USTR To Hold Off On TPP Tobacco Proposal As Opposition Intensifies

In the face of intense criticism from business groups and members of Congress, the Office of the U.S. Trade Representative will once again hold off on tabling its proposal to provide a "safe harbor" for tobacco regulations at the thirteenth round of Trans-Pacific Partnership (TPP) negotiations, which are slated to begin on July 2 in San Diego.

U.S. negotiators will not table the proposal during that round in order to further consider comments "from a broad range of stakeholders," according to a USTR spokeswoman. "We want to take some additional time to consider our proposal in light of those views, as it is important to strike the right balance on an issue that is important to so many Americans," she explained.

Some of the comments came from members of Congress representing key "swing" states like North Carolina and Virginia, leading one observer to question whether the administration may have already made the decision not to table the controversial proposal until after the presidential election. Overall, members of Congress have inundated USTR with letters since early May, when USTR first briefed Congress on its draft tobacco proposal.

Those briefings took place just before USTR had intended to table the proposal at the twelfth TPP round held in Dallas. But USTR at the last minute held off on tabling the proposal (Inside U.S. Trade, May 25).

According to USTR's own description, the tobacco proposal would clarify that TPP governments may adopt regulations that impose origin-neutral, science-based restrictions on specific tobacco products or classes in order to safeguard public health. This is largely meant to ensure that the U.S. can implement the Tobacco Control Act, which was passed in 2009 and gave the government new authority over tobacco products.

Business groups charge that the proposal would undermine the longstanding USTR assertion that provisions in past trade agreements offer governments sufficient leeway to issue regulations to protect public health objectives. These business groups also fear that that the special treatment of tobacco could open the door to trade-limiting provisions for alcoholic beverages, genetically modified organisms, processed food products, or other products.

Individual companies that would be affected by the regulation, such as Philip Morris International, as well as broader U.S. trade associations, like the Chamber of Commerce, are intensifying their opposition to the proposal.

Public health groups are also privately critical of the proposal because they believe it does to go far enough. These groups would prefer a broader exemption for tobacco, meaning that tobacco regulations and laws would simply not be subject to TPP disciplines, sources said.

Some of these groups believe the current proposal is of limited value, but have held off on criticizing it out of a fear that criticism from both business and health groups would discourage USTR from tabling anything at all.

That would be the worst outcome, one public health advocate argued, because the current proposal, for all its shortcomings, at least recognizes that tobacco needs special treatment in trade agreements. However, if USTR continues to hold off on tabling it, these health groups may ramp up their criticism and step up their efforts to convince TPP members to agree to a complete exemption for tobacco, this source said.

Business groups have met with administration officials to express their opposition to the draft proposal, and have helped coordinate a series of letters blasting the proposal as well.

The most recent is a June 28 letter by five U.S. business groups and the American Farm Bureau Federation to White House Chief of Staff Jacob Lew that urges the administration to abandon the proposal. "After briefings by USTR officials, we remain convinced that it is unwarranted and will have a seriously negative impact on the trading system as a whole and on U.S. trade policy leadership," the letter states.

"The proposal would, in effect, give regulators license to adopt measures based on nothing more than the subjective belief that the measure could protect the public interest. The implications of such a radical change in U.S. policy are far reaching and not unlike an embrace of the 'precautionary principle.' Such a change would invite attacks on the world trading system that has taken decades to build and that protects the interests of U.S. enterprises and workers," it adds.

In addition to the Farm Bureau, the letter was signed by the presidents of the Emergency Committee for American Trade, National Foreign Trade Council, National Association of Manufacturers, U.S. Chamber of Commerce, and the U.S. Council for International Business.

Congressional opposition to the proposal comes in part from Senate Minority Leader Mitch McConnell (R-KY) and House Majority Leader Eric Cantor (R-VA), who both urged the administration in a May 11 letter not to table any language that would "disadvantage a specific product," as this would create a "troubling precedent." They also questioned the "appropriateness" of USTR moving ahead with a proposal "before it has worked with Congress to set the negotiating objectives that normally govern trade negotiations."

"We look forward to working with you to lay out the appropriate parameters for the TPP when we reauthorize Trade Promotion Authority," they added in their joint letter.

In a separate May 11 letter, Sens. Mark Warner (D-VA), Richard Burr (R-NC) and Kay Hagan (D-NC) also objected to the proposal. Twenty-two House members, many from states like North Carolina, Kentucky and Tennessee, also objected to the proposal in another May 11 letter to Kirk.

