#244  

 May 1999




Latin America Go Home: Tobacco Policies in Foreign Countries Should Be Made by Foreign Countries, Not in U.S. Courts

by Amy Ridenour


A rash of foreign governments have begun filing lawsuits against U.S. tobacco companies.

The suits, filed so far by Panama, Guatemala, Nicaragua, Bolivia and Venezuela, and perhaps soon by others including Russia and Brazil,1 are patterned after tobacco lawsuits filed by U.S. states and eventually settled for a total of approximately $246 billion.

 

Why Americans Should Be Concerned

These lawsuits should concern American citizens for several reasons.2

First, if the foreign countries win, the tobacco companies will almost definitely be out of money, making it unlikely that they will be able to pay the $246 billion each of the fifty states and the District of Columbia is expecting.3 This will mean either a cut in state services that were to be paid for with these funds or an increase in state taxes to make up the difference.

Second, if even a few countries win their suits, the doors will be opened to future lawsuits of this type by foreign governments against U.S. corporations. This will result not only in a transfer of money away from the U.S. and into the coffers of foreign governments, but probable employee layoffs here in the U.S. and a depression of the stock prices of these corporations. A rash of industries can expect to be affected, including gun, automobile and consumer good manufacturers, pharmaceutical firms and food processors and exporters.

Third, even if every foreign country loses its suit, the U.S. taxpayer will have been forced to pay for them, not only in direct court costs, but also in terms of the unnecessary additional clogging of already crowded U.S. courts.

 

Why Are Americans Being Sued?

There are real questions about the motives behind the filing of these suits, which ostensibly are being filed to seek the reimbursement of public health funds spent treating tobacco-related illness. But in each of these nations, the governments are suing only U.S.-based tobacco companies, not local tobacco firms - even though the tobacco sold by local firms is no safer than U.S. tobacco.

Guatemala has gone so far as to sue a British tobacco company that doesn't directly do business in Guatemala while declining to sue that same British company's Guatemalan tobacco subsidiaries. The Guatemalan government says it isn't suing local tobacco companies because there is a U.S.-based conspiracy to disseminate false information about tobacco, and local companies aren't involved in the conspiracy. Although this does not precisely explain why a British firm is being sued, it does demonstrate that, to Guatemalans at least, foreign nationals are considered to be more responsible for aspects of Guatemala's health care than Guatemalans themselves are.

Most likely, these countries aren't suing local firms because they don't want their local business community hurt, and they don't want their own citizens to be thrown out of work.

Another issue casting doubt on these nations' motives is their claim that they were unaware of the danger of tobacco until just prior to the filing of their lawsuits. In its lawsuit, for instance, Guatemala claims that U.S. tobacco companies "lied to Guatemala... by misrepresenting cigarettes as harmless."4 As a result, Guatemala says, it did not take action to reduce smoking by Guatemalans.

To believe Guatemala, one would have to believe that the entire government of Guatemala had no information about the dangers of tobacco until 1998, even though cigarettes sold in that country have warning labels and a substantial percentage of the Guatemalan population is quite well-educated.

Guatemala's statement is even more ludicrous when one considers that a U.S. company controls about 73% of the Guatemalan market while Tabacalera, a Latin subsidiary of a British firm, controls 27% of the market.5 Guatemala is making two contrary statements: 1) that it did not know about the dangers of tobacco because the companies selling tobacco in Guatemala didn't tell them, and 2) that the company that sells 27% of the cigarettes in Guatemala did not hide the truth about the dangers of tobacco.

The suspicion is widespread that the nations filing suit simply sense a possible tobacco cash windfall, and are filing these suits swiftly in order to be the first foreign nations in line to get it.

 

The Role of Lawyers in Encouraging These Lawsuits

The role of lawyers in convincing these countries to sue U.S. firms is also suspect, as, under contingency fee arrangements, private U.S. lawyers stand to make fees totaling perhaps 15-30% of the total award, should any tobacco companies lose in court or settle with one or more foreign governments.

The foreign nations are suing U.S. companies in the United States in part because the U.S. companies are wealthy, but also because their U.S.-based trial lawyers have their own incentive to sue in the U.S. Not only do most of them prefer to do their work here in America, where they live, but some of these foreign countries have stricter limits on contingency fee arrangements than the U.S. does. Thus, the lawyers stand to make more money if foreign governments sue U.S. businesses in the U.S. than they would if these foreign governments sued firms in their own countries in their home courts.

Another factor leading some of these nations to sue in the United States is that some of these countries have "loser pays" laws in which the loser of a lawsuit pays the court expenses of the winner. Since these suits are a longshot for the plaintiffs, countries with "loser pays" laws face a real risk of paying the tobacco companies' costs if they sue at home and lose.

 

Who Will Prevail?

