Smoke and Mirrors

It's time for Washington to stop giving cigarette makers an open door to developing markets.

If it seems fewer people are smoking in the United States, that's because it's true. Since 1965, the proportion of U.S. adults who smoke has plummeted from 42 percent to 19 percent as a result of higher excise taxes, civil and criminal litigation, and tobacco-control programs in U.S. cities and states.

But as tobacco use declines in the United States, it is on the rise in low- and middle-income countries, spurred by higher incomes, trade liberalization, and intensive industry marketing. There are 1.2 billion smokers in the world, roughly one-third of the world's adult population. Seven-hundred million children -- approximately 40 percent of the world's youth population -- are exposed to second hand tobacco smoke at home. According to the World Health Organization (WHO), tobacco use already kills more people annually than HIV/AIDS, malaria, and tuberculosis combined. Unless urgent action is taken, it is expected to kill hundreds of millions more in the coming decades, mostly in developing countries. The World Economic Forum's 2010 global risk report ranked non-communicable diseases, for which tobacco use is a leading risk factor, as a greater threat to global economic development than fiscal crises, natural disasters, transnational crime and corruption, and infectious disease.

This week marks 10 years since President Bill Clinton signed an executive order, which remains in effect, requiring U.S. agencies to take "strong action to address the potential global epidemic of diseases caused by tobacco use." While the intervening decade has seen significant efforts to reduce smoking domestically, Washington continues to do too little to address the expanding tobacco use in developing countries and its devastating consequences.

At home, the U.S. government is cracking down on tobacco. In 2009, President Barack Obama signed a law that gave the U.S. Food and Drug Administration (FDA) sweeping new powers to regulate tobacco products. Graphic images of diseased lungs and deceased smokers will soon adorn cigarette packs sold in the United States. The Congressional Budget Office estimates that these new regulations will reduce U.S. youth smoking by another 11 percent over the next decade.

Abroad, however, U.S. engagement on tobacco control is minimal. The United States has yet to join the 171 countries that have ratified the WHO Framework Convention on Tobacco Control, a binding, comprehensive treaty designed to reduce tobacco supply and demand worldwide. Less than $7 million of the more than $8 billion global health budget in 2009 was dedicated to international tobacco control. Nearly every trade and investment agreement that the United States has negotiated over the last decade reduces tobacco tariffs and improves the protection of tobacco-related investments overseas. The same new law that restricts cigarette marketing and labeling in the United States specifically excludes cigarettes destined for sale or distribution abroad.

Multinational tobacco companies' strategy toward tobacco control has been the mirror image of the U.S. government's. In the United States, the industry's response to the new domestic tobacco-control initiatives has been relatively muted. The Altria Group, which owns Philip Morris USA, supported the 2009 anti-smoking legislation and has not protested the FDA's proposed graphic warnings. Again, the story is different abroad. Tobacco com­panies have aggressively sought to expand markets for their products in low- and middle-income countries and have fiercely opposed marketing and labeling regulations more modest than those currently proposed in the United States.

Multinational tobacco companies employ advertising tactics in lower-income countries --billboards, cartoon characters, and music sponsorships -- now prohibited in the United States. Young women, who have historically smoked less than men in most parts of the developing world, are a major target of these campaigns. And marketing gimmicks -- such as purse-packs containing super slim cigarettes -- have helped increase the rate at which girls smoke to the same rate as boys do in more than 60 percent of countries surveyed in the Global Youth Tobacco Survey conducted by the WHO, U.S. Centers of Disease Control and Prevention(CDC), and the Canadian Public Health Association.

In the world's poorest countries, where tobacco has not been consumed historically, multinational cigarette companies use investments in local tobacco production and corporate social responsibility programs to win new friends and future customers. These tactics have increased tobacco use throughout Asia, Eastern Europe, and Latin America. Many expect Africa will be next. Tobacco use is currently relatively low in Africa -- 20 percent for men and much less for women -- but there will be dire consequences if it increases: Many African governments lack the ability to implement effective national tobacco-control programs and the health-care resources to cope with a pandemic of tobacco-related diseases.

Multinational tobacco companies are exploiting U.S. and other affluent countries' trade policies to pursue these tactics and outmaneuver developing-country regulators. Increasingly, multinational tobacco companies use dispute resolution under trade and investment agreements to block labeling and advertising restrictions in low- and middle-income countries. Free trade agreements reduce tobacco product tariffs before developing countries can introduce adequate domestic tobacco control and taxation programs to compensate for the lower price of imported cigarettes.

