Public Citizen Applauds Obama Administration’s Appeal of Trade Ruling Against U.S. Dolphin Protection Measures

Public Citizen commends the Obama administration for taking the necessary step of appealing today the harmful World Trade Organization (WTO) ruling against U.S. consumer and dolphin protection measures.

In September 2011, a WTO panel ruled that the U.S. dolphin-safe tuna labeling law violates WTO rules. The labels have been enormously successful in reducing dolphin deaths by tuna fishers – a major problem in the past, when tuna fleets set upon dolphins to catch tuna, since the two species associate with one another in the Eastern Pacific Ocean. The label allows consumers to “vote with their dollars” for dolphin-safe methods. Mexico successfully challenged the U.S. standard after decades of refusing to transition its fishing fleet to more dolphin-safe fishing methods.

The ruling’s implications are dire, especially in the context of a decades-long battle to save dolphins. This struggle has been beset by countless trade-related obstacles: 1991 and 1994 rulings under the WTO’s predecessor organization led to the U.S. eliminating the more potent import ban of dolphin-unsafe tuna, and environmentalists fighting successfully in U.S. court to block the Clinton and Bush administrations from also watering down the voluntary labeling policy. These groups narrowly blocked this executive branch effort, which U.S. courts deemed “Orwellian” and “a compelling portrait of political meddling.” The legitimacy of the WTO is likely to be further undermined if the WTO’s Appellate Body upholds the lower panel ruling. Consumer and environmental groups will see that the WTO allows anti-environmental forces a second (or third) bite at the apple, even when such forces fail in their U.S. legal and political efforts to undermine a domestic policy to which they object.

The Obama administration is considering expanding some of these anti-consumer and environmental rules in the first trade deal it is negotiating: the nine-nation Trans-Pacific Free Trade Agreement. The WTO ruling – and two others in 2011 against country-of-origin labels on meat and a ban on sweet cigarettes used to entice teens into smoking – show that a new approach to trade policy is needed, one that puts consumers, the environment and communities first.

NAFTA a way to restart Keystone Pipeline?

The Obama administration made a lot of us environmentalists happy with yesterday's decision to reject the Keystone XL pipeline.

Given that the Canadian government and corporations appear to be steaming mad about this, it's worth all of us reflecting on what their next move could be. A NAFTA case, for one, does not seem out of the question.

(If it seems far-fetched that Canadian entities might pursue these options, think of how much energy they've put into this pipeline. Compare this with how relatively little energy they've put into opposing U.S. financial regulations, yet in that case, they've already threatened to invoke NAFTA to derail the Dodd-Frank financial reform legislation.)

On what basis might a Canadian corporation, say, challenge the decision to reject the pipeline? The pending case against the Sultanate of Oman brought by U.S. investor Adel A Hamadi Al Tamimi under the US/Oman FTA is instructive. (That FTA is modeled on NAFTA.)

Mr. Al Tamimi is a UAE native, naturalized U.S. citizen and real estate developer in New England who invested in Oman through two UAE shell companies.  In 2006, his companies concluded ten-year lease agreements with the Oman Mining Company LLC (OMCO, a state-owned enterprise) related to a limestone quarrying/crushing operation.  OMCO committed to “use its best endeavors” to obtain “the necessary environmental and operating permits.”  In August 2007, OMCO told al Tamimi’s companies that the permits had been obtained, and that he was contractually required to commence operations,  which he did in September. Within weeks, officials from the Commerce and Environmental Ministries told al Tamimi that the final permits had not been obtained, and various stop-work orders were issued. 

As al Tamimi states, “OMCO now had to make a choice: it could fulfill its obligations under the Lease Agreements, which would mean disobeying or confronting the Environmental and Commerce Ministries, or it could use whatever leverage it had over the Companies and exert every effort to get them to suspend their operations until a solution could be found to the permitting issues. It chose the latter.”

By April 2008, al Tamimi had ceased operations.  Al Tamimi racked up various environmental fees, which he apparently did not pay.  In April 2009, OMCO told al Tamimi that he was in violation of environmental laws,  and in May 2009, he was arrested.  After being convicted of stealing and breaking environmental laws by a criminal court in November 2009, his conviction was overturned by an appeals court in June 2010.

