SMOKING OUT THE TOBACCO INDUSTRY:
THE EXTENT OF HUMAN HEALTH PROTECTION IN
INTERNATIONAL TRADE AND INVESTMENT LAW
Loek Foster
Master’s Thesis International Trade And Investment Law University Of Amsterdam, Graduate School Of Law
2018
Thesis Supervisor: Prof. Dr. Ingo Venzke Second Supervisor: Dr James Mathis
ABSTRACT
“Loek Foster - Smoking out the Tobacco Industry: The extent of human health protection in international trade and investment law.”
In 2016 criminal proceeding were instigated in the Netherlands against major tobacco corporations. The alleged violations were a result of the responsibility in sustaining worldwide smoking habits through the addition of addictive substances by the tobacco industry. This thesis is concerned with transposing this rationale to domestic regulation that is able withstand challenges aimed at a violation of the obligations arising out of
international trade and investment law. In other words, to what extent does international trade and investment law allow regulatory autonomy for national governments taking
measures relating to Tobacco products. After a lay-out of the Tobacco Industry and its actors and an assessment of the FCTC Tobacco control measures are proposed. Each of the
proposed measures is assessed for its potential effect of promoting Human health and compliance with provisions of WTO Law. Subsequently the framework is widened towards analysis of the regulatory autonomy granted in international investment law. Finally both legal entities are compared after which the thesis is concluded by ascertaining the most suitable measure to promote human health by targeting Tobacco products.
TABLE OF CONTENTS
List of abbreviations iv
Chapter One: Introduction 1
Chapter Two: Lay-out of the Tobacco Industry and the Role of the FCTC 3
2.1 The Tobacco Industry 3
2.2 Role of the FCTC 4
Chapter Three: Import Prohibition of Tobacco Products 6
3.1 Two Grounds 6
3.1.1 MFN Treatment 7
3.1.2 Quantitative Restrictions 7
3.2 Feasibility Assessment 8
Chapter Four: Internal Taxation of Tobacco Products 9
4.1 National Treatment III:2 GATT 9
4.2 Feasibility Assessment 10
4.3 Conclusion 11
Chapter Five: Regulating the Substance of Tobacco Products 12
5.1 SPS Agreement 13
5.2 TBT Agreement 13
5.3 National Treatment III:4 GATT 14
5.4 Conclusion 15
Chapter Six: General Exceptions in the GATT 16
6.1 Necessity 16
6.2 Violation of Qantitative Restrictions 17
6.3 Violation of National Treatment 17
6.4 Interim Conclusion 18
Chapter Seven: Alternative Measures Conditioning the Internal Sale 19 7.1 Setting an Example: The Australian Plain Packaging Act 19
7.2 The Dispute and the Decision 20
7.3 Implementation in a Wide Framework 21
7.4 Conclusion 22
Chapter Eight: Changing the Perspective to International Investment Law 23 8.1 Fundamental Principles International Trade Law 23
8.2 The Prohibition to Expropriate 24
8.2 Fair and Equitable Treatment 25
8.3 Conclusion 26
Chapter Nine: Combining the Principles for One Applicable Standard 27
9.1 Converging Philosophies 27
9.2 Acknowledgement of Private Actors in the WTO System 28
9.3 Substantive Commonalities 28
Conclusion 30
LIST OF ABBREVIATIONS
BIT Bilateral Investment Treaty
CAN Clean Air Nederland
FCTC Framework Convention on Tobacco Control
GATT General Agreement on Tariffs and Trade 1994
MFN Most Favoured Nation Treatment
SPS Agreement on the application of Sanitary and
Phytosanitary Measures
TRIPS Agreement on Trade Related Aspects to International Property
TBT Agreement on The Technical Barriers to Trade
1. INTRODUCTION
In early February 2018 the Dutch association of general practitioners joined the criminal proceedings against a number of major Tobacco corporations that Dutch lawyer Bénédicte Ficq had instigated in September 2016.1 The alleged violations that substantiated her claim
against the corporations consisted of aggravated assault, deliberate deception and falsification of documents.2 The main rationale underlying these alleged crimes is the wilful addition of
addictive substances to Cigarettes by Tobacco corporations to which customers are misled and unwilfully sustain a smoking addiction.3 At present the Dutch Public Prosecution
department has declared to still be at the investigation phase and that a decision to proceed with the prosecution is imminent.4 Initial reports have suggested however that is unlikely that
the major Tobacco corporations in question will be found guilty of any of the alleged
unlawful or illegal acts.5 The domestic criminal proceeding may be a viable attempt to induce
a change in nationwide smoking habits. In a similar vein the rationale behind the named criminal proceedings could be transposed to domestic legislation that discourages smoking on a commercial level. Domestic regulatory autonomy should provide a national government the policy space to take action on a more commercial basis rather than just instigating criminal proceedings. In order to promote and secure public health across a population a national government should be able to take measures that can hamper the foothold of Tobacco
corporations on the commercial plain. As the fields of law relating to international commerce mainly promote liberalization of trade and protection of investment, the health interests of the population should, at the least, be accorded similar weight. In order to establish the extent to which that balance is effectuated in the relevant fields of law this research is founded upon the following research question: To what extent does international trade and investment law allow regulatory autonomy for national governments to take measures relating to Tobacco products. In order to answer this research question this thesis commences with a lay-out of the Tobacco Industry and its main actors. Completing the opening chapter is an analysis of the Framework Convention on Tobacco Control, the first and only convention aimed at anti-smoking
regulations. This chapter is followed by four interpretative chapters assessing the
compatibility of domestic regulations with the relevant WTO law provisions. With an Import 1 W Thijssen, longread interview with Bénédicte Ficq, De Volkskrant, 21 February 2018
2 Ibidem
3 Ibidem
4 Ibidem
prohibition and a measure of an increased internal taxation will be the first two domestic measures to be discussed as they are measures aimed at reducing the access to Tobacco products by the public. The third measure is aimed at regulating the substance of Tobacco products by inhibiting the sale of Tobacco products that currently possess addictive and carcinogenic properties, coinciding with the previously stated rationale behind the Dutch criminal proceedings. The potential violations of the relevant provisions of the General Agreement on Tariffs and Trade 1994 (GATT) found in the preceding chapters will be laid alongside the criteria of the general exception clause in article XX(b) GATT. The fourth and final measure to be assessed against WTO law compatibility is an alternative measure that modifies the conditions of the sale of the actual product, mainly focussing on packaging requirements. In order to provide a wider framework to assess the regulatory autonomy relating to Public health and Tobacco products the perspective of the thesis shall then shift towards the relevant principles of international investment law. Initially the relevant principles of international investment law regarding regulatory autonomy will be laid out. These are followed by comparative analysis between both legal systems. Finally the findings of the previous analyses will be brought together to establish potential measures that have the effect of promoting health by regulating Tobacco products while still being compatible with the relevant international investment law principles. The thesis will be then be concluded by providing an answer to the posed research question by recalling the relevant findings.
2. Lay Out of the Tobacco Industry and the Role of the FCTC
In order to provide a background to the theoretical considerations relating to anti-Tobacco regulation this chapter shall lay-out the current situation around the Tobacco Industry. Additionally this chapter shall discuss the rationale and working of the Framework
Convention on Tobacco Control (FCTC) and examine the potential role of the Convention in the domestic policy aim of increasing public health.
