The PoliTical economy of Tobacco conTrol in The PhiliPPines: Trade, foreign Direct investment, and Taxation

As governments work to improve tobacco control, they continually seek to balance public health

and economic policies. In the Philippines, as in many countries, four themes emerge:

• Implicationsofemerginginternationaltradeandinvestmentagreements

• Thepoliticaleconomyofforeigndirectinvestmentanditsimpactsonhealthpolicies

• Challengesofintra-governmentalcooperationandcoordination

• Lessonsfromarecentrestructuringoftobaccoexcisetaxation

Thefindingsandrecommendationspresentedhereweredevelopedthroughasurveyofofficial

documents,existingliterature,andinterviewswithkeyinformantsfromallrelevantsectors.Each

line of inquiry provides lessons not only for those working at the intersection of tobacco control

and economic policy, but for global health practitioners more broadly.

Key Findings and Recommendations• Mandated interagency arrangements can further constrain the work of tobacco control proponents

depending on composition (e.g. industry presence and economic agency leadership) and scope of role.

• InteragencyarrangementstoimplementtheprovisionsoftheFrameworkConventionof TobaccoControlmustcategoricallyexcludeindustryrepresentationnotwithstandingany mandatedresponsibilityofofficialstoconsultwithlegalcommercialentities.

• Proponents of tobacco control should understand the risks and opportunities of incremental legislation. Some perceived legislative victories may create barriers to even stronger measures in the future.

Lessons from the 2012 tobacco tax ReformThe2012“sintax”reformchangedthestructureandratesofgovernmenttaxesontobaccoand

alcoholproducts.Thegovernment’sdecisiontolinkthenewtaxrevenuestotheemerginguniversal

healthprogram,PhilHealth,wasconsistentlyidentifiedbyofficialsandthegeneralpublicasthemain

reason to support the reform.

Thecoalitionofcivilsocietyorganizationssupportingreformwasmeaningfullybroad,consistentlyvocalized

the same set of compelling messages, and developed strong relationships across government institutions by

providing effective technical assistance. Many cited the general importance of technical assistance, within

thecountryandexternally,includingintergovernmentalorganizationsandinternationalnon-governmental

organizations.ManyalsonotedthelinkbetweenthereformandarelateddisputeattheWTOabouttaxes

ondistilledspirits.Thougha“loss”attheWTO,itbecameamajorimpetusforbroadertaxreform.

ArecentWTOdisputebetweenthePhilippinesandThailandovercigarettetaxesandchallengeswith

possibletaxevasionaftertheimplementationoftherecentPhilippinesintaxsuggestthat,inorderto

administeradvaloremtaxationeffectively,governmentsneedtohaveastrongcommandofproduct

valuation both domestically and in traded products.

Key Findings and Recommendations• Linkingtobaccoexcisetaxreformtofundingforapopularandusefulpublicgoodsuch

as universal health coverage may generate support across society.

• Engenderingdomestictechnicalcapacitytosupporttobaccotaxreformcanincreasethe probability of successful policy change.

• Internationalorganizationscanprovidevitaltechnicalsupportfortaxpolicyreform;these organizationsmustremainengagedthroughouttheprocess.

• International economic disputes may provide political opportunities for improved domestic and international public health policies.

• Governments must develop and maintain strong, effective, and transparent systems to determineandmonitorvaluationofproductsinthecontextofadvaloremtaxes,orperhaps better,replaceadvaloremtaxeswithspecifictaxes.

©2014AmericanCancerSociety,Inc.–No.0008.53

ExEcutivE Summary

For the full report, please email jeffrey.drope@cancer.org or chavezjoy@gmail.com.

Thisreportwassupportedbyasub-agreementfromJohnsHopkinsUniversityBloombergSchoolofPublicHealth(JHU-BSPH)withfundsprovidedbytheBloombergInitiativetoReduceTobaccoUse.ItscontentsaresolelytheresponsibilityoftheauthorsanddonotnecessarilyrepresenttheofficialviewsoftheBloombergFamilyFoundationorJHU-BSPH.

image provided by Jimmy domingo

The Philippine

government

was one of the

first to mandate

an interagency

arrangement for

implementing

tobacco control

regulations.

andmaintaininvestments.Othersarguethatgovernmentsprivilegedomesticinvestmenteitherbecausetheybelieve

itisinthepublicinterestorbecauseofentrenchedpoliticalconnections.Examiningthesebeliefsinlightofthe2012

tobaccoexcisetaxreformrevealsthattherealityisverycomplex.Despitehundredsofmillionsofdollarsininvestment

overmorethanadecade,PMIconsistentlyfailedtoinfluencetobaccotaxpoliciessignificantly,evenaspartofarecent

jointventurewiththelargestdomestictobaccomanufacturer.Othervariables–includingthetobaccotax’slinkto

alcoholtaxreform,shiftingnormsofgovernance,andspecificcharacteristicsofkeyinstitutionalstructures–had

seriousinterveningeffects.Thisdoesnotsuggestthatforeigninvestorsarenotinfluential–thenewPMI-Fortune

venturecontinuestowieldenormousresourcesinordertoaffectpolicy,sometimessuccessfully–butitdoessuggest

that other variables can mitigate or even negate some of these relationships.

Key Findings and RecommendationsTobaccocontrolproponentsinandoutofgovernmentshould

• Beawareofpotentialchallengesassociatedwithnew foreign investments in the tobacco sector, but not assume that the status quo is necessarily superior.

