The United States, a large tobacco producing country, campaigned to expand cigarette exports to make up for declining demand in the United States due to increased awareness of health/environmental risks associated with smoking.
In April of 1989, the CEA (US Cigarette Exporters Association) filed an unfair trade practices petition against Thailand under Section 301 of the 1974 Trade Act. The complaint, which was accepted by the United States Trade Representative (USTR), alleged that Thailand's state-owned tobacco company (the Thailand Tobacco Monopoly) unfairly restricted imports and sales of foreign cigarettes. Thai officials maintained that the prohibition of foreign cigarettes was a legitimate measure "necessary to protect the health of Thai citizens." Bilateral negotiations in 1989 made little progress. This fact, together with U.S. anti-smoking pressure, caused the USTR to refer the section 301 case to the General Agreement on Tariffs and Trade (GATT).
The GATT encourages open markets by limiting the extent to which members direct trade through instruments of trade control rather than prices.
It thus prohibits quantitative restriction and other forms of protection except for customs tariffs. This prohibition includes internal taxes and other measures that discriminate against imports, including internal government regulations operating to protect domestic goods, such as bans on the internal sale of imported products.
However, GATT prohibitions on trade restrictions are not applied without exception. GATT Article XX recognizes certain protective measures "necessary to protect human, animal, or plant life or health," as long as these measures are not "applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade."
During the course of the GATT proceedings, the United States argued inter alia that the Thai restrictions prohibiting cigarette imports were inconsistent to the GATT articles which...