SUBMISSION TO THE WORLD TRADE ORGANISATION ON AUSTRALIA'S PLAIN PACKAGING LAWS

On July 19th, Honduras launched its appeal against the World Trade Organisation's decision to uphold Australia's plain packaging laws for tobacco products.

The Australian Taxpayers' Alliance have provided the following submission to the appellate body.

 

 

To:

World Trade Organisation

The Division hearing the appeal in Australia – Certain Measures Concerning Trademarks, Geographical Indications, and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (DS435, DS441, DS458, DS467)

Dear Mr. Shree Baboo Chekitan Servansing, Mr. Hong Zhao, Mr. Ujal Singh Bhatia and Mr. Thomas R. Graham,

I write to you on behalf of the Australian Taxpayers’ Alliance, a 75,000+ member grassroots public advocacy group representing Australia’s taxpayers. We stand for civil liberties, property rights and evidence-based public policy. We therefore oppose burdensome, ineffective regulations which do not meet their stated objectives.

We have previously provided evidence and appeared before Australian state and federal parliamentary and senate hearings on issues including tax policy, foreign affairs and trade policy and public health/consumer choice. We believe that ensuring the integrity of WTO trade protections is crucial for effective trade liberalisation, commercial certainly and a prosperous global economy.

We provide the following submission opposing the validity of Australia’s plain packaging laws as we believe that the panel at first instance has erred in its decision. While we understand that the appellate body’s jurisdiction is limited to errors of law, it is nonetheless submitted that consideration of the available evidence is vital to ensuring that the obligation to provide an objective assessment to the parties is met.

In support of the appellant’s points of appeal, the decision at first instance which favours retaining tobacco plain packaging laws in Australia under the applicable rules, is erroneous for the following reasons:

  1. The panel at first instance has committed an error by violating Article 11 of the Dispute Settlement Understanding (DSU) as they have failed to “make an objective assessment of the matter before it [the panel], including an objective assessment of the facts of the case.” This is because the panel failed to consider all the applicable facts in evidence such as those from three countries which have applied plain packaging laws (Australia, France, UK), whereby these facts do not support the conclusion that Australia’s plain packaging laws have achieved or are likely to achieve their stated public health objectives.

  2. The panel at first instance has committed an error by failing to consider available technical and scientific information in determining whether Australia’s plain packaging laws are more trade-restrictive than necessary to achieve their ‘legitimate objective’ of human health/safety. As a result, they have violated Article 2.2 of the TBT Agreement. This scientific and technical information pertains to the availability of less trade-restrictive alternative measures such as legalising nicotine vaping and the panel’s assessment of the degree of contribution by the plain packaging measures to the abovementioned legitimate objective[1] which, as a result, is erroneous.

    In particular, the panel at first instance has erred by examining the degree of contribution of the plain packaging measures to the specific "mechanisms" by which the measures were expected to achieve their objective rather than by examining the degree of contribution to the fulfilment of the legitimate objective as identified;[2] by failing to examine the "actual" contribution of the plain packaging measures instead basing its finding on unsubstantiated speculation about an uncertain future impact of the measures "over time" without any qualitative or quantitative projections supported by sufficient evidence and;[3] by not determining the degree of contribution of the challenged plain packaging measures themselves.[4]

  3. The panel at first instance has erred in their interpretation of Article 20 of the TRIPS agreement by incorrectly interpreting "unjustifiably" as referring to "good reasons" sufficient to support special requirements encumbering the use of a trademark rather than per its ordinary meaning which imputes a higher standard.[5] In the alternative, the panel at first instance has erred in their application of “good reasons” to the facts of the case in light of the evidence overwhelmingly demonstrating that plain packaging has failed to achieve its legitimate objectives.

To support the abovementioned points of law, this submission will canvas the applicable factual evidence available to the panel at first instance as well as new scientific and technical information (in this case, statistical evidence and expert analysis) that has emerged from Australia, the UK and France about the impact of plain packaging laws. It is submitted that this evidence is material to the appellate body in adjudicating the present matter per the obligation imputed under Article 11 of the Dispute Settlement Understanding to undertake an objective assessment, as well as under the other applicable laws and rules outlined above. The evidence and analysis cited and outlined herein will attest:

  1. That plain packaging laws have not met their purported public health objectives of reducing smoking prevalence in three countries: Australia, France and the United Kingdom.
  2. That they contribute to an increase in smoking prevalence by precluding branding competition between tobacco products, thereby incentivising cost competition by making less expensive products more appealing through a reduction in the ability to differentiate competing products and;
  3. Contribute to an increase in smoking prevalence within the illicit tobacco market by making it easier to produce counterfeit branded tobacco products and harder for consumers to distinguish between legitimate products and illicit tobacco products.
  4. That they are not enhanced the effectiveness of existing graphic health warnings in reducing the appeal of tobacco products or reducing the ability of tobacco packaging to mislead consumers about the harmful effects of smoking.
  5. That they are more trade-restrictive than necessary to achieve their objective as the alternative, less trade-restrictive measure of legalising alternative nicotine delivery mechanisms such as nicotine vaping (through the use of an e-cigarette or ‘vape’) would make a greater contribution to the objective of reducing smoking prevalence.

Plain packaging laws have not met their purported public health objectives of reducing smoking prevalence, reducing tobacco consumption or reducing tobacco expenditure.