2.1 The Tobacco Industry
Though globally recognized as an hazardous habit, smoking is still a widespread activity carried out through multiple layers throughout all global societies.6 While Tobacco
consumption has dropped significantly after its hazardous effects had been discovered in the 20th century, smoking is anything but eliminated from current times.7 The prevalence of
smoking and its adverse health effects are demonstrated amply by the fact that Tobacco consumption related global healthcare costs amount to an estimated 422 Billion US dollars per year.8 A figure that makes up for 5,7% of the annual global health care expenditure.9 The
elimination of smoking from society, or frequently referred to as ‘The end game’ by public health advocates, is unlikely to happen in the near future due to several factors.10 Among these
factors is the geographical location of Tobacco production, which often coincides with the less prosperous areas of the ‘third world’.11 The growth and processing of Tobacco products is
crucial for creating jobs and facilitating commerce in these areas.12 Harm would be inflicted to
the fragile economies of those nations should the Tobacco production be interrupted by the local governments. Another factor that delays the elimination of smoking throughout society is the more deliberate policy of targeted marketing by Tobacco corporations. One of the forms of targeting is carried out by Tobacco corporations financially pressurizing governments of low-income countries to refrain from taking action so that their business activities will remain 6 "The World Health Organization on the Global Tobacco Epidemic." (2008) Population and Development
Review 34, no. 1, p. 190
7 L Saboga-Nunes, D Levin-Zamir, V Rabius ‘Tobacco still a major killer—will we achieve the end game?’ (2017), European Journal of Public Health, Vol 27, Issue 4, P 24
8 M Goodchild, N Nargis, E Tursan d’Espaignet, ‘Global Economic cost of smoking-attributable diseases’ (2017), Tobacco Control, 2016- 053305, p.2.
9 Ibidem
10 See for instance: R Malone, ‘Changing Tobacco Control's policy on tobacco industry-funded research’ (2013) Tobacco Control, issue 22 p 1 and G Boudreau et al. “Why the World Will Never Be Tobacco-Free: Reframing ‘Tobacco Control’ Into a Traditional Tobacco Movement.” (2016) American Journal of Public Health 106.7 p. 1887
11 J. Mackay and M Eriksen, The Tobacco Atlas (World Health Organization, First Edition 2002) p. 38.
12 B.C Smith, ‘Understanding Third World Politics, Theories of Political Change and Development’ (2016), MacMillan Press, p.7
untouched.13 Another targeting method is by designing the packaging of Tobacco products in
such a way that their visual appearance is appealing to the youth and young adults in
particular.14 Among other factors this targeting contributes to an overwhelming accumulation
of wealth across the involved corporations. The five largest tobacco companies have a combined yearly profit of 34,55 Billion US Dollars.15 To put that figure in perspective, their
combined profit is higher than the cumulative GDP of Jamaica and Uganda.16 The
accumulation of these figures has also been attributed to system the International Trade law by public health advocates. It is believed that the “interconnectedness and interdependence” by modern trade agreements have facilitated the worldwide expansion of multinational tobacco companies into developing countries.17
2.2 Role of the FCTC
When analysing policy aimed at the reducing tobacco consumption in order to increase public health, the Framework Convention on Tobacco Control (FCTC) is a key instrument to review. Global domestic Tobacco control policy is believed to have been greatly influenced by the provisions of the FCTC.18 The convention was developed in response to the globalisation of
the tobacco epidemic and is an evidence based treaty concerned with granting all people the right to the highest standard of health.19 Public health protection is provided by the treaty on
both an individual and collective basis.20 The provisions in the treaty are not be binding upon
nations as domestic health policy falls under the realm of domestic sovereignty.21 The
convention grants a framework of standards upon which national public health should be based.22 Some provision can be granted direct effect however as the first FCTC case in the 13 T. Hu and A Lee, ‘Commentary: Tobacco Control and Tobacco farming in African countries.’(2015) Public Health Policy, vol 36, p.45
14 A Gilmore et al. ‘Exposing and addressing Tobacco Industry conduct in low-income and middle-income countries’ (2015), The Lancet, Vol 385, Issue 9972, p1032.
15Yearly revenue after tax taken from annual reports of 2016, Phillip Morris International Annual Report 2016, Imperial Brands Annual Report and Account 2016, British American Tobacco Annual Report 2016, Japan Tobacco International Annual Report 2016 and Altria Group Inc. Annual Report 2016.
16Projected 2018 GDP per 18 may 2018 from statistictimes.com
17 HM Mamudu, R Hammond, SA Glantz, ‘International trade versus public health during the FCTC negotiations, 1999-2003’ (2011) Tobacco Control, no. 20, p. 1.
18 Gruszczynski L, “FCTC's COP6 Meeting and Its Implications for Tobacco Control Polices” (2014) 5 European Journal of Risk Regulation p. 539
19 G. Lien and K DeLand, ‘Translating the WHO Framework Convention on Tobacco Control (FCTC): Can we use tobacco control as a model for other non-communicable disease control?’ (2011), Public Health, volume 125(12), p. 850.
20 Articles 5(3) and 8(1) of the Framework Convention on Tobacco Control (FCTC), 27 February 2017
21 M. Shaw, International Law (Cambridge University Press, 7th edition 2014), p. 95.
22 Stated in article 3 FCTC: “Providing a framework for tobacco control measures to be implemented by the
Netherlands in 2013 granted that article 8(2) FCTC, an obligation to create and maintain a smoke free work place, has proven.23 The case involved Dutch legislation that introduced
tobacco free work places in order to protect non-smoking personnel suffering from the adverse health effects of ‘second hand smoke’.24 An employee’s enforceable right was
introduced in order to create or maintain a tobacco free workplace in most sectors. However, bars with a single owner, no personnel and less than 70m2 surface were exempt from the rule resulting from a strong lobby by tobacco manufacturers and the hotel and restaurants sector.25
This exemption was later challenged by the Dutch anti-smoking association (CAN), due to incompatibly with article 8(2) of the FCTC which had direct effect according to CAN.26 In
accordance with general international law the Dutch high court interpreted article 8(2) FCTC as a provision with direct effect and thereby ruling the exemption for small bars inviable.27 If
the direct effect that is granted to these provision is transposed to not just the Dutch legal system, many other individuals could profit from FCTC. The direct effect granted to FCTC provisions could constitute a significant difference in those nations where Tobacco
corporations have greater influence on the national governments. The application of the FCTC to individuals would surpass domestic legislation that does not significantly impede Tobacco products. Unfortunately international law has very little influence on a universal interpretation of direct effect, it is regarded as an area of national sovereignty to which national courts and governments have exclusive authority.28
23 Hoge Raad, March 26, 2013, ECLI:NL:HR:2014:2928, elaborated upon by A. den Exter, ‘First FCTC case in the Netherlands’(2013), Public health, volume 127, issue 10, p. 970.
