For our fourth profile of Women in International Law Month, Editor-in-Chief Jennifer Tridgell sat down with the President of the Australian Human Rights Commission (AHRC), Professor Gillian Triggs. She is a highly accomplished international lawyer and academic, with experience on matters from commercial law to Indigenous rights. More
Does ISDS Promote FDI? Asia-Pacific Insights from and for Australia and India – Luke Nottage & Jaivir Singh
Treaty-based Investor-State Dispute Settlement (ISDS) keeps attracting media attention. An example is a social media campaign by the ‘GetUp!’ group, which aims generally ‘to build a progressive Australia and bring participation back into our democracy’, objecting to ratification of the Trans-Pacific Partnership (TPP). This free trade agreement (FTA), signed in February 2016, encompasses Australia and 11 other Asia-Pacific economies generating around 40% of world GDP. Whether and how the TPP will be ratified and come into force has become very uncertain anyway, after the unexpected victory of Donald Trump in US presidential elections. Although Trump seems already to be backtracking on some of his pre-election positions, he had been opposed to the US ratifying the TPP and indeed favoured renegotiation of the longstanding North American FTA with Canada and Mexico. Both FTAs include the option of ISDS, allowing foreign investors to bring direct claims against host states for violating substantive commitments such as non-discrimination or adequate compensation for expropriation.
Nonetheless, taking advantage of the extra uncertainty now surrounding the TPP, China is already trying to get Australia’s support to progress negotiations for a broader FTA, establishing a “Free Trade Area of the Asia-Pacific” (FTAAP). China had been pressing for a FTAAP as it had not been included in TPP negotiations. After the TPP was signed, China had also tried to accelerate negotiations for the Regional Comprehensive Economic Partnership (RCEP or ASEAN+6) FTA, underway since late 2012 and involving ten Southeast Asian states along with China, Japan, Korea, India, Australia and New Zealand. Ministerial statements and a leaked draft Investment Chapter indicate that ISDS provisions remain on the negotiating agenda for RCEP (Kawharu, Amokura and Nottage, Luke R., Models for Investment Treaties in the Asian Region: An Underview, 2016).
Public opposition to ISDS therefore remains an important issue, particularly in the Asia-Pacific region. Legal professionals need to engage with this debate and understand the pros and cons of this dispute resolution procedure, especially the investor-state arbitration mechanism. On the one hand, the GetUp! Campaign against the TPP had focused on the risk of Australia being subject to ISDS claims especially from US investors, in light of their claims against Canada under the North American FTA. Yet damages awarded by arbitrators or through settlements amount to only 0.05% of US FDI in Canada, and the latter’s investors bring more ISDS claims per capita than US investors.
On the other hand, the GetUp! campaign did not adequately explain or consider why and how ISDS commitments are made. Host states have increasingly offered such protection to foreign investors in investment treaties since the 1970s. Bilateral investment treaties (BITs) proliferated especially as communist states began to open up their economies from the 1990s. Bilateral and regional FTAs, usually with investment chapters also containing ISDS protections, were concluded after the collapse of efforts to develop a multilateral investment agreement through the World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD).
The extra option of treaty-based ISDS was seen as a more direct and less politicized procedure compared to inter-state dispute settlement. The latter is still typically provided in investment treaties (but hardly ever used), as well as for trade disputes under the WTO (where, for example, Australia has only been complainant in seven cases – last in 2003). Credible commitments through ISDS-backed treaties were seen as particularly important for developing countries where domestic courts and legal protections did not meet international standards.
Yet ISDS has recently become a lightning rod for public opposition to FTAs (and economic globalization more generally), often after host states are subjected to their investment treaty claims (Nottage, Luke R., Rebalancing Investment Treaties and Investor-State Arbitration: Two Approaches,, 2016). For example, major debate emerged in India after Australia’s White Industries won a claim in 2011 under UNCITRAL Arbitration Rules as provided by the BIT with India (signed with Australia in 1999). The tribunal found that India had not satisfied the promised “effective means” for the investor to enforce a commercial arbitration award (against an Indian SOE). This and subsequent claims prompted the Indian government to finalise a revised (less pro-investor) Model BIT in December 2015 It is now being used in negotiating new BITs (eg that signed with Cambodia in 2016) and indeed when proposing to terminate older-generation treaties (including with Australia).
