Dealing with Big Tobacco Bullies Part 2: The Trade and Investment Angle

Colleagues Amanda Glassman and Bill Savedoff posted an excellent piece on the role of the World Bank, the US Agency for International Development, and other nontrade agencies in helping developing countries fend off the “Big Tobacco Bullies.” They argue that agencies like the World Bank could use their money, technical assistance, and policy dialogue to provide big visible support for developing countries to implement their anti-tobacco policies. There also need to be changes in the trade and investment treaties that multinational companies are exploiting to intimidate developing country regulators, however. And, I would argue, they should not be focused narrowly on tobacco control.

There is a case for treating tobacco differently from other products when negotiating trade and investment agreements, as our former colleague Tom Bollyky argues here. But these agreements also raise broader issues regarding the balance between protection for investors and the right of governments to regulate to protect health, the environment or other public goods. Simon Lester argues in a recent blog post about the Sabrina Tavernise article in the New York Times that the core principle for striking this balance should be nondiscrimination and then, “tobacco regulation would not violate trade and investment agreements as long it didn't discriminate against foreign products.”

Of course, nondiscrimination is already a core tenet of international trade rules and investment treaties. And the new “model” US bilateral investment treaty released in 2012 includes an annex that addresses indirect expropriation, which can occur when new regulations affect the value of an investment, and says:

Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.

So where is the problem? Well for one thing, earlier investment treaties, such as the one between Australia and Hong Kong that Philip Morris is using to sue Australia over its tobacco controls, do not all include such explicit language. In the absence of such language, tobacco companies are better positioned to mount a legal challenge. Some observers nevertheless doubt that the tobacco companies will ultimately prevail in all of the cases being litigated—Australia won the legal battle under its domestic laws—and a definitive ruling against them could discourage cases in the future. In the meantime, defending against the tobacco bully complaints can be time-consuming and costly to the point where some countries, as described in a recent NYT article, may back way from implementing and enforcing tobacco control policies.

To ensure that investment treaties are not used to intimidate governments pursuing legitimate public health or environmental goals in the future, additional steps would be helpful—and the European Union (EU) is showing the way. A recently released summary of the investment provisions of the Canada-EU Free Trade Agreement notes that it provides more precise language on both “fair and equitable treatment” and indirect expropriation to reduce the broad latitude that tribunals currently have in interpreting those provisions. And, if that is not enough to deter would-be bullies, the new EU approach also provides specific mechanisms that allow tribunals to quickly dismiss “frivolous” claims and ensure that the complaining party is responsible for both parties’ legal costs if a tribunal rules that the claim is unfounded. (See here for a summary of the EU’s general approach.)

Frivolous and unfounded will need to be clearly defined, but the EU approach to investment protection would at least make corporate intimidation riskier. And if these changes were adopted by Trans-Pacific Partnership negotiators for investment generally, it might make a carve-out for tobacco unnecessary. Finally, changing the rules in trade and investment agreements would only be a first step. Amanda and Bill are right that developing countries need a lot of other assistance from a lot of other institutions if they are going to successfully face down the Tobacco Bullies.