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Thailand—Restrictions on Importation of Cigarettes

BACKGROUND AND FACTS

The Royal Thai government maintains restrictions on imports of cigarettes. The Tobacco Act of 1966 prohibited the import of all forms of tobacco except by license of the Director-General of the Excise Department. Licenses have only been granted to the government-owned Thai Tobacco Monopoly, which has imported cigarettes only three times since 1966. None had been imported in the ten years prior to this case. The United States requested the panel to find that the licensing of imported cigarettes by Thailand was inconsistent with GATT Article XI and could not be justified under Article XX(b) since, as applied by Thailand, the licensing requirements were more restrictive than necessary to protect human health. Thailand argued that cigarette imports were prohibited to control smoking and because chemicals and other additives contained in American cigarettes might make them more harmful than Thai cigarettes.

REPORT OF THE PANEL ADOPTED ON 7 NOVEMBER 1990

The Panel, noting that Thailand had not granted licences for the importation of cigarettes during the past ten years, found that Thailand had acted inconsistently with Article XI:1, the relevant part of which reads: “No prohibitions or restrictions … made effective through … import licenses … shall be instituted or maintained by any [country] on the importation of any product of the territory of any other [country]…
The Panel proceeded to examine whether Thai import measures affecting cigarettes, while contrary to Article XI:1, were justified by Article XX(b), which states in part:

[N]othing in this Agreement shall be construed to prevent the adoption or enforcement by any [country] of measures: … (b) necessary to protect human, animal or plant life or health.

The Panel then defined the issues which arose under this provision … [The] Panel accepted that smoking constituted a serious risk to human health and that consequently measures designed to reduce the consumption of cigarettes fell within the scope of Article XX(b). The Panel noted that this provision clearly allowed [countries] to give priority to human health over trade liberalization; however, for a measure to be covered by Article XX(b) it had to be “necessary …
The Panel concluded from the above that the import restrictions imposed by Thailand could be considered to be “necessary” in terms of Article XX(b) only if there were no alternative measure consistent with the GATT Agreement, or less inconsistent with it, which Thailand could reasonably be expected to employ to achieve its health policy objectives. The Panel noted that [countries] may, in accordance with Article III:4 of the GATT Agreement, impose laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of imported products provided they do not thereby accord treatment to imported products less favourable than that accorded to “like” products of national origin. The United States argued that Thailand could achieve its public health objectives through internal measures consistent with Article III:4 and that the inconsistency with Article XI:1 could therefore not be considered to be “necessary” within the meaning of Article XX(b). The Panel proceeded to examine this issue in detail.
* * * The Panel then examined whether the Thai concerns about the quality of cigarettes consumed in Thailand could be met with measures consistent, or less inconsistent, with the GATT Agreement. It noted that other countries had introduced strict, non-discriminatory labeling and ingredient disclosure regulations which allowed governments to control, and the public to be informed of, the content of cigarettes. A non-discriminatory regulation implemented on a national treatment basis in accordance with Article III:4 requiring complete disclosure of ingredients, coupled with a ban on unhealthy substances, would be an alternative consistent with the GATT Agreement. The Panel considered that Thailand could reasonably be expected to take such measures to address the quality-related policy objectives it now pursues through an import ban on all cigarettes whatever their ingredients.
The Panel then considered whether Thai concerns about the quantity of cigarettes consumed in Thailand could be met by measures reasonably available to it and consistent, or less inconsistent, with the GATT Agreement. The Panel first examined how Thailand might reduce the demand for cigarettes in a manner consistent with the GATT Agreement. The Panel noted the view expressed by the World Health Organization (WHO) that the demand for cigarettes, in particular the initial demand for cigarettes by the young, was influenced by cigarette advertisements and that bans on advertisement could therefore curb such demand. At the Forty-third World Health Assembly a resolution was approved stating that the WHO is: “Encouraged by …recent information demonstrating the effectiveness of tobacco control strategies, and in particular…comprehensive legislative bans and other restrictive measures to effectively control the direct and the indirect advertising, promotion and sponsorship of tobacco.”
A ban on the advertisement of cigarettes of both domestic and foreign origin would normally meet the requirements of Article III:4 … The Panel noted that Thailand had already implemented some nondiscriminatory controls on demand, including information programmes, bans on direct and indirect advertising, warnings on cigarette packs, and bans on smoking in certain public places.
The Panel then examined how Thailand might restrict the supply of cigarettes in a manner consistent with the GATT Agreement. The Panel noted that [countries] may maintain governmental monopolies, such as the Thai Tobacco Monopoly, on the importation and domestic sale of products. The Thai Government may use this monopoly to regulate the overall supply of cigarettes, their prices and their retail availability provided it thereby does not accord imported cigarettes less favourable treatment than domestic cigarettes or act inconsistently with any commitments assumed under its Schedule of Concessions. * * *
For these reasons the Panel could not accept the argument of Thailand that competition between imported and domestic cigarettes would necessarily lead to an increase in the total sales of cigarettes and that Thailand therefore had no option but to prohibit cigarette imports.
In sum, the Panel considered that there were various measures consistent with the GATT Agreement which were reasonably available to Thailand to control the quality and quantity of cigarettes smoked and which, taken together, could achieve the health policy goals that the Thai government pursues by restricting the importation of cigarettes inconsistently with Article XI:1. The Panel found therefore that Thailand’s practice of permitting the sale of domestic cigarettes while not permitting the importation of foreign cigarettes was an inconsistency with the GATT not “necessary” within the meaning of Article XX(b).
Decision. The licensing system for cigarettes was contrary to Article XI:1 and is not justified by Article XX(b). The panel recommended that Thailand bring its laws into conformity with its obligations under the GATT.

Comment. GATT Article XVII permits a country to create state agencies and “marketing boards” that have the authority to import and export goods. The Thai Tobacco Monopoly is an example. Developing countries often use state trading enterprises that often have the exclusive right to import or export certain classifications of goods. Products traded by state enterprises might include foodstuffs, medicines, liquor, or, as in this case, tobacco. Article XVII requires that state enterprises not discriminate against the purchase of foreign goods or treat them differently than domestic goods.

Case Questions

1. What reasons did Thailand give for restricting imports of cigarettes? What GATT provision did Thailand rely on to restrict cigarette imports?

2. The panel states that GATT permits countries to give priority to human health over trade liberalization only under certain conditions. What are those conditions?

3. How was the doctrine of “least restrictive trade” used in this case?

4. What alternative means could Thailand have used to achieve its objectives that would have not singled out imported cigarettes for discriminatory treatment?