WTO Tobacco Industry Ruling Marks End of an Era
Earlier this month, the World Trade Organization’s (WTO) Appellate Body released what might be its final ruling. The trade body’s work ground to a halt last December, after the Trump administration refused to approve the filling of vacancies among its adjudicators. Yet the present dispute was already far enough advanced (it had gone on for eight years) that it was allowed to reach the finish line. If recent testimony by Trump trade officials is any indication, the Appellate Body won’t be up and running anytime soon.
The decision was rendered in a case “brought by” Honduras and the Dominican Republic against Australia, over the latter’s imposition in 2012 of a so-called plain packaging rule for tobacco sales. (We’ll see why the use of scare quotes below.) The World Health Organization and other health experts have long advocated for such schemes, which reduce the appeal of smoking by requiring packs of cigarettes to be enveloped in nondescript wrapping. When combined with graphic health warnings, such covers have been shown to deter people from starting to smoke and encourage current smokes to stop.
There several notable aspects of the decision. I explore a few of them below, including the ongoing expansion of “trade” into non-trade areas, the increasing corporate influence in Geneva, the perils of over-legalization, and how these factors combine to produce neoliberal jurisprudence.
1. The mission creep from trade into public health wasn’t supposed to happen, but did from the beginning.
Australia’s smoking regulation had little to do with traditional trade questions. Rather, it was a domestic law, passed by the domestic legislature, implemented by domestic administrators, approved by the domestic supreme court, aimed at domestic consumers buying products domestically. So how did the case end up on a docket in Geneva?
This case — and the eventual ruling by the Appellate Body — was in many ways a most fitting bookend for 25 years of hyper-legalistic disputes over sensitive domestic laws and regulations. While the WTO has been unable to meaningfully address disruptions wrought by the rise of China’s state capitalist, export-oriented economy (the most important actual trade issue in at least a generation), its adjudicators have spent untold hours delving deeply into non-trade rules over what takes place within national borders. For example, the very first appellate decision was issued in a case brought by Venezuela against US domestic Clean Air Act regulations; 148 decisions later, the Appellate Body’s final ruling was over public health questions. The US only reluctantly agreed to the creation of the Appellate Body, after negotiators were assured it would rarely be used and the US Congress was told the body would not rule against health and environmental decisions. For its first and last decision to be on precisely such questions is a little on the nose.
Actually, this mission creep should not have been a surprise. From the beginning of the negotiations that led to the WTO’s creation, the Reagan administration (followed by Bush I and Clinton) pushed to multiply the number of treaties the body would administer. For the postwar period, the main multilateral trade agreement was the General Agreement on Tariffs and Trade (GATT), which as the name suggests dealt fairly narrowly with border levies and traditional commercial questions. With the onset of the neoliberal era, global corporations began pushing for the trade governance infrastructure to also oversee intellectual property, foreign direct investment, and the domestic regulation of service sectors. The result: the WTO oversees 17 major agreements over everything from regulation of Big Pharma to Big Tech to Big Banks.
2. The WTO became a de facto forum for corporate interests.
Since Australia launched the plain packaging initiative in 2012, the Philip Morris tobacco company has been on a global campaign to sue the country every which way they can. First, they sued in Australian courts, where they lost. Second, they sued through investor-state dispute settlement in Singapore, and they lost there too.
The WTO is different from those other forums. In theory, only states can be complainants or respondents (the official terms for what the domestic US legal system would call plaintiffs and defendants).
Philip Morris and British American tobacco company got around this technicality by staffing and paying for the legal costs of some of the countries that brought the action — poor nations who would not normally engage in such costly protracted battles. Indeed, in addition to Honduras and the Dominican Republic, the original list of complainants included Cuba, Indonesia, and Ukraine — the latter of which did not even export tobacco to Australia. And over the three years leading up to the case, tobacco exports from Honduras and the Dominican Republic averaged a mere $60,000 and $806,000.
The case also got a subsidy from Australia and other governments in the form of legal assistance from the Advisory Centre on WTO Law (ACWL). This body was set up with funds from 11 developed countries in 2001, with the mission of offering below market rates for legal advice and representation for less developed countries in WTO disputes. The ACWL is involved in most disputes involving developing nations, and in recent years has taken on highly controversial disputes brought by Panama to protect its tax haven practices.
