Mike Seccombe
Big Tobacco’s plan to stub out plain packaging

A couple of weeks ago, they met in sub-freezing Toronto. The time before that, in steamy Singapore.

The battle between Australia’s trade lawyers and those of the world’s biggest tobacco company, Philip Morris, involves a lot of air miles and clothing changes, untold millions of expense, and a lot of secrecy. No one is saying exactly what, if anything, was achieved in Toronto.

Above all, the process involves lots and lots of delays.

It’s now been well over two years since the tobacco company began action against this country, under the provisions of a 1993 free trade agreement between Australia and Hong Kong, in an attempt to thwart Australia’s cigarette plain-packaging laws. Chances are, the dispute will go for a long time yet.

That suits Philip Morris just fine. Even though it is almost certainly going to lose the case, the company will have a victory of sorts: a victory of time. The longer these trade disputes take, the less likely other countries will take tough action to discourage smoking.

There is no clearer indication of the shortcomings of international trade agreements than the way those deals have been abused by big tobacco.

The war with Australia began domestically, where the matter went to the High Court, and where, predictably, British American Tobacco, Philip Morris and the other tobacco companies lost. Then it became international. The industry has not only dragged Australia into arbitration, but also into conflict with a series of other countries – Ukraine, Honduras, Indonesia, the Dominican Republic and Cuba – who have complained to the World Trade Organisation about Australia’s tobacco laws.

Some, if not all, of these countries are receiving direct assistance from tobacco companies to defray the cost of their actions. British American Tobacco admitted as much in 2010, in relation to the first two complainants, Ukraine and Honduras.

And so here, in its tangle of trade agreements, Australia fights on. It now maintains a Tobacco Litigation Task Force in the attorney-general’s department, a similar Plain Packaging Task Force in the trade department, and another in the health department.

The key weapon in the tobacco industry’s arsenal is the Investor-State Dispute Settlement (ISDS) provisions contained in most trade agreements, which allow multinational corporations to take legal action against governments claiming their interests have been damaged by government decisions. It is under the ISDS provisions of the Hong Kong–Australia free trade agreement that Philip Morris brought its complaint against Australia.

ISDS is a good idea gone bad. The intent was that these provisions would protect companies from having their investments unfairly expropriated by governments, particularly in countries with weak or politicised legal systems. But they have become a means by which big corporations, and often the home countries of those big corporations (notably the United States) seek to subvert the national sovereignty of other countries. Tobacco companies aren’t the only ones doing it – mining, pharmaceutical and chemical companies also are frequent litigants – but they present the most egregious examples of abuse.

Even where there are legitimate disputes to resolve, resolution is increasingly slow, and outcomes inconsistent.  As a result, there is now something of a global re-think going on about the way ISDS works. Or rather, doesn’t work.

Just a few weeks ago, the European Union Trade Commissioner Karel De Gucht announced a three-month halt to negotiations over ISDS provisions in a proposed EU–US trade agreement, in response to growing opposition from the public and some member states.

He also acknowledged deep dissatisfaction within the commission about the secrecy and fairness of current ISDS adjudication, and the vulnerability of the system to corporate abuse.

Nowhere has that rethink of ISDS been more evident than in Australia. In 2005, the Howard government made Australia the first country in the world to negotiate a free trade agreement with the US that did not include ISDS provisions. In 2011, the former Labor government, on advice from the Productivity Commission, went further and decided not to have them as part of any future trade agreement – making Australia the first developed nation to walk away from the system.

The Abbott government has overturned that decision, and has said it will consider ISDS provisions on a “case by-case basis” as it sets about its ambitious agenda for finalising a raft of free trade deals. It’s a safe bet most will include ISDS; the first deal concluded under the new government, with South Korea, made public on February 17, does. Indeed, most of the work on the South Korea deal was done under the former government; ISDS was the major obstacle to the FTA’s completion.

The Coalition’s election policy promised to “fast-track … trade agreements with China, Japan, India, the Gulf Cooperation Council and Indonesia”, and to “explore the feasibility” of free trade agreements with five other countries as well as the European Union.

And, biggest of all, there’s the Trans-Pacific Partnership Agreement (TPP), now being negotiated between the US, Australia, and 10 other Pacific rim countries, with a combined population of nearly 800 million people and a combined GDP of almost US$28 trillion, about 40 per cent of global GDP.

Now, few would argue that free trade is a bad thing. Equally, few experts would disagree that the dispute settlement process is in need of major reform.