24 Ibidem para 2
25 Ibidem para 2
26 Ibidem at para. 3.3.2
27 Ibidem at Para 3.2.2
28 A. Nollkaemper, ‘The duality of Direct effect of International Law’ (2014), European Journal of International Law, Vol 25(1), p. 121
3. Import Prohibition on Tobacco Products
The first domestic measure to be assessed for WTO law compatibility is an outright import prohibition on tobacco products. In terms of the possible effects on discouraging tobacco consumption an outright prohibition is probably the most desirable measure, as the access to any Tobacco product will be severely impeded. When access to a specific product is limited, the widespread consumption of that product is likely to drop in a similar fashion. A negative side-effect of such a measure will be a possible increase in illicit trade however as the demand for Tobacco products cannot be reduced proportionate to an elimination of supply. An
appropriate practical example for an import prohibition on tobacco products is the measure taken by Thailand in the 1966 tobacco act. The measure refused import licences by foreign producers but refrained from prohibiting the domestic production and sale of domestically produced cigarettes.29 Thai authorities added that the rationale behind the measures was to
protect its citizens from the “incrementally greater health risks” posed by foreign cigarettes.30
In Thailand – Cigarettes the measure was successfully challenged by the United States before a WTO dispute settlement body for the way in which it favoured domestic products.31 The
following chapter shall analyse on what grounds an import prohibition could constitute a violation of WTO obligations. Additionally suggestions are made on how an import prohibition could be made to fit the relevant WTO law principles.
3.1 Two grounds
An import prohibition as the one described above can be classified as an “at the border measure” as the distinction between the allowed products into a nations territory is made upon arrival at the border. Such measures are likely to be challenged on violations of GATT
provisions as the agreement is mainly concerned with trade liberalization through market access.32 The main provisions applicable to at the border measures are article I, III and XI of
the GATT.33 It is important to note that import prohibitions are often taken in conjunction
with national treatment measures prohibited in article III GATT.34 In dispute settlement 29 Thailand – Restrictions on importation of an internal taxes on cigarettes, DS10/R – 37S/200, 7 november 1990, para. 13.
30 Ibidem para 70.
31 Ibidem para 67.
32 Preamble to the General Agreement on Tariffs and Trade 1994(GATT), 1 January 1995, Geneva.
33 L Tamiotti ‘The legal interface between carbon border measures and trade rules’ (2011), Climate Policy, Volume 11, Issue 5, 1204
practice an analysis of both measures is carried out in gradual fashion, for purposes of
schematic overview they will be addressed separately in this thesis. Due to the discussion that will follow on internal taxation on tobacco products article III GATT, national treatment prohibition, shall be analysed in the following chapter.
3.1.1 Most-Favoured Nation treatment
The main instrument to combat discrimination with regards to origin is regarded as one of the ‘founding principles’ of the GATT itself in the Most-Favoured Nation (MFN) obligation stated in article I GATT. As interpreted by the appellate body in EC -Seals the fundamental purpose of the MFN obligation is “To preserve equality of competitive opportunities for like imported products from all Members”.35 Effectively this entails a ban on discrimination
between imported products, regardless of whether domestically produced products are favoured.36 With regard to the feasibility of an import ban on tobacco products it is important
to note whether the nation imposing such a measure imposes that measure to all tobacco producing nations and, if present, its own tobacco producing entities. Otherwise a violation of the MFN obligation is easily constituted through establishment of discriminatory treatment. Additionally other “like products” shall have to be granted equal treatment in order to refrain from harming the equality of competitive opportunities. For this provision the “accordion of likeness” stretches to all products with an “identical end-use” to the product facing an import ban.37 In the instance of cigarettes it could be argued that other handheld devices intended for
respiratory consumption may be like products, like e-smokers for instance. If these can be considered like products the ban would have to be even more comprehensive in order not to discriminate on MFN basis. An all import prohibition is likely to violate the MFN principle as it is likely to discriminate against nationality. The only way that discrimination against the products can be avoided is when a comprehensive ban is issued against all different kinds of tobacco products and all other like products. Due to the nature of such a comprehensive import ban such a measure would be deemed as impossible.
3.1.2 Quantitative restrictions
35EC- Measures Prohibiting the Importation and Marketing of Seal Products, Report of the Appellate Body (EC-Seals), WT/DS400, 401/AB/R, 22 May 2014 para 5.87.
36 EC Seals 5.90
37 “Accordion of likeness” from Japan – measures on Alcoholic Beverages Appellate Body Report (Japan Alcoholic beverages), WT/DS8/AB/R, WT/DS10/A/R, WT/DS11/AB/R, 4 October 1996 para H.1.a, “Idential End-Use” Japan/Canada: Tariff On Imports Of Spruce, Pine, Fir, Dimension Lumber, Report of the Panel adopted on 19 July 1989, (L/6470 – 363/167) paras 5.11 – 5.13.
The ground on which the USA based its claim against Thailand in the aforementioned
Thailand – Cigarettes dispute was a violation of quantitative restrictions.38 Stated in article XI
of the GATT this principle prohibits standalone import restrictions that limit product quantities arriving into a nations territory.39 What stems from the provision itself and from
subsequent interpretations is that quantitative restriction cover “other measures”. 40 This
broad category covers all measures that affect trade other than tax measures.41 Especially in
Colombia – Ports of Entry it is asserted that article XI is mainly concerned with the protection of competitive opportunities and not with actual trade flows.42 Hereby the quantitative
restriction prohibition differs from other GATT obligations in the absence of a likeness analysis, for it prohibits standalone import restrictions.43 Converting this theoretical
framework to an import ban on tobacco products it is likely that such a measure will violate this principle, as it did in Thailand – Cigarettes. The ban on imports will desperately restrict the competitive opportunities for tobacco products, exactly what the provision intends to prohibit. As stated no assertion of a possible favouring of a like products has to be established in order to find the violation.
3.2 Feasibility assessment
An outright import prohibition of Tobacco products would violate both the MFN principle and the prohibition on quantitative restrictions. Both violations would not be hard fought as the GATT is aimed at enhancing trade liberalization through maintaining equality of competitive opportunities. Although potentially effective in domestic Tobacco control to enhance public health, an import prohibition will not be an useable means of policy for national governments.
38 At note 29, para 13
39 P Mavroidis . The Regulation Of International Trade : GATT (Cambridge, Massachusetts: The MIT Press; 2016) p. 99.
40 Colombia – indicative prices and restrictions on Ports of Entry (Colombia – Ports of Entry), DS366/R, 27 April 2009, para 7.226
41 Ibidem
42 Ibidem
43 J. Atik, ‘The WTO and Health’ in The Oxford Handbook of International Trade Law, (Oxford University Press Oxford 2009) p.599
4. Internal Taxation on Tobacco Products
Having found that an import prohibition on tobacco products is likely to violate two GATT principles, the discussion shall now move to internal taxation measures. In China – Auto Parts the Appellate body separated internal charges from customs duties, at the border measure, by establishing a threshold that questions “whether the obligation to pay such charge accrues because of an internal factor”.44 An example of such an internal factor with
regards to tobacco products would be an raise of the Value Added Tax (VAT) on tobacco products. Exactly this measure was taken by Thailand in 2006 against Philippine cigarettes in a more targeted approach than the measure at issue in the previously mentioned Thailand – Cigarettes. The Thai measure lead to a dispute before the WTO where many GATT
provisions where invoked by the Philippine representatives.45 Both the panel and the
Appellate Body found a violation of article III:2 GATT, the National Treatment principle, in this dispute since domestic products where favoured over imported products.46 This chapter
shall seek to distinguish the requirements to the principle of National Treatment and subsequently assess the feasibility of an internal taxation measure taken with regards to Tobacco products.
