Friday, July 20, 2012

Plain Packs: Dominican Republic v Australia

THE international legal campaign against Australia's controversial plain cigarette packaging laws is spreading, with a third country joining in a formal challenge at the World Trade Organisation.

The WTO announced overnight that the Dominican Republic, a leading cigar exporter, had joined Honduras and Ukraine in claiming that the plain packaging legislation breached Australia's commitments under global trade rules.

The case is shaping up to become the biggest trade dispute Australia has ever faced as a defendant. And while anti-smoking campaigners see it as driven by the big tobacco companies - Ukraine has not exported tobacco to Australia for years - it has the potential to overturn the anti-smoking law.

The WTO was set up to spread free trade, and defendants rarely win cases before its disputes panels. In recent times WTO panels have ordered Australia to end export subsidies (the Howe Leather case), and scrap state laws or quarantine rules to open our markets to Canadian salmon and New Zealand apples.

But the plain-packaging case is an unusual one. Observers say part of the interest in it is because it has significant implications for interpreting the Agreement on Trade Related Aspects of Intellectual Property Rights (known to its friends as TRIPS), signed in 1995 as part of the Uruguay Round.

The Department of Foreign Affairs and Trade has taken the unprecedented step of setting up a special branch-level taskforce to handle the WTO case and a second challenge, brought by Philip Morris Asia, which claims the laws breach Australia's investment treaty with Hong Kong. That case is now well advanced. A three-member disputes panel was set up in May under United Nations rules, to arbitrate on the cigarette company's claim that the plain-packaging law expropriates its intellectual property by forbidding it to use its own packaging.

Australia in reply pointed out that Philip Morris transferred ownership of its Australian arm to a Hong Kong-based subsidiary some 10 months after the legislation was announced. Critics say the move was a blatant example of ''forum shopping''.

The case before the WTO is still in the preliminary stage of consultations. Australia has refused to give ground, so the original complainants now have the option of requesting a disputes panel. That can take up to a year, and the loser then appeals, which can take another few months before there is a final ruling. Compliance with the ruling can take longer still.

The 12 countries that have joined the WTO consultations have a range of motives: three are neighbours of Honduras. Some, such as Indonesia, are significant tobacco producers; Indonesia's biggest tobacco maker Sampoerna, now part of the Philip Morris empire, withdrew its clove-flavoured Kretek cigarettes from Australia in 2009 rather than display the ghoulish warnings required by existing packaging laws.

But New Zealand has joined the case because it is considering similar legislation to Australia, and the European Union, which has interests on both sides, also signed up to the case as a neutral observer.