WTO Panel Upholds Australia Plain Packaging Policy for Tobacco Products

5 July 2018

A WTO dispute panel said last week that Australia’s plain packaging policy for tobacco products is in line with global trade rules, following years of litigation between Canberra and four countries over the measure’s legality. The case was filed by Cuba, the Dominican Republic, Honduras, and Indonesia. 

The dispute ruling itself, issued on Thursday 28 June, numbers nearly 900 pages, and involves one of the most high-profile WTO cases seen in recent years. It has also highlighted the relationship between public health, trade, and intellectual property rights, drawing interest and scrutiny from a wide range of stakeholder groups. 

Years of litigation

Australia enacted its plain packaging legislation in 2011, which took effect the following year in order to give companies time to adjust their production practices. The policy was crafted following a legislative process dating back to 2008, and involves setting strict requirements on how tobacco products can be packaged for sale. For example, tobacco goods cannot use logos, brand imagery, or promotional text, and their packaging, including the appearance of brand name, company name, variant name, or other legally allowed marks must be made in a uniform size, colour, and format.

The four complainants mentioned above, along with Ukraine, had all filed WTO disputes in response to the Australian policy, with Honduras filing the first consultations request in April 2012 and the others following suit in 2012 and 2013. Ukraine, one of the complainants, later dropped its claim in 2015.

The remaining complainants claimed that the plain packaging requirements restricted trade, hurt their ability to protect and promote their trademarks, and violated other aspects of global trade rules. A trademark is “a sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings,” according to the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). (See Bridges Weekly, 11 June 2015)

Plain packaging was just one of several Australian measures aimed at tobacco control, which proponents say was essential at addressing the severe public health risks posed from smoking. Other measures included mandatory health warning requirements, tobacco advertisement restrictions, taxation measures, sale retractions, full or partial consumption bans, anti-smoking campaigns on social media, and measures to curb illicit tobacco trade. Those measures were not challenged in the WTO cases.

Australia was one of the first countries to implement tobacco plain packaging, amid growing international interest in pursuing tobacco control policies. Many of these have emerged following the entry into force of the World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) in 2005. The FCTC parties also adopted guidelines for FCTC provisions covering packaging and labelling of tobacco products, as well as tobacco advertising, promotion, and sponsorship-related matters.

The WTO disputes attracted around 40 members to participate as third parties, along with drawing submissions from industrial groups, health advocacy organisations and UN health agencies, and associations specialised in intellectual property rights protection.

In its rulings, the panel said that, when looking at plain packaging with the context of Australia’s various other tobacco control measures, the plain packaging requirements are within the reasonable boundary as allowed by global trade rules. The panel thus found no violation of WTO laws.

The rulings mark another Australian legal victory in defending its public health policy, following failed challenges from tobacco companies in an investor-state investment dispute (ISDS) in 2015 and in a constitutional challenge decided by Australia’s highest court in 2012. (See Bridges Weekly, 25 May 2016)

Australia’s overall tobacco control scheme

The Australian measures, including the marking, labelling, and packaging requirements, set out detailed, mandatory characteristics for tobacco products, the panel said. Therefore, these qualify as “technical regulations” falling under the scope of the WTO’s Agreement on Technical Barriers to Trade (TBT Agreement).

Under the TBT Agreement, members are not allowed to create “unnecessary obstacles to international trade” via their technical regulations. In a dispute, complainants must provide evidence that first establishes that the measures are “more trade restrictive than necessary to achieve the contribution it makes to the legitimate objectives, taking account of the risks non-fulfilment would create,” according to the panel.

In its analysis, the panel repeatedly emphasised the importance of viewing the plain packaging measures in the context of Australia’s entire, multi-faceted tobacco control scheme. For instance, the panel commented that the measures “operate to support and complement the effectiveness of these other measures, by avoiding regulatory gaps (in respect of advertising and promotion) and ensuring that other tobacco efforts aimed at raising awareness of the harmful effects of smoking (including [health warnings] and social media campaigns] are not undermined.”

The panel reviewed the design, structure, and intended operation of the plain packaging measures, alongside actual data on smoking behaviours since the Australian legislation took effect. Overall, the panel found that together with other tobacco control measures, plain packaging requirements can and do make a “meaningful contribution” to Australia’s objective of curbing tobacco use and exposure.

The panel disagreed with the options that complainants proposed as alternatives to the existing Australian measures. Complainants had suggested, for example, increasing taxes, raising the minimum legal purchasing age, enacting improved social marketing campaigns, or setting up an approval mechanism to evaluate individual features of tobacco packaging on a case-by-case basis.