Smoking-control efforts in developing countries are stalling in the face of fierce industry opposition. Tobacco industry promotional investments dwarf expenditures on tobacco control in these countries. In 2009, the WHO reported that less than 10 percent of the world's population is covered by any of the WHO-recommended measures to reduce demand for tobacco and regulate tobacco-industry marketing.

Some policymakers in Washington make the argument that American jobs depend on tobacco companies' free access to developing countries. But that's a false choice: Doing more for international tobacco control would not put U.S. jobs at risk. The United States currently exports significant volumes of high-quality tobacco leaf and premium cigarettes to Japan, Europe, and affluent Middle Eastern countries, but hardly anything at all to cost-sensitive developing-country markets. Moreover, cigarette production has largely shifted to overseas factories. With domestic consumption declining, the tobacco industry now provides less than 2 percent of the jobs in the six southeastern U.S. states most associated with tobacco growing and product manufacturing.

In fact, taking the lead on international tobacco control would clearly be in the national interest of the United States. In a recent speech before the United Nations, President Barack Obama cited global health and development as not only moral imperatives, but U.S. strategic and economic imperatives. U.S. investments in global health are visible, concrete, and highly valued; they save lives and enhance America's credibility around the world. Few global health threats can compare with the human and economic toll of tobacco-related diseases in developing countries. If disease prevention and global health are strategic U.S. priorities, then global tobacco control must be as well.

Fortunately, it's an especially opportune moment for U.S. leadership on international tobacco control. The scientific consensus that to­bacco use and secondhand smoke cause a plague of terminal and disabling diseases no longer faces serious challenge. The WHO Framework Convention on Tobacco Control is among the most widely subscribed treaties in the world and provides a blueprint for acting on the most evidence-based and cost-effective strategies for global tobacco control. A $500 million, multiyear commitment from the Bloomberg Initiative and the Bill and Melinda Gates Foundation has injected sorely needed resources into tobacco-control programs in 20 priority developing countries. Anti-smoking NGOs like the Campaign for Tobacco-Free Kids and the Framework Convention Alliance are doing groundbreaking work on global tobacco control and would be capable U.S. government partners. Increased U.S. engagement on global tobacco control can transform this momentum into sus­tainable progress.

A foundation for change exists within the U.S. government. Obama supports ratification of the WHO Framework Convention on Tobacco Control. The senior leadership at the State Department, the FDA, and the CDC include individuals with distinguished track records on tobacco control and prevention. Last year, the U.S. trade representative resisted congressional pressure to challenge other countries' tobacco-control regulations. Where the United States has engaged on international tobacco control, such as the CDC's efforts on global tobacco-use surveillance, it has made a significant difference.

The United States must not wait another 10 years to demonstrate internationally the same leadership it has shown on tobacco control domestically. Obama has said he supports the WHO framework convention; but he should not wait for the Senate to ratify it before integrating tobacco control into existing U.S. efforts on maternal and child health, disease control, and health-systems strengthening. The U.S. Treasury Department and FDA have extensive technical expertise that should be shared with develop­ing countries seeking to improve tobacco taxation, fight cigarette smuggling, and regulate tobacco products and their advertisement. The U.S. trade representative should stop seeking tobacco tariff reductions and cease including tobacco-related investments in trade and investment agreements with developing countries. This year's G-20 meeting in France and the upcoming U.N. High-Level Summit on Non-Communicable Diseases provide excellent opportunities for the United States to motivate other governments to likewise prioritize tobacco control.

Washington has already shown great courage and leadership in protecting its own citizens from the perils of tobacco. It's past time that the United States support the world's poorest countries in their efforts to do the same.


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The Year of Opportunity

2011 is a crucial year for the U.S.-China relationship, because 2012 could be disastrous.

Chinese President Hu Jintao's visit to Washington this week may pass in a flurry of short-term gestures and cheap talk. But squandering this opportunity would be dangerous -- as both sides will realize when 2012 rolls along and the domestic political situation in both countries will proceed in deeply unhelpful ways.

In 2010, domestic politics had an outsized impact on U.S.-China relations. U.S. congressional elections seemed to reduce almost the entirety of the huge, complex relationship to one issue: Chinese exchange-rate policy is erasing American jobs. Electioneering members of Congress waxed indignant, the president and treasury secretary responded cautiously, and a bill to retaliate against Chinese exchange-rate policy passed the House of Representatives, before dying in the Senate as time ran out on the 111th Congress. There were threats the Senate would pass the House bill in the lame-duck session -- as close as the United States has come to serious trade action targeted at China.

