The Implications Of New Generation Free Trade Agreements For Alcohol Policies (1)

- Jane Kelsey

The days when free trade agreements were just about eliminating the import restrictions and discriminatory measures on alcohol products are long gone. Several generations of agreements have emerged since then. Each is designed to reach progressively deeper into the domain of domestic regulation. First, the trade disciplines spread to non-tariff barriers, especially technical barriers to trade such as health labelling requirements or maximum alcohol levels. Transactions in services like marketing and retail across borders and through foreign investment, and monopoly rights over intellectual property, such as trade marks, became mainstream “trade” issues when the World Trade Organisation (WTO) came into being in 1995. These rules were deepened during the 2000s through free trade agreements (FTAs), often rebranded as economic partnerships, which impose even more severe constraints on governments’ policy and regulatory autonomy. Disciplines on domestic regulation became a standard element of free trade agreements.

A New Breed Of Agreement

Most recently a new breed of agreement is being developed that aims to reach further behind the border than any previous agreement has done before. If it succeeds, it will impose new procedural and substantive obligations that extend the leverage of commercial interests over government regulation, especially in sensitive areas where governments are under pressure to regulate more strongly in the public interest. The “gold standard” is the proposed Trans-Pacific Partnership Agreement (TPPA),(2) currently being negotiated between Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, United States and Vietnam, with Canada, Japan and Mexico in the wings. Their goal is to produce a state of the art agreement that other states in the Asia Pacific Economic Cooperation (APEC) grouping will adopt, creating a Free Trade Area of the Asia Pacific. While the immediate beneficiaries are commercial, the end game is geopolitical: the US sees the TPPA as the economic limb of its strategy dubbed “America’s Pacific Century”, which aims to counter the ascent of China.(3)

The price for countries that support this strategy will be unprecedented pressure on their domestic policy space, notably in controversial areas like alcohol and tobacco. The cumulative effect of its substantive rules, especially on foreign investment, cross-border services, mutual recognition and State-owned enterprises, and its procedural requirements on transparency and regulatory coherence, when combined with existing WTO and FTA obligations, would be to shift the balance of policy-making power firmly in favour of transnational corporate interests.

This paper explores what the new style of agreement could mean for alcohol policy in three inter-related areas: 1) facilitating commodity supply chains (technical barriers to trade, cross-border services, mutual recognition arrangements and State enterprises); 2) investment rules and investor-State disputes; and 3) transparency and regulatory coherence. The analysis is necessarily speculative because the draft TPPA text is secret, aside from chapters and background documents that have been leaked. The parties intend this secrecy to continue until a deal is signed, which they hope to achieve by the end of 2012. They have also agreed that no draft texts and background documents will be released until four years after an Agreement comes into effect or the negotiations permanently break down.(4) The paper concludes with some observations on how these rules and powers might be used to cement the influence of the commercial interests over domestic policy processes and possible counter-strategies.

Realigning “Trade” Treaties To Serve Global Markets

The proposed Trans-Pacific Partnership signals the most significant strategic shift in the theory and design of “free trade” agreements since the WTO. The first difference is conceptual. Traditional trade agreements were underpinned by the theory of comparative advantage where countries focused on producing what they did best and exchanged their products across borders. The new model conceives of trade through globally integrated flows of capital, services, products, information and elite personnel and promotes the systemic integration of markets, supply chains and commercial players. It aligns perfectly with the global alcohol industry strategy.(5)

Second, this Agreement primarily targets domestic policy and regulation. It will still contain traditional “trade” rules on tariffs and import restrictions on alcohol products(6) and on discriminatory treatment of “like” alcohol products. But its added value will come from new “disciplines” on behind the border regulation that affects foreign investors, cross-border services and transnational commodity chain. Those disciplines would affect most of the supply-side measures that are promoted as part of a comprehensive and complementary alcohol control strategy.

Third, it will aim to achieve an integrated new architecture. The WTO’s separate agreements rarely have any formal inter-relationship, which results in duplication and legal complexity. The architecture of most FTAs has been reorganised to suit better the commercial realities of transnational operations and new chapters are constantly being introduced into FTAs, in particular ones that would be difficult to get consensus for at the WTO. They are increasingly cross-referenced so they become mutually reinforcing, which further complicates their inter-relationships and heightens the legal complexity. Moves to overcome this “spaghetti bowl” effect by integrating and streamlining different chapters would mean the implications for alcohol policy could only be understood by viewing the Agreement a whole.

Fourth, it will give market players new opportunities to influence national policy decisions and participate in agreement-wide institutional arrangements. This would enhance their influence at a time when public health advocates are seeking to reduce the leverage of the alcohol and tobacco lobbies over government decisions. Finally, the parties do not see this as a bilateral commercial arrangement to secure reciprocal benefits, or even to integrate markets within a geographical region. Like-thinking governments are developing it as a benchmark for a new hegemonic regime of enforceable rules that would seriously reduce the capacity of individual governments to strike out on their own with innovative alcohol policies. The TPPA is promoting this new model through three mutually reinforcing mechanisms.

Facilitating Supply Chains

The literature on the alcohol industry identifies the rise of commodity supply chains as the prevailing strategy to maximise its global reach and profitability.(7) The alcohol industry’s networks of local producers, importers, advertisers and distributors operate in a horizontally and vertically integrated way, with globally dominant players often collaborating on a common framework within which to compete. The focus has shifted from centralised commodity production to marketing strategies that aim to target premium products seamlessly across national markets. This relies on a broad array of services, from advertising, broadcasting, entertainment industry, electronic media marketing, Internet networking sites, email and cell phones, and events management to wholesale and retail distribution and franchising, which are delivered across the border and by local investments.

