The Cigarette Century

by Allan Brandt

  Securing these new markets has not always been easy. The multinational companies met opposition from domestic tobacco growers and manufacturers as well as health ministries. Many countries, like China, had state-operated tobacco monopolies that were traditionally protected from competition by high tariffs or outright bans on imported cigarettes. Gaining access to these markets would require a cooperative effort. In 1981, the three largest producers of American cigarettes, Philip Morris, R.J. Reynolds, and Brown & Williamson, joined together to form the Cigarette Export Association (CEA), a not-for-profit trade association whose mission was “to improve the competitive position” of U.S.-made cigarettes in foreign markets. Section 301 of the Trade Act of 1974 directed American industries who believed their products were subject to illegal trade restrictions to bring their claims to the Office of the U.S. Trade Representative (USTR), and in 1985 the CEA began to petition the USTR to open restricted markets to American cigarettes.42

  According to Clayton Yeutter, who served as the U.S. trade representative from 1985 to 1989, the claim that bans on U.S. tobacco products were devised to protect public health was plain hypocrisy. In the countries with the highest trade barriers, Yeutter argued, governments were knee-deep in the production and sale of their own cigarettes. “I have no problem with Japan or Korea putting up genuine health restrictions,” explained Yeutter, “But that’s not what these governments were doing. They were restricting trade, and it was just blatant.” With U.S. annual trade deficits climbing steeply ($123 billion in 1984), the tobacco companies’ demands for help in opening markets received sympathetic attention in the Reagan White House. George Griffin, commercial counselor at the U.S. Embassy in Seoul, articulated the administration’s view in a letter to Matthew Winokur, the public affairs manager at Philip Morris Asia, in 1986:Dear Matt . . .

  I want to emphasize that the embassy and the various U.S. government agencies in Washington will keep the interests of Philip Morris and the other American cigarette manufacturers in the forefront of our daily concerns.43

  In the instance of cigarettes, however, it proved difficult to distinguish restraints on trade from the genuine assertion of public health interests. State-run cigarette monopolies actually had the effect of limiting consumption. Their cigarettes tended to be high in tar, but they were harsh to smoke and weakly advertised and promoted. With no competition, these industries were often inefficient, and cigarettes were often very expensive. If these monopolies were ended, it was well recognized that the ensuing competition for smokers would lead to an overall increase in consumption and ultimately in serious diseases. Although the International Monetary Fund and the World Bank generally advocated that state-owned monopolies be disbanded on economic grounds, these agencies did not evaluate how breaking up state tobacco monopolies might affect public health.44

  In 1985, advised by a committee of representatives from the Departments of State, Agriculture, Commerce, Labor, and the Treasury, Yeutter undertook tobacco trade initiatives against Japan, Taiwan, South Korea, and Thailand. No advisor from the Department of Health and Human Services was consulted. Tobacco company representatives were invited to the trade negotiations and brought several former Reagan administration officials to negotiate on their behalf: R.J. Reynolds hired former National Security Adviser Richard Allen; Philip Morris hired former White House aide Michael Deaver, who was later convicted of lying to Congress about his lobbying activities. The following year, Japan agreed to abandon its 26 percent tariff on American cigarettes—what one Japanese newspaper called a “blood offering”—in order to buy time on other trade issues. Taiwan and South Korea quickly followed suit, lowering their tariffs on imported cigarettes and easing other restrictions on the distribution of American tobacco products.

  Within two years, overall consumption of cigarettes had risen in these countries by more than 10 percent. Following Japan’s elimination of tariffs, its imports of cigarettes increased by a factor of three in 1987. The overall rise in consumption was especially dramatic among women. In 1986, about 8.6 percent of Japanese adult women smoked; by 1991, this figure stood at 18.2 percent. Cigarettes jumped from the fortieth most advertised product in Japan to the second. Seoul opened its market in 1988. American tobacco companies spent $25 million on advertising in South Korea in 1988 (up from zero in 1986) and within a year controlled 6 percent of the market.45 In Taiwan, two years after its tariffs were dropped, market share of American brands had gone from 1 percent to 20 percent. 46 Owen C. Smith, a Philip Morris executive and president of the CEA, remarked that “in international trade terms, it’s really very rare that the issues are so clear cut and blatant. . . . These countries were sitting with published laws which on their face discriminated against American products. It was an untenable situation. . . . These were, frankly, open and shut cases.”47

  According to one widely cited study, U.S. cigarette exports to the Asian nations climbed by more than 600 percent in the period following the opening to U.S. trade.48 Yeutter, who had been tapped to become the secretary of agriculture in 1989, expressed enthusiasm for the successes his office had achieved in opening these markets. He explained at a press conference in 1990: “I just saw the figures on tobacco exports here a few days ago and, my, have they turned out to be a marvelous success story.”49 After leaving government in 1991, Yeutter joined the Board of British American Tobacco.

  The success in accessing these new markets would have long-term health implications for these countries.50 As a result of the USTR’s efforts, it appeared that there would be little substantive resistance to the expansion of American tobacco into Asia. Dependence on U.S. trade offered these nations little opportunity to fashion effective health arguments. And that was precisely the way the tobacco industry hoped to frame the discussion: it was strictly a question of trade, not health.