4.1 National Treatment III:2 GATT
The core principle of article III:2 GATT is a prohibition of favouring domestic products by taxing similar imported products in an unfair manner. To constitute a violation of article III:2 the considerations fall apart into two different analyses, for it has two sentences with separate interpretations. First interpreted by Japan – Alcoholic Beverages, where it was found that the first paragraph of article III GATT informs the second paragraph.47 Through this mechanism a
graduated system is developed, where the first sentence boasts a stricter test than that of the second sentence.48 The first sentence has a “strict” likeness analysis followed by the
requirement that these products are not taxed “in Excess of” the domestic products, which entails that even “the smallest amount of Excess is too much”.49 The second sentence widens 44 China – Measures Affecting Imports of Automobile Parts, Report of the Appellate Body, 15 December 2008, WT/DS339,DS340,DS342/AB/R, para 163.
45 Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (Thailand - Cigarettes (Philippines)), Report of the Appellate Body, 17 June 2011, WT/DS371/AB/R.
46 Thailand – Cigarettes (Philippines) para 223.
47 Japan – Alcoholic Beverages para H.1.
48 Ibidem
both the previously stated criteria to “Directly Competitive or Substitutable Products” that are “Not Similarly Taxed” with the intention to “Afford Protection” to domestic producers.50
Such intent is to be asserted from the measures design, the architecture and its revealing structure.
4.2 Feasibility Assessment
When a government takes tax measures that fall within the scope of the prohibition in article III:2 GATT, chances are that it is to withstand a challenge based on this provision. As
Tobacco products differ little in their end-use as derived to origin, imported and domestically produced tobacco products will be ‘like’. The second assessment of excessive taxation will be more contentious as a national government aiming to discourage smoking nationwide will apply a single tax to all tobacco products. When such a tax is enacted that covers all Tobacco products is it is likely to withstand a challenge of article III:2, first sentence, as there is no differentiation and therefore no protective application of domestic products. Essentially this measure has already been issued on a large scale, as Tobacco products have faced
continuously higher taxes as a result of an information increase regarding its harmful effects.51
Additionally an increased tax, automatically increasing retail prices, has been labelled as an effective measure that comes “as close to a prohibition as possible”.52 When assessing the
“wider” prohibition of article III:2 second sentence GATT, the likeness analysis could be stretched towards e-smokers. As a handheld device designed for respiratory consumption an e-smoker could be a directly competitive or substitutable product to the cigarette in particular. In Japan – Alcoholic Beverages it is asserted that the decisive criterion to establish a directly competitive and substitutable relationship between products by their “common end-uses as shown by elasticity of substitution”.53 The interpretation of this criterion could go both ways
as there are arguments in favour and against e-smokers being directly and competitive and substitutable products. An argument in favour is the previously stated proposition that both products are handheld devices intended for respiratory consumption. Therefore relation to the common-end use of both product. This argument can be opposed by the drastically different chemical proposition, mainly relating to the added carcinogenic substances in cigarettes.54 50 Japan – Alcoholic Beverages para H.2
51 F J Chaloupka, A Yurekli, G T Fong ‘Tobacco Taxes as a Tobacco Control Strategy’ (2012), Tobacco control, vol 21(2), p. 178
52 Ibidem.
53 Japan – Alcoholic Beverages Para H.2.b.
54 ML Goniewicz, J Knysak, M Gawron et al, ‘Levels of selected carcinogens and toxicants in vapour from electronic cigarettes’ (2014), Tobacco Control, vol 23, p. 136.
Another argument against likeness could be that both products have differing characteristics relating to continuous consumption and purchase of the products. From lighting the cigarette to putting it out the consumption of a cigarette has clear start and end, with an e-smoker this works differently. The device works on a rechargeable battery with different individual flavours which can be added. The start and end of consumption of an e-smoker therefore differs due to the ability of the consumer to influence the battery life by reducing or
increasing the intensity of use. In my view these characteristics alter the end-use sufficiently to discard likeness. Therefore the E-smoker does not share a common end-use to the cigarette and is not favoured by an increased tax on cigarettes. Based on this absence of likeness no domestic products are favoured and violation of article III:2, second sentence GATT shall be found.
4.3 Conclusion
Internal taxation of Tobacco products is compatible with international trade law provisions if the issuing national government refrains from a protective application of such taxation measures. Meaning that all Tobacco products should be taxed in similar fashion, a “blanket tax system”. Strong support for this proposition is found in the widespread use of heightened taxes on Tobacco products. However question marks can be placed with regards to the effect of such a measure. Key argument to question the effectiveness is that access to the product will be impeded due to a higher retail price, but the harmful characteristics of the product remain the same. Regarding the previously mentioned “end-game” with regards to smoking prevalence, measures will be required that reach further into the products functioning than just its status on the marketplace.
5. Regulation the Substance of Tobacco Products
Where the measures introduced and assessed in the two previous chapters insisted on regulating the access to Tobacco products of the population the measure introduced in this chapter is aimed at the substance of the actual product. To what extent is a measure that controls and prohibits the addictive and carcinogenic substances in Tobacco products compatible with international trade law? Taking into account the problem of smoking
addiction underlying this thesis, a measure controlling the substances in Tobacco products is arguably at least as effective as a measure controlling access to tobacco products. While the harmful effects of smoking are well-known around the world, smoking still is a widespread occurrence among the global population. The main reason behind this contradiction are the chemicals contained in Tobacco products that trigger the human brain to ‘crave’ those
particular substances after regular consumption with the obvious result of addiction.55 Thereby
the element of decision making in the habit of smoking is deliberately influenced by the substance of the product.
It is against those addictive properties of Tobacco that Bénédicte Ficq, has based the aforementioned criminal proceeding against four major Tobacco corporations. The wilful contribution by the Tobacco corporations to those addictive properties is what induces responsibility for sustaining smoking habits on a global scale. Currently very little is known or published about national governments prescribing the composition of substances in Tobacco products. One of the reasons why national governments have refrained from such measures may be that some of the carcinogenic and addictive characteristics are inherent to the Tobacco plant itself. Two research papers published in 2003 suggest that it is technically possible to remove the addictive and carcinogenic properties from tobacco products.56
As there is no practical example of the proposed measure at the interpretations that follow in this chapter are of more hypothetical nature. As the proposed measure at hand does more than regulating the market access of tobacco products, WTO agreements other than the GATT may be violated by the measure. The following subsections of this chapter shall therefore assess two other potentially applicable WTO agreements and their relevant provisions with regards to a violation constituted by a measure regulating the substance of Tobacco products.
55 Y Tang, M Posner, M Rothbart, N Volkow ‘Circuity of self-control and its role in reducing addiction’ (2015), Trends in Cognitive Studies, 19(8), p. 441.
