Tobacco Plain Packaging - A classic WTO dispute?

I had blogged yesterday about UK's moves to introduce plain packaging. Parallelly, the TRIPS Council at the WTO was the venue for the continued challenge to the proposed plain packaging measures of New Zealand with the Dominican Republic and Honduras maintaining that employment opportunities and TRIPS obligations must be the main consideration on deciding the fate of plain packaging measures.

ICTSD summarised the proceedings thus:

"Members at the TRIPS Council meeting also addressed a proposed New Zealand law that, if implemented, would require plain packaging for tobacco products. (See Bridges Weekly, 27 February 2013) The controversial legislation would require standardised packaging without trademarks, a drab monotone design, and prominent health warnings on cigarette packaging, with only a small line of text to distinguish one brand from another. 

At this week’s meeting, the Dominican Republic - whose main export is tobacco - took the lead in commenting on the draft legislation, saying that it would hinder employment and would force producers to compete based on price instead of quality.  

...

In response, New Zealand said it would continue developing the planned legislation - which is currently in the drafting stage - but may wait to see the outcome of the dispute before implementing it, echoing recent comments made by the country’s prime minister, John Key. It also recalled that the 2001 Doha Declaration says that TRIPS does not and should not prevent members from taking measures supportive of public health. 

The plain packaging regime is a part of “a long policy development process,” New Zealand added, noting that smoking is its single largest cause of preventable death."

Public health objectives, domestic policy space, long term development process vis a vis employment opportunities, growth of less develop countries and intellectual property law obligations. The stage is set for a classic WTO dispute!

Dominican Republic, a tobacco dispute and some observations

(courtesy - alum.mit.edu)

The debate on Tobacco Plain Packaging has reached the doorstep of the WTO dispute settlement. Australia's Plain Packaging legislation has been challenged by the Dominican republic, Honduras and Ukraine. I have blogged about it earlier here and here. A request for consultation was made in the dispute (DS441) and reports that the consultations failed have come in. So what next? Establishment of a panel.

While Dominican republic's request for consultation is found here which lays down the legal challenge to the measure, Reuters reported the statement of the Dominican Republic's Ambassador to the WTO which captured a number of issues:

"4.The plain packaging measures represent a dramatic regulatory intrusion into the appearance of products that may be sold lawfully in Australia, literally wiping design features off tobacco packaging and individual cigarettes and cigars. These design features include trademarks and geographical indications that Members have agreed to protect under the TRIPS Agreement, and which serve the valuable purpose for both producers and consumers of differentiating products that compete lawfully on the market in Australia.  

5.     Turning to the TBT Agreement, these plain packaging measures restrict international trade by eliminating competitive opportunities for tobacco products that are forced to appear in the marketplace in virtually identical retail packaging. 

6.     The WTO system ensures that measures restricting core intellectual property rights and international trade are permissible solely insofar they are effective in serving a legitimate objective. Australia's plain packaging measures do not meet this standard: they eviscerate the very function of trademarks and geographical indications and destroy competitive opportunities for tobacco products, with no credible evidence that they will reduce tobacco prevalence. Indeed, the evidence shows that the plain packaging measures will undermine Australia's goal to reduce tobacco prevalence. By commoditizing the market for tobacco products, the measures will inflict price competition, resulting in lower prices and higher consumption. Further, requiring products to be sold in similar plain packaging will facilitate illicit trade. 

7.     The Dominican Republic has requested that, rather than introduce these plain packaging measures, Australia employ tobacco control measures that would be truly effective in reducing tobacco consumption and also consistent with its WTO obligations.  Unfortunately, Australia has proceeded to introduce its plain packaging measures." 

Some observations:

1. Dominican republic's claim is that the regulatory objective of public health could be achieved by Australia even without Plain Packaging.
2. The Intellectual property rights of a developing country's products are impacted by a measure by a developed world. TRIPS being used to further developing countries interests?
3. Employment opportunities and the centrality of the tobacco industry in the economy of the Republic is being used as a point to highlight the dramatic impact the measure could have on lives and jobs.
4. This could be extended to other products like liquor and food products on the same principle and hence can be detrimental to international trade and intellectual property rights.

