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Tobacco industry uses trade pacts to try to snuff out anti-smoking laws

A pack of Marlboro Menthol cigarettes intended for sale in Australia. As of Dec. 1, all cigarettes sold in the country must be sold in plain packaging with graphic warnings covering 75 percent of the front and 90 percent of the back of the pack under a groundbreaking law.

As countries around the world ramp up their campaigns against smoking with tough restrictions on tobacco advertising, the industry is fighting back by invoking international trade agreements to thwart the most stringent rules.

A key battlefront is Australia, which is trying to repel a legal assault on its groundbreaking law requiring cigarettes to be sold in plain packs without distinctive brand logos or colors. Contesting the law, which takes effect Dec. 1, are the top multinational cigarette makers and three countries — Ukraine, Honduras and Dominican Republic — whose legal fees are being paid by the industry.


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The dispute underlines broader concerns about trade provisions that enable foreign companies to challenge national health, labor and environmental standards. Once a country ratifies a trade agreement, its terms supersede domestic laws. If a country’s regulations are found to impose unreasonable restrictions on trade, it must amend the rules or compensate the nation or foreign corporation that brought the complaint.


In the case of Australia’s plain packaging law, the tobacco industry and its allies are challenging the measure as a violation of intellectual property rights under trade agreements the nation signed years ago.

Public health advocates fear the legal attack will deter other countries from passing strong measures to combat the public health burdens of smoking. The “cost of defending this case, and the risk of being held liable, would intimidate all but the most wealthy, sophisticated countries into inaction,” said Matthew L. Myers, president of the Campaign for Tobacco-Free Kids in Washington D.C.

The advocates also say countries should be free to decide how best to protect public health, without being second-guessed by unelected trade panels. Moreover, they argue, tobacco products, which kill when used as intended, should not be afforded the same trade protections as other goods and services.

Worldwide, nearly 6 million people a year die of smoking-related causes, according to the World Health Organization, which says the toll could top 8 million by 2030. With fewer people lighting up in wealthy nations, nearly 80 percent of the world’s 1 billion smokers live in low- and middle-income countries.

Marlboro, the world's top-selling brand, is shown packaged under labeling laws of, clockwise from upper left, the U.S., Egypt, Djibouti, Hungary.

Countries have been emboldened to pass more stringent measures by the Framework Convention on Tobacco Control. In effect since 2005, the treaty has committed about 175 nations to pursue such measures as higher cigarette taxes, public smoking bans, prohibitions on tobacco advertising, and graphic warning labels with grisly images such as diseased lungs and rotting teeth (The U.S. has signed the treaty, but the Senate has not ratified it. The U.S. Food and Drug Administration has ordered graphic warnings for cigarette packs, but an industry court challenge on 1st Amendment grounds has stalled the rule.)

Cigarette makers say they acknowledge the hazards and the need for regulations. “We actually support the vast majority of them,” said Peter Nixon, vice president of communications for Philip Morris International, which has its headquarters in New York, its operations center in Switzerland, and is the biggest multinational cigarette maker with 16 percent of global sales.

Bans on cigarette ads spread
But the industry has watched with growing concern as more than 35 countries have adopted total or near-total bans on cigarette advertising. Its big profits depend on consumer recognition of its brands. Yet in many countries, the once-ubiquitous logos and imagery are receding, leaving the cigarette pack as a last refuge against invisibility.

Now the pack, too, is under attack. Along with plain packaging laws such as Australia’s, countries are weighing retail display bans that keep cigarette packs out of view of consumers, and laws requiring graphic health warnings so large that there is barely any room for trademarks. Tobacco companies contend that countries enforcing such rules are effectively confiscating their intellectual property and must pay damages.

The industry also claims that measures like plain packaging are counterproductive. “We see no evidence — none at all — that this will be effective in reducing smoking,” Nixon of Philip Morris International said in an interview. In fact, he said, generic packaging likely will increase sales of cheap, untaxed counterfeit smokes, thus increasing consumption.

Todd Rosenberg / Philip Morris

Louis Camilleri, chairman and CEO of Philip Morris International.

Louis C. Camilleri, chairman and CEO of Philip Morris International, drew a line in the sand in remarks to Wall Street analysts in November, 2010. The company would use “all necessary resources and…where necessary litigation, to actively challenge unreasonable regulatory proposals,’’ Camilleri said, specifically mentioning plain packaging and display bans.

Up to now, tobacco-related trade disputes have mostly involved quotas or tariffs meant to protect domestic producers from foreign competition.  

The key issue now, though, isn’t traditional trade barriers, but whether health regulations unduly restrict the movement of goods. In challenging anti-smoking rules, the industry has drawn on global treaties, such as the 1994 pact known as TRIPS (the Agreement on Trade Related Aspects of International Property Rights), that include broad protections for intellectual property and foreign investment.

In the hands of aggressive corporations, such long-standing provisions have become ‘’the ticking time bomb for this century as governments tackle problems like tobacco, the environment, obesity, access to essential medicines,” said Myers of the Campaign for Tobacco Free Kids.

Two recent legal decisions showed that such cases are no slam dunk for the industry.  In September, a court in Oslo, Norway, rejected a lawsuit by Philip Morris Norway AS that challenged the country’s retail display ban. The company had claimed that in enforcing the ban, Norway had violated the European Economic Agreement by failing to adopt the least trade-restrictive measures to achieve its public health goals.

The court, siding with Norway’s government, found that other measures would not be as effective in insuring that “as few as possible youngsters begin to smoke.’’

Australia also triumphed in the first round of its legal defense of plain packaging. Rejecting a lawsuit by the four top global companies -- Japan Tobacco Inc. and Imperial Tobacco, along with British American and Philip Morris International — Australia’s High Court upheld the law as legal and constitutional. 

