[Intl-tobacco] Tobacco and U.S.-Malaysia Free Trade Agreement - Comments from Essential Action

[robert weissman]

A pdf formatted version of these comments is available at:

http://www.essentialaction.org/tobacco/trade/MalaysianFTAcomments.pdf

Essential Action
PO Box 19405
Washington, DC 20036

May 12, 2006

Gloria Blue
Executive Secretary
Trade Policy Staff Committee
Office of the U.S. Trade Representative
600 17th Street, N.W.
Washington, DC 20508

Re: Comments on Proposed U.S.-Malaysia Free Trade Agreement

Dear Gloria Blue:

Essential Action is a public interest group with a focus on corporate
accountability and global public health issues.

We are writing to urge that the U.S. exclude tobacco products from a
U.S.-Malaysia Free Trade Agreement.

Our basic position is that there is no legitimate purpose for inclusion
of tobacco products in trade agreements, which are designed to
facilitate trade and remove tariff and non-tariff barriers to commercial
transactions -- an inappropriate goal for tobacco products, consumption
of which is harmful. This is a consensus view among the leading tobacco
control groups in the United States.(1)

In these comments, we first very briefly review tobacco control efforts
in Malaysia, and then explain why inclusion of tobacco products in the
FTA would threaten such efforts.

Malaysia's Tobacco Control Efforts

As in the United States, smoking is a major public health issue in
Malaysia. More than one in four Malaysia adults smoke -- nearly half of
Malaysian adult, but under 5 percent of women.(2) The Malaysian
government says that nearly half of the health ministry's budget is
spent on treating tobacco-related disease. It estimates 10,000
Malaysians die a year from smoking-related disease.

To address these major public health and fiscal problems, Malaysia has
signed and ratified the Framework Convention on Tobacco Control, and is
undertaking serious measures to reduce the toll of smoking on the health
of its people.

It has instituted a prominent government-run counter-smoking campaign,
raised tobacco taxes, and adopted appropriate regulatory policies, such
as a planned move to larger and more graphic warning labels.(3)

The Malaysian public health efforts are unfortunately being undermined
by the efforts of the leading multinational tobacco companies, Philip
Morris and BAT. These companies have long skirted advertising
restrictions by undertaking a panoply of brand-stretching and indirect
advertising practices,(4) a problem the country has sought to address
with a comprehensive ad ban adopted in 2003. Now the companies are
working to undermine tobacco tax increases by offering discounts and
adding cigarettes to the pack.(5)

As we discuss below, a U.S.-Malaysian Free Trade Agreement that includes
the features commonly found in U.S. trade agreements and that applies to
tobacco products will assist the tobacco multinationals in their efforts
to undermine public health efforts to reduce smoking rates and diminish
the toll of smoking-related death and disease.

FTA Rules and Tobacco Control

The standard model U.S. free trade agreement includes a rollback and
elimination of tariffs on goods, and establishment of a range of rules
covering non-tariff issues, including trade in services and intellectual
property. Both tariff and non-tariff provisions in FTAs threaten
important tobacco control objectives.(6) We focus here on the non-tariff
issues.

Over the last two decades, the tobacco companies have invoked a range of
trade rules in an attempt to defeat sound tobacco control rules.
Inclusion of tobacco products in a U.S.-Malaysian FTA would give them
enhanced ability to do so in Malaysia.

Challenges Based on Intellectual Property Rules

The tobacco multinationals have relied especially on intellectual
property rules to challenge sound tobacco control policy.

