WTO Rejects US Appeal In Clove Cigarette Case

A World Trade Organization appeals panel Wednesday upheld an earlier decision that a U.S. ban on clove cigarettes discriminates against Indonesia, in a blow to the Obama administration's efforts to prevent youth from smoking.

Taking issue with the 2009 Family Smoking Prevention and Tobacco Control Act giving the Food and Drug Administration power to regulate the tobacco industry, the ruling found that the law violated global trade rules by banning the production and sale of cigarettes with cloves and many other flavors but not menthol.

The appeals panel said the design and application of the law "strongly suggest that the detrimental impact on competitive opportunities for clove cigarettes reflects discrimination against the group of like products imported from Indonesia."

Nkenge Harmon, a spokeswoman for the U.S. Trade Representative's office, said the administration is "very disappointed" in the decision, but remains committed to protecting public health.

The U.S. "will continue to vigorously pursue public health measures in a way that is consistent with the United States trade obligations," she told Dow Jones Newswires.

Indonesia, the world's leading producer of clove cigarettes, challenged the law in 2010 after losing access to a market worth $15 million a year. Jakarta argued the law unfairly favors U.S.-based menthol cigarette makers.

An earlier WTO decision agreed with Indonesia on the discrimination charge, while acknowledging that the law's aim of discouraging young people from smoking was legitimate.

Some consumer groups have expressed concern that a WTO ruling against the law could undermine U.S. health policy.

"This case underscores why countries must insist that WTO rules be altered and that no new agreements use the same corporate backdoor deregulation model," said Lori Wallach, director of Public Citizen's Global Trade Watch. She urged the administration to refuse to comply with the ruling.

However, a group of former U.S. Health Department heads and Surgeons General have argued that banning menthol cigarettes would both resolve the trade dispute and benefit public health.

The heads of The Citizens' Commission to Protect the Truth -- Joseph Califano, Health Secretary under the Carter administration, and Louis Sullivan, Health Secretary during the first Bush administration--wrote a letter to U.S. Trade Representative Ron Kirk in December saying a menthol cigarette ban "not only would benefit public health in the United States, it would bring the United States into conformity with its international treaty obligations and avoid the imposition of retaliatory tariffs by Indonesia," the letter concluded."

Once the WTO's Dispute Settlement Body accepts the appeal decision within the next 30 days, the U.S. will have to come up with a plan to comply or face the threat of retaliation by Indonesia. In the meantime, the ban will remain in effect.