary’ to fulfil its legitimate aim?

• Article 20 TRIPS – is PP a ‘justified’ encumbrance on the use of trade marks?

• TRIPS implies a ‘right to use’ registered trade marks.


The WHO FCTC and International Standards

• Whether WHO FCTC Guidelines are international standards is unanswered.

• To qualify, an instrument must be a standard adopted by an international standardizing body (AB, US – Tuna II).

• Such a body must:

– have recognized activities in standardization; and

– be open to the relevant bodies of all WTO Members

• Either way, basing regulations as closely as possible on WHO FCTC Guidelines is advisable.

• Mentioning the Guidelines in notifications to the WTO and in comments in the TBT Committee is also advisable.


OTHER TRADE DISPUTES

BAT and JTI challenge to EU Tobacco Products Directive (TPD) • Claims originated in the UK and were

referred to CJEU. Dismissed in May 2016. • Included grounds that TPD requirements

are a restriction on the free movement of goods (Art 34) and that is not justified under public health grounds (Art 36).


Investor State Dispute Settlement (ISDS)


Key protections for foreign investors under Investment Treaties

1. No Expropriation of property. Governments will not take the property of foreign investors without a lawful process and fair compensation. Includes indirect expropriation where regulation prevents the use of property or substantially impair its value.

2. Fair and Equitable treatment – regulations that affect an investment will not be arbitrary. There will be a stable regulatory environment. Governments will respect due process in adopting new laws that have a rational basis.

3. Legitimate Expectation – that a government will adhere to all its agreements.

4. No Denial of Justice - access to a fair domestic judicial system.


Investor State Dispute Settlement (ISDS)

Ad hoc tribunals under different systems • 3 arbitrators selected by the parties • Limited conflict of interest rules • Limited transparency of process • Concerns of a pro-investor bias • No appeal process leading to inconsistent

rulings • Potential for $billion damages • Cases take years and cost $millions


ISDS claims

• Not many claims against public health measures but some have been successful.

• More common disputed public interest issue is environment.

• Only 2 claims against tobacco control

• Significant potential for “chilling effect on governments”


Philip Morris Asia v Australia (plain packaging)



THE ‘SPAGHETTI BOWL’ OF BILATERAL INVESTMENT TREATIES (BITS)


Hong Kong

BIT No BIT

February 2011 100% shares in PM Australia transferred from PM Sarl to PM Asia

April 2010 – Government announces intention to proceed with plain packaging

Switzerland

“Abuse of Rights”

Dec 2011 PMI Asia brings claim under BIT as ‘foreign investor’


PMI v. Uruguay Commenced 2010 Ruling July 2016


Challenged Measures:

1. Single Presentation Requirement (SPR)

2. 80% Pictorial Health Warnings _________SPR_________ __80%__


Key Claims

• Expropriation of property requiring compensation ($25mil)

• Breach of Fair and equitable treatment obligations – Measures were arbitrary – Measures are not supported by evidence – Measures adopted without proper due

process


Tribunal’s ruling

• Governments have a strong right to regulate for public health under international law.

• Rely on the FCTC to frame policy, set objectives and provide the evidence & FCTC measures do not conflict with other international obligations or treaties.

• Strong tobacco packaging laws do not breach intellectual property rights

• “Manufacturers and distributors of harmful products such as cigarettes can have no expectation that new and more onerous regulations will not be imposed”


The Dissenting Arbitrator • GARY BORN – the “CLIENT’S CHOICE”

“one of the world's leading international arbitration practitioners” Appointed by PMI as arbitrator


Gary Born disagreed on 2 points:

1. The procedures of the Uruguayan courts in domestic legal challenges amounted to a denial of justice.

2. The SPR, in his view, was not required or contemplated by the FCTC and that “no meaningful internal discussion or consideration of the SPR occurred within the Ministry of Public Health”, so was manifestly arbitrary and disproportionate.


Tobacco companies continue to allege breaches of WTO and investment agreements

• Litigation in Pakistan to try to get a court ruling to force the Government to implement the law requiring 85% GHW. Tobacco Company of Pakistan is an intervener. It has alleged the 85% GHW breach the WTO agreements.

• ‘Experts’ in Slovenia continue to argue that plain packaging breaches the WTO agreements and intellectual property laws.

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