Philip Morris v Australia: A crushing blow to Big Tobacco or a deferral of sentencing for plain packaging?

In this guest post, Ashley Schram, Ronald Labonté, and Arne Ruckert ask whether the recent decision in the legal battle between Australia and Phillip Morris is a victory for public health. 

The world has been waiting for a decision in the legal battle between Australia and Philip Morris Asia (PMA) over tobacco plain packaging. On December 18th, 2015 the decision was finally in, and the verdict was: ‘no decision’. The arbitrators dismissed the case on jurisdiction, unanimously deciding they had no authority to rule. Headlines around the world heralded this as a defeat of Big Tobacco and a victory for Australia and public health [1–3], but was it actually? Does this ‘non-decision’ equate to a loss for Philip Morris?  As Marc Firestone, Senior Vice President and General Counsel for Philip Morris International (PMI) observed, “There is nothing in today’s outcome that addresses, let alone validates, plain packaging in Australia or anywhere else.” The case that many nations were waiting for to get the green light for tobacco plain packaging, is now permanently an amber light.

Back in 2010 the Australian government announced its plan to introduce tobacco plain packaging as a public health measure, legislation that mandates all aspects of cigarette packaging including the specified position, font, size, and colour of the brand name, and prohibits the use of any trademarks [4]. Less than one year after this announcement PMA purchased Philip Morris Australia in order to gain access to the investor-state dispute settlement (ISDS) procedures within the bilateral trade agreement signed between Hong Kong and Australia in 1993. Just four months after this acquisition, in June 2011, PMA notified Australia of its intention to sue over its plain packaging legislation in international arbitration [5].

Legal analyses suggested that PMA was unlikely to be successful in the merits-based stage of arbitration [6,7]. Presuming that such legal scholars were correct, having the case dismissed during the jurisdiction phase was arguably the best possible outcome for PMA by prolonging a process referred to as regulatory chill. This occurs when a government reduces the severity of, delays implementation of, or abandons a regulation altogether to avoid a possible trade or investment dispute, and its associated legal costs and potential financial penalties.

If we maintain the assumption that PMA would not have been able to win the decision on the merits of the case, the alternative scenario would have been for the tribunal to find that they had jurisdiction over the case, engage in multi-year proceedings on merits, only to ultimately decide in favour of Australia. In this alternative scenario Philip Morris would have, at best, gained a few more years of regulatory chill on tobacco plain packaging. Not to suggest that a few more years of regulatory chill is an insignificant thing; the threat of litigation is an exceedingly cost-effective tool for tobacco companies to dissuade new tobacco-control measures. PMI has initiated an ISDS challenge against related legislation in Uruguay [8,9]; and, alongside other transnational tobacco companies, has threatened Namibia, Togo and Uganda with similar lawsuits they argue would cost these governments millions of dollars to defend and lose [10]. While the Australian case hung in the balance, other states were less likely to introduce plain packaging [11]; the New Zealand government officially stating it was waiting for a decision in the case before proceeding with its own legislation [12]. A decision for PMA on jurisdiction would have bought a few more years of uncertainty and regulatory chill around plain packaging; but the loss at the merits stage would have rendered them ‘all bark and no bite’.

The decision of the tribunal not to decide on the merits of the case means a protracted period of regulatory chill until another country steps up to take Australia’s place. Canada’s recent announcement to pursue tobacco plain packaging [13] may indicate the entry of a new champion. However, it was reported that Australia’s legal bills as of 2015 had already totalled as much as 50 million AUD [14], meaning the Canadian government will require significant political will to go to ‘battle’ with Big Tobacco. Moreover, because the case was dismissed on jurisdiction the ‘non-decision’ offers nothing to Canada (or the rest of world) about the merits of tobacco plain packaging in international investment arbitration.

So did PMA lose? In Australia, yes, plain packaging legislation won’t be overturned and they won’t be compensated for loss of sales in that country. But did PMA lose on the world stage? No. They demonstrated that countries introducing such legislation would incur significant legal fees and avoided any substantive rulings that could be used as precedent in future cases.

