TED Case Studies
Cigarette Import Ban in Thailand
CASE NUMBER: 15
CASE MNEMONIC: CIGAR
CASE NAME: Cigarette Import Ban in Thailand
A. IDENTIFICATION
1. The Issue
The United States, a large tobacco producing country,
campaigned to expand cigarette exports to make up for declining
demand in the United States due to increased awareness of
health/environmental risks associated with smoking. The U.S.
Cigarette Exporters Association (CEA) has targeted markets
traditionally closed to foreign cigarette imports. The
association, appealing through the office of the United States
Trade Representative (USTR), alleged that the target countries'
restrictive trade policies with respect to tobacco constitute
unfair trade practices, which warrant the imposition of
retaliatory sanctions. The U.S. government appealed the case to
the GATT and eventually Thailand was forced to open its cigarette
import market in order to avoid U.S. sanctions.
2. Description
In April of 1989, the CEA filed an unfair trade practices
petition against Thailand under Section 301 of the 1974 Trade
Act. The complaint, which was accepted by the United States
Trade Representative (USTR), alleged that Thailand's state-owned
tobacco company (the Thailand Tobacco Monopoly) unfairly
restricted imports and sales of foreign cigarettes. Thai
officials maintained that the prohibition of foreign cigarettes
was a legitimate measure "necessary to protect the health of Thai
citizens." Bilateral negotiations in 1989 made little progress.
This fact, together with U.S. anti-smoking pressure, caused the
USTR to refer the section 301 case to the General Agreement on
Tariffs and Trade (GATT).
The GATT encourages open markets by limiting the extent to
which members direct trade through instruments of trade control
rather than prices. It thus prohibits quantitative restriction
and other forms of protection except for customs tariffs. This
prohibition includes internal taxes and other measures that
discriminate against imports, including internal government
regulations operating to protect domestic goods, such as bans on
the internal sale of imported products.
However, GATT prohibitions on trade restrictions are not
applied without exception. GATT Article XX recognizes certain
protective measures "necessary to protect human, animal, or plant
life or health," as long as these measures are not "applied in
a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same
conditions prevail, or a disguised restriction on international
trade."
During the course of the GATT proceedings, the United States
argued inter alia that the Thai restrictions prohibiting
cigarette imports were inconsistent to the GATT articles which
prohibit quantitative restrictions and other forms of protection.
The Thai government attempted to justify their ban on imported
cigarettes under GATT Article XX (see also TUNA and SHRIMP
cases). The government feared that the country's efforts to
control smoking -- and consequently smoking related illnesses --
would be hindered by an increase in total cigarette sales that
result from competition between domestic and imported cigarettes
if the latter were allowed to be imported. It cited medical and
scientific research which showed that cigarettes are unhealthy
products that can cause cancer and numerous other smoking-related
diseases.
The United States insisted that the Thai import restrictions
constituted arbitrary or unjustifiable discrimination, or
disguised restrictions on international trade -- abuses of the
Article XX health exception for protectionist purposes. The GATT
panel concluded in favor of the United States. It noted that
Thailand did not restrict domestic production and sales of
cigarettes, and found that Thailand's ban was not "necessary"
because other, non-discriminatory measures were available to
control the quantity and quality of cigarettes for public health
reasons. Prompted by this panel report, Thailand entered into an
agreement with the United States whereby foreign cigarettes can
now be imported freely into Thailand and will be accorded
national, non-discriminatory treatment.
3. Related Cases
VEAL case
EUMEAT case
ECFURBAN case
BABYSEAL case
HARP case
Keyword Clusters
(1): Impact = Thailand [THAI]
(2): Bio-geography = TROPical
(3): Environmental Problem = HEALTH
4. Draft Author: Julie Ferguson
B. LEGAL Clusters
5. Discourse and Status: DISagreement and COMPlete
6. Forum and Scope: GATT and MULTIlateral
7. Decision Breadth: 117 (GATT signatories)
The dispute was between Thailand and the United States.