56 J Henningfield. and M Zeller "Could Science-Based Regulation Make Tobacco Products Less
Addictive?," (2003) Yale Journal of Health Policy, Law, and Ethics: (3 )1 p. 32. And M Myers "Could Product Regulation Result in Less Hazardous Tobacco Products?" (2003) Yale Journal of Health Policy, Law, and Ethics (3)(1) p. 9
5.1 SPS Agreement
An agreement concerned with the positive harmonization of international standards regarding to human health the Agreement on the application of Sanitary and Phytosanitary measures (SPS Agreement) would seem applicable upon first reading.57
Moreover in reading the preamble SPS agreement it seems that regulating the substance of Tobacco products falls under the desire to improve human health.58 Subsequent interpretations
by WTO dispute settlement bodies have however denied this assumption. The SPS agreement did not apply in cases where domestic measures controlling human exposure to carcinogens was challenged. In US -Gasoline, in EC – Asbestos and Brazil – Tyres the SPS agreement was found to be inapplicable.59 As stated throughout annex A of the actual SPS agreement it is to
be ascertained that main concern of the agreement is to provide safety from diseases or pests from food that are food-borne.60 Additionally a glance at the list of SPS cases at WTO dispute
settlement body exclusively shows measures aimed at food, albeit a wide range of foodstuffs, from avocados to poultry products. A measure aimed at Tobacco products and their substance would hence not fall within the realm of the SPS agreement due to the agreements focus on food-borne health risks.
5.2 TBT Agreement
As an agreement equally concerned with positive harmonization of international standards the Agreement on Technical Barriers to Trade (TBT Agreement) may be applicable due to its focus on trade interferences formed by domestic ‘technical’ regulations.61
Logically the most important requirement to establish whether a measures falls within the scope of applicability of the TBT Agreement is whether a “technical regulation” is issued. Annex 1(1) to the TBT Agreement, describes technical regulations as “product
characteristics […] with which compliance is mandatory”.62 As interpreted by the Appellate
Body in EC – Seals the Intrinsic Values, such as the products composition fall within the TBT 57 V. Heiskanen, ‘The regulatory philosophy of International trade law’ (2004), Journal of World Trade, Vol 38(1), p. 10.
58 Preamble to The WTO agreement on the application of Sanitary and Phytosanitary Measures (SPS agreement), 1 January 1995.
59 J. Atik, ‘The WTO and Health’ in The Oxford Handbook of International Trade Law, (Oxford University Press Oxford 2009) p.599
60 Annex A art 1 and 4 to SPS Agreement
61 At note 56.
agreements understanding of product characteristics.63 A measure relating to the addictive and
carcinogenic properties of Tobacco products shall hence fall in the applicability of the TBT agreement as it undoubtably regulates the relevant intrinsic values. Following the proposed measure and its clear underlying rational article 2.2 TBT agreement is the foremost relevant provision in this instance. For technical regulations that constitute an unnecessary barrier to trade are prohibited given that legitimate objectives, such as protection of human health, lift the barrier of necessity.64 From the measure proposed in this chapter it is clear that no
unnecessary barrier to trade is erected when the legitimate policy objective of reducing smoking addiction by controlling harmful substances is maintained. Therefore such measures will be compatible with the obligations arising out of the TBT agreement.
5.3 National treatment III:4 GATT
After assessing two WTO agreements with a more specific scope the attention turns back to the market access regulating provisions of the GATT. A measure described throughout this chapter shall invoke a challenge based on a violation of national treatment in article III:4 GATT. This national treatment prohibition differs from that of article III:2 GATT in its scope of application. Where article III:2 GATT is concerned with taxes that add value to products, article III:4 GATT is aimed at “laws, regulation and requirements”. Applying the
interpretation of article III:4 GATT applicability in Us – Tuna, a measure regulating the substance of tobacco products regulates “The product as such” by which it falls within the scope of application of the provision.65 Moving to the interpretation of the scope of the
prohibition, EC – Asbestos and EC – Seals provide the most relevant requirements. In the former the scope of ‘likeness’ in light of article III:4 GATTT is elaborated upon. Here it is eventually decided that the carcinogenic properties of asbestos constitute a fundamental difference to elsewhere similar products to deny ‘likeness’.66 An interpretation that is relevant
for the discussion on whether cigarettes and e-smokers are ‘like’ products as it is established that the latter of the two does not have the carcinogenic properties that the former has.67 In EC
– Seals the Appellate Body found that the aim of the provision is found to maintain “effective 63 EC – Seals Para. 5.67.
64 G. Marceau, Joel P. Trachtman, 'A Map of the World Trade Organization Law of Domestic Regulation of Goods: The Technical Barriers to Trade Agreement, the Sanitary and Phytosanitary Measures Agreement, and the General Agreement on Tariffs and Trade' (2014) 48 Journal of World Trade, Issue 2, pp. 353
65 United States – Restrictions on Imports of Tunes DS 21/R, Report of the Panel, Submitted 16 August, 1991, BISD 155. Para 5.14.
66 European Communities – Measures Affecting Asbestos and Asbestos Containing Products, WT/DS135/AB/R, 12 March 2001, para 114 – 115.
equality of competitive opportunities” regardless of the background of regulatory distinctions involved.68 Applying this interpretative framework to the proposed measure it can be
concluded that when there is a like product favoured by the measure controlling substance, the equality of competitive opportunities is distorted and a violation of article III:4 GATT is constituted by the measure. If no like-product is found, which is more likely looking at the assessment method in EC – Asbestos where a distinction between products is made to their carcinogenic properties, there is no subsequent violation of article III:4 GATT. In that case no domestic product will be found to be favoured by the regulation.
5.4 Conclusion
In all, a measure controlling the carcinogenic and addictive properties in Tobacco products has potential great effect as it affects the reason why people sustain smoking habits rather than the possibility to buy Tobacco products. Applying the WTO law framework on such a
domestic measure may seem that the rationale of protection of human health may render the SPS Agreement applicable. This is however not the case as the SPS agreement is mainly concerned with harmonization of regulations on food-borne risks. Beyond that the TBT agreement is applicable but will not be violated as the technical regulation is proportionate to the legitimate policy objective of preserving human health. Finally art III:4 may or may not be violated as the interpretation of like products is crucial to finding such a violation. In
transposing the assessment method from EC – Asbestos however it seems far more likely that cigarettes and e-smoker will not be found to be ‘like’ as they greatly differ regarding their carcinogenic properties. In terms of the personal choice whether to smoke or not, this measure is highly effective as it regulates those substances that influence the human brain.
6. General Exceptions in the GATT
In assessing several Tobacco control measures along the provisions of the GATT, potential violations of the prohibition on quantitative restrictions and national treatment have been found. After such violations the general exceptions provided in article XX GATT can provide justification for national governments based on legitimate policy objectives. The provision constitutes a recognition of freedom of regulatory autonomy to sovereign states in the way that legitimate domestic interests can prevail over international trade interests.69 In a domestic
measure that has its rational to minimize harmful effects of human exposure to Tobacco products the general justification is, logically, one ‘necessary to protect human life or health’ prescribed in article XX(b) GATT. An interpretative example regarding a justification on a ban on Tobacco products is given in the previously mentioned Thailand – Cigarettes. The Thai government sought to justify the found GATT violation by stating that article XX(b) GATT applied because the banned imported cigarettes posed ‘incrementally greater health risks’ than those domestically produced.70 The claim failed as the measure ‘lacked’ on a basis
of necessity, unlawfully overriding the interests of international trade where that could have been avoided. The following sections of this chapter shall uncover the interpretative
requirements of ‘necessity’ regarding an article XX(b) justification. Simultaneously this shall provide the framework in which domestic legislation aimed at Tobacco products can operate. 6.1 Necessity
Following the interpretation made by the Appellate Body in Korea – Beef the definition of ‘necessity’ is placed in a continuum where it is much closer to the definition of
“indispensable” rather than “making a contribution to”.71 Following up on this proposition the
definition of likeness falls apart into the three cumulative conditions made up by the relative importance of the common interest involved, the extent to which the contested measure contributes to this end and the extent in which the measure has restrictive effects on trade.72 In
the dispute Brazil – Tyres the Appellate Body confirmed these requirements and added a