The panel viewed all of these as insufficient, either because they would not do enough to curb the appeal of tobacco products to consumers, provide the necessary health warnings, or ensure that products with prohibited packaging features do not accidentally make it onto the Australian market.

As a result, the panel said that the plain packaging measures were “not more trade-restrictive than necessary,” in line with what the TBT Agreement mandates.

Intellectual property claims

Another major aspect of the complaints concerns the trademark protection obligations under the WTO’s TRIPS Agreement. 

The panel dismissed all of those claims, saying that complainants failed to prove the measures would affect the acceptance and registration of trademarks, or the rights of trademark owners to take legal action against trademark infringements, among other reasons. The panel also disagreed with the complainants’ argument that measures would compel market players to engage in unfair competition.

In assessing the reasonableness of the measures under the TRIPS Agreement, the panel also referred to its analysis of the evidence under the TBT Agreement, together with the emerging multilateral public health policies as reflected in the FCTC and its associated, “relevant,” guidelines.

The panel also referred to the WTO’s Doha Declaration on TRIPS and Public Health on various occasions throughout the report, noting that the text has “further emphasised the importance of public health as a legitimate policy concern” of WTO members.

Australia adopted an “appropriate policy intervention” to address its public health concerns in relation to tobacco products, and therefore this did not constitute an “unjustifiable encumbrance” on the use of trademarks “in the course of trade” as prohibited by the TRIPS Agreement, according to the panel.

Legal fees, chilling effect

Australia is not the only country that has had to defend its tobacco control policies from legal challenges. Uruguay, for instance, faced over five years of litigation under the Switzerland-Uruguay bilateral investment treaty (BIT), with the ISDS tribunal dismissing the claims of tobacco giant Philip Morris in 2016. (See Bridges Weekly, 14 July 2016)

Similarly, the UK’s plain packaging policy, approved by lawmakers in 2015, has faced multiple complaints from several tobacco companies, with the suits struck down by the UK Supreme Court in April 2017.

A few days after the WTO panel report, Rex Patrick, an Australian Senator from the Centre Alliance party, published the legal costs of Australia government in defending the plain packaging policy. The data was released following a two-year transparency request. The figure amounted to A$39 million (US$28.8 million at today’s exchange rates), which only considers the costs paid during the ISDS case under the Hong Kong-Australia BIT.  It does not factor in the costs of the state-to-state WTO dispute, for example.

Public health advocates warn that these legal cases can create a “regulatory chill,” specifically by discouraging or preventing governments from putting in place or implementing new laws promptly, which would have significant implications for public health efforts to reduce tobacco use and exposure.

According to the World Health Organization (WHO), tobacco is responsible for seven million deaths annually. While the vast bulk are these deaths are of smokers or other tobacco users, nearly 900,000 are the result of non-smokers being exposed to “second-hand” smoke caused by others.

The organisation has termed the problem as being “one of the biggest public health threats the world has ever faced,” and has noted the disproportionate impact on developing economies, which are home to the vast majority of the world’s smokers.

In the Trans-Pacific Partnership (TPP) Agreement signed in 2015, there is a “carve-out” for tobacco control measures from investment arbitration. In other words, a party to the trade pact can choose not to allow ISDS to be used for tobacco control-related claims. That carve-out has remained in place following the revision of the agreement, endorsed by 11 of the original 12 signatories earlier this year. The accord is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The scope of ISDS was narrowed down further in the succeeding CPTPP Agreement, through the suspension of select provisions in the investment chapter and intellectual property rights chapter, as well as side agreements between individual CPTPP countries.

Parties, international organisations respond

Australian officials have publicly praised the WTO dispute result, with Trade Minister Steven Ciobo and Rural Health Minister Bridge McKenzie jointly calling the panel ruling a “significant win for the country as we continue to work hard towards reducing the damaging effects of smoking.” Similar public praise has also emerged from WHO officials as well as from public health groups.

Meanwhile, an official from Honduras told the Reuters news agency that their country intends to appeal the ruling, which other complainants have not yet confirmed their plans for next steps. Should the result be appealed, a final ruling from the WTO’s Appellate Body could take years, given both the complexity of the case, as well as resource constraints and the various vacancies on the highest global trade court.

ICTSD reporting; “Australia wins landmark WTO ruling on plain tobacco packaging,” REUTERS, 28 June 2018.

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