  But while three of the four countries targeted by the USTR quickly lowered their tariffs, Thailand refused to succumb to U.S. demands. At the time, Thailand had a $2 billion trade surplus with the United States, generated by exports of textiles, electronics, processed food, and jewelry. The Thai health ministry denounced the American action as “tobacco colonization,” spurring protests by a growing group of antismoking activists. Within the Thai government, there was an intense internal dispute about how to respond to the U.S. trade intervention. While the ministry of finance, fearing trade sanctions, strongly supported opening the tobacco market, a coalition of antitobacco forces, citing the significant public health benefits, sought to maintain the import exclusions. A potent alliance between public health forces and the tobacco monopoly in Thailand pressured the government to resist the U.S. action. The Thai government ultimately held that trade restrictions were critical to its ongoing efforts to limit tobacco use.51

  By 1989, Carla Hills had succeeded Yeutter at the USTR, and she followed in his footsteps. Hills took up the tobacco companies’ claims against Thailand, arguing that the government’s import ban was merely intended to protect the state-run tobacco monopoly from competition. Rather than immediately invoke trade sanctions as the United States had threatened, Hills, apparently concerned that overly aggressive U.S. policies to open the Thai market might backfire elsewhere, opted to file a complaint to the General Agreement on Tariffs and Trade (GATT). It was the first time the GATT dispute resolution procedures had been invoked for tobacco products. Although the tobacco industry protested Hills’s decision, it turned out to be a shrewd defense of their interests.52

  Critics have contended that the GATT process is poorly suited to evaluating the relationships between trade practices and public health. GATT panels are typically made up of lawyers, economists, and judges with little experience in epidemiology or medicine. The burden of proof to demonstrate that prevailing restrictions on trade are “necessary” rests entirely on the country whose trade policies are under question. Thus, Thailand was required to demonstrate to the GATT panel that its tariffs were both “necessary” to achieve a critical public health goal and the �
�least restrictive” approach to attaining that goal. Further, if Thailand could satisfy these two requirements, there was a third: it must prove that the restriction would effectively meet the stated public health goal. This three-pronged standard, as interpreted by the panel, would prove nearly impossible to meet under any circumstances.53

  In the deliberations that followed, the Thai government claimed that its restrictions on tobacco imports were justified under Article XX(b) of the GATT, which allowed exceptions to open trade where national health and environmental concerns might be threatened. Thailand argued that its import restrictions supported the public health goals of reducing tobacco-related diseases. Further, the Thai government contended that chemicals and additives in U.S. cigarettes might make these products more dangerous than those manufactured domestically.54 At the dispute hearing, Thailand denied the U.S. contention that its goal was to protect its market for domestic tobacco. According to the ministry of finance, cigarette imports would actually add some 800 million baht ($30 million) per year to the economy. The government had opted to forgo these profits in favor of its larger public health agenda.55

  The United States argued that Thailand could pursue its public health goals without imposing a ban on imports and that the Thais had other motives for restricting trade. Citing data that domestic production and consumption of tobacco had risen despite their public health campaign, the United States contended that Article XX(b) was a fig leaf to protect the Thai tobacco monopoly. Opening the Thai market would merely shift some consumption to competitive imports. It would not cause an overall increase in the use of cigarettes; that was happening already. The United States rejected the notion that Thailand had no effective strategies for meeting its public health goals other than restrictive trade practices.56

  At the urging of the Thailand government, the GATT panel requested that WHO offer its assessment of the case in regard to public health. WHO expressed serious concerns about the impact of marketing Western cigarettes, their particular appeal to women and youth, and mistaken perceptions that these brands are safer than domestic cigarettes. Its representatives noted the substantial progress tobacco control groups had already made in Thailand, especially in legislation banning advertising and other forms of promotion. According to their presentation to the panel, these impressive, but poorly financed, public health interventions would be “unable to compete with the marketing budgets” of multinational tobacco companies. The result, they argued, would be an overall increase in consumption and ultimately in tobacco-related morbidity and mortality. The United States challenged the WHO presentation, questioning the representatives’ competence “to address the health consequences of opening the market for cigarettes,” and requested that the panel restrict the issues that WHO could address to the health effects of cigarettes.57

  Ultimately, the panel refused to accept the argument that competition between imported and domestic cigarettes would necessarily lead to an increase in the total sales. It ordered Thailand to open its market to foreign tobacco. The final report from the Dispute Resolution Body, issued in November 1990, explained:There were various measures consistent with the General Agreement which were reasonably available to Thailand to control the quality and quantity of cigarettes smoked which, taken together, could achieve the health policy goals that the Thai government pursues by restricting the importation of cigarettes inconsistently with Article XI:1. The Panel found therefore that Thailand’s practice of permitting the sale of domestic cigarettes while not permitting the importation of foreign cigarettes was an inconsistency with the General Agreement not “necessary” within the meaning of Article XX(b).58

  In other words, so long as the panel could imagine alternative approaches to tobacco control that would achieve the public health goals, trade restrictions under Article XX(b) were not permitted.