69 At note 58, p 612.
70 Thailand – Cigarettes, paras 50-56
71 Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Report of the Appellate Body (Korea – Beef) WT/DS161/AB/R, WT/DS169/AB/R, para. 161
proportionality test by prescribing to consider potential measures which are less trade restrictive when deciding over a justification.73
A domestic measure aimed at Tobacco products by either hampering accessibility to the product or regulating the actual product itself has a shared common interest of promoting public health. The contribution to this common interest and its subsequent effect on
commerce depends on the domestic measure. Having found two potential GATT violations in the previous considerations of a prohibition on quantitative restrictions via an import
prohibition and national treatment via regulations regarding substance be shall assessed individually.
6.2 Violation of quantitative restrictions
The import prohibition that would constitute a violation of quantitative restrictions would definitely contribute to the legitimate objective of promoting public health by completely eliminating access to the harmful product. The stumbling-block would however be constituted by its effects on trade, as those would be eliminated in equal fashion. Justification of the import prohibition violation is therefore near impossible as other measures have been found like internal taxation or requirements regarding substance that have a similar effects but are far less trade restrictive.
6.3 Violation of National Treatment
It is likely that a regulation regarding substance will pass the necessity test in its goal of improving public health. The function of such a measure has been discussed in the previous chapter and would contribute to the aim of improving human health through discouragement of smoking. This goal would be achieved by reducing the harmful substances in Tobacco products while the market access of those same products remains untouched. Hereby the measure contributes sufficiently to the noted interest involved and shall have little to none direct effects on trade. Additionally In the previously cited research papers it is found that reducing the harmful substances in Tobacco products will have no effect on the perception of taste, further reducing any possible effects on commerce.74 In all, the ‘necessity’ requirement
is met while no alternative measure that is less trade restrictive has yet been proposed. If a violation of article III:4 GATT is found by a domestic measure regulating the substance in tobacco products, it is likely to meet the justification requirements of article XX(b) GATT. 73 Brazil – Measures Affecting Imports of Retreated Tyres, WT/DS332/AB/R (Brazil Tyres), 3 December 2007 para 208.
6.4 Interim Conclusion
Assessing the previously proposed measures for their effect of reducing smoking habits and their projected compatibility with WTO law provisions the following interim conclusion can be drawn. The domestic measures that sets mandatory requirements to the harmful substances in tobacco products seems most viable for it is arguably the most effective measure while it does not necessarily has to alter the equality of competitive opportunities.
An import prohibition on Tobacco products would be effective through eliminating access to the product but it would also unjustifiably violate the prohibition of quantitative restrictions in article XI GATT. Internal Taxation on Tobacco products will not violate any GATT
provisions and have been used in the past by nations after the discovery of the harmful effects of smoking. However the measure is effective to a certain extent in raising the price and therefore hampering the public access to Tobacco products, its harmful effects will not be eliminated for those who can still afford to smoke. With a view of eradicating the harmful effects of Tobacco addiction that measure shall be far reaching.
A measure that restricts the amount of addictive and carcinogenic substances in tobacco products will still allow a population to sustain certain habits of smoking, only without the associated health risks. In the case that such measure is to violate the National treatment provision of article III:4 GATT, it is to fall within the proportionate and justifiable range of domestic regulatory autonomy allowed by the necessity criterion of article XX(b) GATT.75
75 Link of proportionality and necessity suggested in: I Venzke ‘How Interpretation Makes International Law:
7. Alternative Measures Conditioning the Internal Sale
The final suggested measure to face a WTO law interpretation is an alternative measure aimed at the sale of the product, where particular focus is laid on obligatory standards regarding the packaging and labelling of Tobacco products.
With its establishment of a violation on the prohibition on quantitative restrictions the panel in Thailand – Cigarettes the Panel went on to propose alternative measures that could have been taken instead.76 Among those alternative measures is a ban on advertising of Tobacco
products and the mandatory inclusion of warning signals on packaging.77 Since that decision
was issued in 1990 a lot has changed with almost all of the worlds nations enacting such measures.78 The Australian government went beyond this common practice and enacted the
Tobacco Plain Packaging Act 2011. The measure prohibited brand-specific labelling and packaging of Tobacco products to an extent that only a generic brand name and a size increased health warning remained on the packaging.79 Recently, 28 June 2018, a WTO
dispute settlement body has rejected a challenge from Honduras of the measure which was based on provisions of the GATT, TBT and the Agreement on Rrade-related Aspects of Intellectual Property Rights (TRIPS).80 A discussion of the presented arguments and the
merits on which the decision is based can provide for a canvas for other national governments willing to take on Tobacco addiction through similar measures. The following chapter will go over the relevant findings by the panel and place those findings in the broader perspective of Tobacco control regulation in general. Finally the implications of the decision will be laid out along with its potential meaning in future Tobacco control regulations.
7.1 Setting an Example: The Australia Plain Packaging Act
In order to fully grasp the intention of the measure and the way it is projected to promote human health it is helpful to review the arguments put forward by the Australian government in taking the measure through the explanatory memorandum of the named measure.81 The
76 Thailaind – Cigarettes 78 & 79.
77 Ibidem
78 World Health Organization, WHO Report on the Global Tobacco Epidemic, Enforcing Bans on Tobacco Advertising, Promotion and Sponsorship, WHO: 2013, p. 62.
79 The Parliament of the Commonwealth of Australia, Tobacco Plain Packaging Act 2011, Explanatory Memorandum.
80 Australia – Certain Measures Concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to tobacco products and packaging (Australia – Plain Packaging), WT/DS435/R, WT/DS441/R, WT/DS458/R, WT/DS467/R, 28 June 2018.
81 AD Mitchell, 'Australia's Move to the Plain Packaging of Cigarettes and Its WTO Compatibility.' (2010) 5(2) Asian J WTO & Int'l Health L & Pol'y, p. 407.
main reason Australia addressed the Plain Packaging Act 2011, is to “shut down one of the last remaining avenues” of tobacco advertisement.82 The reduction of an “appealing physical
presence” of Tobacco products in general and Cigarettes in particular, is key in reducing the dangerous habit in which large amounts of the Australian population indulge in.83
Additionally the Australian Plain Packaging measure have taken particular notice to youths and young adults, as it is believed that large parts of youth experimental experiences with Tobacco occur as a result of Tobacco marketing through labelling and packaging.84
7.2 The Dispute and the Decision
As stated Honduras filed for consultations at the WTO. Representatives of Honduras claimed that its legitimate national economic interests were impeded by the Australian measure.85 As
nations in which Tobacco is produced and therefore have export interest with to Australia; Cuba, Indonesia and the Dominican Republic followed suit.86 Among the alleged WTO law
principles violated by the Australian measure are the previously discussed national treatment principle of article III:4 GATT and technical regulation requirements from article 2.1 and 2.2 TBT.87 The largest part of the considerations by the panel is however taken up by alleged
violation of the TRIPS agreement, where it is alleged that Plain Packaging Act 2011
disregards trademark rights.88 With regards to the alleged violation of the TBT agreement the
panel has found that the Australian measure falls within the meaning of a “technical
regulation”.89 The Plain Packaging act applies to an identifiable group of products, lays down
one or more characteristics of those products and mandates compliance with those
requirements.90 After longstanding factual considerations the panel finds that the complainants
have failed to demonstrate that article 2.2 TBT is violated by the Australian measure
however.91 The panel the finds the measure necessary with regards to its legitimate objective
after placing the measure in a greater domestic policy perspective and its relation to international standards.92 Regarding the assessment of an article III:4 GATT National 82 Ibidem p. 1.
