Trade treaties, alcohol and public health
by Jim Grieshaber-Otto and David Jernigan

There was a time when it was not necessary to pay much attention to trade treaties.

They were important, of course – dealing with disputes over border controls for alcohol, alcohol taxes, price mark-ups – all issues that are likely to affect alcohol consumption and hence public health. Many of the disputes involving alcohol that arose under the General Agreement on Tariffs and Trade (GATT) during the 1980s and early 90s had important ramifications for alcohol. However, to most people involved in alcohol policy, trade policy and disputes seemed arcane, complicated, and largely irrelevant.

But those days are gone

New generations of 'trade' treaties, including the World Trade Organization (WTO), contain rules that extend far beyond trade and reach to the very heart of domestic governmental authority. These so-called 'free trade' rules are sweeping in scope and fundamentally at odds with health-based alcohol control. New, broader rules on services are now being negotiated in Geneva – even prior to WTO meetings planned for November 2001 in Qatar. These critical negotiations, essentially unknown to the public, could undermine the ability of governments around the world to manage alcohol markets in the interest of public health.

The time has come for public health advocates to make sense of the seemingly incomprehensible 'alphabet soup' of treaty acronyms, and to demand greater public involvement in negotiations that are already well underway.

What do the latest international trade treaties have to do with efforts to minimize alcohol-related harm? Plenty. As we shall see, the two are frequently in conflict.

Recent impacts on alcohol regulation

International treaties have already impaired government efforts to control alcohol availability and alcohol-related harm.

Taxes

One of the most common and effective ways to prevent alcohol-related problems is to tax alcoholic beverages so that they become more expensive and hence less accessible. Under the very broad 'national treatment' provisions of many trade treaties, governments are prevented from taxing alcohol or anything else in ways that even unintentionally or incidentally protect domestic production from foreign competition.

For example, governments that seek to discourage citizens from developing a taste for new, foreign alcohol products having a higher alcohol content than local products may run afoul of national treatment rules. In 1999, a WTO panel ruled that Chile could not tax foreign spirits with a high alcohol content at a higher rate than low alcohol pisco, a Chilean liquor.

The United States and Europe have long used GATT national treatment rules to challenge Canadian alcohol pricing and taxation policies. A GATT ruling pressured the Ontario government's retail alcohol monopoly to lower its prices for alcohol because its minimum pricing requirements were judged to discriminate against lower-priced US products. In Europe, European trade agreements have been used to challenge the levels of Norwegian taxes on wine and Danish excise duties on spirits. In Asia, WTO panels have struck down differential taxes on imported alcoholic products in Japan and the Republic of Korea.

Physical availability

Governments can also reduce the accessibility of alcohol by maintaining state monopolies, and by regulating the amount and the manner in which alcohol is sold. Here too, treaty rules prevent monopolies from treating domestic products and producers more favourably than their foreign counterparts.

In Canada, for example, provincial alcohol monopolies were required to provide greater marketing exposure for foreign products. A similar ruling affecting state alcohol control systems in the US has not yet been implemented. In Finland, the national alcohol monopoly was weakened after Finland applied to join the European Union and became subject to the European Free Trade Agreement in 1994.

Advertising

Controlling or restricting advertising is another way for governments to prevent harm caused by alcohol. But the European Court of Justice recently ruled that Sweden's law limiting alcohol advertising, passed in 1979, was an obstacle to the free flow of goods and services and that it affected foreign alcohol products more adversely than more familiar domestic products. Sweden's domestic court is now set to rule on whether the measure is "proportionate" to its purpose, according to EC treaty law, and not a disguised barrier to European trade. However, even if the result ultimately is favourable to public health, Sweden, like other countries, remains exposed to other, more serious challenges to alcohol advertising restrictions in the future under WTO rules.

The crux of the matter:
underlying incompatibility

There is an underlying incompatibility between efforts to minimize alcohol-related harm and the latest generation of international treaties that promote the freer flow of goods, services and investments.

International trade treaties are designed to foster lower prices, greater competition, more vigorous marketing and greater economic efficiency, leading, according to standard economic theory, to increased production and consumption of the product in question, in this case, alcohol. The treaties are likely to be increasingly successful at boosting consumption, particularly in emerging markets.

Under their provisions, alcohol becomes cheaper as taxes are lowered, more accessible as market restrictions are eliminated, and more desirable to consumers as alcohol products are advertised and otherwise promoted. But of course, from a societal perspective, increasing consumption of alcohol is likely to lead to more public health problems.

Much has been made of the fact that the WTO and other agreements allow for exceptions for public health. However, these are very limited in scope and are interpreted narrowly. In fact, only once in the 50-year history of the GATT and the WTO has any member country used treaty exemptions successfully to protect a public health law (i.e. the still being contested French ban on asbestos). New generations of trade agreements are designed to place ever-greater restrictions on government actions. Each round of negotiations for new or expanded international treaties has made it more difficult for member countries to maintain control over their domestic alcohol policies.

