Why Cigarette Ads Affect the Trans-Pacific Partnership (TPP)

When Australia mandated plain brown cigarette packs that were blanketed with health warnings, Phillip Morris International (PMI) sued. The firm says the issue is intellectual property. The country believes it has the authority to promote anti-smoking. So they wound up at an international tribunal in Singapore.

It is easy to see why PMI opposes using this (below) packaging in Australia:

From: The West Australian via Yahoo News

Where are we going? To the Trans-Pacific Partnership.

The Case

ISDS (Investor-State Dispute Settlement) is at the heart of all of this. Included in approximately 3,000 international agreements, ISDS allows multinationals (MNCs) to sue governments. The process starts when the firm initiates a suit. With the firm selecting one arbitrator, the country the other, the two appointees then choose a chair. After the three decide the case, the tribunal dissolves.

Protecting firms from nations that act arbitrarily, the process enables businesses to initiate an arbitration process through an international judiciary. In one of many ISDS resolutions, a bottling MNC won $455 million from Venezuela for seizing its property.

Now PMI is claiming that Australia seized its property. Here though it was a brand. Using the language of a bilateral pact between Australia and Hong Kong, a Singapore tribunal will decide during the next several months.

The Trans-Pacific Partnership

TPP includes ISDS to encourage the free flow of investment. Perhaps predictably, Australia said it won’t abide by that part of the deal. Others like New Zealand have noted exceptions. In the U.S., the right and left ends of the political spectrum oppose ISDS. Both say the government has the power to regulate but for different reasons. The former wants to see (what it considers) beneficial legislation preserved while the latter is defending U.S. sovereignty.

So yes, ISDS is controversial. But it is just one chapter among 30 in a somewhat undecipherable 27,000 plus page TPP document with multiple annexes.

Where does that leave us? With supporting free trade, comparative advantage and David Ricardo.

Our Bottom Line: David Ricardo

The economist who supported free trade with his explanation of comparative advantage, David Ricardo (1772-1823) said each nation should make whatever involves the lower opportunity cost. Because we are all doing what we do best, productivity is optimized through specialization and trade. Paying less, consumers have more money to allocate elsewhere.