ADDRESSING THE BAN OF CLOVE CIGARETTES IN THE U.S.

By

Jodi Mahardi

On 17 August 2009 Indonesia submitted a communication G/TBT/W/323 to WTO to convey  its concern that Section 907 (a)(1) of the United States’s Family Smoking Prevention and Tobacco Control Act (FSPTCA) 2009  , which specifically bans all cigarettes containing a natural or artificial flavor or an herb or spice, other than tobacco or menthol cigarettes, is a violation to the general principle of WTO on non-discrimination and WTO Agreement on the Technical Barriers to Trade.

As the largest producer of clove cigarettes in the world, Indonesia exports approximately $500 million of cloves cigarettes per year, a fifth of it goes to the U.S, where it makes up 99 percent of clove cigarettes market in the U.S. A ban would hurt about 4 million Indonesian clove farmers (Woellert, 2009).  Menthol on the other hand are predominantly produced in the US and the most favored cigarettes among African-Americans. 82.6 of African-American Smokers smoke menthol. Respectively menthol and clove makes up about 33.9 percent and .09 percent of cigarettes market in the US.

Before the passing of the bill, the Indonesian side had warned the U.S.  Administration and Congress on the discrimination nature of the bill towards clove cigarettes.  Despite the efforts to prevent this, the bill was passed straightforwardly through Congress and signed immediately by the President in June 2009, convinced that enacting such legislation would be significant in human and economic terms.

The U.S. Congress stated that tobacco use causes over 400,000 deaths in the United States each year. The enforcement of the act by FDA is expected to decrease the number of youth smokers by removing most flavored cigarettes (deemed to be more appealing to young smokers) from the market. The Congress stated that “reducing the use of tobacco by minors by 50% would prevent 10 million children from smoking addiction, save 3 million children from premature death due to tobacco use and prevent $75 billion of government spending in health care. “.   (U.S. Congress, 2009)

In responding to the complaint, the U.S maintains that by banning flavoured tobacco products the U.S. will prevent young people from starting to smoke. Flavoured tobacco products, such as clove cigarettes, are particularly appealing to young people and used as a “starter product” before leading to regular smoking. The U.S. also maintains that clove cigarettes may also pose additional health risk over conventional cigarettes. With this reasonings the U.S. is convinced that the act is in conformity with the WTO Agreement on the Application of Sanitary and Phytosanitary Measures which give its members room to manouver in taking measures to protect their national human health (WTO : 2009 News Items, 2009).   On the alleged trade discrimination, the US specifically argued that there are substantial differences between clove and menthol cigarettes, which make the two products not comparable” (WTO : 2009 News Items, 2009).

In its communication to the WTO G/TBT/W/323, 2009,Indonesia claims that both clove and menthol cigarettes contain tobacco with an herbal flavour additive with soothing properties and both are used to smoke tobacco. Furthermore, Indonesia challenges U.S. claims that clove cigarettes pose a greater health risk than menthol cigarettes since it is not supported by sound scientific studies. Indonesia also claims that the non-existence of clear definition on what elements of cigarette constitute “a characterizing flavor” made the application of section 907(1)(a)  opened to bias interpretation.  

Since the inception of General Agreement on Tariff and Trade (GATT) which succeded by WTO, governments face greater challenges in protecting their domestic market from foreign goods and services. No longer able to impose tariffs as they seem fit, countries would start relying  on other means of protection like non-tariff barriers (UNCTAD, 2003). To inhibit the application of non-tariff barriers and ensuring fair international trade practices WTO adopted an Agreement on Technical Barriers to Trade (“TBT Agreement”), which entered into force in 1995. The agreement is the multilateral successor to the Standards Code, signed by 32 GATT contracting parties at the 1979 Tokyo Round of Trade Negotiations. The purposes of the TBT Agreement are: “i. Assuring that technical regulations, standards and conformity assessment procedures, do not create unnecessary obstacles to international trade, while ii. Leaving Members adequate regulatory discretion to protect human, animal and plant life and health, national security, the environment, consumers, and other policy interests”.  (UNCTAD, 2003)

Article 1.5 of the TBT Agreement specifically stated that the provisions of this Agreement do not apply to sanitary and phytosanitary measures as long as the conditions required for such measures are met. The measures can be taken in order to protect human or animal life or health within the territory of the Member from risks arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs as stated in Annex A(1)(b) of the Sanitary and Phytosanitary Agreement. (UNCTAD, 2003).

The act would be less controversial and may not even be disputed in WTO if menthol is not exempted from the list. Different researches have found that menthol cigarettes are being smoked by first time smokers than any other cigarettes in the U.S. market and the percentage of menthol smokers among different age groups below 25 continue to increase year by year. According to an article “Use of Menthol Cigarettes” by National Survey on Drugs Use and Health (Office of Applied Studies, 2009)  “the usage of menthol cigs is more wide spread among those smokers who started to light up recently (45 percent) than among those who have been smoking for more than 5 years (32 percent). Among past month smokers, the rate of smoking menthol cigarettes increased from 31.0 percent in 2004 to 33.9 percent in 2008; increases were most pronounced for adolescents aged 12 to 17 (43.5 percent in 2004 vs. 47.7 percent in 2008), young adults aged 18 to 25 (34.1 vs. 40.8 percent), and males (26.9 vs. 30.8 percent)” (Office of Applied Studies, 2009).