Countries have faced claims of up to $US114 billion, and awards as high as $1.77 billion. But most commonly the cases just drag on, and on. The number of “pending” cases far outstrips the number settled.

The United Nations Conference on Trade and Development noted numerous deficiencies in the arbitration system. Most worrying of all, perhaps, they lamented the burgeoning number of cases in which big corporations use ISDS “to challenge measures adopted by States in the public interest”.

It isn’t difficult to find examples. Let’s go first to Uruguay. In 2005 it elected as president an oncologist, Tabaré Vázquez, who introduced a series of measures that cut smoking rates by 25 per cent over five years. Then in March 2010, Uruguay became the first country in the world to bring in laws insisting that health warnings cover 80 per cent of cigarette packs. It also prohibited companies from cigarettes labeled as “light” or “mild”.

Even before the laws had come into force, Philip Morris brought an ISDS action through the International Centre for the Settlement of Investment Disputes (ICSID), which operates through the World Bank.

It was the first such case, and it is still dragging on, apparently endlessly. It took more than a year for a three-person panel of arbitrators to be convened, and three years, until June 2013, for the  arbitrators merely to determine that they had jurisdiction to hear the case.

Philip Morris claimed Uruguay’s new laws infringed its trademarks and breached the provisions of a 1991 bilateral trade agreement between Uruguay and Switzerland. It sought not only to have the anti-tobacco measures quashed, but to get compensation for lost sales, plus interest, costs and penalties.

 “Philip Morris’s lawyers, when they filed that suit, told officials in the Uruguayan government that this case could bankrupt Uruguay and that Philip Morris had assets that exceeded Uruguay’s GDP,” says Matthew Myers, president of the Campaign for Tobacco-Free Kids, an organisation that is helping fund Uruguay’s legal costs.

At least one claim made by Philip Morris is true: the company is bigger than Uruguay. The market capitalisation of Philip Morris is currently about US$135 billion. The most recent annual report of Philip Morris International cited net revenue of $67.4 billion. Uruguay’s GDP is just $50 billion, of which government accounts for less than one-third.

But it’s not the cost of a potential settlement that most often deters countries from taking on tobacco companies. Most are scared off simply by the threat of expensive and time-consuming litigation.

Says Myers: “We do work in Africa, and in just the last two years we’ve seen cigarette companies threaten Namibia, Togo, Uganda, with lawsuits they said would cost millions of dollars to defend, in an effort – sometimes a successful effort – to intimidate a country into not even passing tobacco laws.”

Australia, with an economy 15 times bigger than Uruguay’s, had the means to meet Big Tobacco’s legal challenge. And the will. Nicola Roxon, who, as health minister and then attorney-general, did most to drive the initiative. She had lost her father to smoking-related illness. Tanya Plibersek, who succeeded Roxon as health minister, oversaw most of the implementation of the new measures and refused to even meet with tobacco industry lobbyists.

But Big Tobacco exerts influence in many ways. Craig Emerson, the trade minister of the time, recalls fierce lobbying by members of US congressional trade delegation.

“As an aside,” says Emerson, “my mother died of emphysema after being a chronic smoker.”

 Bottom line, the Labor cabinet determined, in the words of one minister, “to spend whatever it took” to defend plain packaging. To its credit, the new government has kept that commitment.

As to the exact expenditure, the government won’t say, out of concern this would play to Big Tobacco’s global strategy of deterrence through cost. 

In its most recent annual report, Philip Morris acknowledges Australia’s plain-packaging legislation as the most significant legal “setback” of the previous year.

It also boasts to its shareholders that its various international trade actions against Australia are having their desired effect, by deterring other countries – New Zealand being one example –  from implementing such “extreme” regulatory measures, at least until the various challenges to the Australian legislation are resolved.

The PMI report notes rather smugly: “WTO dispute settlement cases can take several years to complete. It is not possible to predict the outcome of these cases.”

So, there is a double bottom line here. First, it’s vitally important that Australia fight Big Tobacco to the end, not only for it’s own citizens’ sake, but also for the sake of those in less affluent countries, who are now the industry’s prime targets.

Second, we’ve got to be a whole lot more careful in negotiating future trade deals and ISDS provisions.

It’s one thing to be “open for business”, but quite another to throw open your country to lawsuits.

This article was first published in the print edition of The Saturday Paper on March 8, 2014 as "Big Tobacco’s war on Australia".

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Mike Seccombe is The Saturday Paper’s national correspondent.

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