Inside US Trade reports from the TPP negotiations:
The U.S. proposal on tobacco tabled here would give countries the option to prevent tobacco companies from challenging tobacco control measures under investor-state dispute settlement (ISDS), using a concept that already exists under the U.S. investment model called "denial of benefits," according to informed sources.
This concept, contained in Article 17 of the U.S. model bilateral investment treaty (BIT), states that a party "may deny the benefits" of the investment chapter to a company that is owned by an investor from a non-party to the agreement in certain circumstances.
But the U.S. tobacco proposal, which contains three elements, would allow a TPP country to deny the benefit of ISDS to a company that sought to challenge a tobacco control measure, sources said. This denial could be done at any time, including after a company had initiated an ISDS claim regarding a tobacco control measure.
This is made clear from the first element of the U.S. proposal, according to sources familiar with the language. It states that a claim challenging a tobacco control measure shall not be subject to arbitration under ISDS if a party has elected to deny the benefit to that claimant or to all potential claimants with respect to such claims.
If a party has not elected to deny benefits to the claimant or all potential claimants, when there is a submission of a claim to arbitration, they may elect to deny benefits at an appropriate time during the proceedings, the language states.
I haven't seen the actual text, but from this description, this looks like some kind of consent requirement for ISDS cases related to tobacco control measures. ISDS still exists for such measures, but litigation can only be undertaken if the government allows it.
I've said before that this approach to tobacco issues in ISDS, and trade agreements generally, seems odd to me. I'd be happy to carve ISDS out of trade agreements (or just apply the tobacco carveout proposal to all measures!), but I can't understand why tobacco would be carved out of ISDS. Carving tobacco out looks like an acknowledgement that ISDS undermines domestic regulation, but then the solution is to mostly ignore the problem, while trying to address it for just one part (tobacco control) of one category of regulation (public health). There are only two ISDS cases out there on tobacco measures. The bulk of any problem with ISDS lies elsewhere. Tobacco companies are minor users of the system, and are not abusing it. They are using it exactly as it was designed, and their use of the system is just like that of the hundreds of other companies that are using it. Any issue with the tobacco related ISDS cases is not about the behavior of the tobacco companies. It's about the design of the system. (And that design could be improved in a number of ways, including a carefully drafted general exceptions provision, which would effectively mean that all of the tobacco company claims would fail).
Shifting to the domestic politics of tobacco, in terms of its lobbying strategy, I suppose the public health community probably would prefer to have ISDS out completely. However, they figure it is unlikely they could get that, so they are instead focusing on something they think they could plausibly get, which is a narrow tobacco carveout.
I see the logic there, but I'm not sure they are right. In response to the carveout proposal, there was this:
Tillis & Burr Respond To Administration’s Partisan TPP Tobacco Carve-Out
The Obama Administration has formally proposed tobacco carve-out language in the Trans-Pacific Partnership (TPP), a provision that would single out a specific agricultural product and strip it of rights afforded to all other agricultural products in the trade agreement.
“By carving out tobacco from the TPP, the Obama Administration is discriminating against an entire agricultural commodity, setting a dangerous precedent for future trade agreements,” said Senator Tillis. “Congress granted the President trade promotion authority with the mutual understanding his Administration would negotiate trade deals in good faith. It did not vote to give the Administration the freedom to indiscriminately choose when fairness should be applied and when it should be ignored. Trade agreements should not be laboratories for setting partisan policies and picking winners and losers. If any carve-out is ultimately included in the TPP, I will work hard to help defeat its ratification.”
“Over the last seven years, this Administration has consistently picked winners and losers by rigging the rules in favor of the organizations and industries they like best,” said Senator Burr. “Agricultural trade is critical to our nation’s economy and every sector of that industry creates jobs across the board. It is imperative that all of U.S. agriculture is treated fairly.”
It's possible that a tobacco carveout can be worked out among the TPP negotiators. But can it get through Congress?
Now, if it can't, maybe this is also a win for tobacco control groups -- no TPP is a result they would be happy with. However, it may only be no TPP for the time being. What we could end up with is a future TPP negotiated under a different President with no tobacco carveout.
There are a lot of difficult political calculations to make, with insufficient information about how things will actually play out under each approach. For me, a broader critique of ISDS seems like a more logical and coherent way to address any problems that exist here. But I admit that I don't know whether it will ever be successful. I'll keep trying anyway, though.