83 Ibidem p 4.
84 At note 68, p1.
85 Australia – Plain Packaging para 6.100
86 Australia – Plain Packaging paras 1.1 to 1.4
87 Australia – Plain Packaging para 7.10
88 Ibidem
89 Australia – Plain Packaging para. 7.171
90 Ibidem
91 Australia – Plain Packaging para 7.1732
Treatment violation Australia successfully invokes the Lex Specialis principle.93 Due to this
principle the panel sees no reason to answer interpretative questions regarding the GATT which are partly or wholly answered by the more specific TBT and SPS provisions. Moving on to the considerations of the alleged TRIPS violations a similar conclusions is reached in that the complainants fail to demonstrate a violation by the Australian measure.94 Factual
considerations and the resulting findings are mostly based on a discrepancy on the meaning that should be given to the relevant TRIPS provisions and the basis on which the challenging parties invoke those provisions.95 Additionally the panel asserts a difference between the
impediment of the actual granting of a trademark or the way that the rights relating to an existing trademark are treated.96 As the considerations on the TRIPS provisions are relevant to
this particular dispute, the purposes of this thesis do not demand an in depth analysis of all the relevant findings by the Panel.
7.3 Implementation in a Wider Framework
The bigger picture illustrated by this dispute where an alternative measure that regulates the internal sale of Tobacco products does not violate any of the relevant WTO provisions could be a meaningful contribution to Tobacco control legislation. It provides a blueprint for which other nations seeking to improve domestic health by discouraging smoking can base their domestic measures on. Challenges with a similar scope as those posed against the measure in contention in Australia – Plain Packaging can be rebutted by referring to the findings in this particular dispute. When challenges to similar legislation deviate from those in mentioned dispute, other legal interpretations are required however. This is due to the matter of
precedency in the WTO dispute settlement system which mostly relates to the establishment of different criteria and requirements in legal interpretations.97 Additionally findings by the
Appellate Body are recognized as a source with more authority regarding to precedent.98 To
that extent it is desirable that any of the complainants in this dispute takes the report of the panel up for a decision by the Appellate Body which then accordingly has a similar ruling to the one exposed in this chapter.
93 Australia – Plain Packaging para 7.87
94 Australia – Plain Packaging paras 7.1913, 7.2051, 7.2130, 7.2606 and 7.2796
95 See for instance on article 15.4 and the meaning of “protection of inherently distinctive signs” Australia – Plain packaging para 7.1895
96 Australia – Plain Packaging para 7.2603
97 M Busch & K Pelc,. ‘Dispute Settlement in the WTO.’ In The Oxford Handbook of the Political Economy of International Trade. (2015) : Oxford University Press. P. 413
7.4 Conclusion
The alternative measure taken up by Australia in Australia – Plain Packaging certainly has its worth in the determination of regulatory autonomy granted by the relevant provisions of international trade law. The ability to assert measures that mandate more stringent packaging requirements than the well-known current health warnings is essentially granted by the decision in this report.
Regarding effectiveness of the measure Australian health expert strongly advocate and state backed by research that the measure in contention is revolutionary in the way smoking addiction will be further eradicated in the future.99 Contradicting these encouraging signs for
public health is the notion that the access to the product remains intact in accordance with the apparent health risks. Assessing the effectivity of other alternative measures relating to the sales of Tobacco products such as raising the minimum age of consumption to eighteen have proven successful in limited terms. 100 As such measures have merely limited the access to the
product and not sufficiently eliminated the health threat relating to Tobacco consumption. It could be argued that the Tobacco Plain Packaging Act 2011 essentially has a similar effect as raising the minimum age of purchase: Although awareness for the risks related to smoking is increased, the product is still available and equally unhealthy.
Placing the measure at hand in perspective to the proposed measures in previous chapters, the mandatory requirements relating to packaging may be seen as one of the least effective in terms of promoting Human health. It is not illogical however that measures relating to the packaging of Tobacco products are more ‘popular’ among national governments. Packaging requirements arguably have the least far reaching consequences in terms of commerce, as the product and the price of the product remain the same. In terms of providing the ‘end-game’ in eliminating Tobacco addiction the measure taken by Australia will prove successful but insufficient. To substantiate the elimination smoking addiction a measure relating to substance requirements is more effective. Following a measure relating to the substance of Tobacco products they can still be acquired with relative ease, but the health threat is immediately eliminated.
99 B Freeman et al., ‘The Case for Plain Packaging of Tobacco Products’ (2008), Tobacco Addiction 103, p 581 and MA Wakefield, L Hayes, S Durkin, et al, ‘Introduction effects of the Australian plain packaging policy on adult smokers: a cross-sectional study’(2013) BMJ Open 3, p. 2
100 R J Bonnie, K Stratton, and L Kwan, ‘Public Health Implications of Raising the Minimum Age for Purchasing Tobacco Products’ (2001), Institute of Medicine of the National Academies, The national Washington Academy Press, Washington D.C., p. 156
8. Changing the perspective towards International Investment Law
In order to review a wider framework in which a national government can operate with regards to measures relating to Tobacco products, the following chapters shall shift the attention towards the implications of international Investment law. By laying out the essential features of the legal system relating to foreign direct investment the policy space in which domestic regulatory autonomy can be asserted is to be established. In Phillip Morris v. Uruguay a practical example is given of domestic Tobacco regulation being challenged on principles of international Investment law. The merits on which the Arbitral Tribunal decided and the potential value of the award will be incorporated towards establishing a framework in which domestic regulation can operate. Finally a comparative analysis will be made between the similar and coinciding implications that international trade law and international
investment law have on domestic regulation regarding Tobacco products. 8.1 Fundamental Principles International Investment Law
When incorporating the principles of international investment law into the underlying subject of this thesis, difficulties arise by a consideration of the sources of the legal system. The relevant standard of international Investment relations can differ between nations as those are governed by Bilateral Investment Treaties (BITs).101 Many BITs have coinciding principles
and foundations of foreign investment protection but a multilateral system where legal interpretations are universal is non-existent.102 The extent of varying interpretations in
international Investment law is further increased by the absence of one judicial body.103
Disputes between investors and national governments are resolved by Ad-Hoc arbitral tribunals, differing from a fixed Panel or Appellate Body.104
In order to determine where the areas of domestic regulatory autonomy are, to take legal action promoting human health through Tobacco control the international investment principles that coincide are the most important to consider.