Tying this back into the FTA rules... In 2011, al Tamimi launched an investor-state case under the Oman-U.S. FTA. He alleges that Oman expropriated his property rights by terminating the leases and bringing “the full force of the police power of the State to ensure cessation of all activities…”  He additionally claims that Oman undermined “his legitimate expectations” that he would be able to conduct quarrying operations and failed to provide “protection and security,” in violation of the U.S.-Oman FTA’s fair and equitable treatment (FET) standard.  He also says that other quarrying operations which he “believes to be owned and controlled by nationals of Oman” have been allowed to operate quarrying operations, in violation of the FTA’s national treatment obligations.

Similar arguments could be constructed in the Keystone case under NAFTA. TransCanada could point to a long string of overtures by the U.S. government that led it to develop "legitimate expectations" (as that is defined under trade law) that it would be able to build the pipeline, going from the private assurances in favor of the pipeline (recently revealed by FOIA documents to Friends of the Earth) and ending in the December 2011 payroll tax cut (which included Keystone-related provisions).

Those "expectations" could be then measured against what could be characterized under the FET standard as an arbitrary decision-making process, as when the Obama administration delayed the pipeline decision in November 2011 until after the presidential election.

TransCanada could point to some domestic pipeline operators that have not confronted similar hurdles as a basis for a National Treatment claim under NAFTA, while they could point to any lost expected future earnings as a basis for an "indirect expropriation" claim.

Stranger cases over much smaller sums of money have been launched before. There's been an outrageous string of cases against El Salvador over mining permitting issues. Over $350 million in compensation has already been paid out to corporations in a series of investor-state cases under NAFTA-style deals. This includes attacks on natural resource policies, environmental protection and health and safety measures, and more. In fact, of the over $12.5 billion in the 17 pending claims under NAFTA-style deals, all relate to environmental, public health and transportation policy – not traditional trade issues. For a full rundown of these NAFTA-style cases up until now, see this link.

If all of this seems like an outrage, it is. And what's worse is that the Obama administration is considering putting similar investor rules in a NAFTA-style deal with nine nations, called the Trans-Pacific FTA. Stay tuned for more on this!

COOL Ruling Not COOL

As we noted last week, the WTO has just issued a major ruling against U.S. country-of-origin labels (COOL) on meats. The decision confirms the direst predictions when the WTO was established, which questioned the wisdom of setting internationally binding rules against consumer protection.

The ruling and its six supporting annexes are hundreds of pages long, so going through all of them will take some time. Here are some additional items that we did not include in our longer analysis from Friday.

COOL is hearted by consumers

COOL is very popular, as the Obama team noted during the proceedings:

Numerous polls also indicate strong consumer support for mandatory country of origin labeling. Among the polls cited in various submissions received by USDA during the regulatory process are the following:

• 92 percent of respondents in a 2007 Consumers Union poll believed that imported foods should be labeled with their country of origin
• 88 percent of respondents in a 2007 Zogby poll indicated that they want all retail foods labeled with country of origin information
• 95 percent of respondents in 2007 Zogby poll indicated that they have a right to country of origin information for food
• 82 percent of respondents in a 2007 Food & Water Watch poll supported mandatory country of origin labeling
• 82 percent of respondents in a 2004 nationwide poll conducted for the National Farmers Union supported country of origin labeling
• 86 percent of respondents in a 2002 survey for Packer magazine supported country of origin labeling

However, the panel didn’t explicitly mention these polls. Throughout much of the proceedings, it was treated as an open question whether consumers actually wanted COOL.

Democracy is impermissibly uncertain; hortatory is the new mandatory

This WTO decision is the most recent of three cases with deeply troubling implications for consumers. In September, the WTO also ruled against U.S. efforts to reduce teenage smoking and dolphin mortalities. In the dolphin case, the purely voluntary dolphin-safe labeling scheme was deemed “mandatory,” despite the fact that tuna not having the label was and is sold in the U.S. After that ruling, we joked that “voluntary is the new mandatory.”

But this COOL ruling takes this joke to sad new levels, so that “hortatory is the new mandatory.”

Here’s why.

What Big Bird Could Teach the WTO

When I was a kid, a particular Big Bird sketch on Sesame Street made a strong impression on me: "One of these things is not like the other":

It turns out that Big Bird could teach the WTO a thing or two.

As we wrote earlier this week, and have been discussing over at the IELP blog, the WTO ruled against a rare public health victory: namely, the Family Smoking Prevention and Tobacco Control Act of 2009 (FSPTCA).

