Delegates attending trans-Pacific free-trade negotiations in the United States are being warned their countries could end up like Australia if they agree to allow corporations to sue governments in international courts.

Australia is fending off a challenge to its plain cigarette packets legislation from Philip Morris International under the terms of an obscure Hong Kong investment treaty even though Philip Morris has lost its case against Australia in the High Court.

“The Philip Morris company’s persistence with the investor state dispute settlement case shows such procedures are a threat to democratically enacted legislation and national judicial decisions,” Australia’s Patricia Ranald told stakeholders forum at the negotiations in Leesburg, Virginia.

The United States is insisting on so-called investor state dispute settlement (SDS) provisions in the Trans Pacific Partnership even though it does not have them in its existing free-trade agreement with Australia and even though Australia has said it will not sign a deal that includes them.

The Trans Pacific Partnership will encompass Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, many of whom already have in their agreements with the United States clauses that allow corporations to sue governments in supra-national forums.

Philip Morris International moved the head office of its Australian subsidiary to Hong Kong shortly before it launched action against Australia under the terms of Hong Kong treaty in what Dr Ranald said was jurisdiction shopping.

“Philip Morris International described itself as a US-based company when it made a submission in 2010 to the US trade representative supporting an investor state dispute settlement process in the trans-Pacific partnership.”

“However, it claimed to be a Swiss-based company when it used an investor state dispute settlement process to sue the Uruguayan government for damages under a Uruguay-Swiss investment agreement when Uruguay introduced legislation restricting tobacco advertising.

“Philip Morris can also claim to be a Hong Kong company because Philip Morris Asia, incorporated in Hong Kong, invested in Australia by becoming the sole shareholder of Philip Morris (Australia) after the Australian government announcement of its intention to legislate for plain packaging of tobacco.”

Speaking as convener of the Australian Fair Trade and Investment Network the Sydney University academic told the forum Australia’s problems showed none of the eleven nations negotiating the treaty should agree to provisions that would allow corporations to sue them extra-nationally.

Sean Donnelly from the US Council for International Business told the forum investor state dispute settlements procedures did no more than give international investors access to the rule of law.

He said business would like more protections, but believed what the US was proposing struct the right balance.

The 14^th round of TPP negotiations started on the 6^th and will continue through the 15^th in Leesburg, VA. The negotiations are closed-door and the draft text is kept secret, largely even from members of Congress. ASH has helped form a loose coalition of experts and advocates from the nine negotiating countries which has talked to negotiators over the past 14 months to press for the unique treatment of tobacco in the TPP.

Linda Menghetti, an expert on investment issues who formerly served as vice president of the Emergency Committee for American Trade, left that position at the end of August and has moved over to the National Association of Manufacturers (NAM), where she is taking the position vacated by Frank Vargo, sources said.

Vargo retired last June after serving for years as NAM’s vice president for international affairs. In her new role, Menghetti will likely have a hand in hiring a replacement for Steve Jacobs, who left his job as senior director for international business policy at NAM earlier this year in order to work for Philip Morris International.

Philip Morris is vehemently opposing U.S. efforts to craft tobacco-specific provisions in a TPP deal, and is working with other business groups and members of Congress to gin up opposition.

In another big move, the biotechnology company known as Amgen this summer hired Paul Neureiter to serve as executive director for international government affairs. Neureiter previously served as senior director for international trade at Pfizer Inc., and before that covered trade-related insurance issues for The ACE Group.

Amgen is pushing hard to convince the Obama administration to demand stringent intellectual property protections for biologic drugs in the TPP talks. At Amgen, Neureiter now works alongside Catherine Robinson, who joined the international corporate affairs team at Amgen last year after covering high-tech trade issues at NAM for years.

In his previous role at Pfizer, Neureiter worked with Doug Goudie, who served as NAM’s director of international trade policy for five years before joining Pfizer last January as its director of international government affairs.

Kathryn Dickey Karol is joining Caterpillar Inc. next week in the newly created position of vice president with responsibility for global government and corporate affairs. Karol previously served as vice president of global government and corporate affairs for Amgen, a position she had held since 2006.

Prior to her work at Amgen, Karol served as executive director of government affairs for Eli Lilly & Company, according to a Caterpillar press release.