The same report (Office of Applied Studies, 2009) described menthol use on cigarettes as “a flavoring agent of natural origin added to the cigarette content which is used to cover the real strength of cigarettes and providing smokers with a nice “freezing” aftertaste in the mouth. By offsetting the harshness with menthol flavor, the tobacco industry gives teenagers and young adults a gateway for getting hooked on smoking”.

In light with these facts the Government of Indonesia insist that the act is incompatible with the United States’ responsibility under Agreement on the Application of Sanitary and Phytosanitary Measures because they contravene, among other provisions of : 

Article 2(1) : Members shall ensure that any sanitary or phytosanitary measure is applied only to the extent necessary to protect human, animal or plant life or health, is based on scientific principles and is not maintained without sufficient scientific evidence, except as provided for in paragraph 7 of Article 5.  Article 2(3): Members shall ensure that their sanitary and phytosanitary measures do not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail, including between their own territory and that of other Members.  Sanitary and phytosanitary measures shall not be applied in a manner which would constitute a disguised restriction on international trade.  Article 5(5) : With the objective of achieving consistency in the application of the concept of appropriate level of sanitary or phytosanitary protection against risks to human life or health, or to animal and plant life or health, each Member shall avoid arbitrary or unjustifiable distinctions in the levels it considers to be appropriate in different situations, if such distinctions result in discrimination or a disguised restriction on international trade.  Members shall cooperate in the Committee, in accordance with paragraphs 1, 2 and 3 of Article 12, to develop guidelines to further the practical implementation of this provision.  In developing the guidelines, the Committee shall take into account all relevant factors, including the exceptional character of human health risks to which people voluntarily expose themselves.

With the opinion that clove and menthol cigarettes are like products, Indonesia views that the TBT Agreement obligates the United States to treat clove cigarettes no less favourable than that accorded to menthol cigarettes that are produced in U.S.  The TBT Agreement obligates the United States to ensure that its technical regulations are not more trade-restrictive than necessary, so the United States must take into account scientific and technical information .

In most cases it’s difficult to define “like products” in the WTO Agreement. “Likeness is determined on a case-by-case basis and the notion of likeness is not consistent throughout the WTO Agreement” (UNCTAD, 2003). The theory of “like product” has been studied in several WTO disputes pertaining to Article III of the GATT 1994, but it is not clear  to what degree the ruling of these cases could be applied to the concept of “like product” in the TBT Agreement. (UNCTAD, 2003) “Cases interpreting the meaning of “like product” within Article III should therefore be of particular relevance when interpreting this language in the TBT Agreement. WTO decisions examining Article III of the GATT 1994 have applied a four part test in which the following factors are examined: i. physical characteristics (the properties, nature and quality of a product); ii. HS classification; iii.consumers’tastes and habits (perception and behaviour); and iv.product end uses”

 

Despite of the common acceptance to the application of those above-mentioned factors in considering like products, there is no guarantee that two products could be categorized as like products until it is confirm by a dispute settlement panel of experts.

If no agreed solutions could be reached through the ongoing consultation, Indonesia still has an option to apply for the case to be reviewed by a panel through the Dispute Settlement Body of WTO which will decide whether the act is a case of violation of the principle of non-discrimination of WTO and violation of Agreement on Technical Barriers to Trade.

Article 14.4 of the TBT Agreement provides that the dispute settlement provisions can be invoked when a Member considers that another Member has not achieved satisfactory results under Articles 3, 4, 7, 8 and 9 of the TBT Agreement and its trade interests are significantly affected. This means that with respect to technical regulations, Members have an obligation, and are fully responsible for ensuring that local government bodies, non-government bodies, and international and regional systems, comply with the terms of the TBT Agreement. .

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In most cases WTO’s Member States will comply with the rulings and recommendations of the Dispute Settlement Body. If DSB finds the existence of  violation and the violating party refuses to comply with the ruling than the complainant party are permitted to take trade counter measures to balance the disputed technical barriers to trade.

“Dispute settlement begins when a WTO member makes a request for consultations with another member or other members…..a dispute-settlement panel may be requested if the dispute is not resolved within 60 days…..the dispute is considered and decided by an ad hoc dispute-settlement panel…..the panel's decision may be appealed and decided by a permanent Appellate Body….A Dispute Settlement Body (DSB), essentially the General Council of the WTO, oversees the process and exercises functions such as the establishment of panels, the formal adoption of panel and Appellate Body reports, the supervision of the implementation of rulings and recommendations….” (Schoenbaum, 1998)

Faced by the complexity of the Beef Hormones case between U.S. and EU, the Uruguay Round made significant change that impacted the ability of the dispute settlement system of the WTO to deal with the case. The Understanding on Rules and Procedures Governing the Settlement of Disputes (known as the Dispute Settlement Understanding, or DSU) no longer allows a single country to block a dispute ruling or request for a panel (Tim Josling, 2000).