Similarly, Philip Morris Asia’s much larger claim initiated in 2011 under a BIT signed in 1993 with Hong Kong, for alleged expropriation of trademarks from Australia’s tobacco plain packaging legislation, led to escalating local media coverage – until the arbitral tribunal rejected jurisdiction in 2015 (Hepburn, Jarrod and Nottage, Luke R., Case Note: Philip Morris Asia v Australia, 2016). This cause celebre also became a factor behind the Gillard Government Trade Policy Statement announcing in 2011 a major shift for Australia: eschewing ISDS in new treaties, even with developing countries (Nottage, Luke R., The Rise and Possible Fall of Investor-State Arbitration in Asia: A Skeptic’s View of Australia’s ‘Gillard Government Trade Policy Statement’, 2011). This resulted in no significant FTAs being concluded, until a new Coalition Government gained power in late 2014 and reverted to including ISDS on a case-by-case assessment (Nottage, Luke R., Investor-State Arbitration Policy and Practice in Australia, 2016). The current Labor Opposition maintains its objections to ISDS, creating difficulties for Australia to ratify the TPP.
Australia’s temporary shift was partly due to politics: in 2011 the (centre-left) Gillard Labor Government was in coalition with the Greens, who are even more opposed to free trade and investment. But the stance also relied on arguments from some economists, even though they instead favour more free trade and foreign investment, albeit through unilateral or perhaps multilateral initiatives rather than bilateral or even regional FTAs. Developing the latter perspective , a majority report of the Productivity Commission in 2010 into Australia’s FTAs had argued against the common world-wide practice of offering foreign investors extra procedural rights such as ISDS. It did concede that such extra rights might be justified, for example if they led to greater cross-border flows in foreign direct investment (FDI). Yet the Commission pointed to a few studies suggesting that, on an aggregate (world-wide) basis, ISDS-backed treaty provisions had not significantly increased flows.
A recent econometric study by Luke Nottage (a co-author of this posting) with Shiro Armstrong casts doubt on that observation (Armstrong, Shiro Patrick and Nottage, Luke R., The Impact of Investment Treaties and ISDS Provisions on Foreign Direct Investment: A Baseline Econometric Analysis, 2016. After an extensive review of existing empirical research and associated methodological issues, their study instead found positive and significant impacts from ISDS provisions on FDI outflows from OECD countries over 1985-2014, using a Knowledge-Capital Model with a dynamic panel indicator (effectively addressing the problem of endogeneity in variables). This impact on FDI could be found from ISDS provisions on their own, especially when ISDS was included in treaties signed or promptly ratified with non-OECD or less developed countries. The econometric study by Armstrong and Nottage also found a positive and significant impact from ISDS provisions when combined with the Most-Favoured-Nation provision, which is a key and indicative substantive treaty commitment for foreign investors. (This aspect was tested because the “strength” of treaties can vary in terms of substantive commitments by host states: we might not expect much impact on FDI even from ISDS provisions if the substantive protections and liberalisation commitments are few.)
Counter-intuitively, however, the study found that in general FDI impact was even larger for weaker-form ISDS provisions. This could be due to investors historically having been impressed by a broader “signaling” effect from states concluding investment treaties. Yet the impact from ISDS provisions also seems to be diminishing since 2001, when ISDS claims started to pick up world-wide and therefore investors (or at least legal advisors) could have begun to pay more attention to the details of ISDS and other treaty provisions. Reduced impact since 2001 may be related to more efforts from host states to unilaterally liberalise and encourage FDI. However, it could also be due to a saturation effect (as treaties began to be concluded with less economically important partner states), or indeed due to less pro-investor provisions being incorporated into investment treaties (influenced by more recent US practice, partly in response to ISDS claims (Alschner, Wolfgang and Skougarevskiy, Dmitriy, Mapping the Universe of International Investment Agreements, 2016.