In its submission to the US Trade Representative (USTR) on the TPPA the US National Retail Federation complained that the proliferation of free trade agreements and growing differences between agreements had made trade more, not less, complicated and expensive, and was often incompatible with the way US retailers and other companies with global supply chains operate their businesses. This made it more difficult for US companies to take advantage of economies of scale that “a more rational and interconnected system” would afford.(8)

In similar vein, the US Grocery Manufacturers Association argued the supply chain for food, beverage and consumer products is increasingly global and as such could benefit from greater integration of policies and regulations around the movement of goods. “The TPP is a great opportunity to harmonise standards, rules of origin, and other trade policies with existing trade agreements in the region”. (9) Supply chains have become one of the crosscutting issues overseen by the team of lead negotiators in the TPPA negotiations. According to the Ministers’ Report to the APEC leaders in November 2011:

“The TPP teams have agreed to construct a fully regional agreement that facilitates trade and the development of production and supply chains among TPP members, supporting our goal of creating jobs, raising living standards, and improving welfare in our countries. To this end, for the first time in a trade agreement, we also are including commitments that will address issues related to the development of regional production and supply chains holistically, including issues related to connectivity, customs cooperation, and standards”.(10)

Negotiators were also “discussing a first-of-its-kind mechanism to facilitate enhanced dialogue between government and stakeholders on competitiveness priorities in the TPP region, including supply chains to ensure that the implementation of the agreement continues to respond to evolving business and investment practices in the 21st Century”. If the TPPA is to streamline the process it will need to develop mechanisms to manage its complexity. Because of the secrecy of the negotiations, it is not clear to observers how this will be organised, although doubtless the industry lobbies have been actively involved in the design. There are several obvious elements that will need to be integrated.

Technical Barriers To Trade

Commonly known as TBT, they are a crucially important legal concept for supply chains. The WTO already imposes a duty on governments to notify other WTO members of the introduction of measures that might contravene the TBT agreement. That provides opportunities for State-State pressure. Arguments raised in discussion of those measures indicate complaints that could be raised through the various avenues provided by the TPPA. Complaints usually centre on the lack of robust research to support the measures adopted, including proof of the nexus between the measure and the public policy objective, and the failure to adopt least burdensome approach to achieve that objective, such as self-regulation or educational programmes ahead of coercive regulation. As commentators note, accusations that research is deficient and lacks of robust methodologies is common in relation to alcohol policies, especially novel measures that ipso facto have no empirical evidence to show their effectiveness.(11) The absence of data in developing countries has made it especially difficult to make the case for special controls on marketing, price or availability.(12) Those arguments are bolstered by counter-evidence that is sponsored by commercial interests and related entities.(13)

Opaque Processes

It is clear from the discussions on alcohol control laws at the June and November 2010 meetings of the WTO’s TBT Committee that these would become targets under the opaque processes in a TPPA.(14) The TBT discussions focused especially on Thailand’s draft alcohol law, issued in January 2010, which specified the proportion of alcohol products packaging surfaces to be allocated to warning statements and required images to be rotated every 1,000 packages. TPPA parties Australia, New Zealand, the US and Chile, along with the EU, Brazil, Mexico and Switzerland, said they supported Thailand’s right to regulate to prevent alcohol-related harm, but there were less trade restrictive means to pursue the objective. New Zealand, for example,

“was concerned about significant additional costs the measure would impose on exporters and how much of that cost would arise from differences in Thailand's requirements vis-à-vis requirements in the rest of the world. The representative noted that the World Health Assembly's ‘Strategy on the Harmful Use of Alcohol’ provided guidance, indicating that there should be a proper balance between policy goals in relation to the harmful use of alcohol and other policy goals”.(15)

Ironically, Australia and New Zealand rejected similar arguments made in relation to Australia’s plain packaging tobacco laws, as the tobacco industry regularly points out. In response to concerted pressure Thailand has produced a report to support its position,(16) hosted a plurilateral meeting of WTO members, and subsequently informed the TBT committee it had set up a new subcommittee to study the impact of the regulation on alcoholic beverages, including the health warnings it had notified.(17)

Kenya’s Alcohol Controls Act 2010, which required warning texts including pictures to take up a minimum of 30% of the total surface of the product and be rotated every 50 packets, attracted a similar response. Mexico said the law posed unnecessary barriers to trade and that information campaigns were more effective mechanisms to fight excessive consumption of alcohol. The law had also come into effect before WTO members had an opportunity to comment.(18) The US and EU made similar arguments. This matter was discussed at the same TBT session as the Australian plain packaging law, and it seems from the minutes that neither Australia nor New Zealand spoke.(19)

Another indicator of potential challenges under a TPPA is the Report of the USTR on Technical Barriers to Trade for 2011, which reflects the concerns of US industries. The Report objected that labelling requirements of alcoholic beverages in various countries appeared to “lack a scientific basis”,(20) and interfered with legitimate trademarks, as did minimum and maximum alcohol content limits on distilled spirits,(21) chemical content, food additive and labelling requirements, and mandatory retail labelling of “biotech” (GE) foods).(22) Rotational requirements for labels were an onerous and potentially trade restrictive burden.

In a parallel argument the USTR said Thailand’s proposed labelling of snack foods(23) would “deviate from the prevailing scientific and technical information on health and nutrition”, with a strong potential to impede US exports. That labelling policy had replaced proposals for a traffic light system that had been successfully opposed in 2006. The US strategy with Thailand has been to host delegations of officials to Washington to share “best practices” for encouraging responsible drinking, including for warning labels.(24)

Exception For Public Health Measures

Governments faced with complaints over alcohol or tobacco policies usually turn to the general exception for public health measures, which applies a necessity test and a requirement that measures are neither arbitrary nor unreasonable discrimination or disguised barriers to trade. That used to be interpreted very restrictively. Following growing criticism of the intrusion of trade rules on public policy there have been some positive movements in recent WTO decisions on this exception.(25) The recent WTO panel report on “US – Clove Cigarettes”(26) followed the reasoning in a 2007 report dealing with imported tyres, where the Appellate Body said an assessment of “necessity” should consider

“… the relevant factors, particularly the importance of the interests or values at stake, the extent of the contribution to the achievement of the measure’s objective, and its trade restrictiveness. If this analysis yields a preliminary conclusion that the measure is necessary, this result must be confirmed by comparing the measure with possible alternatives”.(27)