Thus “The Dispute Settlement Understanding has offered a more predictable, and transparent process. The ‘rule-oriented’ approach in international economic affairs has considerable advantages over ‘negotiation’ or diplomacy’ approaches. ‘Rule-oriented’ dispute settlement procedures focus disputing parties’ attention on the rule, and “on predicting what an impartial tribunal is likely to conclude about application of a rule. This in turn will lead parties to pay closer attention to the rules of the treaty system, and hence can lead to greater certainty and predictability-essential in international affairs, particularly economic affairs…….” (Tim Josling, 2000)

The DSU Appellate procedures also make certain that unless the Appellate Body decision rejected by the Dispute Settlement Body, it will come into force as a subject of international law. A losing party will have no opportunity to block a panel decision. (Tim Josling, 2000)

The clove cigarettes dispute is comparable to the case of U.S. – E.U. Beef Hormone in which : “The US maintained that the EU ban on growth hormones lacked any scientific justification pursuant to the SPS rules; that the EU had failed to perform required risk assessments of the dangers posed by the hormones before implementing the ban; that the ban was meant to protect the EU cattle industry and was not really based on health dangers. The ban thus constituted a disguised restriction on international trade. The US cited inconsistencies in the EU’s ban in that the EU did allow the domestic production of meat that is treated with hormones for “therapeutic purposes”, meat that has higher endogenous levels of these hormones than the levels found in meat produced with the hormones for growth enhancement, and that the EU allows consumption of other products with higher hormone levels such as milk, butter and eggs. Another aspect of the dispute from the US point of view is that the blanket ban on hormones was undermined in the EU by illegal use of the growth hormones, resulting in ultimate consumption of meat products with the hormone”. (Tim Josling, 2000)

The US position on the issue of consumer resistance to hormone use was that consumer concerns should not play a significant role in allowing a country to impose a ban that restricts international trade if it is not scientifically justified. (Tim Josling, 2000)

“The Beef Hormone Panel’s report of August 18, 1997 found that the EU ban on imports of bovine meat and meat products treated with the six growth hormones violated SPS rules, and thus was not in compliance with the EU’s obligations under the SPS Agreement. The Panel held that the ban was not based on a risk assessment pursuant to Article 5.1, or on international standards in compliance with Article 3.1, and that the EU had not provided scientific evidence to support the ban pursuant to Article 3.3. Further, the Panel held that the EU ban was inconsistent with the level of sanitary protection adopted with regard to different substances which posed the same health risks to humans; the EU allowed hormones to be used in specific cases, such as for pig feed and for treatment of cattle by veterinarians. This differentiated treatment was a restriction on trade and violated Article 5.5 on equivalence”. (Tim Josling, 2000)

Whether there is going to be a reached solution to the dispute or Indonesia decides to request a panel through Dispute Settlement body (DSB) of WTO remain to be seen. If both sides would rely on the beef hormone case as a reference to the current dispute than there could be a potential speedy solution otherwise it will consume a long process and time, while  there could be a decision by the FDA Panel on the effects of Menthol cigs which eventually could invoke the ban on menthol.

Nevertheless, it is imperative for Indonesia to pursue the case through DSB. Leaving this dispute unresolved could sway other countries to impose the same restriction on clove cigarettes. By disputing this case and obtain a favorable decision, Indonesia could prevent other countries from banning its clove cigarettes, a product of a major industry in Indonesia. 

By utilizing the dispute settlement mechanism in WTO, Indonesia has a greater advantage to seek a fair solution which based on ‘rule-oriented’ compare if chooses to go through ‘negotiation’ with a larger economy such as the U.S. ‘Rule-oriented’ dispute settlement procedures would focus its attention on the rule, and from the experience of the Beef Hormone case, Indonesia has a greater chance of gaining instead of having it resolved in closed door negotiation.

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Bibliography :

1.G/TBT/W/323 (August 20, 2009).

2.Office of Applied Studies. (2009). Use of Menthol Cigarettes. Rockville: Substance Abuse and Mental Health Services Administration .

3.Schoenbaum, T. J. (1998). WTO Dispute Settlement: Praise and Suggestions for Reform. The International and Comparative Law Quarterly, Vol. 47, No. 3 (Jul., 1998) , 648.

4.Tim Josling, D. R. (2000). The Beef-Hormone Dispute and its Implications for Trade Policy.

5.U.S. Congress. (2009). PUBLIC LAW 111–31. U.S. Congress.

6.UNCTAD. (2003). Course on Dispute Settlement in International Trade, Investment. (pp. 3-4). New York and Geneva: UN.

7.Woellert, M. D. (2009, May 19). Retrieved from Bloomberg.com.

8.WTO : 2009 News Items. (2009, November 5). Retrieved from WTO: http://www.wto.org/english/news_e/news09_e/tbt_05nov09_e.htm