Further variables impacting on FDI (such as double-tax treaties) could be investigated, as can regional differences. Data limitations also remain, as there is now considerable FDI outflow from non-OECD countries. Nonetheless, this baseline study suggests that it has been and still may be risky to eschew ISDS provisions altogether. In particular, results indicate a strong positive effect on FDI flows from ratified investment treaties overall even from 2001. So states would have missed out on that if they had insisted on omitting ISDS, and this then became a deal-breaker for counterparty states.
Further econometric research underway at a Delhi-based thinktank suggests that India was correct not to abandon ISDS provisions altogether in its revised Model BIT (and to retreat from an even less pro-investor earlier draft of the Model BIT. While this study by Jaivir Singh (one of the co-authors of this posting) and his colleagues is still ongoing, preliminary results (using instead a gravity-type model) find that although the signing of individual BITs had an insignificant impact on FDI inflows into India, the cumulative effect of signing BITs is significant and so is the coefficient associated with the signing of FTAs. Since almost all of India’s investment treaties provide for full ISDS protections, these preliminary results suggest that ISDS can have a positive influence on foreign investment, albeit in a non-obvious compound manner.
Overall, these studies suggest that ISDS-backed treaty provisions liberalising and protecting FDI have had a significant impact, but in complex and evolving ways. Agreeing to dialed-back ISDS provisions and even substantive commitments (perhaps following recent EU preferences may be an acceptable way forward. This is true especially for Australia and India, as they continue negotiations bilaterally as well as through RCEP, and perhaps eventually for the FTAAP FTA.
Luke Nottage is Professor at University of Sydney Law School & Jaivir Singh is Associate Professor at Jawaharlal Nehru University, Delhi.
This post draws on Nottage’s joint project researching international investment dispute management, funded by the Australian Research Council (DP140102526, 2014-7); and Singh’s ongoing project assessing the impact of investment treaties on FDI in India, for the Indian Council for Research on International Economic Relations. Singh was a visitor at the University of Sydney in October 2016. The article was first published by the Asia-Pacific Forum for International Arbitration, and republished here with permission.
Political Hurdles for International Trade Deals Promote Transparency; Proliferation of Plain Packaging Laws and Associated Disputes
In the last few months there have been several key developments in international economic law:
- The passage of both the Trans-Pacific Partnership (TTP) and Transatlantic Trade and Investment Partnership (TTIP) has been delayed due to political hurdles between the EU and the US. Local debate in the EU and US as to the benefits and costs of investor-state dispute settlement procedures (ISDS) has also arisen. While the US Congress has passed legislation to assist their adoption of the TPP, the current European political climate has made the future direction of ISDS in the EU unclear; and
- Norway has announced it will implement standardised cigarette packaging while major tobacco companies have challenged UK plain packaging laws.
Political hurdles for the TTP lifted
After hitting repeated stumbling blocks in US Congress, the Trade Promotion Authority legislation (TPA legislation) eventually made headway. On 25 June 2015, the US Senate approved the TPA legislation and on 29 June the US President signed it into law.
The TPA legislation grants President Obama the power to submit completed trade agreements to Congress for a straight up-or-down vote without the possibility of amendment. The legislation was approved in the Senate late last month, following a debate as to the merits of ISDS.
On the international front, there have been ongoing negotiations in areas of trade and investment, particularly with respect to market access and intellectual property.
The previous ministerial level meetings of TPP member countries were postponed, reportedly due to the TPA legislation not being in place. However, negotiators did meet in Guam to discuss issues of intellectual property, textiles, investment and labour. It is anticipated that the passage of the TPA legislation will facilitate the resolution of the remaining contentious issues in the TPP negotiations, which include tariffs and quota removal on agriculture, with non-tariff barrier reductions on other goods.
While major US labour unions have lobbied against both the TPA legislation and the TPP on the basis that American workers would be detrimentally affected (by, for example, displacing local manufacturing and service sector jobs), business organisations have identified the trade deal as important in ‘levelling the playing field‘ for American businesses.
Political hurdles for the TTIP and ISDS
The European Parliament’s international trade committee (INTA) has outlined a series of recommendations in support of the TTIP’s trade and investment agenda, but the EU’s preferred format of the ISDS mechanism that it will formally propose to the US is far from clear. This follows the EU’s suspension of TTIP trade talks in early 2014 for the purpose of holding public consultations that were prompted by the ‘unprecedented public interest‘ in the negotiations.