The Appellate Body’s approach to less trade restrictive alternatives has also been more sensitive to public policy objectives. Following an earlier case on the equivalent provision in the General Agreement on Trade in Services (GATS) in a dispute on Internet gambling, it said the obligation rested with the complaining member to identify possible less trade restrictive alternatives that would also “preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued”.(28) Such options must be a genuine alternative, rather than an existing measure that is claimed to be adequate to achieve the objective, and be reasonably available. The measure in dispute can also form one part of a package of measures that cumulatively advance the objective: “certain complex public health or environmental problems may be tackled only with a comprehensive policy comprising a multiplicity of interacting measures”.’(29) The problem is that a positive outcome is far from guaranteed. The process for settling disputes under FTAs like the TPPA is even less unpredictable because it is outside the WTO’s dispute system - let alone a dispute brought by an investor under investor-State dispute provisions, which involves a purely ad hoc process of arbitration.

Cross-Border Supply Of Services

The strategy of the alcohol industry to concentrate on marketing premium products on a global scale requires minimal regulatory divergence on advertising, labelling or health warnings, and unimpeded delivery through the entire range of transmission media. The rules on cross-border services seek to prevent central and local governments from limiting access to and the growth of their markets in a particular sector. In particular they prohibit quantitative restrictions, such as an economic needs test that restricts new outlets where there is an adequate provision, or limits on quantity or size of services operations. Controversially, that includes a ban.(30) Unlike the WTO, where services are subject to the rules where the government has specified coverage in its schedule, commitments in the TPPA would be subject to a negative list approach. That means the whole range of alcohol-related services, advertising to telecommunications and computer services to distribution, that are supplied across the border are governed by these restrictions unless the government has explicitly said otherwise. Alcohol policy has not generally been included in such lists.

In addition there are disciplines on domestic regulation that apply necessity tests and least burdensome obligations on technical standards (including warnings or advertising restrictions) and licensing (e.g. of liquor outlets) similar to the TBT. Moves to extend these in the WTO have been inconclusive. They seem likely to become more restrictive under a TPPA and be directed towards achieving the “quality” of the service - which implicitly restricts how the legitimate objective of public health policy can be pursued. If this approach is adopted it would overlap and erode the already unpredictable general exceptions provision.

Mutual Recognition, Convergence And Harmonisation

Divergent product standards are commonly identified as a barrier to globally integrated supply chains. The same applies to services, especially for advertising and marketing. A TPPA is likely to address this through a mutual recognition mechanism that also promotes discussions on convergence and harmonisation. The Trans-Tasman Mutual Recognition Arrangement (TTRMA) between Australia and New Zealand is considered a best practice mechanism. That arrangement has recently become an issue for both alcohol and tobacco policies.

In March 2011 a submission on the New Zealand Alcohol Reform Bill on behalf of Independent Distillers (Aust.) Pty Ltd argued that restrictions on RTDs (ready to drink – pre-mixed spirits) under an Alcohol Reform Bill would violate the TTRMA and the principles and intention of the Closer Economic Relations agreement between the two countries and the Australia New Zealand Food Standards Code.(31) They also claimed it would breach New Zealand’s TBT obligations at the WTO. Changes to the Food Standards Code would require “a lengthy consultation process”, in which the industry would doubtless make vigorous interventions. Moreover, they could bypass New Zealand’s new regulations under the TTRMA by importing higher alcohol products that could be sold legally in Australia.

The converse situation arose with Australia’s plain packaging law. As long as New Zealand does not have similar laws, tobacco products can be imported from New Zealand and sold legally in Australia, thereby circumventing the new legislation.(32) The Australian regulations that provide for implementation of the plain packaging law invoke a temporary exception to the TTRMA for the maximum period of 12 months from 1 October 2012 to enable the Australian government to consult with its New Zealand counterpart on how to address the anomaly.(33) That exemption can be extended for another year, subject to agreement by two thirds of the Federal and state governments participating in the TTRMA, meaning that could be done without New Zealand’s consent. If New Zealand does not pass similar legislation, Australia may seek agreement to a permanent exemption; that would require the consent of all participating governments, and extensive industry consultation. A similar arrangement across TPPA parties would reduce alcohol policies to lowest common denominator. It is likely some kind of threshold requirement would seek to limit that risk, but it is impossible to predict what the criteria will be and the context of these negotiations means they are most unlikely to give precedence to innovative public health laws.

State-Owned Enterprises (SOEs)

National and local government barriers to domestic supply chains, such as State monopolies, are also targets. A recent, and strongly contested, proposal from the US has been the inclusion of disciplines on State-owned enterprises. It is not clear what this will involve, but it seems likely to require all State-owned or controlled enterprises to operate on a fully commercial basis that does not overtly or covertly disadvantage competitors. State-owned monopoly alcohol distributors or retail outlets are likely to fall within such rules. Again, governments will presume that the general exception for public health would apply, but that could face difficulties, especially if the monopoly can be said to serve a mixture of public health, protectionist and employment interests.(34)

Investment Protections And Investor-State Disputes

The focus on commercial players rather than states as the beneficiaries of a TPPA makes the investment chapter especially significant. In the USTR’s consultations the Coalition of Services Industries, US Chamber of Commerce, and Emergency Committee for American Trade all insisted that strong investor protections and enforcement mechanisms were a top priority. Treaties that guarantee rights and protections for investors and investments are not new, but they have become increasingly significant in recent years. The TPPA is expected to follow the US model bilateral investment treaty,(35) which the Obama Administration had reviewed but left unchanged when the advisory committee was sharply divided between corporate supporters of the existing model and civil society critics.(36)

Investments are broadly defined to cover every kind of asset, including trademarks, shares in or ownership of an entity, licenses to manufacture or sell alcoholic products, and distribution agreements. The most important guarantees are non-discrimination, unrestricted access to the market, “fair and equitable treatment”,(37) and protection against government measures tantamount to expropriating the investment.(38) Examples of alcohol policies that might be challenged(39) are:

  • Graphic health warnings and pictograms on alcoholic beverages that have a significant impact on trademarks and designs;(40)
  • Restrictions on displays, shop layout, product location and purchasing hours, and minimum prices that prevent supermarket chains from using bulk-buying of alcohol as a loss-leader, which are collectively intended to reduce sales with flow-on effects to profits and share value;(41)
  • New regulations restricting flavoured and ready to drink alcopops, which make it unprofitable for a foreign investor to continue operating;(42) or
  • Introduction of strict regulation of alcohol sales and marketing in developing countries that currently have minimalist regimes.