• Engendergoodgovernancearoundtobaccobysupporting thetobaccocontroleffortsofelectedandunelectedofficials whopromotepro-healthpublicpolicies.

• Considertherisksandrewardsoflinkingtobacco andalcoholexcisetaxreforms.

challenges of intra-governmental cooperation and coordinationInteragency arrangements work to achieve policy coherence within government, including, for

example,theincorporationofhealthobjectivesacrosssectors.Despitethepotentialbenefits,

challenges abound, including loss of autonomy for some agencies, stalemate or fragmentation,

andresourceinefficiencies.Itiscrucialtounderstandhowsucharrangementsworkinpracticein

ordertopreservebenefitswhileprotectingagainstchallenges.ThePhilippinegovernmentwasone

ofthefirsttomandateaninteragencyarrangementforimplementingtobaccocontrolregulations,

theInteragencyCommitteeforTobacco(IAC-T),whichischargedwithimplementation,enforcement,

andmonitoringoftheTobaccoRegulationAct(RA9211).Theagency’sstructurehasgenerateddeep

concernamongtobaccocontrolproponents.TheDepartmentofTradeandIndustry(DTI)chairsthe

agencywiththeDepartmentofHealth(DOH)relegatedtovice-chair.Challengesalsostemfrom

theformalinclusionofanindustryrepresentativeintheIAC-T.DesignoftheIAC-Talsoconstrains

theDOH’slegalauthoritytoenforcetheRA9211.InacasebroughtagainsttheDOHbyPhilip

MorrisManufacturingIncorporated,acourtruledthattheIAC-Tisthesolebodychargedwith

implementingtheAct.Tobaccocontroleffortshavesuffered,too,becausecivilsocietyorganizations

challengingindustryrepresentationontheIAC-ThaveoftenrefusedtoparticipateinIAC-Tmeetings.

implications of emerging Free trade agreements for tobacco controlFreetradeagreements(FTAs)substantiallyliberalizetradebetweenparticipatingcountriesabove

andbeyondcommitmentsmadeattheWorldTradeOrganization(WTO).InthePhilippines,FTAs

pose two principal risks for tobacco control.

First, lower tariffs may stimulate tobacco consumption by increasing competition among

producers, thus leading to lower retail prices for imports. In the Philippines, however, this is unlikely.

Thecountryalreadyhasverylowtariffsonimportedtobaccoproducts,imposeszerotariffson

importsfromAssociationofSoutheastAsianNationsMembers(withtheexceptionofVietnam),

andhassignificantlow-costtobaccoleaf-growinganddomesticcigaretteproduction.

Second,FTAsmayplaceadditionallegalconstraintsonParties’abilitytoimplementtobaccocontrol

measures.OngoingnegotiationsforaTrans-PacificPartnershipAgreement(thePhilippinesisnot

currentlyparticipating)highlightfourissuesforconsiderationinfutureFTAnegotiations.

• Chaptersoninvestmentprotectionmayprovideforeigninvestors,includingtobacco companies,withadditionallegalrights.ThePhilippineshasmanysuchagreementsin place, so new commitments appear unlikely to increase risk.

• Strongerobligationstoprotectintellectualpropertyrightsmayexpandtrademarkrights, and pose problems for packaging and labeling measures such as plain packaging.

• Provisions for regulatory processes may provide the tobacco industry with a new forum tochallengetobaccocontrolmeasures,suchaswithrespecttocost-benefitanalysis.

• Tobacco-specificlanguagemayeitherprotectorendangertobaccocontrolmeasures.

Key Findings and RecommendationsInthePhilippines,itisunlikelythatloweringtariffsthroughnewFTAswillstimulatedemand,or

thatnewinvestmentchaptersinFTAswillextendtherightsoftobaccocompaniesmuchbeyond

existingrights,buttheeffectofotherrulesmustbejudgedatthetimeanagreementisnegotiated.

Political economy of Foreign direct investment and impacts on tobacco control Governmentsuseinvestmentandfiscalincentives,suchastaxholidays,toattractforeign

investment.Theseincentiveslowerproductioncosts,andtobaccoconsumptionislikelyto

increaseifsavingsarepassedontotheconsumer.Forthisreason,GuidelinestoArticle5.3

oftheWHOFrameworkConventiononTobaccoControl(FCTC)recommendthatParties

should not grant incentives to tobacco companies.

ThePhilippineshaswitnessedsignificantforeigndirectinvestment(FDI)initstobaccosector,

particularlyfromPhilipMorrisInternational(PMI).PMIestablishedoperationsinanindustrialzone,

butneithersoughtnorwasgrantedincentivestoinvest.Thissuggeststhatthedecisiontodoso

wasbasedprimarilyoncapturingmarketshareinanemergingmarket.Also,BritishAmerican

TobaccohaspledgedtoincreaseitsinvestmentinthePhilippines.Policy-makersandhealth

advocatesshouldbevigilantinensuringthatincentivesarenotgrantedtothefirm.

DebatecontinuesabouttheeffectsofFDIongovernments’decisionstoregulate.Somebelieve

thatFDItypicallyleadsto“capture”asgovernmentsdismantleregulatoryframeworkstoattract

ThePhilippinegovernmentshouldensurethat

• FollowingFCTCArticle5.3,the governmentprohibitsfiscaland investment incentives to tobacco companies,includingtoBritish AmericanTobacco.

image provided by Jerik Cruz image provided by madeleine aloria

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