Australia has defended itself against Big Tobacco this time - but no one is safe with ISDS


21 December 2015

One of the more infamous examples of corporations suing governments was resolved, at least in the short term, last week. The Australian government has successfully defended itself against an Investor State Dispute Settlement (ISDS) case brought by Philip Morris, the US cigarette manufacturer. The case was brought against the government for introducing the Tobacco Plain Packaging Act in 2011. It ordered that cigarettes should not be emblazoned with familiar and perhaps popular or enticing logos, but should carry explicit (and in many cases stomach-churning) health warnings.

Philip Morris correctly decided this would hit their sales, which was the entire point of the law in the first place. On 23 February 2011 in an exemplary show of corporate manoeuvring, Philip Morris Asia (based in Hong Kong) bought up shares in Philip Morris Australia, thus acquiring an investment in Australia in one of its wings based in a country with a trade agreement featuring ISDS with Australia. Hong Kong and Australia signed a Bilateral Investment Treaty known as the Investment Promotion and Protection Agreement in 1993.

This investment was instantly threatened by the law, and that was Australia’s key argument. After a well-publicised and unsuccessful campaign of opposition as the bill passed through parliament from the Australian wing of Philip Morris, the share sale was a last-ditch attempt to give the company a way to challenge the legislation in the courts. Essentially, Australia argued, the threat to the investment existed before the investment was made.

The ruling of the case is yet to be published, but from the comments made by Philip Morris, we can tell that the actual policy of plain packaging was not successfully defended and the result rested on more technical legal arguments. Marc Firestone, Philip Morris Senior Vice-President said:

This case has never been about a government’s undeniable authority to regulate in the public interest. Nor has there ever been any question that tobacco products merit strict oversight. In our view, the real point is simply this: Even when pursuing tobacco control objectives, governments are still accountable if they choose to use unlawful means. This is the essence of the rule of law.

Readers might interpret this as saying – if we can find a way legally to defend our profits, we will and to hell with your public health sensitivities. And readers might have a point.

There’s three key points to make from this decision as this stage:

Any regulatory chill experienced during the case continues. If a country, perhaps one less wealthy than Australia had similar ideas to introduce plain packaging and was holding back to see the outcome of the case, their fears will not have been allayed as the policy itself was not central to the tribunal’s decision. Philip Morris’ strategy is to induce reluctance for countries to act against smoking in public health measures. In fact Marc Firestone has said

There is nothing in today’s outcome that addresses, let alone validates, plain packaging in Australia or anywhere else.

Australia is not out of the woods yet. There is another case against the state for this policy, through the World Trade Organisation, with six countries making the claim: Ukraine, Honduras, Indonesia, Dominican Republic and Cuba. They are arguing that the Act passed in 2011 is inconsistent with Australia’s obligations under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights, the Agreement on Technical Barriers to Trade and the General Agreement on Tariffs and Trade 1994. The listed countries have been joined by 40 more countries as third parties. A decision on that case is expected in the latter half of 2016.

Finally there’s the question of costs. Margaret Chan, director general of the World Health Organisation in a speech in Washington in September reported that Australia had spent around $50 million in defending plain packaging. We can assume that’s in both the case with Philip Morris and the WTO case, but even in 2015 we can safely say that $50 million is a lot of money. 

The UK government having passed legislation in March 2015, will insist on standardised packaging for cigarettes from 20 May 2016. The measure has overwhelming public support. Philip Morris, British American Tobacco and Japan Tobacco International have each filed separate court cases against the government to stop the law.

This was never an argument over how laws are applied or generated, this is an attempt to deny a government’s “undeniable authority to regulate in the public interest”.

Photo: Kennington Fox/Flickr

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