Aim Is To Deter Governments

In some of these cases the legal arguments may be tenuous; however, the objective is not necessarily to win a dispute, but to deter a government from pursuing a proposed policy. The importance of the “chilling effect” is discussed further below. States can list laws and policy areas that will not be covered by the investment rules. However, these exclusions do not apply to provisions on expropriation and minimum standards of treatment on which investors usually rely. The risk these investor guarantees pose to government policies became so controversial that the US and other parties to the TPPA now include an interpretive annex with a presumption that public health policies will not be considered expropriation. They also try to restrict the scope for creative interpretation by arbitrators of what constitutes “fair and equitable treatment”. However, these new provisions are of varying strength and have not yet been tested in a dispute.

The general exception for measures “necessary to protect human health” that apply to trade in goods and services do not apply to investment chapters in most US FTAs.(43) In assessing what an investment chapter means for alcohol policy it is important to understand how the industry might use such rules. In addition to being enforceable by the states that are parties to the treaty, these rights can be enforced by an investor of one State directly against the other State in a private international tribunal. Dispute processes are confidential to the parties and there is limited, and sometimes no, release of the key documents or the arbitrators’ decision. Public interest advocates have no right to be heard, although amicus briefs are sometimes accepted.

The power for investors to enforce these rules directly provides an attractive alternative to relying on their home State to bring a dispute against the host country. The companies have more control over proceedings because their home state will weigh up competing diplomatic, economic and political interests. Some States may also be reluctant to litigate if they are themselves promoting alcohol restrictions. Investor disputes involve ad hoc tribunals that have fluid rules and are notoriously idiosyncratic, creating uncertainty even where States believe they have a strong defence. Investors can “treaty shop” by locating their legal presence to take advantage of an investment agreement with a host State, as Philip Morris has done in its disputes against Uruguay and Australia’s tobacco policies. If the dispute succeeds it will usually result in a damages award and legal costs; the investors will receive the sum awarded, which is not guaranteed in State-State disputes. Two current investment disputes against tobacco control laws illustrate how investor-initiated challenges to alcohol policies might be framed.

Philip Morris v Uruguay

This complaint was filed with the International Centre for the Settlement of Investment Disputes (ICSID) in January 2010 under a Switzerland-Uruguay bilateral investment treaty (BIT).(44) The claimants are the Uruguay operation and two Swiss-based holding companies, which are subsidiaries of Philip Morris International,(45) itself owned by US-based Altria Group, formerly Philip Morris Companies Inc.(46) The dispute challenges three requirements that were introduced in 2009 as part of Uruguay’s smokefree vision:

    1. prohibition on use of misleading product names such as “light” that were extended to allow only one tobacco product to be marketed under each brand;
    2. “pictograms” with graphic images that must appear on tobacco packaging; and
    3. health warnings that were increased from 50% to 80% of the bottom portion of cigarette packs.

Philip Morris claims its investments were subjected to “unreasonable” measures because (a) they were too broad and lacked a rational nexus to the Government’s public health objectives; (b) the limit of one product to one brand expropriated Philip Morris Asia’s trademarks on multiple brands; and (c) Uruguay had frustrated the company’s legitimate expectations by failing to provide “fair and equitable treatment” through a “stable and predictable regulatory environment”, and by violating Philip Morris’s intellectual property rights under the WTO’s Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS).

The company is seeking monetary damages and the unusual remedy of the suspension of the regulations. It is also trying to circumvent the requirement in the BIT that it must provide six months notice to the Government and attempt to litigate through the domestic courts for at least 18 months before pursuing the investor-State claim. Using the “most-favoured-nation” provision in the BIT, Philip Morris claims it is entitled to the less onerous standard that Uruguay has promised to other countries in other BITs. A similar argument succeeded in another high profile arbitration.(47)

Subsequent to the lodging of the dispute, the Uruguay government reportedly proposed some changes to the law, such as reducing the size of health warnings to 65% and giving permission to sell “light” cigarettes. That provoked outrage from public health campaigners who accused the Government of caving into pressure from the companies. The Uruguay-based Centre for Investigation of the Tobacco Epidemic also expressed fears that conceding to pressure on these policies could prompt new challenges to the ban on smoking in enclosed spaces or on advertising. (48) The Government has since held firm to the original policies.

Philip Morris v Australia

Philip Morris Asia has initiated a dispute with Australia under the Australia Hong Kong Bilateral Investment Treaty 1996. After the Howard government refused to agree to inclusion of investor-State dispute processes in the Australia US FTA that came into force in 2005, it appears that the tobacco companies began reviewing Australia’s other BITs for treaty shopping opportunities. Philip Morris Asia is claiming the plain packaging law impacts on investments it owns or controls in Australia, being its shares in Philip Morris Australia, the shares Philip Morris Australia holds in Philip Morris Ltd (PML) and the intellectual property and goodwill of PML. The dispute is being brought under the United Nations Commission on International Trade Law (UNCITRAL) rules before an ad hoc tribunal, which Philip Morris Asia proposed should meet in Singapore.

The company wants the plain packaging law repealed and damages for losses incurred until that is done. If it succeeds, compensation could run into billions. There are three main elements to its claim (although these are not their only arguments):

  1. Its rights in the trademark on the cigarette packets are its most valuable assets. Violation of those rights will destroy the value of its investments and of the company and constitute an indirect expropriation.
  2. The right to fair and equitable treatment has been breached by a lack of credible evidence to support the causal link between the plain packaging law and the objective to reduce smoking. The investor’s intellectual property rights under the TRIPS and the TBT agreement have been violated. Less burdensome alternatives were available to achieve the stated goals.
  3. The Australian government has failed to afford full protection and security to Philip Morris Asia investments.

