Australian Cigarette Packaging Law Hits a Nerve with Developing Countries

15 June 2011

A debate pitting public health considerations against private intellectual property rights took centre stage at last week's meeting of the WTO's Council on Trade-Related Aspects of Intellectual Property Rights (TRIPS). At the 7-8 June meeting, members voiced diametrically opposed views on Australia's recent bill on cigarette packaging.

Australia's Tobacco Plain Packaging Bill 2011, a draft law that aims to make tobacco products less attractive to consumers, drew criticism from various members, particularly from developing country tobacco exporters. The Dominican Republic was one of the bill's strongest detractors, citing the difficulties that producers in small and medium-sized economies would face in remaining competitive in the tobacco market due to the bill.

Under the new legislation, cigarettes sold in Australia would have to be sold in packages of one colour and package shape only; health warnings would cover a significant portion of the packaging.

The Dominican Republic - a major cigarette producer - predicted that the legislation might actually backfire. Under the influence of the bill, market competition would come down to price only, as non-price factors - such as packaging - would no longer be a way for brands to compete against each other. Packaging costs would decrease, putting additional downward pressure on price. The resulting price drop, they said, might increase cigarette consumption.

While recognising Australia's right to protect the public health of its citizens, the Dominican Republic felt that the law might be inconsistent with Australia's obligations under the TRIPS agreement, particularly TRIPS Article 20 (other requirements) and Article 6bis of the Paris Convention for the Protection of Intellectual Property dealing with well-known marks, which is referred to under Article 2(1) of TRIPS.

Article 20 of the TRIPS Agreement, which pertains to trademarks, prohibits trademark usage from being "unjustifiably" held back by special requirements during the course of trade; these special requirements include the "use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings."

The Dominican Republic felt that the special format for presenting brand names would limit the impact of trademarks in allowing consumers to distinguish cigarettes from different, competing producers - i.e. putting the Australian law at odds with Canberra's obligations under TRIPS' Article 20.

Various developing countries spoke out in agreement with the Dominican Republic's concerns, including Honduras - which discussed its own experiences regulating tobacco packaging. Honduras is also a major cigarette producer, with recent data from Tobacco International placing it at the top of Central American producers and exporters. Honduras' legislation on cigarette packaging was also amended recently, but in the opposite direction: Tegucigalpa reduced the space for health warnings on cigarette packaging from 80 percent to 50 percent. The decision, which came on 21 February, dismayed Honduran anti-tobacco groups.

Other countries backing the stance taken by the Dominican Republic and Honduras were Cuba - another major cigarette producer - Ecuador, Mexico, Nicaragua, the Philippines, Ukraine, and Zambia.

Australia, meanwhile, found allies in neighbouring New Zealand, along with Norway and Uruguay. Others, like Brazil, Chile, and China, were less sure of their stance of the subject, suggesting that the issue requires further analysis.

India, while recognising that scientific research supports the public health argument for plain packaging, noted that the TRIPS Agreement provides negative instead of positive rights for intellectual property rights holders. As such, member states can take measures focused on promoting public health objectives in line with Article 8 of the TRIPS Agreement, which states: "Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition," with the caveat that those measures must be "consistent" with the Agreement's provisions.

In its own defence, Australia insisted that its law is in line with its TRIPS obligation, and that the measure is just one part of a multi-pronged approach to tackle tobacco consumption at home.

The bill would enter into force on 1 July 2012; Australia notified the WTO about the legislation on 8 April this year.

Business groups, cigarette companies in uproar

Outside the WTO, the new requirements have come under fire from US business groups, along with cigarette companies themselves. The US Chamber of Commerce, the National Association of Manufacturers, the National Foreign Trade Council, and various other US business groups issued a joint statement on 1 June outlining their concerns. They alleged that "plain packaging risks establishing a precedent of [intellectual property] destruction for an entire industry through government mandate," while questioning the public health benefits of the proposal.

In a 6 June submission to Australia's Department of Health and Ageing regarding the legislation, British American Tobacco Australia (BATA) - Australia's leading cigarette company - requested more time to implement the new requirements, calling the current timetable "unrealistic." BATA is a member of the international tobacco group British American Tobacco, which also accounts for a large part of cigarette production and sales in Central America.

BATA also voiced general opposition to the plan, regardless of the timetable. In its submission, BATA cited "significant legal obstacles to implementation" relating to intellectual property and international trade law. BATA echoed the concerns of the US business groups regarding the bill's health benefits, insisting there was a "lack of evidence" that plain packaging would reduce tobacco consumption.

The Australian cigarette company has already submitted an appeal to the Australian Federal Court on the subject, requesting access to the legal advice that the Department of Health received about cigarette plain packaging in 1995, when a similar proposal was being considered.

According to BATA, the advice that the government received pertained to the policy's consistency with Australia's international commitments - information that BATA claims is necessary if the cigarette giant is to play an active role in the public debate on the subject. The court recently granted BATA's request to move the appeal forward from November to August.

Australian Trade Minister Craig Emerson has publicly defended the measure. "It's in the public health interests of the Australian people and the Gillard government will never give up Australia's sovereign right to look after the health of its people," he said in a statement.

Uruguay connection

Uruguay, which supported Australia at the TRIPS Council, has its own history with regard to the cigarette packaging debate. In Uruguay's case, this has played out not at the WTO, but under investment law. In February 2010, Swiss-based cigarette giant Philip Morris strongly objected to Uruguay's decision that health warnings must cover 80 percent of each cigarette package (see Bridges Weekly, 10 March 2010).

The company subsequently filed an arbitration case at the World Bank's International Center for Settlement of Investment Disputes (ICSID) arguing that Montevideo's regulations violate the bilateral investment treaty between Uruguay and Switzerland. The tobacco company put forward that the measure is unnecessary, and that the Uruguay decision was therefore equivalent to the country expropriating Philip Morris' intellectual property without compensation.

Philip Morris also alleged that the South American country failed to treat its investment fairly and equitably; and had unreasonably impaired the use of its investment. As recently as May 2011, Uruguay was ready to answer Philip Morris' claims at the tribunal, preparing a legal defence on the grounds that public health takes precedence over company investments. The case is still ongoing.

The company's decision to challenge Uruguay under an international investment agreement highlights the different possible methods for settling investment and trade disputes. A WTO dispute would need to be taken up by a member government, while many international investment agreements permit the foreign investor to arbitrate directly with the host government.

In effect, the investor-to-state dispute mechanism extinguishes the political considerations inherent in the WTO's government-to-government procedure, including public health reasoning. Also, unlike WTO dispute settlement, investment arbitration disputes provide for compensation damages to the investor.

ICTSD reporting; "Developing nations hit at tobacco pack plan," THE AGE, 9 June 2011; "Tobacco pleads for pack delay," THE AUSTRALIAN, 8 June 2011; "Philip Morris takes Uruguay to international court because of tobacco-ban policy," MERCOPRESS, 26 May 2011; "Cigarette packaging appeal expedited," SYDNEY MORNING HERALD, 7 June 2011; "WTO won't stop plain cig packs: Minister," SYDNEY MORNING HERALD, 9 June 2011; "Congreso reforma artículo de ley para el control de tabaco," TIEMPO, 23 February 2011; "Tobacco giant Philip Morris suing Uruguay over ban," UPI, 27 May 2011.

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