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1. Hurst D. Australia wins international legal battle with Philip Morris over plain packaging. The Guardian [Internet]. 2015 Dec 18 [cited 2016 Jan 29]; Available from: http://www.theguardian.com/australia-news/2015/dec/18/australia-wins-international-legal-battle-with-philip-morris-over-plain-packaging

2. Hutchens G. Australian government wins plain packaging case against Philip Morris Asia. Syd. Morning Her. [Internet]. 2015 Dec 18 [cited 2016 Jan 29]; Available from: http://www.smh.com.au/federal-politics/political-news/australian-government-wins-plain-packaging-case-against-philip-morris-20151218-glqo8s.html

3. Taylor R. Philip Morris Loses Latest Case Against Australia Cigarette-Pack Laws. Wall Str. J. [Internet]. 2015 Dec 18 [cited 2016 Jan 29]; Available from: http://www.wsj.com/articles/philip-morris-loses-latest-case-against-australia-cigarette-pack-laws-1450415295

4. Australian Government Department of Health. Tobacco plain packaging – Your guide [Internet]. Australian Government Department of Health and Ageing; 2014 [cited 2015 Apr 26]. Available from: http://www.health.gov.au/internet/main/publishing.nsf/Content/tppbook

5. Chapman S. Australian government’s $50m investment in defending against Big Tobacco legal thuggery [Internet]. The Conversation. 2015 [cited 2016 Jan 29]. Available from: http://theconversation.com/australian-governments-50m-investment-in-defending-against-big-tobacco-legal-thuggery-45427

6. Voon T. Time to Quit? Assessing International Investment Claims against Plain Tobacco Packaging in Australia. J. Int. Econ. Law. 2011;14:515–52.

7. Voon TSL, Mitchell AD. Implications of International Investment Law for Plain Tobacco Packaging: Lessons from the Hong Kong–Australia BIT [Internet]. Rochester, NY: Social Science Research Network; 2012. Report No.: ID 2377919. Available from: http://papers.ssrn.com/abstract=2377919

8. Lencucha R. Philip Morris versus Uruguay: health governance challenged. The Lancet. 2010;376:852–3.

9. Levin M. Tobacco industry uses trade pacts to try to snuff out anti-smoking laws. NBC News [Internet]. 2012 Nov 29 [cited 2015 Apr 2]; Available from: http://investigations.nbcnews.com/_news/2012/11/29/15519194-tobacco-industry-uses-trade-pacts-to-try-to-snuff-out-anti-smoking-laws

10. Seccombe M. Big Tobacco’s plan to stub out plain packaging. Saturday Pap. [Internet]. 2014 Mar 8 [cited 2015 Apr 26]; Available from: http://www.thesaturdaypaper.com.au/opinion/topic/2014/03/08/big-tobaccos-plan-stub-out-plain-packaging/1394197200

11. New W. Australia Accuses Tobacco Industry Of “Regulatory Chill” In WTO Plain Packaging Case [Internet]. Intellect. Prop. Watch. 2014 [cited 2016 Jan 29]. Available from: http://www.ip-watch.org/2014/11/20/australia-accuses-tobacco-industry-of-regulatory-chill-in-wto-plain-packaging-case/

12. 3 News. Plain packaging court case paves way for NZ [Internet]. 3 News. 2015 [cited 2016 Jan 29]. Available from: http://www.3news.co.nz/politics/plain-packaging-court-case-paves-way-for-nz-2015122212#axzz3wTjBDC3y

13. Galloway G. Liberal pledge to demand plain cigarette packaging draws cheers. Globe Mail [Internet]. 2015 Oct 30 [cited 2016 Jan 29]; Available from: http://www.theglobeandmail.com/news/politics/liberal-pledge-to-demand-plain-cigarette-packaging-draws-cheers/article27054353/

14. Martin P. $50 million goes up in smoke defending plain packaging. Syd. Morning Her. [Internet]. 2015 Jul 28 [cited 2016 Jan 29]; Available from: http://www.smh.com.au/federal-politics/political-news/australia-faces-50m-legal-bill-in-cigarette-plain-packaging-fight-with-philip-morris-20150728-gim4xo.html

 

 

The Final Push: Canada and the Trans-Pacific Partnership (TPP) Trade Deal

In this guest post, authors Arne Ruckert, Ronald Labonté and Ashley Schram outline what’s at stake for Canada in the Trans-Pacific Partnership Trade Deal. This is an update of a piece originally posted at the Centre for International Policy’s Blog (updated 28/9/2015). Arne Ruckert is a Senior Research Associate in the Faculty of Medicine and a part-time Professor in the School of Political Studies at the University of Ottawa. Ronald Labonté is Canada Research Chair in Globalization & Health Equity, and Professor, School of Epidemiology, Public Health and Preventive Medicine at the University of Ottawa. Ashley Schram is a PhD candidate in Population Health at the University of Ottawa studying the health impacts of international trade and investment agreements. 