The Australian government has posted the statement of claim and its response on its Website. It has indicated a two-prong defence.(49) First, it challenges the right of Philip Morris Asia to bring a dispute under the Australia-Hong Kong BIT as the company did not acquire its shares in Philip Morris Australia until 23 February 2011, by which time the Australian government was clearly committed to the new law, and the value the new owners put on their investment has already been eroded. If that argument (and another jurisdictional matter) fails, the Government will vigorously contest the substantive claims.

Part of the attraction of that BIT to Philip Morris is the absence of exceptions or comfort words on expropriation or minimum standards of treatment. But those protections need to be viewed with caution. The investor’s main objective is usually to force the government to withdraw the measure. A threat is the first step. It is simply impossible to know how often that succeeds, but it is disturbing to hear rumours that Peru has settled an environment-related investment dispute brought by a US mining company under the Central American Free Trade Agreement (CAFTA), which does include the “comfort words”. The more significant the precedent set by a new policy, the more important it will be for the investor to challenge its introduction, well aware of the vagaries of the ad hoc arbitration system. This reality makes the third limb of the proposed TPPA especially significant.

Transparency And Regulatory Coherence

Free trade agreements have been gradually increasing the obligations on governments to disclose information and engage with commercial interests. The TPPA is supposedly building on the Trans-Pacific Strategic Economic Partnership Agreement (P4) between New Zealand, Chile, Singapore and Brunei. The chapter on transparency in that agreement requires each Party “where possible” to publish in advance any law, regulation, procedures, or general administrative ruling it proposes to adopt and “provide, where appropriate, interested persons and Parties with a reasonable opportunity to comment”.

In reality, the TPPA is much more strongly influenced by US FTAs, which go further. The transparency chapter in the recent US Korea FTA requires a government to give “interested persons” opportunities to comment “to the extent possible”. One government must promptly provide information and respond to questions on any actual or proposed measure that the other government considers might affect the operation of the agreement, even if it has not been formally notified of that measure.(50) Where the government adopts new regulations that affect matters covered in the agreement it must publicly explain their purpose and rationale and “address significant, substantive comments received during the comment period and explain substantive revisions it made to the proposed regulations”.

Giving More Leverage To Alcohol Industry

This wording or something stronger can be expected in the TPPA. It would give further leverage to alcohol producers, retailers, advertisers and lobby groups to demand a right to influence the alcohol policies, complain if they are excluded or marginalised from the policy-making process, and force the government to engage and explicitly counter their arguments. The transparency provisions are complemented by a novel chapter on Regulatory Coherence that New Zealand, Australia and the US have promoted. A draft text was leaked in August 2011.(51) The chapter promotes “best practice regulation” based on APEC and Organisation for Economic Cooperation and Development (OECD) principles and guidelines. If adopted, the Regulatory Coherence chapter would have four main effects:

(i) cement the right of companies to participate in setting of policy and regulation at national and TPPA-wide levels;

The text urges governments to provide various kinds of opportunities for “stakeholders”, a term which is undefined. One of its “overarching characteristics” is to enable “maximum effectiveness” in promoting the regulatory coherence process, including its “important role” in advancing the disciplines in the transparency chapter. It recognises the importance of a “wide range of stakeholder input into the development and implementation of regulatory measures”, and encourages governments to consider ways to build successful collaboration between the government parties to the TPPA and their respective stakeholders.(52) A TPP-wide Committee on Regulatory Coherence must promptly establish mechanisms to ensure “meaningful opportunities for interested persons” to provide views on approaches to regulatory coherence through the Agreement. While in theory these obligations could provide opportunities for public health advocates, they are intended for the major corporate, sector and industry lobbies.

(ii) require regulatory impact statements, whose criteria and methodology are intrinsically biased towards light handed regulation and least restrictive policy options;

There is an enforceable obligation on governments to “endeavour” to establish a process or mechanism to facilitate the central coordination of policy making and to review regulations. The use of regulatory impact statements (RIS) is not mandatory, but States are required to encourage them as “good regulatory practice”. The RIS are expected to identify:

  • A clearly defined problem and policy objectives, with an assessment of the significance of the problem and the need for regulatory action;
  • Potentially effective and reasonably feasible alternatives to achieve the policy objective;
  • Grounds for concluding the selected alternative achieves the objective in a way that maximises net benefits, based on a cost-benefit analysis, while considering distributional impact.

More specific elements include:

  • Whether there is a need to regulate or whether a non-regulatory and/or voluntary approach could achieve the objective;
  • Assess the costs and benefits of each available alternative, including not to regulate, recognising some costs and benefits are hard to monetise;
  • Explain why the alternative is superior to other available alternatives including the relative size of net benefits for each; and
  • The best reasonably obtainable scientific, technical, economic, and other information.

These criteria are less detailed than the RIS requirements that apply in Australia (53) and New Zealand, but they will clearly be informed by these existing models.(54) The chapter is also cross-referenced to the OECD and APEC guidelines on ”best practice regulation” that promotes pro-competitive, light handed regulation.(55) The RIS is effectively a more prescriptive domestic version of the TBT agreement. The cost-benefit analysis and criteria that must be considered are intrinsically biased against innovative policies that will have a quantitative impact on commercial interests. Opponents of stronger alcohol policies will contest the validity and objectivity of research and advice, the calculations used to assess cost and benefits, the failure to adopt the less burdensome alternatives, and rejection of the industries arguments.