Rounding out the job swaps, the Center for Strategic and International Studies (CSIS) announced on Aug. 28 that Scott Miller, the former director of global trade policy at Procter & Gamble, has joined CSIS as the new William M. Scholl Chair in International Business.

Miller takes the place of Meredith Broadbent, who has been appointed to the International Trade Commission.

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You may recall earlier this year when the U.S. lost a legal appeal over its ban on candy flavorings for cigarettes, flavorings clearly meant to attract children to start smoking. The plaintiff in that case was the nation of Indonesia, which exports a lot of clove-flavored “bidis” to the U.S. The court was an international trade tribunal formed by the World Trade Organization. Under WTO rules, a country may drag another country to court over any laws that it feels violate trade rules. The decisions are binding, and the trade tribunals’ final decisions cannot be overruled, even by the U.S. Supreme Court.

ISDS creates a similar right to sue over any law that impacts trade, except that it allows any corporation to sue a country in an international trade tribunal. In the example above, the Indonesian tobacco industry would not have needed to convince the government to sue on its behalf. It could do so on its own. And the suits need not be against federal laws. They could go after state and local tobacco laws and regulations as well.

The reason this is particularly problematic for tobacco is that the tobacco industry has publicly stated that its strategy is to sue even when they don’t have a good case, just to impose an economic punishment on governments who try to reduce smoking. Trade cases cost millions of dollars each, win or lose. The federal government may be able to afford a vigorous defense, but states, counties and cities already facing historic deficits are a different story. Industry’s goal is to “chill” governments from passing tobacco control laws in the first place, just to avoid costly court cases.

For a real life example of what ISDS can mean in the face of a cynical, rich industry, read about Australia’s experience>

Philip Morris Australia, now known as Philip Morris Asia, will argue the treaty prevents Australia from depriving a Hong Kong entity of its investments or subjecting it to ”measures having effect equivalent to such deprivation”. Which it does, with a caveat. As a party to the treaty, Australia is permitted to deprive a Hong Kong company of its investments so long as it does so ”under due process of law for a public purpose related to the internal needs of that party on a non-discriminatory basis”. So Australia ought to be in the clear.

But the almost comic attempt to get mileage out of the treaty (moving from Australia to Hong Kong in order to complain that it was being discriminated against because it was from Hong Kong) masks a broader, more serious attempt to turn trade treaties into instruments that allow corporations to sue governments.

The World Trade Organisation allows no such thing. Its disputes settlement procedure allows a nation to haul another nation before a disputes settlements panel, but not corporations to do so.

That could be why on Friday it will be Ukraine that will ask the WTO to set up a panel to hear its plain-packaging dispute with Australia rather than a tobacco company. There’s a suspicion that Ukraine is acting on behalf of a tobacco company, perhaps fuelled by its ranking on the Transparency International Corruption Perceptions Index (at the corrupt end of the scale, sandwiched between Russia and Zimbabwe) and by the fact that it has next to no tobacco trade with Australia.

The dispute will take four months to hear. With appeals, it could take up to 14 months. But it won’t unduly trouble Australia. A member of the WTO rather than a corporation will be taking action, it will have to show clearly how Australia’s plain packs law offends against WTO rules (which allow non-discriminatory measures that benefit health) and because Ukraine’s national interests are not at stake it is likely to run out of enthusiasm before Australia does.

Big Tobacco, and fellow travellers in surprising places, want much more. They want what is known as an Investor State Dispute Settlement Mechanism. They want it in order to allow them to drag Australia and other sovereign governments before specially constituted international courts.

They don’t usually put it that bluntly. Here’s how Philip Morris International put it in a briefing note for the US trade representative negotiating the so-called Trans-Pacific Partnership with 11 nations including Australia: ”Philip Morris International considers the availability of an investor-state dispute settlement mechanism – including the right for investors to submit disputes to independent international tribunals – a vital aspect of protecting its foreign investments.”

It is clear what Philip Morris is getting at. Four of the 30 paragraphs in the briefing note seen by BusinessDay complain about Australia’s plain-packaging law. As it happens, the US trade representative is unable to do the bidding of Philip Morris. US law prevents federal agencies from promoting the sale of tobacco overseas. But the trade representative is willing to do the bidding of other corporations that would like to sue foreign governments in supranational courts.