They have argued in Canada, Brazil, Thailand and elsewhere that plain
packaging requirements for cigarette packaging or even large health
warnings encumber their trademarks, and undermine the very purpose of
trademarks, to provide easily determinable distinguishing marks for one
company=92s product over another.(7)

A Canadian plain packaging proposal, argued former USTR Carla Hills in a
memo written for the major tobacco companies, "would seriously diminish
the integrity of the trademark and substantially degrade the value of
the distinctive packaging, or trade dress, in which the companies have
invested heavily over the years. Therefore the proposal would deny
adequate and effective protection to basic trademark intellectual
property rights in violation of NAFTA Article 1701."(8)

BAT, Imperial Tobacco and Japan Tobacco have similarly argued that
European warning label requirements violate the companies' trademark
rights, by encumbering their use of cigarette packaging to display
trademarks and distinguish their products. The European Court of Justice
rejected the companies' intellectual property claims,(9) but specified
that it was not governed by TRIPS in its determination.(10)

The companies have also claimed that efforts to ban the use of the terms
"light" "mild" and "low" may infringe trademark rights, because those
terms are incorporated into cigarette names. In late 2001, Canada
proposed health regulations to prohibit the use of the terms "light" and
"mild" on tobacco packaging. Canada proposed the regulation in response
to a consensus among public health experts that the =93mild=94 and =93light=
=94
descriptors are fundamentally misleading. =93Mild=94 and =93light=94 cigare=
ttes
are not less hazardous to smokers=92 health, in part because it has been
determined that smokers compensate for reduced tar and nicotine by
inhaling more deeply, covering the =93vents=94 on filters and by other
means.(11) In announcing the regulatory proposal, Canada=92s health
department cited survey data suggesting that more than a third of
smokers of =93light=94 or =93mild=94 cigarettes choose these products for h=
ealth
reasons.(12)  In comments produced in response to a U.S. announcement of
the regulation -- after the Canadian notice and comment period had
concluded -- Philip Morris disclaimed any health benefits for =93light=94 o=
r
=93ultralight=94 cigarettes, and agreed that =93consumers should not be giv=
en
the message that descriptors means that any brand of cigarettes has been
shown to be less harmful than other brands.=94 But the company insisted it
should still be able to use the terms, which it alleged communicate
differences of taste to consumers. Barring use of the terms, Philip
Morris argued, would violate Canada=92s obligations under the WTO and
NAFTA. "The proposed ban unquestionably would constitute a 'special
requirement' that would encumber the use and function of valuable, well
known tobacco trademarks. A ban would substantially impede the ability
of manufacturers to distinguish regular, full flavor brands from their
low yield counterparts."(13) The company claimed that the =93descriptive
terms such as =91lights=92 are an integral part of [its] registered
trademarks=94 for products such as Benson & Hedges Lights and Rothmans
Extra Light.(14)

The companies have also challenged efforts to mandate disclosure of
cigarette ingredients as a violation of their trade agreement-protected
trade secret rights, notably in Thailand.(15)

Other Areas of Concern

* Technical Barriers to Trade:

Philip Morris has argued that the Canadian ban on the use of the terms
"mild" and "light" violates technical barriers to trade rules under
NAFTA, on the grounds that they are not the least trade restrictive
means to pursue the objective of ensuring consumers are not misled into
believing there is a health benefit to products labeled "mild" or
"light."(16)

The same arguments could be made about plain paper packaging or labeling
requirements.

The least trade restrictive obligation might also prove a significant
obstacle to efforts to regulate cigarette product content or other
product regulations.

The Technical Barriers to Trade agreements' requirements to rely on
international standards might also conflict with rules on measuring
components of tobacco smoke and smokefree rules, both areas where
standard-setting organizations(17) have been criticized by public health
organizations, including in some cases for being too influenced by the
tobacco industry.

* Services

Provisions in services agreements might be used to challenge national
advertising bans or restrictions, particularly restrictions that apply
to certain forms of advertising but not others.

They might also be used to challenge rules restricting distribution
outlets for tobacco products, a not unlikely move as tobacco control
measures are tightened worldwide. So too might restrictions on Internet
sales of cigarettes be subjected to a services agreement challenge.(18)

* Investments

Applied in the context of the tobacco industry, investment protections
are particularly worrisome. They give Philip Morris and other
multinationals direct standing to invoke trade/investment agreements to
challenge national law, overcoming the political reluctance of most
governments to advocate aggressively on behalf of cigarette companies.
The substantive provisions of the agreements provide considerable fodder
for the industry.