These Attacks Are Already Happening

In Australia an RIS is a pre-requisite before a proposal with “medium compliance costs or significant impacts on business and individuals or the economy” can proceed to Cabinet. The Department of Health and Ageing prepared a draft RIS for the Australian plain packaging law that, according to the Australian Office of Best Practice Regulation, did not satisfy the best practice guidelines. The Government then made a decision on the proposal, so there was no capacity to undertake further work on an RIS. The Office of Best Practice Regulation reported the policy was “non-compliant” and a post-implementation review would be required within one to two years of the implementation. The next paragraph was blocked out in the public document, so it is not clear whether this position was somehow qualified.(56)

According to the New Zealand Chamber of Commerce, only half the Cabinet’s significant regulatory proposals in the past three years have met the expected standards of an RIS.(57) A report specifically into of the Ministry of Health’s policy functions was scathing of its failure to meet the kind of criteria required in the RIS.(58) If the health ministries of countries that are proposing these obligations in a TPPA are themselves unable to comply, either for reasons of competency or because the processes and criteria are ill-suited to public health policy-making, it seems reckless to impose the same obligation on others, especially developing countries.

(iii) require disclosure of information that has informed the decision-making.

Governments are expected to ensure that their regulatory bodies provide “appropriate” public access to the regulatory measures themselves, and to their supporting documentation, regulatory analyses and data, and where practicable put this online for viewing and reproduction, in accordance with the transparency chapter. Detailed disclosure will provide more material for the alcohol industry and its allies to dispute the quality of decision-making and sources in the domestic processes required by the chapter and through international mechanisms, including the TPP-wide forum and investor-state disputes. The Australian tobacco industry has used these documents and related email communications secured under its freedom of information act to support its challenge to the plain packaging laws.

The regulatory coherence chapter is not confined to new regulation. The regulatory oversight agency is expected to have a process to review the existing stock of regulation, including whether it has become unnecessary or outdated through changed circumstances or if its effectiveness could be enhanced. This chapter may therefore provide ongoing opportunities for the alcohol industry to seek reviews of existing policies. The expectation that governments will publish annually a regulatory agenda of new regulations they plan to issue over at least the next year will further inhibit expeditious decisions.

There are several lots of comfort words in the regulatory coherence chapter about governments’ right to regulate, which might appear to protect public health objectives. The text recognises the importance of each government’s sovereign right to identify its own regulatory priorities and establish and implement regulatory measures to address them. However, that right is subject to the constraints on various policy options contained within this and other chapters, and on processes for decision-making.

It also “recognises” the role that regulation plays in achieving public policy objectives, such as protecting public and worker health and safety. A footnote indicates that text may need to be reconsidered when the parties decide whether it should contain “additional guidance on a Party’s right to regulate in pursuit of legitimate objectives” (emphasis added). This suggests some parties want to restrict or at least indicate what are considered legitimate objectives (as with TBT).

Further, the principles of regulatory coherence recognise the importance of “taking into account” Parties’ international obligations. “Taking into account” is a weak legal obligation. It does provide grounds for advocacy based on international health and human rights instruments, but governments must also take into account their international commercial obligations, which are more aligned to the objectives and techniques for “regulatory best practice”.

It would be interesting to test what governments understand by stakeholder input at the national and TPP-wide level, and the balance of international obligations. The secrecy of the process makes it impossible to know if those issues have even been discussed. Based on current practices, it is can be assumed that agreement is intended to enhance the role of commercial stakeholders through information exchanges, dialogue and meetings, especially as it is only investors who are empowered to use disputes processes in the agreement to enforce rights that might be adversely affected by new regulations.

Implications For Alcohol Policies And Options

The regulatory coherence and transparency obligations would guarantee rights of input into specific regulatory decisions and ongoing dialogue on regulation, and expand the resources already available to industry to threaten or actually challenge a government’s decision using investor-State dispute powers where the regulations adversely impact on their commercial interests. These processes would be reinforced by obligations in other chapters in the TPPA affecting goods, intellectual property (IP), investment and cross-border services that are likely to require the least burdensome approaches to regulation, and to consult with affected market players. That is on top of the standard goods and services rules.

In the context of alcohol policy, the privileged “stakeholders” or “interested parties” under this agreement would span the commercial interests in promoting manufacture, distribution, pricing and sale, the advertising industry, communications media, and parts of sports industry,(59) along with well-resourced “social aspects” organisations that already seek to influence policy processes by providing advice and helping to draft national alcohol control strategies. These large commercial players can afford to fund lengthy and costly arbitration to stop precedent-setting policies, even where their legal case is weak. As noted earlier, they cannot afford not to challenge those precedents. Yet formal disputes are the least preferred means of securing desired outcomes. The “chilling effect” of opposition through less visible channels can be more effective. Pressure to drop or change proposed policies should therefore be viewed as a multi-faceted process that may be pursued in incremental steps by diverse litigants, sometimes through concurrent challenges in various forums.

Adding To Regulatory Chill

  • The WTO and existing FTAs already provide a number of avenues that will be strengthened in a TPPA:
  • Notification of measures to TBT;
  • Discussion at TBT and TRIPS committees;
  • The WTO Trade Policy Review Mechanism;
  • The WTO dispute mechanism for consultations, panels, Appellate Body and compliance;
  • Investor-State disputes under bilateral investment treaties and investment chapters in FTAs;
  • Formal FTA State-State dispute processes; and
  • USTR reports and hearings on Section 301 “trade barriers”, Special 301 intellectual property rights breaches, and the report on TBT.

From what we know about the TPPA, its new rules and mechanisms would significantly add to the regulatory chill through (60)

  • Complaints of violation and/or threats of enforcement by another State directly or through institutional channels, such as TPPA-wide committees;
  • Complaints of violation and/or threats of enforcement by commercial interests that are pursued through their home States or investor-State arbitration;
  • Undermining of the public policy rationale and supporting research from industry during regulatory impact assessments;
  • Pressure from the generally more powerful trade ministries on their health and other ministries to avoid accusations they have violated agreements or damage to the government’s reputation as a champion of free trade;
  • Pressure from the ministry of finance concerned about the implications for foreign investment, including investor confidence and threats of investment flight or strike; or
  • Self-censorship by health ministries and other agencies responsible for alcohol control policies.