However, because the Most Favored Nations provision of the GATT
requires that any concession granted by one country to any
product in any other country must be granted to the like product
in all other contracting parties, the U.S. complaint opened
Thailand's market to cigarettes from other member nations.
8. Legal Standing: TREATY
C. GEOGRAPHIC Clusters
9. Geographic Locations
a. Geographic Domain : ASIA
b. Geographic Site : East Asia [EASIA]
c. Geographic Impact : THAIland
10. Sub-National Factors: NO
11. Type of Habitat: TROPical
D. TRADE Clusters
12. Type of Measure: IMBAN
Thailand's Tobacco Act effectively prohibited the
importation and sale of foreign cigarettes in Thailand except on
the very restricted duty-free market. Thai legislation also
banned cigarette advertising, required health warnings on all
cigarette packets and banned cigarette production and investment
in tobacco cultivation in neighboring Indo-Chinese countries.
13. Direct vs. Indirect Impacts: DIRect
14. Relation of Measure to Environmental Impact
a. Directly Related to Product : YES CIGARettes
b. Indirectly Related to Product : NO
c. Not Related to Product : NO
d. Related to Process : YES HEALTH
15. Trade Product Identification: CIGARette
The leading cigarette producing nations in the world are
shown. China is easily the largest, followed by the United
States. The United States is easily the largest exporter of
cigarettes, in spite of the declining domestic sales there. The
other large exporters are European countries (see Tables III-14-1
and III-14-2).
Table III-14-1
Leading Cigarette Producing Countries, 1989-1990
(In billions of cigarettes)
COUNTRY
China
United States
EC
Soviet Union
Japan
Brazil
Indonesia
1989
1,598
677
627
360
268
163
148
1990
1,650
670
627
350
268
160
155
SOURCE: USDA, Foreign Agricultural Service (FAS), World Tobacco
Situation, August, 1990, 52.
Table III-14-2
Leading Cigarette Exporting Countries, 1989-1990
(In billions of cigarettes)
Country
United States
Bulgaria
Netherlands
West Germany
Hong Kong
1989
141.8
68.8
60.0
47.6
40.6
1990
160.0
70.0
61.1
50.0
40.7
SOURCE: USDA, Foreign Agricultural Service (FAS), World Tobacco
Situation, August, 1990, 52.
16. Economic Data
Table III-14-3
Leading Cigarette Importing Countries, 1989-1990
(In billions of cigarettes)
Country
EC
Soviet Union
Japan
Hong Kong
Singapore
Colombia
Iran
Saudi Arabia
1989
118.3
55.0
46.5
27.0
15.1
15.4
11.0
12.9
1990
120.0
50.0
46.9
26.3
19.6
15.1
15.0
13.0
SOURCE: USDA, Foreign Agricultural Service (FAS), World Tobacco
Situation, August, 1990, 52.
Table III-14-4
Key U.S. Cigarette Industry Indicators, 1986-90
(billions of dollars)
Item 1986 1987 1988 1989 1990
Production 658.0 689.4 694.5 677.2 700.0Taxable removals 583.1 577.2 543.5 539.9 520.0Exports 63.9 100.2 118.5 141.8 164.3Imports 1.2 1.3 1.2 1.5 1.4Increase
stock 10.9 14.5 -7.7 8.7 5.0U.S.
Consump. 583.8 575.0 562.5 540.0 532.1
Source: "Industry Trade Summary: Cigarettes", USITC Publication
2462 (November, 1991).
17. Impact of Measure on Trade Competitiveness: BAN
According to a recent survey, the U.S. tobacco and tobacco
product surplus grew from $2 billion in 1986 to $4.3 billion in
1989. Meanwhile, U.S. domestic consumption of cigarettes
declined 17 percent since 1981, and the Agriculture Department
predicts that domestic consumption will continue to decline
throughout the 1990's as a result of health concerns, higher
taxes and use restrictions. Yet, despite this declining demand
in domestic markets, the U.S. tobacco industry is prospering.