The countries filing these suits may believe that tobacco companies will settle these cases, just as they did with U.S. states. If so, they're probably wrong. U.S. tobacco companies settled with U.S. states because 1) U.S. states could, and in some cases did, change the applicable laws in their states just to make sure they'd win their suits (something American state legislatures will not do for foreign countries); 2) the tobacco companies' lawyers believed that U.S. jurors would be biased toward their own state governments if the cases went to court, but they don't believe that U.S. jurors will be biased toward foreign governments. Another key reason that U.S. tobacco firms are very unlikely to settle is that U.S. tobacco companies simply can't afford to settle foreign suits. Paying a tiny country like Guatemala is one thing, but if Guatemala gets a settlement, Brazil, Russia, India and China will most likely all demand a settlement in line with the size of their own, much larger, populations. U.S. tobacco companies simply don't have that kind of money.

Another reason U.S. tobacco companies won't settle is that the tobacco companies will probably win in court. Claims of damages by a foreign government due to the use of tobacco by private citizens are considered remote in comparison to claims by private individuals who assert that they used tobacco products without knowing they could be dangerous. Yet even suits by individuals have yet to prove successful for plaintiffs (after appeals), even when the plaintiffs are Americans.

 

Should the U.S. Sue Nations That Export Illegal Drugs?

The lawsuits by foreign nations, if they do succeed, could lead to interesting precedents, and ones these foreign countries would do well to consider before they proceed further. For instance, if it is appropriate to sue a U.S. firm for the health effects of tobacco - a product legally sold in each of these nations, and one which each of these nations taxes for revenue, making them at least partially responsible for its effects - then why couldn't individual Americans and our fifty states, thousands of localities and the federal government sue some of these countries for exporting cocaine and other illegal drugs? (After all, the U.S. spends billions fighting the importation of illegal drugs, and doesn't tacitly approve of them by taxing it and spending the proceeds.) If foreign countries can successfully sue the U.S. for reimbursement of health care costs relating to U.S. tobacco products, why can't the U.S., its states and localities sue foreign governments for the cost of medical, education, welfare and other expenses of illegal aliens from those countries - illegal aliens who not infrequently cross our border with the de facto blessing of their home government?

One might even picture Russia, which is contemplating a suit against U.S. tobacco companies if it can decide who in its government has the authority to file such a suit, being sued by the U.S. and perhaps all of NATO for the cost of conducting the Cold War. After all, if Russia had kept its promise and permitted democratic elections in Eastern Europe after World War II, the Cold War might never have occurred.

The nations filing or considering lawsuits in the U.S. against U.S. businesses for conducting legal commerce in their nations should consider this: lawsuits can go both ways. It would be far better if each sovereign nation simply took full responsibility for what is going on within its own borders, instead of trying to profit by claiming that others are responsible for it.

 

Conclusion

One of the criticisms of the lawsuits brought by U.S. states against tobacco companies was that, by filing suits, the states were taking to the courts policies that rightfully should have been decided by legislatures. Instead of suing tobacco companies, this argument went, states could ban tobacco or tax it at a level commensurate with the costs, such as health care costs, states take on because of tobacco. The fact that such a policy is workable is demonstrated by the fact that U.S. states already tax tobacco at a level higher than necessary to reimburse government costs, making tobacco a profit-maker for governments. This argument is appropriately applied to foreign governments that can more easily control the entry of tobacco into their nations than could any individual U.S. state.

Historically, the United States has often been criticized for involving itself in the internal affairs of foreign nations, especially in Latin America. It would be ironic indeed if the same Latin American nations that have complained about U.S. interference now persist in attempting to prove in U.S. courts that Americans are more responsible for what goes on in their home countries than they themselves are.

 


Footnotes

1 Saundra Torry, "New Attacks in the Tobacco Wars: Other Nations File Suit in U.S. Courts Seeking Damages from Industry," Newsday, January 20, 1999, p. A45; "Another Latin American Country Files Suit in the U.S. Against Tobacco Companies," Business Wire, December 10, 1999; "Venezuela Latest to Sue U.S. Tobacco Firms," Business Wire, January 28, 1999; "Venezuela Sues Big Tobacco," UPI, January 27, 1999; "Venezuela Sues Tobacco Industry in Miami," Reuters, January 27, 1999; "Venezuela Sues Tobacco Industry in Miami," Reuters, January 28, 1999.

2 Saundra Torry, "New Attacks in the Tobacco Wars: Other Nations File Suit in U.S. Courts Seeking Damages from Industry," Newsday, January 20, 1999, p. A45; "Another Latin American Country Files Suit in the U.S. Against Tobacco Companies," Business Wire, December 10, 1999; "Venezuela Latest to Sue U.S. Tobacco Firms," Business Wire, January 28, 1999; "Venezuela Sues Big Tobacco," UPI, January 27, 1999; "Venezuela Sues Tobacco Industry in Miami," Reuters, January 27, 1999; "Venezuela Sues Tobacco Industry in Miami," Reuters, January 28, 1999.

3 John Bacon, "Big Tobacco Set to Sign a $206 Billion Settlement," USA Today, November 23, 1998.

4 Torry, p. A45.

5 Carrie Johnson, "Smoke Ender: DC Judge Could Make or Break Foreign Lawsuits," Legal Times, March 29, 1999.


# # #


Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected]




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