Big tobacco bites back

The Gillard government’s plain packaging for cigarettes legislation is discomforting even for those who have no patience with the huge and unnecessary costs that tobacco use imposes on the Australian public health system.

It looks like another piece of heavy-handed, “go for the jugular” government regulation (like the appalling NBN, the carbon tax and the blanket ban on cattle exports to Indonesia). This is why the “nanny state” advertisements of the big tobacco companies strikes a chord. There is little sign of careful consideration of benefits and costs relative to alternative measures. There is also a troubling question of “speech” in there somewhere (but we have no constitutional protection of this freedom).

Phillip Morris International now seeks to turn “discomfort” into actual pain with its announcement it would serve of a notice of claim under the Australia-Hong Kong bilateral investment treaty, rolling out a “renowned” academic to not-so-much-back their claims as thunder about the consequences of loosing a dispute:

Renowned law professor at Georgetown University Law Center, Don Wallace Jr., Chairman of the International Law Institute and an expert on investor-state disputes, said “Plain packaging legislation would expose Australia to well-founded claims under the treaty, potentially costing the Australian government billions of dollars in damages.” Extract from PMI News Release June 27, 2011

So is the “renowned” professor right? Does PMI have the Australian government by the short-and-curlies…?

On the face of it, PMI does have a pretty good case for taking the Australian government to the cleaners over this proposed law…

The expropration provisions (Article 6) of the 2008 Hong Kong Australia bilateral investment treaty that requires compensation for expropriation are very typical of such treaties

Investors of either Contracting Party shall not be deprived of their investments nor subjected to measures having effect equivalent to such deprivation in the area of the other Contracting Party except under due process of law, for a public purpose related to the internal needs of that Party, on a non-discriminatory basis, and against compensation. Such compensation shall amount to the real value of the investment immediately before the deprivation or before the impending deprivation became public knowledge whichever is the earlier.

But you’d be ill-advised to jump to the conclusion that the “renowned” professor indicates. A lot of expensive burgundy will flow down the gullets of the legal fraternity/sorority before this dispute is resolved; if it is ever resolved.

This may be the first serious legal threat to the Gillard government’s legislation enforcing plain packaging for cigarettes but only the most recent in a series of similar disputes the company has bought under investor-state provisions of investment treaties. PMI made similar claims against Norway and Uruguay in 2010 and issued a complaint against Canada’s prohibition of the (misleading) terms “mild” and “light” under NAFTA investment provisions (in 2002). None of these disputes to my knowledge has yet led to any award against a government.

PMI’s academic consultant is careful to talk about being “exposed” to a claim. PMI has first to show that the plain packaging legislation is amounts to potential “expropriation” (of the trademark property) under the treaty. It may also have to show that it had “reasonable expectation” that its property would not be alienated (could be difficult). Also, there is also well-qualified opinion that no expropriation claim will succeed under the UNCITRAL provisions if the property is alienated under a “reasonable” (in the sense of not irrational) law for well-founded public purposes applied in a non-discriminatory manner. The first two conditions seem to be fulfilled and here does not appear to be any discrimination against PMI in this case.

Todd Weiler, in a very good recent paper (that I learned about from Simon Lester) argues that Tribunals, in these circumstances, must (and do) defer to governments, declining to find that “expropriation” took place. Hence the lack of awards so far.

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