It is estimated that while the smoking rate in
industrialized countries is declining by 1.5 percent per year,
the rate in third world countries is increasing at a rate of 2
percent per year. For example, in Japan, South Korea and Taiwan,
promising declines in the rate of cigarette consumption were
reversed or halted when U.S. pressure forced open their cigarette
markets to imports. Tobacco consumption in Taiwan grew by 4.3
percent in 1987, the first year of unrestricted foreign cigarette
sales. By the end of that year, U.S. cigarettes held 17 per cent
of the market. In South Korea, the outcome was similar, and
Japan saw a much greater number of women begin smoking.
18. Industry Sector: TOBACco
19. Exporter and Importer: USA and THAIland
D. ENVIRONMENT Clusters
20. Environmental Problem Type: HEALTH
21. Name, Type, and Diversity of Species
Name: Human Beings
Type: Animal/Vertibrate/Mammal/Primate
Diversity: Thailand's population is 56 million.
22. Impact and Effect: MEDium and PRODuct
23. Urgency and Lifetime: MEDium and about 60 years
A study released by the U.S. General Accounting Office
concluded that USTR initiatives aimed at opening tobacco markets
overseas were inconsistent with public health goals. These
programs directly conflict with the U.S. government's support of
global health programs, such as the World Health Organization's
smoking prevention programs and the Overseas Private Investment
Corporation's decision to deny assistance to U.S. cigarette
companies wishing to promote their enterprises overseas.
The 20th Surgeon General's report on smoking went as far as
to suggest that tobacco is as addictive as heroin. It indicated
that the only difference between shooting heroin and smoking
cigarettes is that, at well over 300,000 deaths annually, tobacco
is more deadly.
24. Substitutes: TREATment
VI. OTHER Factors
25. Culture: YES
Many cultures traditionally smoke tobacco products and it
has significance for Europeans, American Indians, and many other
peoples.
26. Trans-Border: NO
27. Rights: NO
28. Relevant Literature
"Bush Administration Export Policies at Odds with Public
Health Goals." International Trade Reporter (BNA, May
23, 1990).
"Complaint Against Thai Cigarette Barriers Trade Issue, Not
Health Matter Exporters Say." International Trade
Reporter (BNA, September 20, 1989).
GATT. "Restrictions on Importation of and Internal Taxes on
Cigarettes." 37 GATT Basic Instruments and Selected
Documents 200 (Geneva, 1991).
"General Developments." International Trade Reporter
(BNA, April 7, 1993).
"Industry Trade Summary: Cigarettes." USITC Publication 2462
(November 1991).
Johnson, P. "The Economics of The Tobacco Industry." Praeger
Studies in Select Basic Industries 69 (1984).
Operation of the Trade Agreements Program, 42nd Report, USITC
Publication 2403 (July 1991).
Schmeisser. "Pushing Cigarettes Overseas." N.Y. Times (July 10,
1988, 6): 16.
Simmons, P. "Free Trade and Ill Health: How the US is Using GATT
to Promote Cigarettes" The Ecologist 20 (1990): 212.
"Thailand Blocks U.S. Request for Panel to Handle Dispute
over Cigarette Imports", International Trade Reporter
(BNA, February 21, 1990).
"Thailand Lifts Ban on Cigarette Imports, USTR Drops Unfair
Trade Practices Case." International Trade Reporter
(BNA, November 28, 1990).
Thaveechaiyagarn, J. "Current Developments: The Section 301
Cigarette Case Against Thailand: A Thai Perspective."
Law and Policy in International Business 20/367 (1990).
U.S. Department of Agriculture (USDA), Economic Research Service
(ERS). Tobacco Situation and Outlook Report TS-212
Sept. (1990): 5.
"U.S. Initiates Section 302 Investigation of Thailand's
Barriers to U.S. Cigarettes." International Trade
Reporter (BNA, June 7, 1989).
References
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