None of this was a surprise; it had happened several times before. Congress loves to complain about the Chinese yuan, but it does not want to actually do anything about it. It's a handy campaign slogan, but the truth is that an appreciation of the yuan against the dollar would achieve little, if anything at all. From the middle of 2005 to the middle of 2008, the yuan rose 20 percent against the dollar, yet the bilateral trade deficit got 50 percent larger. Tracking the yuan and the bilateral trade deficit since 1994 also shows no relationship.

Nor should we expect one. Although the gap is shrinking, the U.S. economy is still almost three times larger than China's. U.S. policies therefore have more weight, and loose fiscal and monetary policies have driven up the bilateral trade deficit. For its part, China is a non-market economy, with so many state-imposed distortions that determining the proper exchange rate for the yuan is impossible. Chinese state firms are shielded by laws against competition, including competition from imports, and they receive gigantic, no-interest loans from state banks. The exchange rate is a minor factor.

The only reason the exchange rate garners attention is that it appears to be easily tied to the salient political topic of job losses. Given the tense political climate awaiting America in 2012, that conversation isn't going away.

Obviously, 2012 is an election year in the United States, presidential as well as congressional. Control of the Senate will again be in play, spurring more simple-minded China-bashing of the type seen last year. The presidential race could act as gasoline on that fire. Obama has hardly demonstrated a commitment to free trade, and the Republican nomination will draw a huge number of candidates, including fiery populists. The tone of the American political debate could be as anti-China as it has been since Tiananmen.

Meanwhile, in fall 2012, the Chinese Communist Party will select its next set of top leaders. And none of the incoming leadership will want to be accused of having bowed to U.S. pressure. In other words, China, too, is going to be more recalcitrant and possibly even hostile in 2012.

Next year will therefore see more American aggressiveness over the exchange rate, as candidates fall over each other to be more outraged. It could also see contemptuous Chinese dismissals of even legitimate American economic concerns. Trade sanctions will be introduced in Congress and proceed toward law. We can only hope that the coincidence of these dual political transitions and high U.S. unemployment doesn't make 2012 the year a serious bilateral trade conflict finally breaks out.

Looking forward to that, from the vantage point of a less pressured time, it's crucial to act fast. The new U.S. House of Representatives is not yet as obsessed with the exchange rate as the previous, and the presidential race is still more curiosity than calamity. On the Chinese side, Hu Jintao and his Politburo Standing Committee are better able to make notable decisions than they will be in 2012.

This lull in bilateral relations is not a general improvement. The relative quiet of 2011 must be exploited to make progress that can sustain Sino-American relations through the rough waters ahead. Happily, there are multiple fronts on which to make progress, including North Korea, Iran, freedom of the seas, and so on.

With regard to economic issues, the exchange rate and even the size of the trade imbalance are just proxies for American concerns over the level of unemployment. Better access to the Chinese market for U.S.-made goods and services will create American jobs and demonstrate mutual gain. This will most effectively and beneficially be accomplished by reducing the regulatory protection and capital subsidies for state firms.

In return, the United States can and should offer greater and more transparent access to Chinese investors. While technology transfer should remain off-limits for the foreseeable future, American natural resources would be valuable to Chinese industry and also add to U.S. job creation. Fears of China buying America can be allayed by sale of minority stakes and formation of joint ventures, only, with American companies remaining independent. This is a model Chinese companies have adopted in the past five years and one that mirrors what will inevitably be continuing Chinese support for state-owned enterprises at home.

Hu Jintao's state visit is hardly going to be a cure-all. But it does need to trigger a sequence of events where genuine gains are made, rather than just happy talk about agreeing to meet later for more happy talk. Greater Chinese regulatory transparency could be swapped for greater American transparency with regard to incoming Chinese investment. A reduction in Chinese lending support to the state sector could be swapped for a reduction in the size of the U.S. federal budget deficit (which China views both as a subsidy and as threatening its dollar holdings). These problems obviously cannot be erased at the summit or during the rest of 2011, but concrete steps forward can be taken. On the other hand, if the two presidents cannot set the stage for progress this year, it is all too easy to anticipate forces that could turn 2012 into the worst year in a generation for U.S.-China relations.

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