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Posts tagged Trans-Pacific Partnership

Tobacco in the Trans-Pacific Partnership Agreement

Nov29
2012 Leave a Comment Written by Benn McGrady

A heavy travel schedule has limited my blogging of late, so I have some catching up to do in terms of recent stories.

A story from last week on Inside Trade noted that USTR will hold off from proposing a tobacco specific exception at the Auckland round of Trans-Pacific Partnership negotiations. The article suggests that anti-tobacco activists are disappointed with this. Without doubt, that is true of some in the public health community. It is worth noting, however, that not everyone in the tobacco control community is thrilled with the idea of a tobacco specific exception.

At the Conference of the Parties to the WHO Framework Convention on Tobacco Control (held the week before last) a number of people I spoke with in the sidelines expressed concern about the signal such an exception sends. The concern is that creating a tobacco specific exception suggests that existing rules do not leave sufficient scope for states to implement tobacco control measures (hence the need for a change). This signal would also be sent at a time when investment treaty claims against Australia and Uruguay, and WTO claims against Australia are on foot.

Having not seen the actual text of the proposal, I remain agnostic about its merits. To be clear, I certainly am not in the camp advocating that an unseen text be tabled. My earlier observations can be found here, here, and here (among other posts). It seems worth adding that the proposal appears more responsive to the outcome of US – Clove Cigarettes and preserving the regulatory powers of the FDA than to contemporary developments, such as ongoing claims against Australia and Uruguay. This raises the additional questions of which other TPP countries might embrace the tobacco specific exception, which might oppose it and how this affects the question of whether a proposal will be tabled.

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Businessweek Article on Tobacco in the TPP

Jul02
2012 Leave a Comment Written by Benn McGrady

Bloomberg Businessweek ran this article by Charles Kenny today arguing that the United States is on the wrong side of history with respect to trade and tobacco control. Among other things, Kenny advocates:

the establishment of common standards on labeling and marketing. Doing so would give Trans-Pacific Partnership countries the same tools for combating nicotine addiction as the U.S. has—creating, in effect, a more level international playing field in anti-smoking efforts. That would make for a healthier planet—and allow Americans to feel better about themselves, as well.

Readers familiar with the Agreement on Technical Barriers to trade will recall that measures in accordance with relevant international standards are presumed to be not more trade restrictive than necessary to achieve a legitimate objective (in this instance, protection of human health).

However, the WHO Framework Convention on Tobacco Control already functions as a multilateral forum in which international standards on tobacco control are developed. For example, I recently blogged here about how WHO FCTC guidelines may be relevant international standards under the TBT Agreement.

The proposal also raises important questions of institutional choice. Should we allocate authority to a trade forum to develop international standards concerning health regulation? It seems to me that allocating authority to the WHO FCTC is more appropriate given that health officials are more likely to have the appropriate expertise to develop international standards.

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The Tobacco Specific TPP Exception and Customary International Law

Jun27
2012 Leave a Comment Written by Benn McGrady

Last month the United States foreshadowed a proposal for a tobacco specific exception in the Trans Pacific Partnership (TPP) Agreement. I set out some details and commentary here, here and here. More recently, a draft version of the TPP chapter on investment protection was leaked. I have provided some commentary here, here and here.

As I noted in earlier posts, draft annexes on the international minimum standard and expropriation refer to customary international law. The annex on expropriation seeks to declare custom, whereas the annex on the international minimum standard seeks to clarify that draft Article 12.6 incorporates the international minimum standard (from customary international law) into the investment chapter.

This raises a question concerning the relationship between the tobacco specific exception and customary international law. I would argue that because tobacco control measures are measures to protect public health they fall within the police powers of sovereign states. The concept of police powers is derived from customary international law and reflected in paragraph 4 of draft annex 12-C, which recognizes that except in rare circumstances, non-discriminatory regulatory actions designed and applied to protect legitimate public welfare objectives, such as public health, do not constitute indirect expropriations.

With this in mind, how does the tobacco specific exception fit with the declaration of customary international law in draft Annex 12-C? It is difficult to answer this without seeing the proposed text of the tobacco specific exception. Nonetheless, one might expect that the exception should be read alongside paragraph 4 of draft Annex 12-C so as to reinforce the idea that tobacco control measures fall within the scope of a state’s police powers (as expressed in paragraph 4). This might alleviate concern about the USTR view that the tobacco specific exception would not protect against claims for compensation associated with indirect expropriation (because it would be worded “nothing in this agreement shall prevent . . .”).