The statement concludes thus:

"10.     In recent years, we have witnessed a considerable development success story in our tobacco sector. Through significant investments by our producers, we have transformed our industry from being an exporter of tobacco leaf to being one of the world's premium producers of processed tobacco products, in particular cigars. Indeed, today, the Dominican Republic is the world's largest exporter of cigars. 

11.     We are proud of these achievements, and conscious also of the value of such development to the employment and income of our population. We are concerned that plain packaging will eradicate this cornerstone of our economy, whilst failing to achieve Australia's health objectives."

Trade, employment, intellectual property rights, public health objectives, interests of developing countries, domestic policy space and a dispute - this is what WTO disputes are all about!

Plain packaging of tobacco - Employment, developing country and a dispute

Apart from Honduras and Ukraine which have challenged the legislation on plain packaging of tobacco products of Australia, the Dominican Republic is also a complainant in the WTO dispute (DS441). The request for consultation is here. I have blogged about the issue here, here and here.The WTO website shows that this is Dominican republic's first case as a complainant as a WTO member. Challenging a developed country like Australia in the WTO is an indication of the level playing, rule based system that the dispute settlement system of the WTO offers to both the developed and developing worlds. 

Reuters recently reported that the Dominican Republic had now requested for the establishment of a WTO Panel, presumably because the consultations did not lead to any results.

"HE Luis Manuel Piantini, Ambassador of the Dominican Republic to the WTO, explains: "Tobacco has been an intrinsic part of the Dominican culture and heritage for centuries, and the tobacco sector is vital for our development.  Our producers have made enormous investments - including in intellectual property - to turn the Dominican Republic from a simple tobacco leaf exporter into one of the world's leading producers of premium cigars and the world's largest exporter of cigars.  This a significant achievement for a small developing economy.  Plain packaging will wipe away these achievements - our premium cigars will be dressed as discount products, which people will continue to smoke; prices will ultimately fall, affecting the livelihood of more than a hundred thousand Dominican workers and their families.  The TRIPS and TBT agreements protect our commercial and development achievements."

Interesting points from the Dominican Republic standpoint:

1. The critical role of the tobacco industry in the national economic growth perspective of the country

2. Livelihood of many locals will be affected by the measure

3. Investments and intellectual property rights impacted

4. Export of tobacco products integral part of the developing economies growth story

5. Multilateral trade rules protect the country's interests

6. Domestic pressures would definitely favor local employability against public health concerns of another country

What considerations will the Panel depend upon? Are the interests of developing countries and employment relevant at al in the dispute settlement process? Will they have a role to play in deciding the compatibility of the Australian measure? Australia's health concerns versus the Dominican Republic's economy - what will prevail? Include in this the business interests of Tobacco companies - it does make a heady cocktail that the WTO dispute settlement has to confront.

Employment, Dominican republic and Tobacco Plain packaging

(Cigarette manufacturing in the Dominican Republic)

The Dominican Republic is one of the complainants along with Ukraine and Honduras against the Tobacco Plain Packaging legislation of Australia. This piece in the Dominican Today about the dispute highlights the centrality of tobacco manufacturing in the Dominican Republic:

"While tobacco has been cultivated in the Dominican Republic for more than five centuries, the Dominican tobacco industry is a hundred years old. Tobacco export revenues represent roughly 8% of total exports in merchandise. The Dominican Republic is the largest net exporter of cigars in the world. Tobacco products represent 8.5% of fiscal revenue on merchandise taxation. There are around 5,500 tobacco producers, employing approximately 55,000 agricultural workers. Tobacco manufacturing employs another 63,000 people, of which 60 percent are women. Combined with the entire tobacco production chain, the industry thus generates around direct 118,000 jobs which supports approximately 350,000 people, according to information published by the Tobacco Institute of the Dominican Republic."

Thus, tobacco manufacturing and export is one of the main industries here as well as employment generator. It supports families and gives employment to a large number of women. Is this irrelevant in a dispute international trade law? If the Australian legislation, which is an exercise of its domestic policy space, is held to be compatible with WTO law (GATT, TBT and TRIPS), is the question of employment and job creation irrelevant to the issue. This is another classic case of the "loser" in globalization. An industry which was thriving can be possibly hurt by measures taken by other countries which may not be incompatible with international trade law. Those employed in these industries constitute a domestic constituency. How does the politics of domestic interests play out in international trade relations? While Dominican Republic's domestic will to engage in the trade is not impacted per se, the Australian measure does impact it in a negative way. Do considerations such as employment potential figure in the debate at all?