In North America, the Canada-U.S. Free Trade Agreement was enlarged and expanded in the form of the North America Free Trade Agreement (NAFTA). NAFTA in turn served as the model for the Multilateral Agreement on Investment (MAI), which failed in part because of intense public opposition to its extensive reach. NAFTA provisions also serve as the basis for the broad, 34-country Free Trade Area of the Americas agreement (FTAA) now under negotiation.

"Services": the next frontier

The WTO represents a major departure from its predecessor the General Agreement on Tariffs and Trade (GATT) (see box, page 8), which applied only to government measures (usually taken at national borders) affecting trade in goods. The WTO contains a legally binding dispute resolution process. It also includes the first multilateral agreement on services. The General Agreement on Trade in Services (or GATS) remains little known and poorly understood by the general public.

Why is the GATS important? It is very broad. It explicitly includes regional and local governments and delegated non-governmental organizations, and deliberately affects within-the-border regulatory activities of governments. Moreover, it applies not just to discriminatory but also to non-discriminatory domestic regulation - that is, government measures can violate the agreement even when they are applied equally to foreign and domestic service suppliers.

GATS provisions also overlap with, and can take precedence over, other treaties dealing with 'goods'. The WTO's binding dispute settlement process means that countries maintaining GATS-inconsistent measures must bring those laws into conformity or face punishing trade sanctions. Like other WTO agreements, GATS exceptions and exclusions are narrow, will likely be interpreted restrictively, and are very unlikely to shield alcohol-related public health measures from the force of the treaty.

While some of most restrictive provisions of the GATS apply only to measures listed by members, the treaty also contains an obligation for repeated re-negotiations to broaden and deepen its application. Negotiations to expand the GATS are now well underway and will continue even if WTO members fail, as they did in Seattle in 1999, to launch a new round of WTO negotiations in Doha, Qatar this November.

Potential Impact of the GATS

The GATS stands in stark contrast to many other international treaties. Its potential impact on public health is also significant. The GATS and the current re-negotiation of the treaty could have a major impact on alcohol policy worldwide in the following areas.

Alcohol monopolies The GATS monopolies provisions add new and significant constraints on the public health and other activities of alcohol monopolies. The treaty requires that public alcohol monopolies be bound by specific GATS commitments made by their governments. Members' commitments on 'distribution services', which would normally include alcohol, are likely to be particularly important in re-negotiations.

Despite the fact that the Nordic countries have exempted alcohol from their commitments in distribution services, the European Community (EC) has not. In December 2000 the EC proposed that all GATS members eliminate "trade barriers" in distribution services with exceptions for only a "very limited number of extremely sensitive products". The powers of existing alcohol monopolies – including those in the Nordic countries which were resolutely defended during the European integration process – will unquestionably face new, intense pressures during the current round of GATS re-negotiations.

Advertising National prohibitions or restrictions on alcohol advertising appear to be contrary to GATS rules on national treatment and market access. This could prove especially important in the Nordic countries, particularly since these countries have made extensive GATS commitments in 'advertising services' and have not exempted alcohol-related advertising.

Unlike European Community treaty rules, GATS disputes in this area would be judged with no deference to national or EC treaty law. Countries intent on maintaining or instituting advertising restrictions should thus avoid making any commitments in this sector. Nordic countries need to consider modifying their current commitments to guard against future GATS challenges to their advertising laws.

Other availability restrictions Aside from the activities of alcohol monopolies, member governments exercise control over the access and availability of alcohol by, for example:

• restricting the number, or licensing, of distribution outlets or drinking establishments in particular regions;

• restricting the sale of certain classes, or strengths, of alcoholic beverages in grocery stores, petrol/gas stations or stadiums;

• restricting hours of sale of alcohol.

These and similar restrictions could run afoul of GATS rules, especially if member governments make commitments in distribution services relating to alcohol.

International health-based alcohol policy initiatives Alcohol policy is increasingly linked to international 'trade' policy, and is often in direct conflict with it.

For example, at the European Ministerial Conference on Young People and Alcohol held in Stockholm last February, governments committed themselves to meet specific targets, policy measures and support activities contained in their European declaration on Young People and Alcohol. These measures are designed to protect young people from pressures to drink and to reduce the harm that alcohol can cause them.

Many of these policies – including restricting alcohol availability and advertising - are, in principle, at odds with existing GATS rules and may come into more direct conflict if GATS is expanded. If an ever-greater number of domestic and international health policy options are not to be compromised or placed permanently out of reach, citizens and their governments need to work toward a more balanced approach to GATS and similar treaties.