This increased corporate influence is the culmination of trends that legal scholar Gregory Shaffer identified as far back as 2003. Through extensive interview research, he found that the US government usually initiated cases only after companies and trade associations asked them to. Then, after launching, officials relied heavily on corporate lawyers and staff to assemble their arguments. More recently, political scientist Ryan Brutger found that this trend of corporate involvement continues, with companies spending upwards of a million dollars a month in some instances.
Thus, from prompting cases, to advising cases, to now bankrolling them, businesses edged their way into what was set up to be an intergovernmental forum. While governments will always weigh the diplomatic downside to ratcheting up trade tensions, businesses have no incentives to moderate. When US trade officials make arguments as complainants, they also weigh whether they would want to be on the receiving end of those complaints as a respondent. Not so for businesses. Were this trend to continue, we would expect to see cases (and number of arguments) proliferate.
3. The gargantuan tobacco ruling perfectly encapsulated the dysfunction of over-legalization of international disputes.
The WTO is unusual in the international law space, which is dominated by unenforceable human rights obligations, environmental commitments, and more. Unlike the pacts that govern those matters, the trade body is empowered to command countries to change laws or face economic retaliation. While the choice of whether to comply is still up to sovereign discretion, the sting of trade sanctions is a powerful way for WTO members to apply pressure on one another.
As noted above, the original design decisions for the WTO were controversial. The US preferred a structure more like the GATT’s, where panels of experts offered countries guidance on how to deescalate trade conflicts. But the US’s trading partners pushed for a more legalistic arrangement, whereby the decisions of these panels would in turn be reviewable by a higher Appellate Body — a sort of Supreme Court for global commerce.
While negotiators pledged appellate cases would be rare, this was predictably wrong. After all, countries on the losing end of a decision at the panel level would have every incentive to exhaust all options at their disposal. Otherwise, domestic legislatures would ask why diplomats weren’t using every tool to stand up for the national interest. Not every one of the 259 panel decisions, but 60 percent did. While these appeals are meant to be ruled on expeditiously, and negotiators specifically legislated that appellate decisions do not constitute binding precedent, neither has worked out as planned. The Australia tobacco case stretched out for eight years, and panels and the appellate body regularly go over the mandated timelines. A major reason is that countries and adjudicators predictably cite to past decisions in making their case. This is especially so when the legal terms they have to interpret are vague, which most laws are. As a result, over time, the appellate body members created novel interpretations that went beyond the original treaty text. And because they overrule lower panel members when they don’t carefully follow precedent or endlessly recap what every party said, panel members became highly cautious — bending over backwards to exhaustively cite everything and repeat themselves. (As Simon Lester notes here, the Appellate Body also effectively began allowing appeals of the lower panel’s treatment of the facts — when appeals are meant to be limited to issues of legal interpretation.)
These dynamics led to an explosion in the length of rulings, from a 52-page panel report and 30-page appellate report in the first case, to a near-record 1,264-page panel report and 327-page appellate report in the most recent one.[1] In comparison, the average US Supreme Court ruling’s length in recent years was around 14 pages. And while many courts employ so-called “judicial economy” (the idea that you don’t resolve things that are legally unnecessary for the disposition of the case), the WTO panel spent dozens if not hundreds of pages resolving questions it could have left to the side. This prompted a rare “dissent” from one of the Appellate Body members, who noted “This could have been a much shorter report” (para. 6.536).
Thus, over time, the WTO has gone from a forum for countries to de-escalate trade tensions to one that rewards legal escalation — without, as research has shown, promoting trade.
4. The ruling — which Australia actually won — shows the deep imprint of a neoliberal approach to political economy.
With such dramatic page counts, one might assumed that there were some close calls and good arguments made on both sides and both sides won on some questions. Nope. The Philip Morris-bankrolled WTO dispute lost on nearly every one of its many arguments. (This section focuses on the lower panel report, which the Appellate Body did not disturb. Given who paid for the case, I’ll also refer to the complainants and Philip Morris interchangeably.)
Australia’s only major loss (on top of the taxpayer money it has taken to battle Philip Morris in various fora) was that the panel ruled that the international Framework Convention on Tobacco Control (FCTC) did not constitute a “relevant international standard” because it recommended (rather than required) the use of plain packaging. That finding on page 245, could have wrapped up the case right then and there, as WTO law states that domestic regulations made in accordance with a global standard “shall be rebuttably presumed not to create an unnecessary obstacle to international trade” (emphasis added).
