Wednesday, April 18, 2012

Destroying Disingenuous Allegations that the WTO is "Anti-health"

About two weeks ago, the WTO's Appellate Body ruled that US ban on clove and certain other flavored cigarettes violated WTO rules.  In particular, the AB found that the US tobacco law violated Article 2.1 of the WTO Agreement on Technical Barriers to Trade, which applies the WTO's "national treatment" non-discrimination principle to "technical regulations":
Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.
In short, WTO Members can impose "technical regulations" all they want, but the regs just can't be biased against imports of the regulated product.

The AB's ruling in the clove cigarettes case is best summarized in the following excerpt of the AB Report.  As you can see, the fatal flaw in the US ban on flavored cigarettes, including clove cigarettes that are overwhelmingly produced in Indonesia, was that the regulation expressly exempted menthol cigarettes, which are overwhelmingly produced (and consumed) in the United States:
In the light of the foregoing considerations with regard to the Panel's findings on likeness and less favourable treatment, we therefore uphold, albeit for different reasons, the Panel's finding, in paragraphs 7.293 and 8.1(b) of the Panel Report, that Section 907(a)(1)(A) of the FFDCA is inconsistent with Article 2.1 of the TBT Agreement because it accords to imported clove cigarettes less favourable treatment than that accorded to like menthol cigarettes of national origin.

In reaching this conclusion, we wish to clarify the implications of our decision. We do not consider that the TBT Agreement or any of the covered agreements is to be interpreted as preventing Members from devising and implementing public health policies generally, and tobacco-control policies in particular, through the regulation of the content of tobacco products, including the prohibition or restriction on the use of ingredients that increase the attractiveness and palatability of cigarettes for young and potential smokers. Moreover, we recognize the importance of Members' efforts in the World Health Organization on tobacco control.

While we have upheld the Panel's finding that the specific measure at issue in this dispute is inconsistent with Article 2.1 of the TBT Agreement, we are not saying that a Member cannot adopt measures to pursue legitimate health objectives such as curbing and preventing youth smoking. In particular, we are not saying that the United States cannot ban clove cigarettes: however, if it chooses to do so, this has to be done consistently with the TBT Agreement. Although Section 907(a)(1)(A) pursues the legitimate objective of reducing youth smoking by banning cigarettes containing flavours and ingredients that increase the attractiveness of tobacco to youth, it does so in a manner that is inconsistent with the national treatment obligation in Article 2.1 of the TBT Agreement as a result of the exemption of menthol cigarettes, which similarly contain flavours and ingredients that increase the attractiveness of tobacco to youth, from the ban on flavoured cigarettes.
In short, the AB ruled that (i) domestically-produced menthol cigarettes are "like" all other forms of imported flavored cigarettes, including Indonesian clove cigarettes; and (ii) the US regulation violates the TBT Agreement because it objectively discriminates against flavored imports (cloves) in favor of flavored domestics (menthols).

The AB's ruling is pretty straightforward, but has nevertheless given certain groups - who just so happen to be big critics of the WTO and trade liberalization more generally - the vapors.  Most notably, Lori Wallach at Public Citizen's Global Trade Watch pretty much went nuts, screeching that the ruling was yet another WTO "attack on consumer protection and health laws," and that the United States now will be "ordered" to terminate the offending tobacco regulation.

Unfortunately for Wallach (and fortunately for the rest of us), neither of her assertions has any basis in law or fact, as Cato's Dan Ikenson makes clear in a great blog post.  In particular, Ikenson notes correctly that--
  • Compliance with WTO rules is perfectly voluntary, and the WTO has absolutely no power to command or compel the United States to change any of its laws or regulations.  As I noted a while ago when discussing trade agreements and US sovereignty, if the United States government decides that, for whatever reason, it does not want to amend or terminate a law or practice deemed to be WTO-consistent, it doesn't have to do so, and the worst thing that can happen is that the aggrieved WTO Member can retaliate against US exports (i.e., "suspend concessions") in the amount of the harm allegedly imposed by the offending US law/practice.  In this case, if the US decides not to comply with the AB's ruling, the WTO can't force it to do so.  It can simply permit Indonesia to eliminating tariff or other benefits that US exports receive in the Indonesian market on the basis of the WTO agreements.
  • The WTO is not anti-health or anti-consumer protection; it's just anti-discrimination.  As Ikenson puts it: "[T]he WTO did not rule against banning the sale of flavored cigarettes. The law could be made WTO compliant by extending the ban to include menthol, in which case it might be more defensible as a measure to protect youth health.  Or the law can be changed so that both clove and menthol cigarettes are not banned.  The bottom line is that there are many ways to pursue public health and safety and consumer protection that don’t, coincidentally, punish foreign firms to the benefit of domestic ones (which is the narrow area of concern to the WTO)."  This is exactly right, and I'd only add two points: First, there are probably other, less cut-and-dry ways for the United States to comply with the AB's ruling that Ikenson doesn't mention.  Second, claims that the WTO is somehow anti-health or even anti-regulation are ridiculous on their face, given the AB's statements above, and the fact that the WTO Agreements have multiple provisions (e.g., GATT Arts. XX and XXI and GATS Arts. XIV and XIVbis)  specifically exempting protectionist trade measures that would otherwise violate WTO rules where those measures are imposed to protect, among other things, national security, public health and safety, or the environment.  Indeed, the preamble of the TBT Agreement expressly states that "no country should be prevented from taking measures necessary to ensure the quality of its exports, or for the protection of human, animal or plant life or health, of the environment, or for the prevention of deceptive practices, at the levels it considers appropriate," as long as any such regulations "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade, and are otherwise in accordance with the provisions of this Agreement."  It's precisely the WTO's job to determine, on an objective basis, whether a technical regulation meets the latter condition.  In the cigarettes case, the AB ruled that, because of the gaping menthols loophole, that condition was not met.  In other cases, the WTO has ruled that similar regulatory measures comply with WTO rules or qualify for one of the aformentioned exceptions.
But, hey, maybe Ikenson and I are just crazy libertarian free traders who are blind to the justice and reason behind the views of Wallach and her colleagues.  Maybe everyone else agrees that the WTO is some secretive, pernicious anti-health outfit destined to deregulate the world (and kill myriad puppies, dolphins and children in the process, of course).  