The Trans-Pacific Partnership is nearing the end game of negotiations, creating a market of 800 million people with a combined economic clout of US$28-trillion annually. After the US Congress granted fast-track authority to President Obama, a final agreement amongst the 12 Pacific-rim countries involved in the trade deal is now within reach. Reportedly ‘98% done’ trade ministers are meeting in Atlanta in early October to see if they can clinch an agreement. So what’s at stake for Canada?

Agricultural market access remains a sticking point for some of the TPP’s prospective members. Media coverage of the TPP in Canada has been dominated by Canadian supply management in dairy and poultry, which limits market access in these products for other countries. Canada is under pressure in the press and from some TPP countries to dismantle supply management if it wants to remain part of the final negotiations. Yet Canada has participated in past free trade deals without dismantling supply management, with Canada’s Minister of International Trade Ed Fast stating that “supply management has never prevented us from concluding trade agreements, and we have confidence that we will be able to do that with the TPP as well” (cited in Lu, 2015).

There are good (health and broader public policy) reasons for why Canada would want to continue with supply management, including guaranteeing a safe and stable stock of dairy and poultry products at affordable cost. A reasonable compromise for Canada would be maintaining its supply management but making some concessions in terms of increasing market access for other TPP countries in these products. However, latest reports indicate that Canada could provide sufficient market access to American dairy producers that it could tip the supply-management system into a fast (or slow) track to its end. The triangulated deal would have New Zealand dairy gain greater access to the US, the US gain greater access to Canada and Canada (perhaps) gain greater market access across the TPP for its beef exports. Health concerns or food security issues do not appear prominent in any of these compromises, and Canada’s dairy farmers are not amused. Similarly, rules of origin for the auto sector to which two TPP countries have already agreed (the US and Japan) could cost a large number of already rather beleaguered Canadian autoworkers.

There are other areas of the TPP overlooked in most media discussions that have potentially much stronger and lasting impacts. Foremost is Investor-State–Dispute Settlement (ISDS) provisions, which will grant multinational corporations the right to sue TPP governments over public policy decisions perceived as damaging to their investments and business operations (Hilary, 2014; Ruckert, Schram, Labonté, 2015). Canada is already the most sued developed country in the world because of NAFTA’s ISDS process, and the TPP will significantly increase the number of foreign investors eligible to sue (Sinclair and Trews, 2015). Strong civil society and academic critiques of ISDS have recently led to greater caution about how they should be included within new trade treaties. The Transatlantic Trade and Investment Partnership (TTIP) under negotiation between the US and the EU also contains an ISDS chapter, with concerns about its provisions voiced on both sides of the ocean. Rather than reject ISDS outright, European parliamentarians in July passed a compromise amendment which calls for replacing the ISDS system “with a new system…subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where…the jurisdiction of courts of the EU and of the member states is respected, and where private interests cannot undermine public policy objectives.” (Bridges Weekly, 2015: 4). The EU amendment appears to address many of the critics’ concerns with ISDS, and the Canadian government should push for the TPP to adopt a similar position. Investor protection would be strengthened, but so would government’s ability to pursue new public policy objectives without fear of an investor challenge.

The TPP also proposes to extend intellectual property rights (IPRs) with implications for drug costs, whether paid for publicly or privately (Hirono et al, 2015; Sinclair, 2013). This is of particular relevance for Canada, which already has the second highest drug prices in the world (Sinclair and Trew, 2015). A recent leak of the TPP IPR chapter shows that the major outstanding disagreements over IPR relate to “patent linkage” and expanded protection of biologics (Grunwald, 2015). Patent linkage prevents the registration and authorization of generic medicines until after the expiry of patents, considerably delaying generic market entry (Canadian Generic Pharmaceutical Association, 2012). Although Canada already has a patent linkage system in place, the TPP is the first time this system would be written into trade treaty obligations, interfering with future cost-saving reforms (Sinclair and Trew, 2015) and weakening the vibrant Canadian generic pharmaceuticals industry which is responsible for the production of two out of every three prescription drugs in Canada. A recent analysis of the draft intellectual property chapter of the TPP suggests that the US has been advocating for patent linkage to extend to biologics, along with a request for longer periods for data exclusivity. It also notes that many TPP member states have been opposed to extended IPRs (Grunwald, 2015), which would provide Canadian negotiators with a platform from which to  limit any extension of IPRs in pharmaceuticals beyond those already present in the World Trade Organizations TRIPS agreement.