INTA has proposed an independent arbitration court with publicly appointed judges and an appellate mechanism. This model is based on proposals from the EU Commission that were released in early May 2015.
The Commission’s proposals addressed the relationship between ISDS and domestic courts, including:
- the right to regulate in the public interest; and
- improving the function of arbitral tribunals through, for example, a permanent multilateral court and appellate mechanism to arbitrate investment disputes.
These proposals were based on the ISDS mechanism contained in a trade agreement negotiated between the EU and Canada (CETA) last year. The EU Commission has stated that the CETA ISDS is both innovative in its substance and procedure.
INTA made further recommendations on investment protection provisions, which were reportedly the result of a compromise between the European Parliament’s two largest groups, the Socialists & Democrats and the European People’s Party. INTA’s recommendations are not binding, but are indicative of whether any agreement would be approved before a full session of the European Parliament.
Tobacco plain packaging
Developments have arisen in the sphere of tobacco plain packaging disputes. In its WTO claim against Australia, Ukraine made a request to suspend proceedings. Australia has supported this request. Ukraine based its decision to suspend its action on limited resources as well as absent ‘economic logic’. Whilst it is not clear how long the suspension will last, under the Dispute Settlement Understanding, Ukraine is allowed up to 12 months before the WTO Panel’s authority will lapse.
Meanwhile, Norway issued a notification under the WTO Technical Barriers on Trade Agreement, that it is proposing a requirement for all tobacco products to be sold in standardised packaging. Norway explained that the proposal will involve ‘uniform layout and design on all tobacco packaging, as well as a ban on manufacturers’ logos, trademarks, images, colours or other forms of advertising’. It is not clear when the new requirements will enter into force.
In the UK, tobacco companies British American Tobacco and Philip Morris have challenged the legality, under both English and EU law, of the UK’s plain packaging laws before the High Court. It is argued that the laws deprive the tobacco companies of trademark rights without fair compensation as well as preventing the free movement of goods.
In a press release, British American noted that it ‘did not ultimately prevail’ in its challenge against Australia’s plain packaging laws in the High Court owing to a ‘unique requirement in the Australian constitution that meant it would only win the case if it could prove the Australian Government had received a benefit by removing its brands’. British American stated that no such requirement exists in the UK.
Kyle Dickson-Smith, FCIArb. is an international lawyer and arbitration counsel at Appleton & Associates International Lawyers, who specialises in trade law and investment treaty disputes, such as the NAFTA. The views expressed in this article are those of Kyle Dickson-Smith and are not attributable to Appleton & Associates.
Plain packaging of tobacco products in the WTO – Globalisation and the increase of tobacco usage – Pauline Wilson
This article is the second in a series that investigates and reports on the disputes over Australia’s tobacco plain packaging measure in the World Trade Organization (WTO). Plain packaging for tobacco products has been debated intensively in the WTO for over three years and the panel is expected to continue until at least the first half of 2016 (see Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (WT/DS 435, WT/DS 434, WT/DS 441, WT/DS 458, WT/DS 467)) (28 April 2014).
The last article examined the introduction of plain packaging legislation in Australia, the efficacy of the measure and the challenges being brought against it at the WTO. This article examines the relationship between trade liberalisation and tobacco usage. In doing so, it highlights the important role of international courts and tribunals, including the WTO Panel and Appellate Body, in maintaining a coherent international legal system.
Does trade liberalisation contribute to increased tobacco usage?
During the 1980s, the US threatened sanctions and retaliation under the General Agreement on Trade and Tariffs (GATT) against Japan, South Korea and Taiwan unless they opened their markets which were closed to foreign tobacco companies. In response to this pressure, those countries opened their markets to foreign tobacco companies, increasing their populaces’ tobacco usage. In 1989, the US challenged Thailand’s 1966 Tobacco Act for placing limitations on American tobacco companies. A GATT panel found against Thailand in 1990, forcing it to open its market to tobacco multinationals.