Each of the potential intellectual property claims of the industry -- on
warning labels, bans on "light," "mild" and "low," and ingredient
disclosure -- can be recast as an expropriation. Carla Hills made such
an argument concerning plain paper packaging in the RJR/Philip Morris
memorandum.(19)

In its comments on Canada's proposal to ban the use of the terms "light"
and "mild," Philip Morris alleged a two-fold infringement of Chapter 11
rules.  First, it claimed that "banning these terms would destroy these
valuable trademarks and the specific brands and goodwill they represent.
Following a ban, the affected trademarks would simply disappear from the
Canadian market."(20) This purported expropriation would be especially
costly to the tobacco companies, Philip Morris contended, because they
have "invested substantial sums to develop brand identity and consumer
loyalty for these low yield products. Moreover, descriptors denote clear
taste differences within brand families and have, over the decades,
become markers for those taste differences."

Philip Morris also claimed that the Canadian ban on "light" and "mild"
would violate Canada's obligation under Chapter 11 to provide "fair and
equitable treatment" to foreign investors. "Government officials from
Canada and the United States (as well as other members of the public
health community) actively encouraged tobacco companies to develop and
market low yield cigarettes. The Canadian government registered
trademarks containing descriptive terms used to identify these products
for consumers." Noting that regulations short of a ban were available to
the Canadian government, Philip Morris argued that, "under these
circumstances, banning the use of descriptive terms would be unfair and
inequitable."(21) That Philip Morris might have influenced governments
in these matters, or that the tobacco companies suppressed information
known to them about the ineffectuality of low-tar and low-nicotine
cigarettes, did not enter into Philip Morris's presentation.(22)

Conclusion: Public Health "Exceptions" Are Not An Answer

Given the overwhelming public policy interest in reducing smoking rates,
there is no legitimate basis for including tobacco products in the
U.S.-Malaysian FTA, or any other U.S. trade agreement. The risk of
conflict with tobacco control measures is too high.

It is true that many U.S. trade agreements contain public health
exceptions of various permutations. These exceptions, however, are no
substitute for simple exclusion of tobacco products from FTAs.

The public health exceptions have traditionally been interpreted
narrowly. The public health exception in the GATT Agreement, Article
XX(b) remains the prototype for such exception clauses. As explicated by
Carla Hills in her memo for the tobacco industry, "GATT Article XX(b) is
intended to allow Contracting Parties to impose trade-restrictive
measures inconsistent with the General Agreement to pursue overriding
public policy goals only to the extent that such inconsistencies are
unavoidable. As Canada pointed out in recent GATT dispute settlement
proceedings, the proponent of the public health exception has the burden
of providing the imposed measure is "necessary" (emphasis in
original)."(23) Subsequent decisions at the WTO have perhaps clarified
that the necessity test can in some real-world cases be satisfied -- but
it remains a high hurdle nonetheless.(24)

Moreover, certain chapters -- notably intellectual property and
investment chapters -- in FTAs typically do not contain a public health
exception (or contain only meaningless exceptions authorizing public
health measures only so long gas they comply with the terms of the
chapters). In response to criticism, USTR has negotiated side letters
and annexes covering public health for these chapters. But these are
inadequate.

In the case of intellectual property, the side letters suffer from not
being part of the agreement -- and thus serve only as interpretive
guides, subordinate to contrary specific provisions in the agreements --
and import the "necessary" standard with its difficult burden. Most
importantly, the side letters focus exclusively on the issue of access
to medicines, and do not address tobacco or other health-related concerns.