In fact in all but one of the 13 free trade agreements negotiated by the US, its representatives have managed to insert such a clause. The exception is the free trade agreement with Australia. Although criticised at the time for giving too much away to the United States in return for very little, on the question of an outside Investor State Dispute Settlement Mechanism the Howard government stood firm.

The Gillard government is standing firm, too. The multinational nature of large Australian corporations means it would effectively be giving them (but not our citizens) an international right of appeal against laws approved by the High Court.

The US is unlikely to give up. It already has such a clause in its agreements with Canada, Chile, Mexico, Singapore and Peru – five of the nations that would form part of the Trans-Pacific Partnership.

Its best hope would be that a new Abbott government saw things differently. It would, if it succumbed to lobbying from Australia’s own Chamber of Commerce and Industry. ACCI is lobbying hard, putting out a statement this month headed crudely: ”Australian Foreign Investment Requires Right to Sue Foreign Governments”.

It says its ”campaign” is backed by the International Chamber of Commerce, which is hardly surprising but also hardly a sign the backers have Australia’s interests at heart.

Julia Gillard and Trade Minister Craig Emerson are standing up to them. Will Tony Abbott?

By Peter Martin

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Read the Vermont Letter

For analysis of the trade threats to tobacco control, click here >

The next negotiating round of the Trans- Pacific Partnership will take place in Leesburg, Virginia from September 6-15, 2012. USTR will be hosting a Direct Stakeholder Engagement event on Sunday, September 9, 2012. ASH urges the United States Trade Representative to submit its draft tobacco exception when negotiators meet in Leesburg Virginia to discuss the TPP, a giant free trade agreement among 11 countries.  USTR announced the exception in May, but two negotiating rounds have now come and gone and our negotiation partners have yet to see it.

For additional information visit USTR >

The World Trade Organisation has revealed that within hours of the government’s victory in the High Court, Ukraine upgraded to formal a complaint against Australia’s law and demanded the establishment of a disputes panel.

Australia will have to argue its case before the WTO in a hearing and appeals process that could take up to 14 months.

“It’s a remarkable coincidence,” the Trade Minister, Craig Emerson, said. “Ukraine was engaged in informal talks with us up until the High Court win, and then went formal.”

Asked if he thought the big tobacco companies were behind Ukraine’s decision, Dr Emerson said that he was “not aware of tobacco being a big industry in Ukraine, so one would wonder why it would have a big interest in this”.

Ukraine, once a substantial tobacco grower, now imports tobacco to manufacture cigarettes for export, mainly to Europe.

An adverse finding would put Australia in breach of WTO rules requiring compensation or a backdown.

A recent finding on quarantine rules led to this country opening its market to apples from New Zealand for the first time in 89 years.

“Members usually abide by the umpire’s decision,” Dr Emerson told the Herald, “but we do not expect to lose. The WTO rules allow us to regulate for health.”

The hearing will not prevent Australia withdrawing branded cigarette packets from sale on December 1 as planned and allowing only the sale of cigarettes in plain olive-green packets until the dispute is resolved.

The government is battling big tobacco on a second front in negotiations on the Trans-Pacific Partnership agreement (TPP) encompassing Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

At the behest of tobacco companies, including Philip Morris International, the US is demanding that the agreement includes a so-called investor state dispute settlement mechanism, which would allow firms such as Philip Morris to appeal to an outside body about sovereign decisions it did not like. The provision goes further than anything in the existing Australia-United States Free Trade Agreement.

”This is being pushed by US representatives. Australia is saying ‘no’,” Dr Emerson said.

Labor and the Coalition combined in the Senate on Thursday to vote down a Greens resolution that would have required Australia to make public its negotiating position in the TPP.

”The negotiations are being conducted in secret,” the Greens spokesman on trade, Peter Whish-Wilson, said. “While draft texts of the agreement were provided to AT&T, Verizon, Cisco, the Motion Picture Association and other industry lobbyists, advocacy organisations and other citizens are denied access.”

Dr Emerson said there was no point in publishing draft negotiating positions because they “shifted around”.

By Peter Martin

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