Co-authored by Sergio Puig and Gregory Shaffer.
The Obama administration is poised to finalize the Trans-Pacific Partnership (TPP) agreement. If Congress passes the current trade promotion authority bill, the TPP will become subject to a simple up or down vote, without possibility for any amendment. The Obama administration refuses to tell the public what's in the agreement and Congress seems pressed to accept provisions that many Americans might deplore. This is a problem. Consider the TPP's secretive advocacy for big tobacco.
The U.S. government is supporting big tobacco companies by negotiating dozens of international trade and investment agreements, but largely without the public's knowledge. Historically, the U.S. has supported big tobacco to expand their profitability abroad, despite known health risks. For example, dating back to the 1990s the U.S. Government Accountability Office (GAO) reported that US tobacco trade surpluses doubled after "the U.S. government provided assistance in removing [trade] barriers." The GAO report also notes how the prevalence of smoking in "Taiwan and South Korea had increased since the removal of U.S. cigarette export barriers," which resulted in "the opening of Asian cigarette markets, [and increased] cigarette advertising..."
These agreements reduce tariffs on tobacco products around the world and grant big tobacco companies the right to sue governments that post aggressive warning labels on cigarettes. For example, Australia enacted a "plain packaging law" that depicts disquieting, smoking-related images on cigarette packages sold in its country above the brand of the cigarette. Tobacco companies sued. But it's not just the big nations these companies go after -- it's also the poorest.
Big tobacco companies claim developing countries like Uruguay, Uganda, Togo, Namibia, Gabon, and others are interfering with their brand names and violating intellectual property rights. To defend themselves against the little guys, tobacco companies have instigated or threatened litigation that could cost poor nations millions of dollars to fight. If the Obama administration caves to big tobacco, it would give the impression that Americans support not only these tactics, but also the general principle that smoking is safe and it doesn't kill. They argue cigarettes should be treated like any other product.
In the U.S. alone, tobacco annually costs over $170 billion in direct medical expenses and $150 billion in lost productivity. Globally, that figure rises to $300 billion per year. And the costs are not financial alone. According to the Centers for Disease Control (CDC), "more than 16 million Americans are living with a disease caused by smoking," and what's more "for every person who dies because of smoking, at least 30 people live with a serious smoking-related illness." Yet, unless revised, the TTP will reduce tobacco tariff rates to zero and provide new rights to tobacco companies, pitting global public health in developing countries against the deep pockets of an industry that sells products known to cause serious health risks, including cancer and death.
Some might suggest that this really isn't our problem. After all, U.S. smoking has plummeted from 42 percent in 1961 to roughly 19 percent today. However, tobacco companies' profits are at a record high. Why? Because big tobacco's cigarette sales soar in developing countries after the U.S. government presses them to reduce tariffs. Statistics show the close link. On average, as developing country tariffs decrease by 1 percent, tobacco consumption rises by 2 percent, handsomely profiting U.S. tobacco companies.
Further, tobacco companies bombard poor nations with advertisements that would be unacceptable in the U.S. In 2012, the U.S. Federal Trade Commission (FTC) reported that the tobacco industry's "advertising and promotional expenditures increased [from 2011-2012], rising from $8.366 billion to $9.168 billion." Tobacco companies strategically deployed their advertizing, decreasing advertizing in some capacities, to add to others. For example, the FTC also reported that tobacco companies spent $239.6 million on "coupons to reduce the retail costs of cigarettes," increasing their expenditures by over $65 million from the year before.
The Obama administration knows big tobacco's newest target is developing countries, such as Vietnam, a party to the TPP. Vietnam now has a 135 percent tariff rate on cigarettes (for a list of other countries, see here), arguably in part to protect local state-owned producers, but also because cigarette imports serve no useful purpose for its economy. According to one Vietnamese news agency, "smoking-related diseases kill over 40,000 people in Vietnam each year." Government officials fear that "10 percent of the Vietnamese population will have died from smoking-related diseases by 2030."
Tariffs, in contrast, provide the government with revenue that can be used to implement public policies, including health policies. The rate of smoking is high for men in Vietnam, at 47.4 percent, but low for women at just 1.4 percent. After tariff rates decline to zero, Philip Morris and other multinationals will aim to change women's habits. They have already done so in other Asian countries with the U.S. government's help.
More importantly, there is no justifiable reason for including tobacco in the TPP, whatever one thinks of free trade or global economic integration. Mainstream economists contend that free trade makes more goods available at cheaper prices and thus increases a country's welfare and its consumers' standard of living. However, this core argument does not apply to tobacco. Predictably, consumer welfare will decline with increased tobacco consumption; we have seen this in the U.S. With tariff rates at zero, big tobacco companies will not only increase exports, but also bombard poor countries with advertising. Based on their record, how appealing do you think their ads will be?
Of course, after Vietnam reduces its tariff rates to zero, it could increase its domestic sales tax to 135 percent. But anyone who has visited a developing country and seen their outdoor markets knows that collecting sales taxes is much more difficult And Philip Morris certainly knows that, which is why it wants the tariff rate at zero.
Finally, this all raises important moral and ethical concerns about the Obama administration's promotion of tobacco company interests through free trade agreements. Tobacco has a sorry history linked with international trade and investment agreements. It is a dark secret that tobacco companies make more use of these agreements than perhaps any other industry. There have been at least thirty trade and investment cases brought on behalf of big tobacco. The TPP will spur more.
It is not too late to end U.S. government complicity. Congress can make clear that it will refuse to ratify a TPP that does not exempt tobacco products. It can exempt them under the current trade promotion bill. The lobbyists have benefitted from the secret negotiations that the Obama administration enforces on its trading partners through strong confidentiality agreements. It is time for the Obama administration to come clean on tobacco. The U.S. has a troubled history with Vietnam. The number of deaths it might now inflict through helping to promote cigarette use, an industry that accounts for one in ten adult deaths worldwide, especially among young Vietnamese women, will not make for a proud Obama legacy.
Sergio Puig is Associate Professor and Co-Director of the International Trade and Business Law Program at James E. Rogers College of Law, University of Arizona.
Gregory Shaffer is Chancellor's Professor of Law and Director of the Center of Globalization, Law, and Society at University of California, Irvine.