In the case of investment protections, the annex and other provisions
are similarly inadequate to address public health, and tobacco-specific
concerns. First, the general and vague nature of these provisions is
unlikely to provide much protection in the face of investment claims
that cite more specific and direct provisions in the agreement. Second,
in the case of expropriation, the language in, for example, the CAFTA
annex continues to define expropriation in terms broader than U.S.
jurisprudence.(25) Third, there is no reason to export even U.S.
jurisprudence in this area, at least as regards tobacco products. That
jurisprudence has invalidated, for example, a Massachusetts effort to
require disclosure of cigarette ingredients.(26) Whatever the U.S.
Constitution requires in the United States, there is no good reason for
the United States to impose such standards on other countries in the
case of tobacco products. Finally, the purported environment and public
health improvements to CAFTA's investment chapter kept in place "the
fair and equitable treatment" language that Philip Morris has invoked to
challenge sound tobacco control policy.

Especially in the case of the investment chapters -- where there is a
prospect of direct suit of governments by the tobacco companies, and
risk of substantial governmental liability -- but generally in the area
of FTAs, even the possibility of a trade challenge may chill health
regulators considering tobacco control rules. Thus, even tobacco control
rules that may be able to withstand formal challenge -- but against
which a plausible case may be made -- may never be enacted.

This is unnecessary and -- given the public health stakes in curbing the
tobacco epidemic in Malaysia and globally -- unacceptable.

The prospect of challenges to tobacco control rules can be eliminated by
an explicit exclusion of tobacco products from the Malaysian and other
FTAs. We urge USTR to work for such an exclusion.