On the other side of the debate, Reps. Henry Waxman (D-CA) and Frank Pallone (D-NJ) circulated a "dear colleague" letter this week to gin up support for a new letter to express "strong support" for the proposal. It is likely to urge Kirk to strengthen the proposal by applying it to tobacco laws as well as regulations and by excluding tobacco products from tariff cuts. USTR thus far has not agreed to those two changes, sources said.

Four former USTRs -- Susan Schwab, Mickey Kantor, Clayton Yeutter and Bill Brock -- also blasted the proposal in a June 22 letter to Kirk that charges it will establish a new precedent for excluding other sectors or products from general trade agreement provisions.

The letter also argues that the tobacco exemption would create "a new type of general exception for intellectual property and investment obligations." On investment, this refers to arguments forwarded by business groups that the tobacco "safe harbor" would undermine the ability of companies to sue governments under TPP investor-state dispute settlement if a tobacco regulation amounted to an expropriation of their assets.

USTR argues that this is not the case, and the USTR fact sheet released about the draft proposal last month states that it would not affect trade disciplines like "compensation for expropriations."

Public health sources argue that USTR's statement is accurate, as the USTR proposal only provides that a government may put in place tobacco regulations to promote public health objectives. However, it does not prohibit companies from seeking compensation if those regulations have the effect of expropriating their property.

This is part of the reason why public health groups want a complete exemption for tobacco regulation from TPP, as they say the threat of lawsuits has a "chilling" effect on new tobacco regulations, especially on poorer countries that have fewer resources to defend themselves against a litany of potential legal challenges.

These public health groups argue that the business argument regarding the effect of the "safe harbor" on investment is largely without merit. But business representatives are not convinced, pointing out that exceptions in other international agreements that are similar to the draft tobacco proposal have been found to free the country putting the measure in place from all its trade obligations, including compensation for expropriation.

There was more agreement between business and public health sources that the exemption would have an effect on the rights and obligations of TPP members when it comes to intellectual property rights. That is, a TPP member may be able to fend off an allegation that a tobacco regulation violates TPP IPR obligations under this exemption, something that could be applicable to "plain packaging" laws for tobacco.

Public health advocates argue that the proposal would do little to safeguard plain packaging laws, such as the one adopted by the Australian government: for instance, companies could still use TPP to mount an investor-state challenge claiming that such laws amount to expropriation of their property. At the same time, they argue that the proposal could shield countries from challenges that plain packaging laws violate TPP trademark provisions, for instance.

One public health source pointed out that Australia is now defending its plain packaging laws from claims that those laws violate World Trade Organization obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Ukraine has alleged that the Australian law violates TRIPS Article 20 because it constitutes an "unjustifiable encumbrance on the use of trademarks."

The proposal would also make it easier for TPP countries to defend tobacco regulations under TPP rules by changing the legal threshold for fending off a challenge. Under the WTO, members are able to take measures that are "necessary" to protect human health, even if they conflict with other rules, so long as these measures are not disguised trade restrictions and are not applied in a discriminatory manner against countries where the same conditions prevail.

The TPP proposal, by contrast, states only that a tobacco exemption applies to measures taken "in order to safeguard public health." This is a lower legal threshold, and would be easier to meet, sources said.

At the same time, sources on all sides of the debate downplayed the impact of these differing legal thresholds, noting that all TPP members are also WTO members. That means that any TPP member that wanted to challenge a U.S. tobacco regulation could simply use the WTO dispute settlement system and would not have to worry about whether a tobacco exemption in TPP would make it harder to challenge a regulation under that trade agreement.

However, one public health source pointed out that the proposal still has some value because it at least makes the TPP forum less attractive, thereby cutting off one legal avenue for challenges. This is important because tobacco companies and governments have looked to pursue challenges on tobacco laws and regulations across a wide array of forums, including the WTO, bilateral investment treaties, and others, this source said.

At the same time, the Australian government and Australian public health groups are worried that any tobacco-specific exemption in TPP could undermine Australia's ability to prove that its plain packaging law does not violate WTO agreements like TRIPS.

This reflects the worry of the U.S. business community, which is that the new proposal would somehow undermine the idea that past trade agreements provide sufficient protections for public health measures. One source said USTR has had to walk a fine line in this respect.

Source: insidetrade.com