Australia's decision to control how tobacco products are packaged has survived challenge before the World Trade Organisation (WTO) against a complaint brought by Cuba, Indonesia, Honduras and the Dominican Republic.

The Australian Tobacco Plain Packaging Act 2011 bans the use of logos and colour and requires graphic health warnings, covering 75% of the front and 90% of the back of tobacco packets.

Similar legislation has since been passed by New Zealand, Hungary, Ireland, France, Norway and the United Kingdom.

WTO Ruling

WTO disputes were brought by Ukraine, Honduras, the Dominican Republic, Cuba and Indonesia, which alleged that requirements of the Act breached Australia's obligations under the Technical Barriers to Trade (TBT) Agreement and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Cuba also argued that the

measures violated Article IX:4 (Marks of Origin) of the General Agreement on Tariffs and Trade 1994 (GATT).

The WTO Panel ruled that Australia's plain-packaging laws were more effective, but no more trade restrictive, than alternative policies to promote public health by reducing smoking.

The Panel rejected arguments that the laws unjustifiably infringed tobacco trademarks (TRIPS, art 20) and violated intellectual property rights or that Australia might have deployed less trade-restrictive alternatives (TBT, art 2.2).

The test of whether a technical regulation is more trade-restrictive than necessary is by "comparative analysis" and the Panel said it was down to the complainant to identify a possible comparator that was (i) less trade-restrictive, (ii) made an equivalent contribution to the relevant objective, and (iii) was reasonably available.

The complainants offered four alternative measures:

  • increasing the minimum legal purchasing age to 21 years
  • improving social marketing campaigns
  • increasing taxation on tobacco products, and
  • adopting a "pre-vetting mechanism".

However the Panel found that these would not be less trade-restrictive than the plain packaging legislation and that they would not be as effective in reducing tobacco consumption.

Chapman Tripp comments

This decision comes in the midst of a vigorous debate worldwide about globalisation, free trade agreements and the role of the WTO more generally. What the future holds for the WTO Dispute Settlement Body and this appeal is somewhat uncertain.

The Appellate Body is under pressure from the large number and complexity of appeals but also because it is currently down to four members due to the US blocking appointments to replace members coming to the end of their term. If the US continues its stance, the Body will be paralysed by late 2019.

As a small, export-dependent nation, New Zealand relies on the current global rules-based system to protect our economic interests. Yet complaints about regulatory action by trading partners, and others, (such as US Tuna where Mexico challenged US labelling regulations for "dolphin-safe" tuna), are often characterised as an affront to countries' sovereignty.

But, as with any legal system governed by the rule of law, complaints must be heard. Last week's ruling demonstrates that dispute panels are sensitive to the sometimes delicate balance that must be struck between trade-restrictive behaviour and legitimate regulatory action.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.