Sincerely,

Robert Weissman,
Director

--

FOOTNOTES

1.  See, for example, American Cancer Society, American Heart
Association, American Lung Association, Action on Smoking and Health =96
Thailand, Action on Smoking and Health =96 USA, Campaign for Tobacco Free
Kids, Essential Action, Thailand Health Promotion Institute, Letter to
U.S. Trade Representative Robert Zoellick, December 9, 2003, available
at <http://www.essentialaction.org/tobacco/trade/zoellick.pdf>
2.  Dr. Judith Mackay and Dr. Michael Eriksen, The Tobacco Atlas,
Geneva: The World Health Organization, 2002, p. 98.
3. "Soon, graphic warning labels for cigarette packets." The Star, April
16, 2006, available at
<http://thestar.com.my/news/story.asp?file=3D/2006/4/15/nation/13969197>
4. Mary Assunta and Simon Chapman, "The Tobacco Industry=92s Accounts of
Refining Indirect Tobacco Advertising in Malaysia," Tobacco Control
2004;13:ii63-ii70.
5. M. Krishnamoorthy, "Tak Nak effort being negated," The Star, November
8, 2005, Available at
<http://thestar.com.my/news/story.asp?file=3D/2005/11/8/nation/12514878>.
6. It is unclear in the Malaysian context, however, whether tariff
reduction in a U.S.-Malaysian FTA would have significant impact, because
the multinationals -- including Philip Morris, now the only significant
U.S. exporter -- already elude tariffs via production in the Southeast
Asian region. In general, however, opening domestic markets to tobacco
product imports increases smoking rates and consumption. The market
opening leads to enhanced price and product competition and intensified
marketing efforts. "Reductions in the barriers to tobacco-related trade
will likely lead to greater competition in the markets for tobacco and
tobacco products [and] reductions in the prices for tobacco products,"
according to a World Bank report. "As a result, the death and disease
from tobacco use will also increase." (Allyn Taylor, Frank J. Chaloupka,
Emmanuel Guindon and Michaelyn Corbett, "The Impact of Trade
Liberalization on Tobacco Consumption," in Prabhat Jha and Frank
Chaloupka, eds., Tobacco Control in Developing Countries, Washington,
D.C.: World Bank, 2000., pp. 345-346.) The World Bank has concluded that
removing tobacco tariffs raises smoking rates 10 percent. (World Bank,
Curbing the Epidemic: Governments and the Economics of Tobacco Control,
Washington, D.C.: World Bank: 1999, Chapter 1.)
7. See Carla Hills, Legal Opinion With Regard to Plain Packaging of
Tobacco Products Requirement Under International Agreements," Mudge,
Guthrie, Alexander and Ferdon Attorneys. Memo to RJ Reynolds and Philip
Morris, May 3, 1994, pp. 1-2. ("It is important to note that in terms of
providing for general exceptions from NAFTA obligations for reasons such
as health and safety, as set out in NAFTA Article 101(1), Chapter 17
(Intellectual Property) was specifically excluded.")
8. See Hills memo, p. 13.
9. The Queen v. Secretary of State for Health (ex parte: British
American Tobacco (Investments) Ltd and Imperial Tobacco Ltd; supported
by: Japan Tobacco Inc. and JT International SA), 2002, Case C-491/01,
Paragraph 150.
10. The Queen v. Secretary of State for Health, Paragraphs 154 and 257.
11. See Donald Shopland, editor, " Risks Associated with Smoking
Cigarettes with Low Tar Machine-Measured Yields of Tar and Nicotine,"
Washington, D.C.: U.S. Department of Health and Human Services, National
Institutes of Health, National Cancer Institute, 2001,
<http://cancercontrol.cancer.gov/tcrb/monographs/13>;  "Findings of the
International Expert Panel on Cigarette Descriptors," p. 8.
<http://www.hc-sc.gc.ca/english/pdf/media/cig_discrip_rep2.pdf>.
12. "Findings of the International Expert Panel on Cigarette
Descriptors,"
<http://www.hcsc.gc.ca/english/pdf/media/cig_discrip_rep2.pdf>.
13. Submission by Philip Morris International Inc. in Response to the
National Center for Standards and Certification Information Foreign
Trade Notification No. G/TBT/N/CAN/22, (hereinafter "Philip Morris
International submission") (undated), p. 9.
14. Philip Morris International submission, p. 4.
15. R MacKenzie, J Collin, K Sriwongcharoen and M E Muggli, "'If we can
just =91"stall" new unfriendly legislations, the scoreboard is already in
our favour:' transnational tobacco companies and ingredients disclosure
in Thailand," Tobacco Control 2004;13:ii79-ii87.
16. Philip Morris International submission, p. 10.
17. The International Standards Organization sets standards for
measuring tobacco smoke components. The American Society of Heating,
Refrigerating and Air Conditioning Engineers (ASHRAE) is a professional
organization that sets voluntary standards for ventilation. These are
typically adopted by the American National Standards Institute (ANSI), a
voluntary standard-setting organization that might arguably be
considered an international standard-setting organization.
18. See especially World Trade Organization, "United States -- Measures
Affecting the Cross-Border Supply of Gambling and Betting Services --
Report of the Appellate Body," WT/D285/AB/R April 7, 2005.
19. Hills memo, pp. 20-21.
20. Philip Morris International submission, p. 7.
21. Philip Morris International submission, p. 8.
22. See Martin Jarvis and Clive Bates, "Why Low-Tar Cigarettes Don't
Work and How the Tobacco Industry Has Fooled the Smoking Public,"
London: Action on Smoking and Health UK, 1999,
<http://www.ash.org.uk/html/regulation/html/big-one.html> (citing a 1975
Philip Morris study that found: "The smoker profile data reported
earlier indicated that Marlboro Lights cigarettes were not smoked like
regular Marlboros. There were differences in the size and frequency of
the puffs, with larger volumes taken on Marlboro Lights by both regular
Marlboro smokers and Marlboro Lights smokers. In effect, the Marlboro 85
smokers in this study did not achieve any reduction in the smoke intake
by smoking a cigarette (Marlboro Lights) normally considered lower in
delivery.")
23. Hills memo, p. 17 (footnotes in original omitted).
24. See World Trade Organization, "European Communities -- Measures
Affecting Asbestos and Asbestos-Containing Products," WT/DS135/AB/R,
March 12, 2001.
25. See William Butler, Rhoda H. Karpatkin, Daniel Magraw, Durwood
Zaelke, "Separate Comments of TEPAC Members on the U.S.-Central American
Free Trade Agreement (CAFTA), March 18, 2004, available at
<www.ciel.org/Publications/TEPAC_CAFTA_18Mar04.pdf>.
26. Philip Morris v. Reilly, 312 F.3d 24 (1st Cir. 2002).