This finding (and the case overall) is illustrative of a major tension in neoliberal administrative law. On the one hand, businesses ask for (and often receive) regulatory schemes that are not hard-and-fast mandates, or that provide information to consumers, but do not legislate behavior. One can imagine, for instance, an outright ban on cigarettes — or criminalization of smoking. This would absolutely wipe out the tobacco companies. Instead, countries adopting plain packaging schemes allow the companies to continue as going operations, subject to light touch, “nudge”-type regimes that improve public health at the margin. Philip Morris would be applauding the country-by-country flexibility of the FCTC in other contexts. On the other hand, flexibility is weaponized in neoliberal jurisprudence — as the presence of any pockets of discretion open up the possibility that still lighter touch regulation was possible.
The WTO panel engages in exactly such gymnastics, extensively engaging with Philip Morris’ arguments that alternative policies like higher cigarette taxes, could and should have been employed. Indeed, Australia was saved at that juncture by the fact that it was already doing almost all of those things already. A country that used plain packaging but lacked high excise taxes (perhaps out of concern to not unduly burden poor addicts) might not have fared as well.
That was not the only passage that raises concerns. From a structural change perspective, the purpose of plain packaging is to weaken the power of tobacco companies. Since their product is poisonous, advertising is a (if not the) major power they have. Another goal is normative: to make a statement about what behaviors society wants to deem as marginal. But Philip Morris’ experts drove the argument down a rabbit hole of whether plain packaging could be definitively proven to have caused a decline in usage. Australia and the panelists bent over backwards to engage with this argument, but in the process, put themselves on unfavorable ground — requiring an army of paid outside experts on both sides. Indeed, at many points, it seemed that the panel was engaging with the dueling experts more than the sovereign parties.
This got almost comical at points. For instance, on page 287, the panel writes that “There appears to be some convergence among researchers that the ideal test of the effectiveness of plain packaging would have been a longitudinal randomized controlled trial in a population-based setting, where packaging is manipulated in some markets but not in others.” I am hard pressed to think of a more neoliberal idea than holding up government action until an RCT could be conducted over exposure to poison. While the panel goes on to acknowledge that “there were legitimate practical and ethical reasons for which this would have been difficult to carry out,” it still holds up this type of evidence as the gold standard — rather than a detriment to the overall marginalizing of tobacco companies and users that the policy attempts to accomplish.[2]
Conclusion
With the Appellate Body ground to a halt, this ruling (and the concerning trends it lays bare) present a good opportunity to rethink what we should be trying to achieve with our international governance architecture and whether the status quo ex ante helps us. My own sense is that we should be calibrating our institutions to help deliver on the major changes facing the US and the planet as a whole. Recent weeks have laid bare the fragilities in the global economy, including excessive geographic concentration of medical supply chains. In a sense, the pandemic was a dress rehearsal for the looming climate catastrophe, which will present even more serious governance challenges. WTO rules like the ones that allowed Philip Morris to ensnare sovereign countries in nearly a decade of litigation offer precisely the wrong focus. If the goal is decarbonization and resilience, different rules are needed.
I will never get back the hours it took to wade through these two WTO decisions. It pales in comparison to what the various government attorneys had to expend — hours that (in a just system confronted with such a frivolous case) Philip Morris would be required to pay for.[3]
Nonetheless, it made for interesting reading. I am betting that this is the only trade ruling that discusses Snoop Dogg (para 7.754), the meaning of coolness and sex appeal (para 7.668), and the stresses that divorce put on ex-smokers (7.759). The next time a trade adjudicator finds themselves typing such references, that’s a signal that they’ve gotten out of their lane.
Footnotes
[1] This includes the main report and its appendices. Another case (EC — Biotech) had a panel report with 2,435 pages (which was not appealed), while EC — Aircraft had a 1,182 page panel and 669 page appellate report.
[2] Another anti-structuralist feature of the ruling was its intense focus throughout on individual behavioral level change (see e.g. para 7.689).
[3] I did not even get to the intellectual property claims that Philip Morris made, which took up hundreds of additional pages.
