Cigarettes, health and political economy

All eyes should be on the new WTO dispute with Australia

Valbona Muzaka
Valbona Muzaka

As many of us would have noticed in our supermarkets, cigarette packs are no longer on display.  This is the most recent move to control and limit tobacco consumption and associated health concerns.

The UK is neither the first nor the only country to move in this direction, with a cigarette display ban first introduced in Iceland in 2001 and then in Canada, Thailand, Ireland, New Zealand and Australia, among others.

The display ban has not gone unchallenged by tobacco companies, of course. Philip Morris took it to the Oslo District Court in Norway, but the Court ruled this September that the ban was justifiable on public health grounds. On the other hand, protracted legal challenges by Imperial Tobacco in Scotland have delayed implementation of the ban there.

In the UK the ban on cigarette display earlier this year was followed by a review and public consultation from the Ministry of Health on introducing ‘standardised packaging’ on tobacco products, also known as ‘plain packaging’.  This is a strategy favoured by the World Health Organization (WHO) (see WHO Framework Convention on Tobacco Control) and might well mean that cigarette packs would display discomforting picture warnings of various smoking-related conditions (e.g. mouth cancer) and brand names would occupy only a small proportion of the pack. Other countries, such as Norway, New Zealand, Canada, India and some EU members, are contemplating similar measures.

Meanwhile, shops in Australia are already selling ‘standardised-packaged’ cigarettes – the first country in the world to do so. The law came in force recently, even though tobacco companies, like Philip Morris, British American Tobacco, Imperial Tobacco and Japan Tobacco, challenged it in Australia’s High Court on the basis that the rules breached their intellectual property (IP) rights, their trademarks, without compensation.

Philip Morris Asia also took the extra step of challenging the law under the Australia–Hong Kong Bilateral Investment Treaty on the basis that it amounted to expropriation and thus breached the Treaty’s provisions.

Although the setting is different, the Australian High Court case was reminiscent of the South African court case during the late 1990s when 39 foreign pharmaceutical companies challenged as unconstitutional certain changes made to the Patent Act designed to improve access to generic medicines. They eventually withdrew the case, not only because the basis for their challenge was legally weak, but also because of the strong worldwide public pressure placed on them.  Although there was no comparable pressure put on the tobacco companies in Australia, the country’s High Court ruled this August that the law did not breach the constitution.

The importance of this legal challenge for tobacco companies and health activists alike rests not so much on its direct impact on Australia (which actually doesn’t have a very high smoking rate), but on its ability to set a precedent for a tobacco control regime other countries may follow. Such measures are especially relevant to low- and middle-income countries that, according to the WHO, are home to 80% of the estimated 1 billion regular smokers worldwide.

Developing countries as a group have insisted for some time that intellectual property rules should not take precedence over public health. The South African court case was quickly followed by a formidable political challenge at the World Trade Organization (WTO) by these countries.  This led to the 2001 Doha Declaration on the TRIPS Agreement and Public Health, which stated that governments had the right to overrule IP protection to deal with public health.

But whenever developing countries have issued compulsory licenses for patented drugs (e.g. in Thailand, India, Brazil), they have come under considerable pressure from pharmaceutical companies and key developed countries’ governments alike.

The Australian ‘standardised-packaging’ law may change this picture, as several developing countries have challenged Australia’s tobacco regime at the WTO. In March, whilst the legal challenge in Australia was still ongoing, Ukraine (joined later by Honduras, the Dominican Republic and others) put it to Australia at the WTO that its new tobacco regime breached its IP obligations and posed unnecessary barriers to trade. A WTO panel was established in September to adjudicate the dispute, which has now become the WTO dispute with the largest number of third parties (35), including Brazil, India, China, the EU, the US, Japan, Canada and Malawi.

According to some accounts, Ukraine (alongside Honduras and the Dominican Republic) does not have extensive tobacco/cigarette trade with Australia, which suggests that its WTO challenge is likely to have been the result of ‘forum shopping’ (some claim payment, but this cannot be verified) on the part of tobacco companies concerned about the precedent set by Australia.

However, some developing countries with large tobacco producing interests (e.g. Brazil, India) have supported the new Australian tobacco regime, a position consistent with their stance on previous IP-public health conflicts. The position of China as the largest tobacco and cigarette producer is particularly important, but still uncertain. In earlier WTO meetings on this issue, it appeared to support the right of governments to use flexibilities in IP rules for public health reasons, but its position on the dispute remains to be seen.

Of course, it’s not only China, or other major tobacco/cigarette producers, that have been staring in the face of this dilemma. Governments everywhere have both an economic and social interest in the tax revenue and employment generated by the sector and a duty to protect the health of their population, not to mention the pressure to reduce healthcare costs.

At the moment, it’s unclear if Australia will be able to carry on with its new regime and, more importantly, if other countries will follow suit. The WTO panel will likely reach a decision in 2013. A decision in Australia’s favour would not only boost tobacco control measures, but also strengthen the case for overriding IP protection for public health reasons. What happens next is hugely important.