Finally, TPP provisions for regulatory coherence and transparency have received relatively little mention. As with all recent free trade agreements, the TPP is only marginally about trade, and more about harmonizing regulations (financial, health, and safety standards, etc.) (Sinclair and Trew, 2015). The leaked regulatory coherence chapter outlines various expectations, including the obligation to encourage the use of regulatory impact assessments (RIAs) as practiced in the United States. The proposed regulatory model contains numerous pro-market factors that governments should consider when making domestic regulations. The obligations outlined in the regulatory coherence chapter are explicitly linked those in the transparency chapter (Kelsey, 2015). The transparency chapter (which has not been leaked) is expected to confer rights to affected commercial interests to participate in regulatory processes. The two chapters together will essentially impose: high-level behind the border disciplines on governments through market-centric norms; an ideologically driven commitment to light-touch regulations (whose detrimental effects are best seen in the global financial crisis of 2008); and a structured role for private and especially corporate interests to shape domestic regulations and policy-processes (Kelsey, 2015). Some TPP countries, especially those with developing country status, have raised concerns about these two chapters. Canada should align with these concerns and support their resolution within any final agreement.

Canada should be courageous enough to stand up to the United States (the main force behind these negotiations) and to form coalitions with TPP member countries that have similar concerns about these remaining TPP issues. It has precious little time left to do so. Ultimately, there is no point in signing on to a free trade agreement that represents very little economic benefit to the Canadian economy (and quite possibly economic loss), but which has major political and social implications, including the potential to hamper Canadian sovereignty and to undermine its regulatory autonomy.

References:

Bridges Weekly (2015). TPP Countries Gear Up for High Stakes Ministerial Meeting. Retrieved from: http://www.ictsd.org/sites/default/files/review/bridgesweekly19-25.pdf

Canadian Generic Pharmaceutical Association (2012). Position on the Trans-Pacific Partnerships (TPP) Negotiations, Retrieved from: http://www.canadiangenerics.ca/en/advocacy/tradenegotiationi.asp

Gruwnald, M. (2015). Leaked: What’s in Obama’s Trade Deal? Retrieved from: http://www.politico.com/agenda/story/2015/06/tpp-deal-leaked-pharma-000126

Hilary, J (2014). The Transatlantic Trade and Investment Partnership and UK healthcare. BMJ 2014; 349: g6552.

Hirono, K. et al (2015). A Health Impact Assessment of the Proposed Trans-Pacific Partnership Agreement. Retrieved from: http://hiaconnect.edu.au/research-and-publications/tpphia/

Kelsey, J. (2015). How the Trans-Pacific Partnership Agreement Poses a Threat to National Sovereignty over Domestic Decision Making. Retrieved from: http://www.itsourfuture.org.nz/wp-content/uploads/2014/03/Regulatory-Coherence-paper.pdf

Lu, Seres (2015) Trade Minister Reassures Supply-managed Sectors ahead of TPP Talks, Retrieved from: http://www.theglobeandmail.com/report-on-business/trade-minister-reassures-supply-managed-sectors-ahead-of-tpp-talks/article25405222/

Ruckert, A., Schram, A. and Labonté, R. (2015). The Transpacific Partnership Agreement: Trading Away our Health? Canadian Journal of Public Health, accepted and forthcoming.

Sinclair, S. (2013, May). Opening remarks on Canada and the Trans-Pacific Partnership (TPP). Speech     presented at the House of Commons Standing Committee on International Trade, Ottawa Ontario. Retrieved from: https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2013/06/CanadaandtheTransPacificPartnership.pdf

Sinclair, S and Trew, S. (2015). The TPP and Canada. Fact Sheet, May 2015, Retrieved From: https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2015/05/TPPandCanada.pdf