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>

At the meeting on April 24, 2012 the DSB adopted the panel and appellate body reports on US measures affecting the sale of clove cigarettes (DS406).  For more information please visit the WTO website