These cases illustrate how international trade agreements and state pressure have indirectly facilitated the proliferation of western tobacco in developing countries, which increases rates of smoking. A report by the World Health Organisation (WHO Report) has found that the link between trade liberalisation and increased tobacco consumption is strongest in low and middle-income countries. The WHO Report also found that foreign direct investment (FDI) leads to higher rates of tobacco consumption. This is because FDI is an alternative pathway to accessing a foreign market with high barriers to trade. The finding is in line with basic trade theory, which suggests that liberalising a market will increase competition and efficiency in the supply of a product to that market. Other factors, including marketing, tobacco advertising, promotion and sponsorship, and the international movement of contraband and counterfeit cigarettes, have also contributed to the explosive increase in tobacco usage.
In order to combat the rise of tobacco consumption and disease globally, governments have employed increasingly strict tobacco control measures. Australia was in fact not the first country to consider plain packaging for tobacco products. New Zealand first recommended that cigarettes be sold only in white packs with black text and no colours or logos as early as 1989. In 1995, the Canadian parliament passed a plain packaging law which was ultimately struck down by its Supreme Court. Presaging the negative reaction of the tobacco industry to global plain packaging reform, Phillip Morris threatened to reduce future investment in Canada in response to its plain packaging laws. Upon the release of Australia’s draft legislation, Imperial Tobacco stated it would ‘make every effort to protect its brands and associated intellectual property and … take legal action’. The approaches of Phillip Morris and Imperial Tobacco reflect the tobacco industry’s general position, which is to pursue every avenue to challenge implementation of plain packaging.
Regional and bilateral free trade agreements provide one such avenue for tobacco control laws to be challenged. For example, Philip Morris Norway made a challenge under the European Economic Area Agreement against Norwegian bans on the display of tobacco products at the point of sale.
The tobacco industry is also using its rights under international investment agreements to challenge tobacco control and regulation. In addition to the challenges made under the Australia–Hong Kong bilateral investment treaty, Philip Morris Switzerland recently brought a similar claim against Uruguay, arguing that its tobacco packaging measures violate the Switzerland–Uruguay bilateral investment treaty.
The increase in bilateral and multilateral free trade and investment agreements provides tobacco companies with a resource with which to disrupt reform.
Supporting and internationally coherent legal system
Tobacco companies are seeking redress in domestic courts, international arbitral tribunals and the WTO. The use of multiple fora is contributing to the wider dilemma of ‘conflicting rules and clashing courts’. This poses the threat of undermining international law generally because its diversification and expansion is leading to ‘the fragmentation of international law’.
Fragmentation is characterised by Pieter Jan Kuijper as a ‘deplorable development’ which is brought about by a decrease in the application of general principles of international law in specialised jurisdictions, including WTO proceedings. The International Law Commission (ILC), on the other hand, characterised it as a natural consequence of the expansion and specialisation of different areas of international law. Either way, WTO panels and the Appellate Body should be ensure that they interpret opposing norms harmoniously given the dangers of further fragmentation.
The ILC identifies several approaches to establish an internationally coherent legal system. These include:
- relationships of interpretation, where one norm assists in the interpretation of another using the Vienna Convention on the Law of Treaties;
- relationships of conflict, which refers to the case where two norms that are both valid and applicable point to incompatible decisions so that a choice must be made between them; and
- the principle of harmonisation, which is a generally accepted principle that when several norms bear on a single issue they should, to the extent possible, be interpreted so as to give rise to a single set of compatible obligations.
As providing security and predictability to the multilateral trading system is an overarching goal of WTO dispute settlement, it is important that this forum is able to harmonise the conflict between international trade and domestic and global health policy.
The Framework Convention on Tobacco Control (FCTC) is important to the harmonisation process as it clarifies existing standards and key protections in relation to public health and tobacco control.
The entry into force of the FCTC in 2005 was a decisive moment for global tobacco control. It is an evidence-based treaty developed in response to the globalisation of tobacco consumption and related harm. Ratifying the FCTC places all parties under an obligation of good faith (pacta sunt servanda) to abide by the minimum legal standards outlined in the treaty and to not to undermine the objectives set out in it. In addition to minimum commitments, parties are ‘encouraged to implement measures beyond those required by this Convention and its protocols’. This is further supported by the object and purpose of the FCTC, which states that the parties are ‘determined to give priority to their right to protect public health’. As of 2015, there are 180 parties to the FCTC in contrast to the WTO with 161 members. In fact, there are just eight WTO members not party to the FCTC, two of which are challenging Australia’s measure.