Equally, the USTR view that the proposed exception would not provide protection against claims for compensation associated with indirect expropriation raises the question of whether the tobacco specific exception and draft Annex 12-C could be read together to suggest that tobacco control measures do not fall within the concept of police powers. Although this interpretation seems to be a stretch, the tobacco industry has not been shy about stretching the law beyond its limits in its lobbying of health officials. Hence, it might be worthwhile to clarify that the language in draft annex 12-C encompasses measures governed by the tobacco specific exception.

Of course, all of this would be easier to evaluate if the USTR would release the draft text of the tobacco specific exception. However, this recent USTR fact sheet on transparency in the TPP negotiations suggests that this is unlikely to happen.

Meanwhile, a number of former US Trade Representatives have written to the current USTR urging him not to propose a tobacco specific exception. (Hat tip to Simon Lester for pointing this out.) The letter probably merits a separate post (I will add it to the growing list). Nonetheless, one striking aspect of the letter is that the authors continue to portray provisions creating policy space as open to abuse by recalcitrant trading partners. The authors state:

While we are confident that the United States would not adopt or impose measures that restrict trade or investment without a sound basis to do so, we have witnessed over the years other governments attempting to justify their protectionist measures in the name of health or safety, especially in agriculture.

Although this is not a comment on the merits of the proposed tobacco exception, it seems that the authors must have missed the outcomes in US – Clove Cigarettes, US – Tuna and US -COOL. The comment seems typical of an outdated USTR orientation towards opening markets abroad without much concern for domestic regulatory autonomy. It is fair to say that times have changed somewhat since the authors of the latter left office.

 

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Indirect Expropriation in the TPP Investment Chapter

Jun20
2012 Leave a Comment Written by Benn McGrady

Last week I blogged here about the leaked negotiating text of the investment chapter in the Trans Pacific Partnership (TPP) negotiations. I noted that there are two separate proposals for annexes setting out how the provision governing expropriation should be interpreted. Without reproducing those annexes (quite a lot of text), this post examines the alternative proposals in terms of their impacts on regulatory autonomy.

The first approach (Annex 12-C) is along the lines of the annex on expropriation found in the US model BIT. The proposal seeks to clarify that the expropriation provision is intended to reflect customary international law and that whether an indirect expropriation has occurred must be determined on a case-by-case basis, by reference to various factors, including:

  • the economic impact of an action (although this alone does not establish indirect expropriation);
  • the extent to which the action interferes with distinct, reasonable investment backed expectations;
  • and the character of the government action.

Finally, the annex notes in paragraph 4 that except in rare circumstances, non-discriminatory regulatory actions designed and applied to protect legitimate public welfare objectives, such as public health, do not constitute indirect expropriations.

There is a line of case law (see Fireman’s Fund v Mexico para. 176) to suggest that this is how clauses governing expropriation are often (although not always) interpreted. Moreover, the reference to customary international law is a declaration that the approach in the annex reflects custom. As such, the declaration could affect interpretation of expropriation clauses in treaties other than the TPP (assuming those clauses are to be interpreted in line with custom). So, what are the weaknesses in the clause?

The weakness most often identified is use of the phrase “except in rare circumstances” in paragraph 4. This phrase qualifies the scope of the provision without defining what rare circumstances are. The Canadian model BIT identifies rare circumstances “such as when a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith”. Other treaties, such as the ASEAN – Australia – New Zealand FTA (to which many TPP states are parties), include a passage along the lines of paragraph 4 without the qualifier “except in rare circumstances”.

The second proposal (Annex 12-D) specifies what rare circumstances are. That proposal refers to a deprivation of property that is discriminatory in effect, either against a particular investor or class of investors, or in breach of a prior written commitment. The same proposal states that a deprivation of property shall be particularly likely to constitute indirect expropriation where one of these two things has occurred.

One problem with this approach is the idea that a class of investors may be the subject of discrimination. This might be a well intentioned attempt to capture circumstances such as where foreign or other investors are discriminated against, but it might also encompass regulation of one particular industry. For example, is Philip Morris part of a class of investors (tobacco companies) that are discriminated against as compared to other investors? In my view, the clause should not be construed in this way (because the groups would not be in comparable circumstances), but I can imagine such an argument being made.

