Cigarettes and health: eyes on the new WTO dispute against Australia

Valbona Muzaka - King's College London

As many of us would have noticed in our supermarkets, cigarette packs are no longer in display, the most recent move to control and limit tobacco consumption and associated health concerns and costs. The UK is neither the first nor the only country to move in this direction, with cigarette display ban being introduced first in Iceland in 2001 and then in Canada, Thailand, Ireland, New Zealand and Australia, among others.

The display ban has not gone unchallenged by tobacco companies, of course. Philip Morris challenged the ban in the Oslo District Court when it was introduced in Norway, but in September 2012 the Court ruled that the display ban did not constitute a barrier to trade and was justifiable on public health grounds. Protracted legal challenges by Imperial Tobacco in Scotland have meant that the implementation of the ban has been delayed there, now awaiting the decision of the Supreme Court in London on the merits of the appeal.  

The ban on cigarette display earlier this year was followed by a review and public consultation from the Ministry of Health on introducing ‘standardised packaging’ on tobacco products, also known as ‘plain packaging’, a strategy favoured by the WHO (see the WHO Framework Convention on Tobacco Control). Should the government move in this direction, cigarette packs would display discomforting picture warnings of various smoking-related conditions (e.g. mouth cancer), while brand names would occupy a small proportion of the pack. Other countries such as Norway, New Zealand, Canada, India and some EU members are contemplating similar measures. 

In the meanwhile, shops in Australia are already stocking up and selling standarised-packaged cigarettes, making it the first country in the world to do so. The law came in force recently, after considerable lobbying efforts by tobacco companies against it, arguing, among other things, that the law would make the entry of harmful substandard cigarettes from other countries easier. 

Tobacco companies Philip Morris, British American Tobacco, Imperial Tobacco and Japan Tobacco subsequently challenged the law in Australia’s High Court on the basis that the rules introduced were unconstitutional, as they breached companies’ intellectual property (IP) rights, namely their trademarks, without any compensation. 

On a separate move, Philip Morris Asia took the step of challenging the law not only in Australia’s courts, but also under the Australia – Hong Kong Bilateral Investment Treaty on the basis that it amounted to expropriation that breached the Treaty’s provisions.

Although the setting is different, the Australian High Court case is reminiscent of the South African court case during the late 1990s when around 39 foreign pharmaceutical companies challenged certain changes made to the Patent Act with a view to improve access to generic medicines as unconstitutional, claiming they breached companies’ IP rights. Companies eventually withdrew the case not only because the basis for their challenge was legally weak, but also because of the strong worldwide public pressure placed on them.  There was no pressure on tobacco companies to withdraw their case, but much to their consternation, the Australian High Court ruled this August that the law did not breach the constitution.  

The importance of this legal challenge for tobacco companies and health activists alike rests not only on the impact it will have on Australia (which, compared to other countries, does not have a very high smoking rate), but on its ability to set a precedent for a tobacco control regime other countries may follow. These measures and associated legal challenges are especially relevant to low- and middle-income countries that, according to the WHO, are home to 80% of the estimated 1 billion regular smokers worldwide.  

Developing countries as a group have insisted for some time now that intellectual property rules should not take precedence over public health. Indeed, the South African court case mentioned above was followed immediately by a formidable political challenge at the WTO by developing countries that led to the 2001 Doha Declaration on the TRIPS Agreement and Public Health, essentially stating in clear terms that governments had the right to overrule IP protection to deal with public health concerns. Despite the practice being neither illegal under international IP rules nor widespread, whenever developing countries have issued compulsory licenses for patented drugs (e.g. Thailand, India, Brazil), they have come under considerable pressure from pharmaceutical companies and key developed countries’ governments alike. 

The Australian standardised packaging law, however, may change this picture somewhat, as a number of developing countries have challenged Australia’s tobacco regime at the WTO. In March this year, when the legal challenge in Australia was still ongoing, Ukraine (joined later by Honduras, the Dominican Republic and others) sought consultations with Australia at the WTO, arguing that its new tobacco regime breached its IP obligations (trademark) and posed unnecessary barriers to (cigarette/tobacco) trade. A panel was established in September at the WTO to adjudicate the dispute. At the time of writing, this has become possibly the WTO dispute with the largest number of third parties (35), including Brazil, India, China, the EU, the US, Japan, Canada and Malawi.  

According to some accounts, Ukraine (alongside Honduras and the Dominican Republic) do not have extensive tobacco/cigarette trade with Australia and their challenge at the WTO is likely to have been the result of ‘forum shopping’ (some claim payment, but this cannot be verified) on the part of leading tobacco companies that are concerned about the precedent set by Australia. 

Nonetheless, Zimbabwe, Nicaragua and some other Central American countries have consistently argued that tobacco production is an important sector on which many of their farmers depend.   

However, some developing countries with large tobacco producing interests (e.g. Brazil, India) have support the new Australian tobacco regime, a position consistent with their stance on previous IP-public health conflicts. The position of China as the largest tobacco and cigarette producer is particularly important. In earlier WTO meetings on the subject, China appeared to support the right of governments to use flexibilities in IP rules for public health reasons, although its position on the WTO dispute remains to be seen. 

Of course, it is not only China, or other major tobacco/cigarette producers, that have been staring in the face of this dilemma. Governments everywhere have both an economic and social interest in the tax revenue and employment generated by the sector, and the duty to protect the health of their population, not to mention the pressure to reduce healthcare costs. 

At the moment, it is unclear if Australia would be able to carry on with its new regime and, more importantly, if other countries will follow suit. The WTO panel will likely reach a decision in 2013. A decision in Australia’s favour would boost not only tobacco control measures, but also strengthen the case for overriding IP protection for public health reasons, a conflict that so far has been seen to have limited the policy space available to (developing countries’) governments.