This legislation included a number of provisions, but one that attracted a lot of attention was its ban on flavored cigarettes that often serve as starter cigarettes for teenagers because of their sweet taste. The ban included candy, cola and clove flavored cigarettes, but did not include menthol flavored cigarettes in its initial ban.

You or I can disagree with the reasoning, but there was a reason for that particular design: while some kids smoke menthols, so do large numbers of adults, specifically in the African American adult community. As the Obama administration documented in its submissions in the case (quoted at length below in language that would make University of Chicago, Cass Sunstein and the Freakonomics crowd blush), immediately withdrawing menthol from the market would increase hospital visits, and overnight create a massive black market for the cigarettes.

(And not that the administration argued this in its legal case, but can you imagine the political blowback of banning a product (menthol cigarettes) that is predominantly smoked by blacks, that will increase crime and smuggling in predominantly African American neighborhoods (many of which are already struggling), while leaving untouched regular tobacco products that are more often smoked by whites, whose neighborhoods are often less crime-ridden? This would be a pretty harsh blow to race relations in the U.S., and undermine support for public health regulation period.)

By my read, the architects of the FSPTCA had some pretty sound logic for their incremental approach, which contemplated restrictions on menthol in the future, after the efficacy of the teenage-targeted measures could be tested.

Returning to the clip above, as Big Bird shows us, one of the bowls of birdseed is substantially larger than the other three. The WTO panel did not study up on their Sesame Street when ruling against the FSPTCA. In the ruling, the panel decided that menthol and clove were "like products," and that (because Indonesia exported the latter to the U.S.) a ban on the latter was "discriminatory" within the WTO's Agreement on Technical Barriers to Trade (TBT).

While menthol and clove are both "flavored cigarettes," so are cola- and candy-flavored cigarettes. The U.S. argued, plausibly in my mind and to paraphrase Big Bird, that "one of these things is not like the other." Specifically, menthol. Why? Significant numbers of adults smoke them, particularly in the African American adult community. For that reason, it poses significant adverse effect risks that the others did not.

Cloves and candy flavored cigarettes, however, are not only flavored, but they are trainer cigarettes that appeal to teenagers in significant numbers, but not to adults in significant numbers.

U.S. measures to reduce teenage smoking deemed WTO violation

U.S. measures to reduce teenage smoking violate World Trade Organization (WTO) rules, according to a panel ruling released late last week. Indonesia successfully argued that the U.S. Family Smoking Prevention and Tobacco Control Act (FSPTCA) of 2009 violated WTO rules. The ruling opens the door to more teenage tobacco addiction, while further imperiling the legitimacy of a WTO that rules against environmental, health and other national policies 90 percent of the time.

The FSPTCA took a series of unprecedented and bold measures to combat teenage smoking, including the banning of many forms of flavored cigarettes. There is substantial evidence that tobacco companies produce and market these cigarettes as "starter" or "trainer" cigarettes in order to hook teenagers into a lifetime of nicotine addiction.

However, as the U.S. noted in its defense in the WTO case, the U.S. did not ban all types of cigarettes. In particular, regular tobacco and menthol cigarettes were excluded from the ban. The justification for these exclusions was that, unlike candy flavored or clove cigarettes, large numbers of adults are also hooked on regular and menthol cigarettes. To abruptly pull these products out of the market could cause a strain on the U.S. healthcare system (as lifetime addicts would instantly seek medical treatment for wrenching withdrawal symptoms) and might lead to a rise in illicit black market sales and associated crime. Nonetheless, various studies were ordered on the feasibility of banning menthol cigarettes in the future.

The FSPTCA banned candy and clove cigarettes regardless of where they were produced or who produced them. But Indonesia successfully argued that, since its exporters are the primary providers of clove cigarettes to the U.S. market, the FSPTCA constituted de facto discrimination, in violation of WTO rules under the Agreement on Technical Barriers to Trade (TBT). The WTO panel accepted this argument, despite the fact that the FSPTCA was totally non-discriminatory and many U.S. cigarette makers (such as those that make cola-flavored cigarettes) were also blocked from making these harmful products.

This severe blow to consumer protection comes on the heels of two other WTO rulings against America's dolphin-safe tuna and beef country-of-origin labels, and are likely to put a significant damper on the Obama administration's efforts to pass trade deals with South Korea, Colombia and Panama that contain similar anti-consumer rules.

More on the details of the case after the jump.