Similarly, it seems unwise to refer to breach of a written commitment between the state and an investor as a rare circumstance in which an otherwise non-compensable regulatory measure becomes an indirect expropriation. If the written agreement reflects a commitment not to regulate, this might be the case. However, if the written commitment is a commitment of a different type, breach of the commitment should not necessarily be a rare circumstance in which indirect expropriation is established.

The second proposal also requires that in order to constitute an indirect expropriation deprivation of property must be:

  • either severe or for an indefinite period; and
  • disproportionate to the public purpose pursued.

This proposal captures one strand in the case law that are not captured in draft annex 12-C, which is the occasional use of proportionality analysis in determining the character of a measure. Notably, the reference to proportionality in Annex 12-D actually establishes a different standard than is in Annex 12-C, which refers to measures “designed and applied to protect legitimate public welfare objectives”. It would appear easier for a host state to argue that a measure is designed and applied to protect health than it would be to argue that it is proportionate to a health objective.

In sum, draft Annex 12-C appears to offer host states a greater degree of regulatory autonomy than draft Annex 12-D. The “except in rare circumstances” phrase in paragraph 4(b) of draft Annex 12-C is the one aspect of the provision that looks ripe for revision.

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The International Minimum Standard in the TPP Investment Chapter

Jun15
2012 Leave a Comment Written by Benn McGrady

Earlier in the week I blogged here about the leaked negotiating text of the investment chapter in the Trans Pacific Partnership (TPP) negotiations. One of the points I noted was that Article 12.6 ties the international minimum standard to customary international law. (Annex 12-B specifies that customary international law ‘results from a general and consistent practice of States that they follow from a sense of legal obligation’. ) Public Citizen has criticized this approach on the basis that arbitrators tend to draw upon prior awards for a definition of custom, rather than engaging in a detailed factual analysis of state practice and the basis for that practice. I tend to agree with Public Citizen that the drafting of this provision, which reflects the US model bilateral investment treaty, leaves a lot to be desired.

For those who do not follow investment treaty issues, it is worth providing some background. It is typical for investment treaties to include clauses requiring that a state hosting an investment (the host state) afford fair and equitable treatment to foreign investors. There are diverging ideas about what fair and equitable treatment (part of the international minimum standard) entails. At one level, there is a debate about whether treaty clauses governing fair and equitable treatment create obligations above and beyond those found in customary international law. Clearly, the draft TPP clause settles this debate in the negative for purposes of that agreement.

At another level, there exists debate about what the customary standard of treatment entails. Older cases from the days of diplomatic protection (when a state would bring a claim on behalf of its nationals) suggest that it is very difficult to establish a violation by the host state. However, some argue that the standard evolves over time and that it is now easier to establish a violation. At one extreme, Neer v Mexico is often cited as the customary standard. In that case it was stated that “the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.” At the other extreme, in the claims Philip Morris has brought against Uruguay and Australia, investors argue that any form of unreasonableness in the treatment accorded to them, or a violation of their legitimate expectations, violates the fair and equitable treatment standard. To be clear, these arguments are made first on the basis that the treaties relied on incorporate a standard above and beyond that found in customary international law. However, in the alternative, the argument might be made that customary international law has evolved since Neer v Mexico to hold host states to a more demanding standard of treatment. There is some case law, such as Mondev v United States, to support the theory that the standard may be an evolving one.

Clearly, there is an issue of legal uncertainty here. That uncertainty is likely to benefit investors to the detriment of host states. Investors can threaten or bring claims on the basis of a contested standard and host states are left to make an informed guess about the applicable standard to which they will be held. If the customary standard were clear it would be easy enough to elaborate that standard in the text of the agreement. In this context, one possible explanation for the draft is that the states negotiating the TPP cannot agree on the standard. Another explanation, which is credible given that this clause comes from the US model bilateral investment treaty, is that US firms would prefer ambiguity to clarity.

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Leaked Trans Pacific Partnership Investment Chapter

Jun13
2012 Leave a Comment Written by Benn McGrady

The Eyes on Trade blog over at Public Citizen has linked to a leaked text on investment protection being negotiated as part of the Trans Pacific Partnership agreement. The leaked text has plenty of brackets, which indicate that the text is not yet agreed and suggests that the version posted online is the subject of negotiation. With the Philip Morris claims against Australia providing a backdrop for the negotiations there is plenty to analyze here in terms of the potential impact on domestic health regulation. Here are a few initial observations:

  • The minimum standard of treatment in Article 12.6 is defined by reference to customary international law (as is the case in the US model BIT), but the clause only elaborates an inclusive definition of what that means i.e. the draft still fails to clarify what the applicable standard of treatment is.
  • The clause governing expropriation and compensation in Article 12.12 does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with TRIPS. There is also some additional text in brackets suggesting that the provision would not apply to acts involving the issuance, revocation, limitation or creation of intellectual property rights so long as they are consistent with the chapter on intellectual property. (See the earlier post here on deficiencies in these clauses with respect to claims concerning investments associated with property rights.)
  • There are two (presumably alternate) annexes on expropriation that seek to elaborate a clearer definition when it comes to indirect expropriation.
  • In draft Article 12.15 concerning investment and environment, bracketed text governs health issues. The provision appears to create an exception for measures that a party considers appropriate to ensure that investment is undertaken in a manner sensitive to environmental, health, safety or labor concerns. It is not entirely clear whether this provision would govern only the establishment of investment, or also the treatment of investment post-establishment.
  • Article 12.5 clarifies that the principle of most-favored nation treatment does not encompass dispute resolution procedures. For example, in Philip Morris v Uruguay, Philip Morris argues that it had no obligation to negotiate for 6 months with Uruguay before bringing a claim, as is required in the Switzerland – Uruguay bilateral investment treaty. The basis for this argument is that the Australia – Uruguay bilateral investment treaty does not include such an obligation. Hence, in the Philip Morris argument, enforcing the 6 month period would be treating Swiss investors less favorably than Australian investors in Uruguay.
  • There are provisions governing the submission of amicus briefs (12.22) and transparency of proceedings, including a requirement that documents be made public (12.23).
  • Australia is not listed in Annex 12-G, which governs the service of documents under Section B (investor state dispute settlement). Footnote 20 also indicates that Australia will not submit to investor state dispute settlement. Contact addresses have already been inserted into the draft for Chile, Malaysia, New Zealand and the United States. Brunei, Peru, Singapore and Vietnam are listed in the annex, but the address details are not yet listed. Does this suggest that Brunei, Peru, Singapore and Vietnam are not yet on board with the draft?
  • The draft chapter does not appear to govern relations between the TPP and other international investment agreements already in place between the parties. This issue might be governed by a provision in another chapter, or the TPP might be silent on this question.

Although I still owe a number of posts on other issues, I hope to cover these issues in further detail over the coming days and to pick apart the legal implications of the draft text.

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Event in DC Tomorrow on Tobacco in the TPP

Jun07
2012 Leave a Comment Written by Benn McGrady

The Center for Policy Analysis on Trade and Health is hosting an event tomorrow in Washington DC on tobacco and trade. The specific focus will be on the tobacco specific exception the United States intends to propose in the Trans Pacific Partnership (TPP) negotiations. I have previously blogged about that here, here and here.

One of the issues discussed in those blog posts is the question of how reference to “science-based” regulation in the proposal might affect domestic regulatory autonomy. Yesterday, I was reviewing the proofs for a publication I have coming out and was reminded of the Philip Morris submission to USTR on the TPP. Among other things, PMI stated that it supports negotiations that foster harmonization of legitimate “science-based” regulations. The submission, which is now available here, goes on to argue that there is a lack of evidence to support the Australia’s move to plain packaging of tobacco products.

This argument about lack of evidence has been central to PMI’s criticism of Australia, despite the fact that Australia is implementing guidelines to Articles 11 and 13 of the WHO Framework Convention on Tobacco Control (available here). The guidelines were developed by Parties to the Convention and adopted unanimously by the Parties. The guidelines were also developed after consideration of available scientific evidence. For example, the WHO FCTC webpage on which the guidelines can be found lists 22 sources used as reference material in development of the guidelines. Many of these sources are peer-reviewed articles published in academic journals.

Despite how innocuous reference to science may appear at first glance, the term is a loaded one in the context of international trade law because it requires states to justify health measures by reference to a specific body of knowledge. Moreover, the Philip Morris submission provides an example of how tobacco companies may invoke any reference to science-based regulation if the language makes it into a tobacco specific exception.

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Clarification of US Proposal on Tobacco in the TPP

May22
2012 Leave a Comment Written by Benn McGrady

Yesterday, I explained here how there was some confusion concerning exactly what the tobacco specific proposal would cover. I sought clarification from USTR and am now able to provide further details.

