Plain Packaging of Tobacco - Domestic Policy, regulation and protectionism

The issue of plain packaging of tobacco products in Australia, now being adopted in New Zealand, has dominated the international economic and political law blogosphere for sometime now. With the local challenge to the Plain Packaging legislation in Australia failing, all eyes are on the WTO dispute that Ukraine and Honduras are spearheading, albeit with some help from Tobacco companies. 

Several issues of intellectual property protection, investment claims and the more traditional right to trade tobacco products are pitted against public health concerns and the right of a country to domestically decide its public health policy. The WTO decision will have implications not only for tobacco trade but also for the jurisprudence relating to the extent of domestic policy space for implementing public health legislation within the WTO framework.What re the limits countries far when implementing legislation purporting to protect public health? Is national will sufficient? SHould it be backed up by strong evidence? Is trade subject to public health concerns? The applicability of Article XX general exceptions of the GATT to non-GATT Agreements like the TRIPS too would be an issue.

Simon Lester in this Cato piece simplifies the ongoing dispute and succinctly explains the contours of the questions involved. In another piece titled "Free Trade and Tobacco:Thank You for Not Smoking (Foreign) Cigarettes" tracing the history of anti-tobacco legislation in the U.S., he explains the contours of the dispute well.

"Let's turn now to the argument, made by many critics of the current system, that existing trade rules that go beyond protectionism undermine national sovereignty, including the ability to regulate, and thus intrude into domestic health regulation. As the plain packaging cases discussed above indicate, there is an argument that they do (or at least that they may, as the cases have not been decided yet). Where trade and investment rules limit government actions that are not protectionist, they lead to criticism of the existing rules in a way that sometimes distracts from the core purpose of trade agreements. There may be good reasons for some of these rules, but nevertheless they do interfere with domestic policymaking, and this is a legitimate source of debate about the proper scope of trade agreements."

Important questions of trade, domestic policy space, public health concerns as well as protectionism will probably be addressed by a WTO ruling in the Plain Packaging case. Whether the trend of plain packaging will spread around the world will depend on how the multilateral dispute settlement system decides. The decision will rest on the contours of domestic policy space, regulation, free trade and protectionism. Is there a special case to either "regulate" or "protect" tobacco?

WTO, public morals, domestic space and protectionism

The debate on domestic policy space and exercise of national sovereignty in the context of WTO Agreements is often a contentious one. While proponents of the WTO argue that multilateral trade rules are necessary to create a level playing field to ensure smooth, non-discriminatory flow of goods and services across national borders, its opponents tend to accuse the system of severely curtailing State rights and regulatory independence. There is also an argument that the WTO Agreements allow for sufficient domestic policy space "within" the Agreements itself and that goes often unnoticed. Where does the truth lie?

Further, there is an increasing clamour to include certain non-trade issues within the ambit of WTO rules such as global labour standards, human rights, environmental standards to name a few. Can States take unilateral restrictive measures to enforce these standards on the grounds of the necessity to protect "public morals'? While the provision provides for domestic policy space, does it also have the scope of being "abused" to enforce standards that impact trade?

The debate around Article XX GATT (General Exceptions) is often raised in this context. Providing justifications for a State to act in its "domestic interest" Article XX, inter alia, provides:

"Subject to the requirement that such measures 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, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(a)      necessary to protect public morals;

..."

This is commonly know as the Public Morals clause. A country can suo moto take trade restrictive measures which are not arbitrary, unjustifiably discriminatory between countries where the same conditions prevail and which are not a disguised restriction on international trade in order to protect "public morals". Isn't this an example of domestic regulatory space, albeit specific, within the WTO legal framework?

Mark Wu in the Yale Journal of International Law has analysed in great detail the scope and ambit of this clause in Free Trade and the Protection of Public Morals: An Analysis of the Newly Emerging Public Morals Clause Doctrine. Highlighting the increasing relevance of this clause he states:

"In recent years, the public morals exception has increasingly drawn the attention of academics and international organizations. Since the late 1980s, calls for the global trade regime to take a more proactive stance in enforcing certain transnational norms have grown louder. GATT Article XX lent support for countries to restrict trade in favor of certain norms such as environmental protection, cultural protection, and prison labor norms. However, for other norms, such as human rights, gender equality, or labor standards outside of prisons, no explicit exception exists in the text. Therefore, several academics began calling for a broader reading of “public morals” that would permit trade restrictions fostering such norms."

Mark Wu traces the history of the doctrine, its legislative history and judicial interpretation by the Appellate Body of the WTO in great analytical detail. He advocates a "middle path" approach wherein "public morals" exception can be interpreted to include universal standards subject to more stringent conditions and evidentiary proof. In conclusion he states:

"Several possibilities exist as to how the public morals doctrine can evolve as these questions are answered. To many, by far the most attractive possibilities to activists are expansive approaches that emphasize the unilateral right of countries to delineate their own morals and/or the importance of transnational norms. This Note suggests that while these are noble approaches, they entail inherent dangers. Such  doctrinal evolutions, if not implemented carefully, may ultimately lead to unintended consequences that threaten the stability and legitimacy of the WTO regime. Yet at the same time, to wait for textual amendments to the GATT/WTO legal documents that would affirmatively enumerate members’ rights to exercise restrictions based on concerns of human rights or labor standards is to wait largely in vain. Calls for such additions to date have been ignored or met with skepticism.  If we are to move beyond U.S.-Gambling to affirmatively recognize a right to exercise a public morals exception for human rights, labor standards, and other rights, we must do so through judicial interpretation in a careful, limited manner. This Note has suggested a bifurcated approach, in which countries are given greater leeway to enact restrictions that protect their own citizens, but must concurrently meet more stringent requirements if they seek to impose restrictions that affect citizens in other WTO member states. This proposed approach recognizes the right of countries to shape their own norms rather than have them imposed through trade leverage, but at the same time demands that those that make normative commitments actually follow them."  

The public morals exception clause has not been extensively interpreted by the WTO DSM though it has been widely debated and interpreted by international trade law scholars. There is a fine line between upholding certain universal values of human rights, gender equality and labour rights and allowing States to use these values to restrict trade. The motivations to use these values are guided mainly by geopolitical or trade interests rather than protecting the value itself. The difficult arises when countries use it as disguised protectionism which then gets entangled in complex judicial interpretation. Since disputes itself take time to get resolved at the WTO the purpose of restricting trade sometimes get served. While one may argue that Article XX gives domestic policy space to States it is debatable whether the overriding purpose of unhindered trade can be restricted by expanding he scope of the exception to include universal standards. Further, other international institutions in the area of labour rights and human rights are playing a proactive role in pursuing their agendas. Would an expanding interpretation of the GATT be an unnecessary overlap? The developing countries see an expanding interpretation as a threat by the developed world to introduced unimplementable standards. Is there a middle path one can tread here?