  But in a victory for the Thai government, the panel did rule that warning labels, nondiscriminatory bans on direct and indirect advertising, and bans on smoking in public places were all consistent with GATT. While acknowledging that tobacco posed an important risk to health, the panel concluded nonetheless that tobacco trade restrictions violated GATT. Although GATT rulings are not specifically considered to be precedent setting, the decision left little doubt that at least for the time being, cigarettes would be treated as a “conventional product.”59

  A number of legal observers have offered important critiques of this particular approach of GATT dispute resolution panels. Such a broad interpretation of necessary restrictions creates an unattainable standard and violates the national democratic processes and the authority of local constituents to legislate policies.60 “An international organization such as the World Trade Organization [WTO (which succeeded GATT in 1995)] should employ a deferential standard of review with respect to certain national decisions and policy choices,” wrote international trade law expert Thomas J. Schoenbaum. “If necessary were replaced with arbitrary or unjustified trade discrimination the outcome of the Thai dispute might have been radically different.”61 It was beyond the purview of the GATT panel, however, to assess whether less restrictive measures were “reasonably available” to Thailand under prevailing political and social conditions. And the very character of the GATT provisions made it virtually inconceivable that some alternative would not be theoretically available. As a result, the “necessary” requirement of GATT and subsequent trade agreements created an insurmountable condition for health-related trade restrictions.

  With this decision in hand, the U.S. government vigorously promoted the tobacco industry’s positions on the selling of cigarettes. It insisted, for example, that in seeking new markets, the companies were exclusively interested in getting existing smokers to switch to new brands, not recruiting new smokers. As the CEA explained, “U.S. companies simply want a level playing field on which to compete.”62 Opening markets to imported cigarettes would simply present existing smokers with new “choices.” This argument mirrored traditional industry justifications for advertising as merely encouraging smokers to switch brands. Nonetheless, as the WHO presentation in Geneva noted and as virtually any economist would predict, there was much evidence that countries forced to lower their trade barriers saw cigarette consumption rise dramatically.63

  The 1990 ruling illuminated a growing conflict between two powerful trends: the liberalization of trade and a rising international movement committed to the control of tobacco and the reduction of tobacco-related diseases. As a result of the GATT ruling and subsequent trade agreements in which tobacco is regarded as a “conventional good,” all restrictions on tobacco trade have become increasingly vulnerable. From this perspective, commerce in tobacco products was just as desirable as commerce in textiles, clothes, cars, or computers. Under the GATT ruling it was clear that developing nations could not bar their gates to tobacco. Opening restricted markets to foreign companies intensified competition, stimulated marketing and advertising, reduced prices, and spurred demand. The health toll would inevitably follow.

  The GATT ruling caused considerable anger among tobacco control advocates and helped to generate a grassroots Asian antismoking movement. According to Judith Mackay, director of the Asian Tobacco Consultancy, an advocacy group based in Hong Kong, the American trade actions “united people in Asia in outrage. And Thailand was the key.”64 Some observers compared U.S. policy to the opium wars of the nineteenth century. David Yen, a businessman who founded the John Tung Foundation, a non-profit antismoking group in Taiwan, noted, “America has given us so many good things over the years. . . . [W]e think it’s a pity that with so many wonderful products to sell, you have insisted on pushing disease instead.”65 The Thai government redoubled its antismoking efforts, expanding its existing ad ban, adding provisions restricting sales to youth, prohibiting free samples, and requiring the disclosure of ingredients and additives. Further legislation banned smoking in public places.66

  In the long run, the Thai case prompted new and innovative approaches to globa
l tobacco control and forced antitobacco advocates to take a clear position on the relationship of trade to public health. Without a new, multilateral approach to tobacco trade, it was clear that the WTO and other trade agreements would dramatically expand the marketing and consumption of tobacco, especially in nations where regulatory regimes had yet to be constructed. In the ongoing tobacco wars, the GATT decision marked a major victory for the tobacco industry, putting many new territories within easy reach of transnational corporations. As CEO James W. Johnston explained in R.J. Reynolds’s 1993 Annual Report, “Today, Reynolds has access to 90 percent of the world’s markets; a decade ago, only 40 percent. Opportunities have never been better.”67

  Health advocates in the United States and abroad, meanwhile, blasted the hypocrisy of the Reagan and Bush administrations for working to reduce cigarette consumption at home while opening new markets abroad. A succession of U.S. trade representatives held that they were required by law to act on any legally sound complaints that showed U.S. products to be impeded. At the same time, however, they sought to exclude the Department of Health and Human Services, and any other health interests in the government, from any involvement in making trade policy. In 1988, the Interagency Committee on Smoking and Health attempted to hold a meeting on tobacco trade policies. Surgeon General Koop invited representatives from the Departments of State, Commerce, and Agriculture. But after the White House and Congress objected, the meeting was called off. The USTR maintained that these were strictly questions of trade, not public health, and Koop’s committee had no authority in this realm.68 Meanwhile, the tobacco lobby secured the support of some twenty-eight senators who signed a letter urging the expansion of foreign cigarette trade.