Strictly speaking, the proposed tobacco specific exception is intended to apply to all provisions of the TPP. However, the tobacco specific exception may have no application to some provisions. In the briefing last Friday, it was explained that the proposed exception would not provide protection in the context of transparency provisions and some other provisions, including expropriation. The explanation given was that these provisions do not prohibit regulatory measures. For example, typical expropriation clauses permit expropriation provided that certain conditions, including payment of compensation, are met.

This means that we can expect to see an exception along the lines of “[n]othing in this agreement shall be construed to prevent . . . “. This is the type of language used in the context of the GATT Article XX.

This raises a number of legal questions:

  • Could the exception be invoked for damages claim under another investor protection provision, or would the exception only provide protection against claims for specific performance?
  • How should the general exceptions in Article 21 of the investment chapter of the Australia – Singapore FTA be interpreted? (This provision, in an FTA between two TPP countries, imports the GATT Article XX language.)
  • Is this the correct interpretation of the language used? In the context of WTO law, the WTO ultimately has no coercive power to prevent a Member from maintaining a measure. Rather, the ultimate sanction is suspension of trade concessions. Is this not comparable to the remedy of damages? In this context, is the strict textual approach along the lines contemplated correct?

Most notably, the exception being contemplated does not appear to cover the contemporary tobacco disputes. The US restriction on clove cigarettes would not be covered because it derives from legislation and not regulation under a delegated power. Under the interpretation offered by USTR, the types of investment treaty claims made against Australia and Uruguay would also not be affected by a provision of this type.

Of course, it would be possible to change the language of the proposed exception so that it expressly covers all forms of remedy, whether they be orders for specific performance, damages, or even injunctive type relief.

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US Proposal on Tobacco in Trans-Pacific Partnership

May18
2012 Leave a Comment Written by Benn McGrady

I have just made it back to the office from a briefing here in DC on tobacco in the TPP negotiations. The US proposal is available here.

At the briefing, I made the point that it is not possible to determine the legal effects of the proposal without knowing more about the broader context i.e. what else is in the agreement. Nonetheless, through questioning it was possible to get a better sense of what is being proposed. So, this is my (incomplete) understanding of the proposal:

1. There will be some language recognizing the uniquely harmful character of tobacco products.

2. There will be general exceptions in the TPP, along the lines of those in Article XX(b) of the GATT 1994.

3. The proposal would supplement these general exceptions with an exception specific to tobacco control measures. The general idea is that the specific exception should be easier to invoke than the general exception. This would be achieved by using a threshold lower than a necessity test.

4. It is not yet entirely clear what this specific tobacco exception would apply to. The exception would not apply to legislation. The exception would, however, apply to measures implemented by executive bodies, such as the FDA, under a delegated power.  The specific exception would apply to national treatment, but would not apply to investor protection obligations.

5. The specific exception would protect the adoption of regulations “that impose origin-neutral, science-based restrictions on specific tobacco products/classes in order to safeguard public health.”

For the moment, I intend to reserve judgement on the merits of this proposal. I will stick to giving a descriptive account of the proposal and making a couple of points that I already made publicly at the briefing.

Over at worldtradelaw.net, Simon Lester has already asked the question of whether a scientific evidence requirement is overly burdensome for regulators. In the briefing, I made the point that the scientific evidence requirements in WTO law are found primarily in the SPS Agreement and are concerned with whether there is scientific evidence of the existence of a risk (as shown through a risk assessment). Here, the proposal appears to suggest that a TPP member would have to show scientific evidence of the effectiveness of the measure, or of the contribution it makes to tobacco control.

There is no such requirement under WTO law to present scientific evidence of how a measure protects health. Under Article XX(b) of the GATT, the question to be asked is whether “there a genuine relationship of ends and means between the objective pursued and the measure at issue, such that the measure brings about a material contribution to achievement of its objective.” (Brazil – Retreaded Tyres) Hence, WTO law sets out quite a low threshold in terms of the need to prove the effectiveness / contribution of a measure. One rationale for having a low threshold is that the effects of measures need to be judged over long time periods after implementation.

Another question I raised in the briefing is whether the presence of a specific exception might affect interpretation of the general exceptions. For example, if the effectiveness of a regulation is judged by reference to scientific evidence under the specific exception, does this also mean that scientific evidence must be presented under the general exceptions? If so, this would change the character of the general exceptions, making it more difficult and burdensome to invoke them.

 

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The views reflected in this blog are those of the individual authors and do not necessarily represent those of the O’Neill Institute for National and Global Health Law or Georgetown University. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.