What Are Some Options To Counteract This Threat?

The American Medical Association took a lead on the TPPA with a letter to US Trade Representative (USTR) Ron Kirk on 8 September 2011 that sought the exclusion or carveout of measures affecting the supply, distribution, sale, advertising, promotion or investment in alcoholic beverages from trade agreements “without balancing the economic impact with health and social consequences”. They drew on the World Medical Association Statement in 2005 that “in order to protect current and future alcohol control measures, advocate for consideration of alcohol as an extra-ordinary commodity and that measures affecting the supply, distribution, sale, advertising, promotion or investment in alcoholic beverages be excluded from international trade agreements”(61) It will be important to have similar initiatives, especially from the peak medical bodies in the countries involved in the TPPA negotiations, because such resolutions would be a powerful contribution to the public debate that health activists, among others, are raising.

A second initiative is to approach national human rights bodies to conduct human rights impact assessments of proposed agreements, as Thailand did when a previous government was negotiating a FTA with the US.(62) A comparable analysis of the TPPA would create momentum for commissions to report in other countries. Unfortunately, a request to the New Zealand Human Rights Commission for a scoping study along those lines was declined for a lack of resources – and presumably political will.(63)

A third strategy is to join forces with tobacco control advocates, who are already well advanced in their campaign on the TPPA, bringing pressure at the national level (64) and at the stakeholder programmes held on the margins of the formal negotiating rounds.(65) The World Health Organisation’s broader plan to give equal prominence to alcohol, tobacco, unhealthy eating as major contributors to non-communicable diseases would create a great platform for an integrated campaign.

The major danger with all these initiatives is their focus on policy silos. The catchcry “no ordinary commodity” is important for the substantive argument on alcohol policy, as well as for campaigning. But the preceding analysis shows how comprehensively policy constraints would be infused throughout the TPPA. Carving out areas of policy from its coverage is proving problematic even for tobacco, and likely to be more fiercely resisted for alcohol, let alone for unhealthy foods.

The Problem Is The TPPA Itself

It is critically important to consider whether the demands that being are made, in particular a carveout for alcohol and tobacco, will really address the problem. In the public health sphere alone there are further concerns over the power and benefits that will flow to Big Pharma, private health insurers, public-private hospital consortia, offshore telemedicine and health tourism providers, and more. Beyond public health there is a multitude of other concerns, from mining and sustainable livelihoods, to indigenous rights and culture, which all suffer from the problem of commodification.

At its core, the TPPA threatens sovereignty and democratic governance. In other words, the problem is with the agreement itself. The challenge it poses is not confined to the twelve countries that are currently involved or awaiting approval to participate; all APEC countries are potentially implicated and the process of competition between major economic powers makes it likely the European Union will seek to replicate novelties in the TPPA in pursuit of its “global Europe” strategy. There are important alliances to be built nationally and internationally to shift the paradigm away from one where corporate interests and market mechanisms dominate public policy and democratic decision making in sovereign countries.


1. Paper to the Global Alcohol Policy Conference, Bangkok, February 2012, Professor Jane Kelsey, Faculty of Law, University of Auckland, New Zealand. I am grateful to Alistair Birchall for research support.

2. For an overview of the Agreement and its implications on diverse policy areas, including public health, see Jane Kelsey (ed.) “No Ordinary Deal. Unmasking the Trans-Pacific Partnership Free Trade Agreement”, Bridget Williams Books, Wellington 2010, reviewed by Jeremy Agar in Watchdog 125, December 2010,

3. For a detailed analysis see Jane Kelsey, “Trans-Pacific Partnership As A Lynchpin Of US Anti-China Strategy”, Watchdog 128, December 2011,

4. “Content of confidentiality letters”,

5. Linda Hill, “The Alcohol Industry”, “International Encyclopaedia of Public Health”, First Edition, vol. 1, pp. 124-135.

6. The submission by the Distilled Spirits Council of the United States to the US Trade Representative dated 10/3/09 focused on the tariffs in TPPA negotiating parties; the Grocery Manufacturers Association submission on TPP, 11/3/09, urged no exclusions for sensitive products.

7. Thomas Babor et al, “Alcohol: No Ordinary Commodity. Research and Public Policy”, Oxford University Press, Oxford, 2003, ch. 12

8. National Retail Federation submission on TPP, 11/3/09

9. Grocery Manufacturers Association submission on TPP, 11/3/09

10. Trans-Pacific Partnership (TPP) Trade Ministers’ Report to Leaders, endorsed by Leaders, 12 /11/11.

11. Barbor, et al, ch.7

12. Barbor, et al, ch.16

13. “No Ordinary Commodity” identified six areas: sponsorship of research-funding organisations; direct financing of research studies and university-based scientists and centres; research conducted by trade organisations and social aspects/public relations organisations; efforts to influence the public’s and policymakers’ perceptions of the implications of research findings for alcohol policies; publication of scientific documents and support of scientific journals; and sponsorship of scientific conferences and presentations at conferences. Barbor, et al, 233

14. Thailand Draft Notification of the Alcohol Beverages Control, 21/1/10, G/TBT/N/THA/332TBT; TBT Committee, Minutes of meeting of 3-4/11/10, G/TBT/M/52; TBT Committee, Minutes of meeting of 23-24/6/10, G/TBT/M/51

15. TBT Committee, Minutes of meeting of 3-4/11/10, para 235,

16. Thaksaphon Thamarangsi and Areekul Puangsuwan, “Why Thailand Should Have The Pictorial Warning Label On Alcoholic Beverage Packages: A Technical Report”, Center for Alcohol Studies, International Health Policy Program, Thailand, June 2010

17. TBT Committee, Minutes of meeting of 24-25/3/11, paras 228-231

18. TBT Committee, Minutes of meeting on 15-16/6/11, paras 89-91

19. The Alcoholic Drinks Control (Licensing) Regulations, 2010: Legal Notice No. 206: 2010, G/TBT/N/KEN/282, discussed at TBT Committee, June 2011