Motivations to join a dispute - Dominican Republic joins consultations in Australia Tobacco Plain Packaging dispute

(A cigar factory worker in Santiago, Dominican Republic)

The challenge to the Australian Plain Packaging legislation seems to be spreading with the Dominican Republic, a major exporter of cigars, joining the consultation as a party at the WTO. I have blogged about the issue here and here.


Business beyond the Reef and Trade, Investment and Health Blog had interesting pieces yesterday about this. 

The WTO website announced that the Dominican Republic had notified the WTO of a request for consultation. The grounds of the earlier challenge were centred wround the provisions of the TRIPs, GATT and TBT Agreements. Unlike Honduras and Ukraine which have no or negligible tobacco exports to Australia, Dominican Republic has a significant tobacco export trade to Australia. As per the Observatory of Economic Complexity, the Dominican Republic has 4.9% of exports as cigar exports and 7.15% of its exports to Australia were cigars.

Interestingly, many countries have joined the consultations in the two cases that have been filed at the WTO. Guatemala, Norway, Uruguay, Brazil, Canada, the European Union, New Zealand, Canada and El Salvador,Brazil, Canada, El Salvador, Indonesia, New Zealand, the Philippines, Uruguay, Zimbabwe  and Nicaragua requested to join the consultations and have joined the consultations as per Article 4 (11) of the DSU which states:

" Whenever a Member other than the consulting Members considers that it has a substantial trade interest in consultations being held pursuant to paragraph 1 of Article XXII of GATT 1994, paragraph 1 of Article XXII of GATS, or the corresponding provisions in other covered agreements(4), such Member may notify the consulting Members and the DSB, within 10 days after the date of the circulation of the request for consultations under said Article, of its desire to be joined in the consultations.  Such Member shall be joined in the consultations, provided that the Member to which the request for consultations was addressed agrees that the claim of substantial interest is well-founded.  In that event they shall so inform the DSB.  If the request to be joined in the consultations is not accepted, the applicant Member shall be free to request consultations under paragraph 1 of Article XXII or paragraph 1 of Article XXIII of GATT 1994, paragraph 1 of Article XXII or paragraph 1 of Article XXIII of GATS, or the corresponding provisions in other covered agreements."

What are the motivations of countries to join a dispute? Canberra Times has an interesting piece on the dispute and states:

"The case before the WTO is still in the preliminary stage of consultations. Australia has refused to give ground, so the original complainants now have the option of requesting a disputes panel. That can take up to a year, and the loser then appeals, which can take another few months before there is a final ruling. Compliance with the ruling can take longer still.

The 12 countries that have joined the WTO consultations have a range of motives: three are neighbours of Honduras. Some, such as Indonesia, are significant tobacco producers; Indonesia's biggest tobacco maker Sampoerna, now part of the Philip Morris empire, withdrew its clove-flavoured Kretek cigarettes from Australia in 2009 rather than display the ghoulish warnings required by existing packaging laws.

But New Zealand has joined the case because it is considering similar legislation to Australia, and the European Union, which has interests on both sides, also signed up to the case as a neutral observer."

So, what can the motivations be for countries to join consultations or request for consultations:

1. If the domestic producers are impacted by the measures, and their exports would be affected, this would be a natural reason to engage in consultations.

2. The country joining for consultation may also be intending to impose similar measures as those challenged in the consultation. Thus, this consultation would serve as a good testing ground for analysing their measures.

3. In international trade politics, initiating a dispute sometimes is for strategic reasons to offset another dispute that the two countries face or are likely to face. It can be used as a bargaining chip in times of negotiation.

4. Even though a country may not have significant trade interests with the country that it seeks consultations with, it may have substantial interests with other countries on the same issue or measure at hand. 

5. Business interests may also play a role in persuading countries to challenge a measure though a country has no trade interest with the other country.

6. Some countries may perceive disputes as "training grounds" for their teams to get familiarised with the DSU and its functioning. It could be art of a strategic litigation strategy to get involved in WTO proceedings.

Any other motivations?