Another solution may lie in mechanisms found in non-WTO treaties with trade related aspects, including multilateral environmental agreements (MEA). The Cartagena Biosafety Protocol to the Biodiversity Convention — which has seven more signatories than the WTO — not only has a provision relating directly to trade and environmental agreements, but also advances the principle of mutual supportiveness. This is a principle by which international legal rules are to be understood and applied as reinforcing each other with a view to fostering harmonisation and complementarity, as opposed to conflicting relationships.
So far, no action affecting trade and taken under an MEA has been challenged in the WTO system. However, the WTO Trade and Environment Committee recognises that MEAs provide internationally agreed solutions for trade problems, which it says better than one country trying to change another countries’ environmental policies on its own. It is possible that the principle of mutual supportiveness, and other trade facilitative measures, can assist the WTO Panel and Appellate Body to interpret WTO provisions in a fashion which supports international legal coherence.
The next article in the series will look at how the FCTC should be used to interpret Australia’s obligations under WTO law in a manner which is consistent with general international law.
Pauline Wilson recently graduated from an LLM at the University of Amsterdam with a focus on international trade and investment law. Prior to that she graduated from the ANU with a combined Bachelor’s of Arts and Law.
Australia was the first — and until very recently the only — country to introduce mandatory plain packaging for all cigarettes and tobacco products. Australia’s Tobacco Plain Packaging Act 2011 (Cth) (Act) prohibits the use of brands, logos and colours on all cigarette and tobacco products and on packaging imported, manufactured or sold in Australia. On 9 March 2015, Ireland followed Australia’s example and enacted similar plain packaging laws.
Since the introduction of the Australian measure, five members of the World Trade Organization (WTO) have requested dispute settlement with Australia (WT/DS 435, WT/DS 434, WT/DS 441, WT/DS 458, WT/DS 467). Indeed, there is widespread interest in the outcome of the disputes pending at the WTO. This is the first of a series of articles that will investigate and report on the proceedings against Australia in the WTO.
Whilst the Australian market for cigarettes is relatively small, and although the majority of tobacco products sold here are manufactured domestically and are not imported, the primary concern of the tobacco industry (and hence tobacco producing countries) is the precedential effect of Australia’s introduction of plain packaging – this has potential for global significance. If Australia’s policy is not thwarted at the WTO (or in another dispute forum, including the Investor State Arbitration with Phillip Morris Asia), the policy may encourage a global ‘olive revolution’, with the international dissemination of drab olive coloured plain packaging with large health warnings for tobacco products. Such a movement would deprive the tobacco industry of its last semblance of control over the advertising and marketing power upon which its profitability depends.
Why did the Australian Government introduce plain packaging?
On 1 December 2011, the Act became law in Australia. Its purpose is to improve public health, give effect to Australia’s obligations as a party under the Framework Convention on Tobacco Control (FCTC), and to contribute to FCTC objectives by regulating the retail packaging and appearance of tobacco products (see ss 3(1)(a), (b) and 3(2) of the Act). The Act forms part of a comprehensive strategy to reduce the rate of smoking in Australia (see National Tobacco Strategy 2012-2018).
Tobacco is the only legally available consumer product that, when used in the manner intended by the manufacturer, will kill a third to a half of all people who use it. As such, the goal of the strategy is ‘[t]o improve the health of all Australians by reducing the prevalence of smoking and its associated health, social and economic costs, and the inequalities it causes’. In combination with other discouraging tactics — including health warnings, taxation and prohibiting point-of-sale visibility — the Act aims to reduce smoking in Australia to ten percent of the population by 2018. A key objective behind plain packaging is to reduce the uptake of smoking by young people, because evidence suggests their demographic is most influenced by packaging aesthetics (discussed further below). The issue remains however, whether plain packaging is successful in contributing to the broader regime of reducing Australia’s rate of smoking, compared to other measures like increased taxes and health warnings.
Is plain packaging effective?