The law requires that all cigarettes be sold in drab olive-brown packs, with pictorial warnings covering 75 percent of the front and 90 percent of the back.

The goal is to reduce “the attractiveness and appeal of tobacco products to consumers, particularly young people,” a spokeswoman for Australia’s Department of Health and Ageing said in an email to FairWarning.

But two major challenges remain.

Australia law challenged under trade pacts
In one, Philip Morris Asia has accused Australia of violating a 1993 bilateral trade pact between Hong Kong and Australia. Such agreements, known as investor-state treaties, allow a foreign investor by itself to bring an arbitration claim for damages against a country.

The case is before an arbitration panel of the U.N. Commission on International Trade Law.

In the other, Ukraine, Honduras and the Dominican Republic earlier this year brought their challenges before the World Trade Organization.

The complaint in March by Ukraine was a striking paradox. Its trade ministry filed the challenge within hours of Ukraine’s president signing a ban on tobacco advertising, and its parliament voting to ban public smoking — revolutionary moves in chain-smoking Eastern Europe. Trade officials took the action despite Ukraine having no tobacco exports to Australia, and therefore no apparent financial interest in its anti-smoking policies.

But prodded by the tobacco industry, the trade ministry branded the plain packaging law as a violation of intellectual property rights that Australia was bound to protect.

Honduras and the Dominican Republic soon joined the attack on Australia, filing similar complaints with the WTO.

Cigarette makers are paying for heavyweight lawyers to represent the three countries. 

As company representatives have told FairWarning, Philip Morris International is paying the firm of Sidley Austin to represent the Dominican Republic, while British American is picking up legal expenses for Ukraine and Honduras. 

“We are happy to support countries who, like us, feel plain packaging could adversely affect trade,” said British American spokesman Jem Maidment. 

It’s not unusual in trade disputes for corporations to give legal assistance to governments with mutual interests. In this case, however, the three countries appear to have little, if any, direct stake in Australia’s tobacco control policies.

While tobacco exports from Ukraine to Australia are nonexistent, exports from Honduras and Dominican Republic in the past three years have averaged $60,000 (U.S.) and $806,000, respectively, according to figures from Australia’s Department of Foreign Affairs and Trade.

Responding in April to an inquiry from Ukrainian journalists, the country’s Ministry of Economic Development and Trade said it had “a policy of supporting Ukrainian producers and protecting their interests in the internal and external markets.” In this case, the ministry said, it had “received concerns” about Australia’s law from the Ukrainian Association of Tobacco Producers, made up of the top tobacco multinationals, and from the Union of Wholesalers and Producers of Alcohol and Tobacco Association. 

Konstantin Krasovksy, a tobacco control official in Ukraine’s Ministry of Health, told FairWarning the countries had allowed themselves to be used. “Honduras, Dominican Republic and Ukraine agreed to be a prostitute,” he said.

Honduran officials, in an April press release, said Australia’s law ‘’contravenes’’ its trade obligations. It noted that the tobacco industry “employs several hundred thousand people directly and indirectly throughout the supply chain in Honduras.”

The Dominican Republic, a major cigar exporter, also said plain packaging “will have a significant impact on our economy.”  In a written statement to FairWarning, Katrina Naut, director general for foreign trade with the country’s Ministry of Industry and Commerce, said that if other countries join Australia in adopting plain packaging, it will lead to falling prices for name-brand tobacco products and “an increase — rather than a decrease — in consumption and illicit trade.” 

Uruquay vs. Philip Morris
Among supporters of Australia, none is more vociferous than the government of Uruguay. It recently told the WTO’s Dispute Settlement Body that the global trading system “should not force its Members to allow that a product that kills its citizens in unacceptable and alarming proportions continues to be sold wrapped as candy to attract new victims.”

Uruguay’s stance reflects its own high-stakes battle with Philip Morris.

The tobacco giant has challenged Uruguay’s requirement of graphic warnings on 80 percent of cigarette packs. Philip Morris is also fighting a rule that limits cigarette marketers to a single style per brand, making it illegal to sell Marlboro Gold and Green along with Marlboro Red.

The challenge by Swiss units of Philip Morris cites a 1991 bilateral treaty between Switzerland and Uruguay. Since filing the complaint in 2010, the tobacco company has also closed its only cigarette factory in Uruguay.

The regulations “are extreme, have not been proven to be effective, have seriously harmed the company’s investments in Uruguay,” according to a statement by Philip Morris International.

Uruguay, with a population of less than 3.5 million and an annual gross domestic product of about $50 billion, seems a poor match for the tobacco giant, which had sales of $77 billion in 2011.

Amid reports that government officials were seeking a face-saving settlement, Bloomberg Philanthropies announced in late 2010 that it would fund the legal defense of Uruguay’s anti-smoking laws. New York Mayor and businessman Michael R. Bloomberg, an ardent tobacco foe, affirmed the support of his namesake charity in a call to Uruguayan President Jose Mujica.

Eduardo Bianco

Advocates fear other countries may have a harder time standing their ground. “Bloomberg has been very generous, but his resources are not unlimited and he can’t pay to defend every tobacco regulation in every country,” said Chris Bostic, deputy director for policy for the group Action on Smoking and Health.

The Uruguay case could be pivotal, said Dr. Eduardo Bianco, president of the Tobacco Epidemic Research Centre  in Uruguay. “If they (Philip Morris International) succeed with Uruguay they would send a clear message to the rest of the developing countries: ‘take care about us, you can be next.’"

FairWarning (www.fairwarning.org) is an online, investigative news organization based in Los Angeles that focuses on safety and health issues.

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