Over at the International Economic Law and Policy Blog, Simon Lester has a post about the recent Inside US Trade story that the USTR might propose to carve tobacco out of the investment chapter of the Trans Pacific Partnership.
Although I have issues with a blanket policy of carving tobacco out of trade agreements, I have argued in the past that tobacco should be carved out of investment treaties. Put simply, if reducing tobacco consumption is a good thing as a matter of public policy, it is bad policy to provide incentives for investment in tobacco production (including through investment treaties).
I also disagree with Simon on a few specific points.
First, Simon argues that excluding tobacco from the investment chapter “means that a TPP nation could expropriate a tobacco factory without providing compensation”. To be more accurate, excluding tobacco means that the foreign investor would not be able to seek recourse under the TPP for this action and would instead have to rely on domestic law (or another applicable international law). Investment treaties like the TPP are not the sole source of legal rights for foreign investors. Ordinarily, investment treaties add to existing rights.
Second, Simon argues that with tobacco excluded from the investment chapter a TPP party “could tax foreign-owned tobacco companies at a rate higher than it taxes domestically-owned ones.” This ignores the fact that a party would still be subject to obligations concerning non-discrimination under the law of the World Trade Organization, possibly under other chapters of the TPP and possibly under domestic law (depending on the country in question).
Third, although Simon is correct that excluding tobacco from the TPP could have adverse effects on interpretation of other investment treaties, this risk can be (and should be) addressed in drafting. The purpose here is to avoid creating incentives for tobacco production and to avoid giving tobacco companies additional legal rights that are subject to abuse.
Finally, I agree with Simon that fixing investment treaties as a whole should be the primary priority. However, this is not mutually exclusive with excluding tobacco from the TPP investment chapter.