Actually, no.  Many other trade experts have come to the exact same conclusions.  For example, Rob Howse really gets into the weeds of the AB's decision and discovers that the case may really be about the failure of the United States to justify the disparate regulatory treatment among menthol and other flavored cigarettes - a burden that the US government bears because the regulation is so obviously discriminatory against Indonesian clove cigarettes.  

Peter Clark explains that the Appellate Body simply didn't buy the United States' myriad excuses for this "regulatory distinction":
So, why did Washington exclude methanol from the scope of the law? According to the Appellate Body, the: “United States argued that the exemption of menthol cigarettes from the ban on flavoured cigarettes aims at minimizing: (i) the impact on the U.S. health care system associated with treating “millions” of menthol cigarette smokers affected by withdrawal symptoms; and (ii) the risk of development of a black market and smuggling of menthol cigarettes to supply the needs of menthol cigarette smokers. Thus, according to the United States, the exemption of menthol cigarettes from the ban on flavoured cigarettes is justified in order to avoid risks arising from withdrawal symptoms that would afflict menthol cigarette smokers in case those cigarettes were banned.”

The AB did not accept these excuses, explaining: “the addictive ingredient in menthol cigarettes is nicotine, not peppermint or any other ingredient that is exclusively present in menthol cigarettes, and that this ingredient is also present in a group of products that is likewise permitted under Section 907(a)(1)(A), namely, regular cigarettes. Therefore, it is not clear that the risks that the United States claims to minimize by allowing menthol cigarettes to remain in the market would materialize if menthol cigarettes were to be banned, insofar as regular cigarettes would remain in the market.”
Clark goes on to explain some facts behind US consumption of menthol cigarettes which belie some of the US government's claims, but Steve Craven, I think, gets at the real reason for the menthol exclusion: "Menthol-flavored brands... are a big money-maker for tobacco companies and highly popular with American adults.  A special dispensation was put into the act to grandfather menthol cigarettes, prompting some wags to call it the Marlboro Monopoly Act of 2009."  In short, it wasn't public health concerns or US budgetary constraints (ha!) that led to the regulatory exemption for menthols; it was American politics, plain and simple. (More here and here on that point.)

Indeed, Lori Wallach's Public Citizen colleague Todd Tucker essentially admits the political motivations of the menthol exclusion when he comments on another blog post that he "see[s] zero possibility of extending a ban to menthols in the current political climate, or the political climate likely to be prevail by July 2013 - which seems like the outer edge of a 'reasonable period' under Article 21.3 of the DSU. (There's no amount of data that will change the anti-regulatory stance of the GOP, the peculiar politics of menthols within the Congressional Black Caucus, or U.S. courts' skepticism of more burdensome tobacco regulation.)"

Of course, there's nothing in WTO rules preventing a WTO Member from implementing a less-than-perfect regulation which seeks to achieve some perceived social good yet has been watered down for political reasons (and thus discriminates against imports - intentionally or not).  And, as noted above, there's nothing preventing a WTO Member from refusing to comply with a dispute settlement decision against that regulation for similar political reasons. (Indeed, the EU for years refused to comply with multiple WTO rulings against its ban on hormone-fed beef for largely political reasons; it instead chose to accept retaliatory US and Canadian tariffs on EU exports rather than face the political consequences.  And, surprisingly enough, the WTO never dispatched an army of flying Genevan monkeys to stop the EU from pursing this course of action.)

On the other hand, it's simply not for the WTO to make subjective determinations as to the political feasibility or motivations behind a clearly discriminatory law or government practice.  WTO rules, like the GATT before it, are designed to objectively define, adjudicate and discourage discrimination - in law and in fact - against imports.  In the present case, the US ban on flavored cigarettes (because it exempts menthols) discriminates against imports of other "flavored" cigarettes.  The United States could comply with WTO rules by including methols in the ban, but if that or any other method of compliance isn't politically feasible, then the US government can simply sit back and watch Indonesia impose commensurate countermeasures against US exports.  What the United States can't do is impose the partial ban and then expect the WTO to sanction the regulation because it was, according to the US government, the "best they could do," given the political climate.  And groups like Public Citizen certainly shouldn't slander the WTO for refusing to do so.

Indeed, if the WTO ever did make such a subjective, politics-based decision, then pretty much any form of politically-motivated import discrimination could pass muster, and WTO rules - which were intended to de-politicize the trade game by creating objective non-discriminatory rules and an unbiased, apolitical adjudicatory body to determine whether nations laws and actions were objectively non-discriminatory - would instantly be worthless.

Then again, given Public Citizen's longstanding distaste for the WTO - and free trade more generally - maybe that's precisely what Lori Wallach and her colleagues have in mind.


Srikar said...

Brilliant Scott!

kamagra said...

If this the case they should study thoroughly what's best for the people. Have public consultation in order to know the opinions for the majority.