Thursday, September 08, 2011

World Trade Organization Rules U.S. Cigarette Flavoring Ban Discriminatory; Finds U.S. in Violation of Trade Agreements

The World Trade Organization (WTO) has found that the Family Smoking Prevention and Tobacco Control Act's prohibition of flavored cigarettes with an exemption for menthol violates international trade agreements because it arbitrarily (without a health basis) discriminates against imported cigarettes. In particular, the WTO found that the ban on clove cigarettes ("kreteks") unfairly discriminates against imported flavored cigarettes (largely from Indonesia, which filed the complaint) while allowing domestic flavored cigarettes (menthol cigarettes) to remain on the market.

According to an article in the Jakarta Globe: "The Indonesian government has welcomed the World Trade Organization’s ruling against a US ban on the importation of clove cigarettes, calling for shipments to resume. The global trade body ruled on Friday that the United States was imposing discriminatory trade rules in banning the sale of kretek — Indonesian clove cigarettes. Gusmardi Bustami, the director general of international trade at Indonesia’s Trade Ministry, said on Sunday that the ruling made it clear that the US had engaged in trade discrimination. “With this ruling, the US must admit that they were wrong for their discriminatory trade rules. I don’t see any reasons why we can’t resume selling kretek cigarettes to the US,” Gusmardi said."

"The US Food and Drug Administration in September 2009 banned cigarettes with fruit, confectionery or clove flavors, arguing they encouraged young people to smoke. That resulted in a ban of imports of kretek the following year. But menthol cigarettes were not banned, and the Indonesian government said the US was protecting domestic sales of menthol cigarettes and that it intended to keep kretek out of the market. “Our study concludes that clove and menthol are equally harmful to health, therefore, the ban was discriminatory,” Gusmardi said. In its ruling, the WTO panel found that clove and menthol-flavored cigarettes are “like products.” Gusmardi said that kretek is used by fewer than 1 percent of young smokers and accounts for less than 1 percent of total cigarette sales in the US. Meanwhile, menthol was consumed by 43 percent of young smokers and made up almost 25 percent of total cigarettes sold in the country."

The World Trade Organization has asked the U.S. to revise its law so that it comports with international trade policy. If the U.S. does not wish to comply, it still has 60 days to appeal the ruling.

While clove cigarettes are produced almost entirely outside the U.S., essentially all menthol cigarettes are produced domestically.

The Rest of the Story

This ruling confirms my judgment, expressed in a July 22, 2010 post, that the Tobacco Act's flavored cigarette ban violates international trade policy by arbitrarily (without a health basis) treating like products differently -- favoring domestic cigarettes over imported ones. As I wrote at that time: "the Family Smoking Prevention and Tobacco Control Act's ban on flavored cigarettes - including clove cigarettes - but with an exemption for menthol cigarettes does appear to violate international trade agreements. Specifically, it appears to violate Articles 2.1 and 2.2 of the Technical Barriers to Trade Agreement, Article 3.4 of the General Agreement on Tariffs and Trade, and Articles 5.4 and 5.5 of the Agreement on the Application of Sanitary and Phytosanitary Measures."

I summarized the basis for my opinion as follows: "As I have argued extensively, there is no public health or scientific justification for the menthol exemption. It was clearly a political compromise that served purely political purposes. In fact, a number of health groups and policy makers have readily acknowledged that the menthol exemption was inserted for political reasons. I have yet to hear any credible scientific or public health justification for such an exemption (which is perhaps the reason why the U.S. has failed to provide any justification to Indonesia)."

The WTO decision follows the reasoning that I outlined. Clove cigarettes and menthol cigarettes are "like products." They are both flavored cigarettes. However, there is no public health justification for banning clove cigarettes while exempting menthol cigarettes. Since clove cigarettes are almost exclusively imported and menthol cigarettes are almost exclusively produced domestically, the policy represents discrimination which maximizes trade effects.

This ruling exposes the hypocrisy of the national anti-smoking groups and politicians who crafted the Tobacco Act. It also exposes the fact that the Tobacco Act is largely a political show-piece, designed to make it look like anti-smoking groups and politicians are taking on Big Tobacco, when in fact they are protecting the domestic cigarette market.

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