Free trade among nations is always to be encouraged, but there is good reason why the Trans-Pacific Partnership that President Obama has strived to keep out of the public eye has raised hackles among even the most ardent supporters.
Shrouded in secrecy even from members of Congress who have to trek to specially guarded rooms to read the text of the landmark legislation that will link together 40% of the world's economy, it seemingly has something to offend everyone.
Only recently intellectual- and property-rights advocates were scandalized to find protections previously afforded individuals abrogated in favor of multinational corporations. But it is the tobacco industry that remains the one global business that has been singularly targeted for retribution as trade negotiators carved out exceptions prohibiting cigarette makers from seeking redress in the courts from the actions of overreaching governments.
On neutral ground
Common to most trade agreements and included in the TPP are provisions known as Investor-State Dispute Settlements. An ISDS allows companies to petition international tribunals for relief from regulatory excess. They're inserted into treaties primarily to secure basic legal protections for a country's nationals who invest in foreign lands.
In 2013, the U.N. found there were 514 ISDS cases brought the year before, with fully 31% of them decided in favor of the investor
However, under TPP the tobacco industry is specifically barred from pursuing that avenue of due process. By doing so, governments believe they'll more easily be able to regulate cigarette makers without having to defend their actions. Because the industry has been so successful in beating back these regulatory attacks, governments want to eliminate one of the most effective weapons tobacco companies can wield: the rule of law.
The right to self-defense
Recently cigarette makers like Altria (NYSE:MO) and Reynolds American (NYSE:RAI) resurrected a lawsuit against the Food and Drug Administration for attempting to impose onerous packaging requirements on the industry. The agency introduced new rules saying that if a tobacco company changes so much as a color on a cigarette pack's logo, it is in effect creating a whole new product and needs prior approval before printing it
The 2009 Tobacco Control Act already limits the FDA's ability to interfere with the industry's marketing and packaging. The courts ruled the agency's attempt to force cigarette makers to print graphic anti-smoking images on their cigarette packs was an infringement of the cigarette makers' intellectual-property rights, and the tobacco companies contend the FDA's new rules are the same kind of violation.
Similarly, Philip Morris International (NYSE:PM) is suing Australia over its packaging laws adopted in 2012, requiring all cigarettes regardless of brand be sold in the same bland brown packaging with white lettering. It is able to sue Australia -- and previously Namibia, Togo, the U.K., and Uruguay -- -- because of the ISDS provisions in trade pacts between the various countries.
Now the governments are banding together through the TPP to prevent the industry from fighting back.
An unfair fight
As written, the trade treaty would give countries a virtually unfettered right to regulate tobacco as part of an effort to protect human health, and the companies would have no recourse. Tobacco is the only industry in the TPP precluded from using due process to protect itself.
And once given such authority, governments have indicated they would use it ruthlessly. The Obama administration promised to "be an aggressive advocate of making sure that public health authorities inside the United States have all the authority that they need to protect the health and well-being of the American people. And that's why those rules are written the way they are."
Naturally, the tobacco companies are opposed to this singularity, and Philip Morris issued a statement condemning those who "have traded away fairness and access to justice for all investors and instead embraced discrimination against a single sector."
A portent of things to come
The industry's pleas fall on few sympathetic ears, of course, and a number of politicians have publicly stated they view the selective enforcement as a benefit of the pact, not a flaw. It's clear that if the Trans-Pacific Partnership is adopted, the cigarette makers will find themselves bearing the brunt of the animus many hold against it. Graphic images, plain packaging, and draconian regulations are just some of the outcomes awaiting cigarette makers if the trade pact passes regardless of whether they trample on constitutionally protected rights or not.
Because the process was so secret, and the public once again has to wait for a law to pass before finding out what's in it, it may be that many more individuals and industries will be surprised to find that protections they too once thought were assured have instead been undermined and traded away by a treaty that seems less and less to be free or fair.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.