Smoke or smokescreen: The plain packaging case at the WTO

Australia is the first country to introduce laws on restricting logos, branding, colors and promotional text on tobacco packets in a bid to cut smoking rates, infuriating big tobacco companies. The law has attracted opposition from some countries who have raised a trade dispute at the WTO against Australia challenging their legislation.

Recently, Indonesia joined the battle with the four other (Cuba, the Dominican Republic, Honduras and Ukraine) tobacco-producing nations in challenging Australian health laws. Opposition countries have argued that the law violates Australia’s obligations under the TRIPS, TBT Agreement and GATT.

The tobacco companies are already pursuing the matter under Hong Kong-Australia BIT. They have argued that the plain packaging legislation constitutes an expropriation or deprivation of their investments in two Australian companies because of its detrimental impact on the value of the trademarks of these companies.

The Dispute Settlement Understanding (DSU)

DSU under the WTO Agreement is claimed to be one of the most significant outcome of the Uruguay Round Negotiations. This understanding aims to provide security and predictability to the multilateral trading systems (Article 3.2). A strict regime of enforceability and exclusive jurisdiction to deal with complaints filed under the WTO confer upon DSU a character that is unique in public international law. The WTO dispute system applies to all disputes brought under the WTO agreements listed in appendix 1 of the DSU, referred to as Covered Agreements. WTO obligations extend only to Member governments, those that have acceded to the WTO agreement. Member governments can approach the DSB for establishment of a panel when they feel that to secure their existing or potential trade interest there is a need to determine their WTO rights and obligations in relation to other members.

Some facts about trade in tobacco products between the complainants and Australia

Without prejudice to the objective of the DSU, we seek to examine the trade interests of the complainant parties in this case regarding their trade in tobacco products with Australia. We seek to establish that trade interests in the product may not be the reason for the complaint.

How much tobacco and tobacco products does Australia import?

What we see in the figure 1 is that tobacco forms a very small part of the total imports of Australia. In fact, even this miniscule share can be seen to be showing a decline from the comparatively higher figure of 0.23% in 2002 to 0.13% in 2011. It would be illuminating to also see the share of the complainant countries in the total imports of tobacco into Australia (Fig. 2). There is a comparatively larger role for Dominican Republic in the total imports of tobacco into Australia. The first complainant, viz. Ukraine does not have any exports of tobacco to Australia. Even Honduras has next to nothing share in the tobacco imports of Australia.

Importance of tobacco as an export commodity

We now examine how important is tobacco as an export commodity to the complainant parties.

Fig. 3 above shows that first complainant in this case, viz. Ukraine did not have major export interest in tobacco or tobacco products, with the share of tobacco in total exports not even touching 1%. The share of tobacco in the exports of two other complainants, viz. Honduras and the Dominican Republic was comparatively much greater – in the case of Honduras increasing to over 6% in 2011 and between 2-4% in the case of Dominican Republic. Further, while in the case of Ukraine this low share has remained stagnant or decreasing, in the case of Honduras it has shown an increase over the period displayed. In the case of Dominican Republic, it shows no discernible trend.

We now examine the importance of Australia as an export market to these countries. For this purpose we look at data of all exports to Australia as a percentage of total exports as well as tobacco exports to Australia as a percentage of total tobacco exports.

The picture that emerges is that Australia is a minor market for tobacco exports of the three countries.

Is it necessary to have a trade interest to raise a dispute?

It is a matter of Disputes Jurisprudence that there is no reason to establish actual injury to raise a dispute.

“In EC—Bananas III, the European Communities argued that a complaining party must normally have a legal right or interest in the claim it is pursuing. The Appellate Body stated that no provision of the DSU contains any such explicit requirement. The Appellate Body also held that “a Member has broad discretion in deciding whether to bring a case against another Member under the DSU”. While the Appellate Body stressed that Members are “self-regulating” in their decisions whether to bring a case, it also added that “ the United States is a producer of bananas, and a potential export interest by the United States cannot be excluded. The internal market of the United States for bananas could be affected by the European Communities banana regime, in particular, by the effects of that regime on world supplies and world prices of bananas” ” (WTO Analytical index on DSU)

As such there is no legal bar on a complainant such as the Ukraine from asking for a panel in the instant case. However, two non-legal points need to be made in this regard:

1. The Australian law on plain packaging of cigarettes is a good step on the part of social welfare and public health. Australian perspective on the trade of tobacco products is completely different from the complainant countries. From the exporting countries point of view, law on plain packaging of cigarettes would reduce the total share of tobacco imports in Australia. On the other hand, Australia import basket includes only 0.2% share of total tobacco products to the total imported products. In any case, a public policy instrument created in the wider interest of the citizenry should not be rolled back to provide trade opportunities for trading partners, both current and possibly potential. A similar enforcement of trade access taking primacy over public health was the cause of the Opium Wars of the first half of the 19^th
2. Disputes are expensive business. They entail not just a high cost of litigation on account of legal fees for the parties involved but also the overall cost of the process to the WTO. If the potential gain from the dispute is not readily visible, it is a moot point whether such costs should be incurred by a developing country right now. In the present context it is quite evident that countries which have small share in tobacco exports to Australia seem to exhibit a large interest in Australia’s plain packaging law on cigarettes.

The present structure of the DSU can be subject to use by non-state actors who may seek to protect their commercial interests by encouraging the complainants to raise the dispute. While the legality of the case is not being questioned the economic bases of the complaint may be not support the action.