101 R Dolzer and R Schreuer, ‘Ch. 1 Nature, Evolution and Context of International Investment Law’ in
Principles of International Investment Law (Oxford University Press, Oxford: 2008) P. 2
102 Ibidem at 22.
103 M. Valasek, P Dumberry ‘Developments in the Legal Standing of Shareholders and Holding Corporations in Investor-State Disputes, ICSID Review’(2011), Foreign Investment Law Journal, Volume 26, Issue 1, Page 36.
It is reasonable to assume that all BITs have view of promoting benefits for the host state and the investor as BITs are tied to desirability and the nature of foreign investments.105 Therefore
much of the BIT’s purpose is to address the risk of a long-term investment project and thereby providing stability and predictability in the sense of an investment friendly climate.106 This
assumption can be supported by a reading of preambles to different BITs which coincide in their wording with the frequently returning phrase: “Recognising that the encouragement and reciprocal protection […] of such investments”.107 The prohibition to expropriate foreign
investment and the obligation to grant fair and equitable treatment are the most relevant for the purposes of this thesis. Both principles relate to domestic measures interfering with the economic activities protected by the overarching principles of international investment law.108
By analysing the general requirements of these principles the extent to which public health promotion can be established by domestic Tobacco control regulation.
8.1 The Prohibition to Expropriate
As the formal taking of a title of a foreign investment is largely a thing of the past,
requirements of an indirect expropriation are leading in the discussion regarding the issue.109
This means that the prohibition to expropriate will be in contention when domestic authorities take measures that ‘deprive the investor the utilization of its investment’.110 The key questions
when it comes to the establishment of a substantial deprivation of utilization are the effect of the domestic measure on economic benefit as well as the control over the investment.111 This
prohibition can be justified however by the Police powers doctrine, international investment law adaptation to the principle of legitimate exceptions in the GATT. Police powers, or the right to regulate, amounts to a consideration of the legitimate interest involved and whether that is met in proportionate fashion by the domestic regulation.112 Regarding domestic
regulation of Tobacco products an example of the working of the law expropriation is given in 105 At note 100
106P Muchlinski, ‘Ch 1 Fundamental Issues’ in The Oxford Handbook of International Investment Law (Oxford University Press, Oxford: 2008) p. 15
107 Sentence found in the preamble of UK model BIT and many others like the Japan – China BIT or the Germany – Qatar BIT.
108R Dolzer, 'The Impact of International Investment Treaties on Domestic Administrative Law.' (2005) 37(4) NYU J Int'l L & Pol, p. 957.
109 R Dolzer and M Stevens, Bilateral Investment Treaties (1995), Martinus Nijhof Publishers p. 112
110 Note 100 at p. 101
111 Note 100 at p. 112
112 Use of the concept ‘Police Powers’ in Investment arbitrations: Chemtura Corp. v. Government of Canada, NAFTA Arbitration under UNCITRAL Rules, 2 Aug. 2010, (Chemtura) (RLA-53), para 249 and further elaborated upon in Methanex Corporation v. United States of America, UNCITRAL, Final Award, 3 Aug. 2005, (Methanex) (RLA-164), para 262.
Phillip Morris International v. Uruguay. Where strict Uruguayan packaging requirements lead to a claim of multiple violations of the Switzerland – Uruguay BIT according to the Swiss based Tobacco Corporation.113 The arbitral tribunal denied the claim however as the
domestic measure was deemed proportionate to the legitimate interest of increasing human health.114 Additional weight to that legitimate interest was given the way in which the
Uruguayan packaging regulation was aimed at young smokers and pregnant women in particular.115 The decision by the arbitral tribunal in this instance suggests that that more
specific and urgent legitimate interests relates to a farther-reaching right to regulate. Therefore future domestic regulation targeting Tobacco products is more likely of being exempt from a claim of expropriation if it regulates a particular targeted risk. In the proposed measures analysed in previous chapters packaging and labelling requirements have been proved to be the most targeted approach, due to the particular appeal of packaging to youths and young adults. The more effective measure in terms of smoking cessation, requirements regarding to substance, regulates a more general risk. The potential effect of the measure may justify its general nature as there are little fixed requirements for the proportionality of ‘Police Powers’.116 This proposition can be exclusively confirmed or rejected by a arbitral tribunal
however.
8.2 Fair and Equitable Treatment
Almost all BITs contain a provision by which the according of fair and equitable to foreign investments treatment is mandated. As the requirement to ‘fair’ and ‘equitable’ are not exhaustive the provision most often functions as an overarching principle most suitable for filling gaps left by other standards.117 Practice has demonstrated that especially claims of
expropriation are commonly backed by the wide standard of treatment.118
This ‘catch-all’ principle is relevant in the assessment of domestic Tobacco regulation as any investor would incorporate a claim of denial of Fair and Equitable treatment in support of the alleged violations. The denial of Fair and Equitable treatment could be based on many different ground among which a violation of legitimate expectation, compliance with
113 Philip Morris Brand SÁRL, Philip Morris Products S.A. and Abel Hermanos S.A. V. Oriental Republic of Uruguay, ICSID case No. ARB/10/7, 8 July 2016, Introductory note by A Escobar, The American Society of International Law. (Philip Morris International v. Uruguay) para 153.
114 Phillip Morris International V. Uruguay para 306
115 Ibidem
116 Note 100 at p. 115
117 Note 100 at p. 132
118 PSEG v Turkey, Award 19 January 2007, para 238 and Continental Casualty v Argentina, Award, 5 september 2008 para 254.
contractual obligations and good faith seem most likely. What the extent of such
considerations by any arbitral tribunal entails is entirely dependent on the scope of claim. In Phillip Morris International v Uruguay the claim entailed that the contested measure was arbitrary and disregarded the legitimate interests of the investor.119 The panel found that the
impact of the measure was “within the acceptable range” for a legal framework of foreign investors.120 Additionally the tribunal found that the investor could not have had any
legitimate expectation the host state would refrain from taking measures that promote human health.121 Both the findings lead to a denial of the claim regarding fair and equitable treatment
by which Uruguayan measure was challenged. 8.3 conclusion
Applying the principles of international investment law to the proposed domestic regulations poses some initial difficulties stemming from the current state of legal system. As the more fragmented sources of BITs result in varying substantive standards between different nations. Another recognized issue in international investment law is that stability, clarity and
predictability of legal interpretations is limited due to ad-hoc character of the Investment dispute settlement mechanism.122 Precedency therefore has a limited role in international
investment law, but it is not excluded. Regarding the interpretation of substantive treatment, like indirect expropriation and fair and equitable treatment, arbitral tribunals have
increasingly granted weight to former interpretations.123 In this light the interpretations from
Phillip Morris International v Uruguay and its interpretation regarding the domestic
regulation on Tobacco packaging gain in significance. In all it is therefor hard to establish the boundaries of regulatory autonomy in international investment law. The police powers doctrine proves most important for the justification of Tobacco control measures. To some extent Phillip Morris International v Uruguay has provided applicable standards to stringent packaging requirements, beyond that little can be said about the feasibility of other Tobacco control measures.
9. Combining the Principles for One Applicable Standard?
119 Phillip Morris International v. Uruguay para 309
120 Phillip Morris International v. Uruguay para 433
121 Phillip Morris International v. Uruguay para 434
122 At note 107.
123 S. Schill, The Multilateralization of International Investment Law, Cambridge International Trade and Economic Law, Cambridge University Press, 2009, p. 355.
