JURIST Guest Columnist Allyn Taylor of the Georgetown University Law Center says countries’ efforts to protect their citizens from the public health danger of tobacco may suffer a chilling blow from a successful tobacco company lawsuit in Australia…

On November 21, the Australian Parliament enacted the world’s first tobacco plain packaging law. This groundbreaking public health legislation requires that all tobacco products sold in Australia as of December 1, 2011, be in plain packages with no industry logos, promotional texts, brand imagery or colors. It also requires that all cigarettes be sold in drab, olive green packages and include expanded graphic health warnings covering 75 percent of the front of the pack and 90 percent of the back. Upon the legislation’s passage, the Australian Minister of Health and Ageing stated, “[t]oday, one of the most momentous public health measures in Australia’s history has been delivered by the Australian Parliament — legislation requiring the plain packaging of tobacco products.”

Although applauded by the public health community in Australia, the plain packaging legislation was greeted by swift and much anticipated legal action by tobacco giant Philip Morris which had long threatened legal proceedings if the plain packaging legislation was adopted. On the same day the legislation was promulgated by the Australian Parliament, Philip Morris Ltd. initiated legal proceedings against the Australian government on behalf of its Australian subsidiary to block the legislation from coming into effect. In addition, just one hour after the legislation was adopted, Philip Morris Asia Ltd. (PMA), a Hong Kong-based company, served a notice of arbitration under Hong Kong’s Bilateral Investment Treaty with Australia.

The World Health Organization (WHO) has long called upon countries to ban advertising and promotion of tobacco products to stem the growth of the world tobacco epidemic, which now kills an estimated six million persons per year. Pursuant to the 2003 WHO Framework Convention on Tobacco Control (FCTC), the first treaty adopted under WHO auspices, states party to the Convention are called upon to “undertake a comprehensive ban on all tobacco advertising, promotion and sponsorship.” The Convention defines promotion and sponsorship as “any form of commercial communication, recommendation or action with the aim, effect or likely effect of promoting a tobacco product or tobacco use either directly or indirectly.” With 174 state parties, the FCTC is one of the most widely subscribed to treaties in history and as more states have moved to fulfill their legal commitments under the FCTC to ban tobacco advertising and promotion, the tobacco package is taking on ever more importance as a mechanism to promote smoking amongst current and potential smokers. The tobacco industry has long understood the powerful marketing significance of cigarette packaging. It is widely recognized that the tobacco industry treats cigarette packaging as a critical marketing spot and invests significant research dollars to make their package design appealing to specific demographic groups, especially young people.

As noted by the distinguished scholar Simon Chapman in the British Medical Journal, “neutering the appeal of the once glamorous cigarette package has become a powerful weapon in tobacco control’s arsenal.” Instead of the traditional “glamorous” cigarette package, smokers in almost 50 countries today have to pull cigarettes out of a pack that contains large pictures of a diseased organ, a dissected lung or a limp penis. As Chapman notes, such graphic health warnings are part of a process of “denormalisation” of tobacco products. Plain packaging is the crowning next step in the “denormalisation” process by, as Chapman describes, “sending an unambiguous message that tobacco is unique in the marketplace as an exceptionally hazardous product.”

Although phrased as an investment dispute unrelated to health issues, the PMA investment dispute is at its core a clear effort to restrict the plenary authority of a sovereign nation to protect the public health of its population. PMA’s investment dispute claims that Australia is in breach of the Australia-Hong Kong Bilateral Investment Treaty [PDF] because the mandated plain packaging:

• Constitutes unlawful expropriation of PMA’s investments and intellectual property without compensation (Article 6.1);
• Fails to provide for equitable and fair treatment to PMA’s Australian investments (Article 2(2));
• Unreasonably impairs PMA’s investments in Australia (Article 2(2));
• Fails to provide full protection and security for PMA’s investments in Australia (Article 2(2)); and
• Breaches Australia’s international obligations in relation to PMA’s investments (Article 2(2)) by violating the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the Paris Convention for the Protection of Industrial Property and the WTO Agreements on Technical Barriers to Trade.

PMA’s use of the dispute resolution provisions of the Australia-Hong Kong Bilateral Investment Treaty is the newest piece in an emerging pattern of the tobacco industry invoking the international investment rules of bilateral investments treaties (BITs) to challenge the authority of governments to protect public health through measures designed to restrict cigarette marketing. In February 2010, Philip Morris alleged that Uruguay’s new tobacco regulations, which mandated that health warnings cover 80 percent of the package, violated several provisions of the Switzerland-Uruguay BIT and filed a request for arbitration with the International Centre for the Settlement of Investment Disputes (ICSID). Notably, in 1994, RJ Reynolds Tobacco Company (RJR) threatened to bring a claim against Canada’s proposed plain packaging legislation under the investment chapter of the North American Free Trade Agreement (NAFTA). Although the plain packaging initiative in Canada ultimately failed in 1995 when the Supreme Court of Canada invalidated the Canadian Tobacco Products Control Act, it is widely believed that the RJR NAFTA threat deterred the Canadian government from instituting plain packaging before the Court ruling and had a chilling effect on the public health regulatory ambitions of other countries.

As Australia is the first country in the world to introduce plain packaging, the legal dispute with PMA under the Australian-Hong Kong Investment treaty will be closely followed around the world, especially in countries such as the UK, Canada and New Zealand, which have been considering measures to severely limit cigarette branding to protect public health. It is of significant concern that the mere fact of this arbitration as well as the potential negative outcome may induce “regulatory chill” in other countries, especially in low-income states that do not have the resources to battle the tobacco industry. PMA is, undoubtedly, seeking to advance this “regulatory chill” by publicly announcing that it expects the arbitration to take several years and result in billions of dollars in compensatory damages.

The use of BIT investor-state arbitration provisions to dampen governmental efforts to regulate the marketing of tobacco products, including plain packaging, is a troubling development for national and global tobacco control. Countries need to redouble efforts and develop new strategies and measures to ensure that these agreements are not manipulated by the tobacco industry and that states retain the right to protect their populations. Unlike relevant WTO agreements, including TRIPS, bilateral investment treaties do not generally include provisions that provide states with flexibility to protect public health. In addition, despite the compelling public interest in this case, the Australian arbitration hearings, which PMA has requested be held under the rules of the UN Commission on International Trade Law, may be conducted in private, outside of Australia and by an ad hoc tribunal. Further, the proceedings may be completely lacking in transparency with neither the pleadings nor the final award ever made public.

Australia has announced that it will oppose the inclusion of investor-state arbitration in future free trade agreements, in part because of the challenges posed by the tobacco industry to its plain packaging legislation. It has also been widely recommended that Australia terminate or renegotiate existing bilateral treaties that have the potential to be manipulated by the tobacco industry. In light of the emerging trend of the tobacco industry to use BITs to block national public health measures, all states should strongly consider the need to renegotiate investment treaties to include exceptions for the protection of public health as well as eliminate investor-state arbitration provisions.

Allyn Taylor is a Visiting Professor of Law at Georgetown University Law Center and an Adjunct Professor in International Relations at Johns Hopkins University Paul H. Nitze School of Advanced International Studies (SAIS). She is also a faculty member of Georgetown’s O’Neill Institute for National and Global Health Law. She has served in many international organizations including as senior legal adviser to the WHO for the negotiation and the adoption of the Framework Convention on Tobacco Control.

Suggested citation: Allyn Taylor, Plain Packaging: Fighting the Chill of Investment Treaties, JURIST – Forum, Dec. 7, 2011, http://jurist.org/forum/2011/12/allyn-taylor-tobacco-suit.php.