20. USTR TBT Report 2011, 51, on Thailand, 90

21. USTR TBT Report 2011, 69

22. USTR TBT Report 2011, 95

23. With a message “Should consume in small amounts, and exercise for a better health”

24. USTR TBT Report 2011, 91

25. Ben McGrady, “Necessity Exceptions in WTO Law: Retreaded Tyres, Regulatory Purpose and Cumulative Regulatory Measures”, 12(1) Journal of International Economic Law (2009) 153-173

26. The arguments are summarised in Todd Tucker, “Considerations for US in Appellate Body Review of Lower Panel ‘Clove Cigarettes’ Ruling”, Public Citizen, Washington, 13/1/12

27. “Brazil — Measures Affecting Imports of Retreaded Tyres”, WT/DS332/AB/R, adopted 17/12/07, para 178

28. “Brazil – Retreaded Tyres”, para 156

29. “Brazil – Retreaded Tyres”, para 151

30. The WTO Appellate Body ruled in a dispute brought by Antigua and Barbuda against a US ban on Internet gambling that a ban equated to a zero quota. See Ellen Gould, “The US-gambling decision: a wakeup call for WTO members”, Canadian Centre for Policy Alternatives, 2004,

31. “Trans-Tasman legal expert raises red flag on Alcohol Reform”, press release: Independent Distillers Aust. Pty Ltd, 13/3/11

32. The Distilled Spirits Association of NZ asserted a similar entitlement in August 2011 when the New Zealand government announced an alcohol reform package that would restrict the alcohol level and volume of read-to-drink products, and which could be lawfully sold under Australian law. See e.g.

33. Tobacco Plain Packaging Regulations 2011, regn 1.1.5

34. Barbor, et al, 74

35. See Harvey Purse and Sanya Reid Smith, “Some impacts of a TPPA Investment Chapter”, paper to the Santiago Stakeholder Programme, 2011,

36. Report of the Investment Sub-committee of the US State Department’s Advisory Committee on International Economic Policy Regarding the Model Bilateral Investment Treaty, 30/9/09

37. In several arbitrations this phrase has been taken to mean a legitimate expectation of a stable regulatory environment. For a recent discussion see Matthew C. Porterfield, “State Practice and the (purported) Obligation under Customary international Law to Provide Compensation for Regulatory Expropriations”, North Carolina Journal of International Law and Commercial Regulation, 37, 2011, 159-197

38. Robert Stumberg, “Tobacco in the Trans-Pacific Partnership. A web of investment and trade rules”, Discussion draft, 1/12/10

39. The legal basis of these challenges is not explained here.

40. See earlier complaints on Thailand’s alcohol laws raised at the TBT Committee.

41. Supermarkets in New Zealand are dominated by two chains and account for about 70% of all alcohol purchased. At this level, the impact on the investment could be sufficiently serious to generate an investor complaint as a deterrent.

42. Independent Distillers Australia complained to the New Zealand Health Select Committee hearing submissions on the Alcohol Reform Bill in 2011 that it had invested $60 million in the last six years in capital infrastructure, which would be jeopardised. “Trans-Tasman legal expert raises red flag on Alcohol Reform”, press release, Independent Distillers Aust. Pty Ltd, 13/3/11

43. It does apply for some aspects of investment under the Australia US FTA.

44. Request for Arbitration, FTR Holdings S.A. (Switzerland) v Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, February 2010. For a detailed analysis of the legal issues in this case and a defence of the Uruguay law see Todd Weiler, “Philip Morris vs Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law”, commissioned by Physicians for a Smoke Free Canada, 28/7/10

45. Switzerland has a very large number of BITs, so it is attractive to establish holding companies there.

46. Weiler, 2-3

47. Emilio Agustin Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7.

48. Uruguay v Philip Morris, Health24, 28/7/10,

49. Philip Morris Asia Ltd v The Commonwealth of Australia, Australia’s Response to the Notice of Arbitration, 21/12/11

50. Korea US FTA, Article 21.2


52. Draft Regulatory Coherence chapter, Article X.7

53. Council of Australian Governments, “Best Practice Regulation. A Guide for Ministerial Councils and National Standard Setting Bodies”, October 2007,

54. “Better Regulation, Less Regulation”, 17/8/09,

55. “Information Notes on Good Practices for Technical Regulation 2000”,; “APEC/OECD Integrated Checklist on Regulatory Reform”,

56. Director, Office of Best Practice Regulation to Director, Tobacco Control Section, Department of Health and Ageing, 4/5/10

57. New Zealand Chambers of Commerce Submission to the Regulatory Standards Bill, August 2011

58. Assessment of the Ministry of Health’s Policy Function. Final Report, 15/10/10, Martin Jenkins Consultancy, Wellington

59. Babor, et al, pp. 232-233

60. Robert Weissman, “International Trade Agreements and Tobacco Control: Threats to Public Health and the Case for Excluding Tobacco from Trade Agreements”, Essential Action 20, Washington DC, November 2003

61. World Medical Association, “Statement on reducing the global impact of alcohol on health and society”, 56th WMA general assembly, Santiago, Chile, 15/10/05,

62. Ad Hoc Coordinating Sub-committee to Review and Examine the Establishment of Thailand-United States Free Trade Area, Report on Result of Examination of Human Rights Violations, the Thai National Human Rights Commission, 2006, p.2 (Thai Human Rights Commission)

63. Jane Kelsey, “The Case for a Human Rights Impact Assessment of the Proposed Trans-Pacific Partnership Free Trade and Investment Agreement”, 5/5/11 and response; see

64. e.g. “Centre for Policy Analysis’ Campaign for Tobacco-Free Kids urges Trans Pacific Partnership Agreement (TPPA) negotiators to exempt tobacco products from the proposed free trade agreement”,;

65. A number of presentations at the Chicago round in September 2011 included Robert Stumberg, “Malboro Man as Investor: Will the TPPA enable private investors to enforce trade rules?” and Patricia Ranald, “Investor-State dispute settlement (ISDS): the threat to health, environment and other social regulation”.


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