The WTO at a glance The World Trade Organization (WTO) was created in 1994 as a result of the "Uruguay Round" of international trade negotiations. The 124 participating governments agreed to dramatic changes to the previous trade regime, notably a stronger and legally binding dispute settlement process, and the expansion of rules into areas never before recognized as trade policy. 142 countries are now members of the WTO, but its activities remain dominated by the largest trading powers – the United States, the European Union, Japan and Canada. The WTO administers fifteen separate multilateral agreements, most of which were newly created in 1994. WTO members are bound by all these agreements, which include the following: GATT 1994: The General Agreement on Tariffs and Trade was drafted in 1947, repeatedly modified, and superceded by the WTO in 1994. The GATT was designed to gradually reduce tariff and other border measures that are barriers to trade in goods. GATT rules have been used to challenge "discriminatory" practices and taxes on alcohol in several countries in Europe, and in Canada and the United States. Since 1994, WTO rules on goods have been used to eliminate allegedly discriminatory taxes on foreign alcohol products in Japan, Chile and the Republic of Korea. GATS: The General Agreement on Services is exceptionally broad and is designed to be continuously expanded. All services related to alcohol will be "on the negotiating table" in repeated, ratchet-like rounds of re-negotiation the first of which is now underway. (See main article for implications of GATS for alcohol). TRIPs: The agreement on Trade-Related Intellectual Property Rights is best known for its requirement for member countries to establish 20-year monopoly patent rights for pharmaceuticals. In a non-alcohol case that has possible ramifications for alcohol, the threat of an intellectual property rights challenge pressured acceptance of the "Gerber Baby" image on infant formula packages, despite national public health laws prohibiting the use of such imagery. SPS: The agreement on Sanitary and Phytosanitary measures deals with laws and regulations regarding food and food safety. It was used to successfully challenge Europe's ban on beef produced with artificial growth hormones. In this case, the WTO panel ruled that the ban was not based on "sound science" and that it discriminated against North American beef, which is predominantly hormone-treated. The agreement threatens the ability of governments to take action against products that have not been proven safe for the market. TBT: The Agreement on Technical Barriers to Trade brings governments' "technical regulations" within WTO oversight, requiring that they not be "more trade restrictive than necessary". Although it has not been used this way yet, this agreement could be used to challenge national efforts to place health warning or ingredient labels on alcohol bottles. The WTO operates through its own supranational enforcement and dispute resolution framework. Disputes are decided by WTO-appointed panels that meet in closed session and whose rulings are based on WTO law. Third party intervention is rarely permitted. The only way to overturn a WTO panel or appellate board decision is by winning the consensus of all signatory countries, including the country that brought forward the original complaint. WTO rulings are binding on members; that is, members are required to bring their inconsistent measures into conformity, or face trade sanctions until they do.

Alcohol policy in developing countries

Alcohol researchers have drawn attention to the prospect for rapid growth in alcohol consumption in developing countries and the serious harm this growth is likely to entail. Many developing countries do not have well established regulatory structures that are capable of regulating alcohol supply or availability, restricting advertising, separating alcohol use from harm, or treating alcohol-related problems. Increased alcohol consumption can also exacerbate poverty, proving particularly devastating in developing countries.

Despite this, the European Communities and the US have formally proposed that all GATS member countries liberalize their distribution services, which would include alcohol distribution. It remains to be seen how developing countries will respond to these negotiating requests during intense GATS negotiations, and how citizens of Europe, the US and other developed countries will respond when they reflect upon the potential public health consequences of the GATS proposals their governments are making.

Where from here?

Grasping the significance of trade agreements is not an easy task. The language of these agreements is difficult to understand; the far-reaching power of trade dispute panels hard to fathom. But since alcohol regulations have already been ruled to be barriers to trade and are clearly at risk in current GATS negotiations, the default strategy of alcohol control advocates to ignore the impact of trade treaties is untenable.

Rather than tacitly acceding to ever-increasing, ratchet-like controls over alcohol policies, public health advocates need to engage actively in the process that determines their countries' negotiating position. The failure of the Multilateral Agreement on Investment and the attempted Seattle round of World Trade Organization negotiations show that public comment, advocacy and protest can have a significant effect on trade treaty negotiations.

Public health voices need to be heard, in the relevant ministries, in professional journals in the public health field, in the news media, in international health fora and at trade negotiations. For individuals and organizations involved in all aspects of alcohol policy, becoming actively involved in the GATS negotiations now taking place in Geneva is a critical, and urgent, point of departure.

Jim Grieshaber-Otto, Ph.D. is an independent trade policy consultant based near Vancouver, British Columbia, Canada. He is the co-author, with Noel Schacter, of The GATS: Impacts of the international "services" treaty on health-based alcohol regulation, which will be published this fall in the journal Nordic Studies on Alcohol and Drugs, nr 3, and is available in English at www.stakes.fi/nat/ or from the author at jimgo@uniserve.com

David Jernigan, Ph.D. is a health policy sociologist and independent consultant based near San Francisco, California, USA.

The authors wish to acknowledge the valuable comments provided by Ellen Gould, Noel Schacter and Scott Sinclair.