The Australian Government frames the public health policy quandary regarding cigarettes by stating that:
it is impractical to ban the purchase of a product that so many people find so difficult to quit, [and] governments the world over have accepted that it is unethical to encourage use of tobacco and appropriate to legislate to prevent all forms of its promotion (see National Tobacco Strategy 2012-2018).
Australia’s previous regime (including taxation and large graphic warnings) did not achieve the desired level of reduction in tobacco consumption. The Australian Government also prohibited all forms of tobacco advertising in 1992. Thus, plain packaging is the final avenue available to the government, other than prohibition, to achieve the required level of protection. At the same time, the cigarette and its packaging is the last marketing tool of the tobacco industry to attract and retain customers.
Packaging differentiates brands, which is particularly important in homogenous consumer products such as cigarettes. Tobacco companies promote their products through branding and package design, creating preferences, differentiation and identification. Indeed, advertising and promotional activities by tobacco companies are shown to cause the onset and continuation of smoking among youth. Hence, advertising on cigarette packets can influence one’s choice to smoke.
Research prior to the introduction of Australia’s policy shows that plain packaging, by removing most brand design elements, is successful in decreasing cigarette brand image associations. Moreover, plain packaging can render a smoker’s image ‘less cool’ and ‘less attractive’. Researchers also note that colouring affects sensory and hedonic ratings, signals product attributes and determines the consumer’s final perception of the product, thus influencing price and quality perceptions. For example, white, blue and green tones of menthol cigarettes denote a refreshing and soothing product. On the other hand, the white and red packaging of Marlboro’s chevron strengthens the consumer’s psychological association with brand identity. Ultimately, plain packaging laws covering all aspects of cigarette design – from sticks to packaging inserts, cardboard and wrapping – standardises the appearance of all tobacco brands, greatly reducing the status-signalling role and appeal of cigarettes.
The tobacco industry presents a number of strong arguments against plain packaging. These include that:
- there is insufficient evidence the measure will reduce smoking;
- the legislation will not be effective;
- retailers’ businesses will be damaged;
- competition will be diminished; illicit trade will be increased; and
- international agreements concerning intellectual property will be breached.
These arguments, combined with the threat of litigation, have led all countries (except Australia and now Ireland) that had previously considered implementing plain packaging in their jurisdictions to abandon it. Nonetheless, evidence exists to refute these arguments.
On 24 May 2011, Cancer Council Australia published a review of the evidence that finds that plain packaging reduces the uptake of smoking by young people. Some important findings include how colouring and imagery contribute to consumers’ misperceptions that certain brands are safer than others. Removing colours and misleading terms such as ‘smooth’, ‘gold’ and ‘silver’ reduces false beliefs about the harmfulness of cigarettes. In addition, young people and adults perceive cigarettes in plain packs as less appealing, less palatable, less satisfying and of lower quality compared to cigarettes with branded packaging. The study reinforces previous research that plain packaging alters perceptions about the characteristics and status of people who smoke brands. It is also shows that the intensity of opposition by the tobacco industry against plain packaging suggests they believe such measures will reduce sales and company profits.
In addition to the growing evidence supporting plain packaging, WTO jurisprudence allows members a degree of deference in determining their own levels of protection or regulatory outcomes (see Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled And Frozen Beef, WT/DS161/AB/R WT/DS169/AB/R (11 December 2000)). This may, in part, be in recognition of the fact that every effective public health measure started as an experiment at some stage. WTO jurisprudence recognises that there will inevitably be gaps in scientific knowledge. This means that health policy that is based on limited emerging evidence may still justify a departure from trade commitments to the WTO. Jurisprudence also accepts that there may be a degree of uncertainty regarding scientific evidence (see Appellate Body Report, Canada – Continued Suspension of Obligations in the EC – Hormones Disputes, T/DS321/AB/R (14 November 2008)). Thus, given that there is a growing evidence base supporting the efficacy of plain packaging, Australia is in a strong position to argue that there is sufficient evidence to establish that the measure contributes to its overall tobacco reduction strategy.
Pauline Wilson recently graduated from an LLM at the University of Amsterdam with a focus on international trade and investment law. Prior to that she graduated from the ANU with a combined Bachelor’s of Arts and Law.