Australia

  1. The Australian government has claimed the following in relation to the impact of plain packaging: “tobacco clearances (including excise and customs duty) fell by 3.4% in 2013 relative to 2012 and fell a further 7.9% in 2014. Tobacco clearances have fallen a total of 11.0% since 2012 when tobacco plain packaging was introduced…these growth rates do not take into account refunds of excise equivalent customs duty made under Customs’ plain packaging related Tobacco Refund Scheme between December 2012 and May 2013. These refunds cannot be related to annual net clearances on a comparable basis to other data used to derive these growth rates.”[6] While it is accurate to say that tobacco clearances in Australia fell between 2012 and 2013 by 3.4%, this does not point to the effectiveness of plain packaging or a reduction in tobacco consumption as plain packaging was introduced only in December 2012 and moreover, the figure of 3.4% is not adjusted for significant tax refunds which were paid by the Australian treasury in 2013 due to overpayment of tax on tobacco in 2012. Independent, peer-reviewed analysis by economist Professor Sinclair Davidson of RMIT University based on Australian government data instead confirms that “when the 12-month period before December 2012 is compared to the 12-month period after December 2013, then tobacco clearances fell by 0.8%. When we also take into account the double counting of excise/customs duty paid in 2012 and the refunds in 2013, it appears that tobacco clearances increased by 0.5% [over a 12-month timeframe after the introduction of plain packaging].[7] The WTO panel’s decision at first instance is therefore erroneous as it is premised on the claim that plain packaging has achieved its objective of lowering tobacco consumption. The abovementioned data indicates that this is not the case.

  2. The Australian government released its Post-Implementation Review of the plain packaging policy in February 2016. This review included an econometric analysis by Tasneem Chipty Ph.D (MIT) of the United States based Analysis Group, Inc.[8] The non-peer reviewed analysis estimated a 0.55% decline in the prevalence of smoking due to the effects of plain packaging, yet this falls under the sample error of the author’s data which is 0.6%. This analysis also used a narrow and unreliable tobacco consumer base of an unmarried, Australian-born male who is tertiary-qualified and full-time low-income earner living in the state of Victoria. These methodological flaws coupled with peer-reviewed analysis of the government data which arrives at a different conclusion and the fact that the analysis’s concluded figure falls under the margin of error, hence preclude its use to support the claim that plain packaging has achieved or is likely to achieve its stated public health objective of reducing smoking prevalence.

  3. Furthermore, in relation to whether plain packaging has reduced the prevalence of smoking, the latest data from the Australian government confirms that whilst Australia has traditionally been regarded as a model example of tobacco control, the National Health Survey 2016 found that there had been no statistically significant decline in smoking prevalence since 2013. This despite exacerbation of the world’s strictest punitive tobacco regulations including plain packaging laws and significant increases to tobacco excise over this period. The statistically insignificant decline (from 12.8% to 12.2%) was the first to be recorded over a three-year timeframe in decades. By contrast, the UK and USA which have traditionally experienced lower smoking cessation rates than Australia, have had significantly greater success despite the non-existence of plain packaging laws in these countries over the same period.

A factsheet from the Victorian Cancer Council premised upon Australian government data,[9] also indicates that smoking prevalence increased in four out of five of Australia’s mainland states in 2013 compared to 2012.

  1. In relation to household tobacco expenditure, Professor Davidson notes the following based on the below Australian government data:[10]In December 2012 – the month plain packaging was introduced in Australia – household expenditure on tobacco products was $4.134 billion. By December 2013 – exactly one year later and when the Australian government imposed a 12.5% increase in tobacco excise – household expenditure on tobacco products had increased by some 2.25% to $4.228 billion. Following the increase in [tobacco] excise and changes to excise indexation and then also subsequent excise increases, household expenditure on tobacco resumed its long-term decline.”[11]
  2. prevalence rose to 16.8% in 2017, marking the first rise in six years.[12]



    The WTO panel has therefore erred at first instance as the data shows that plain packaging has not only failed to reduce tobacco consumption and smoking prevalence, it is also highly unlikely to have contributed to the impact of increased tobacco excise in lowering tobacco consumption as household tobacco expenditure actually increased during the 12-month period following the introduction of plain packaging albeit prior to the introduction of the tobacco excise hike.

    France

    1. France introduced its own plain packaging laws for tobacco products in 2017. French government data shows that tobacco consumption has actually increased since the laws came into effect. Data published by the French Observatory for Drugs and Addiction shows that one full year after the policy was implemented, tobacco products shipped to retailers remained broadly stable, with only a slight shift of -0.7% in volume, following a 1.3% increase in sales during the first half of the year. French Health Minister Agnes Buzyn now explicitly concurs that plain packaging does not prevent individuals from smoking and therefore fails to achieve its stated public health objective.

    United Kingdom

    1. A recent study (May 2018) examined the effectiveness of plain packaging in conjunction with EU Tobacco Packaging Directive 2 (which increases the size of graphic health warnings), and found that these have had no statistically significant impact on smoking prevalence or tobacco consumption in the UK since taking effect in 2016.

    Furthermore, the UK Tobacco Manufacturer’s Association Smoking Toolkit Study shows that in 2017, there has been a slight increase in smoking rate after a long period of decline. This has been confirmed by the UK Government’s Office for National Statistics, which found that smoking prevalence rose to 16.8% in 2017, marking the first rise in six years.

Plain packaging contributes to an increase in smoking prevalence by precluding branding competition between tobacco products, thereby incentivising cost competition by making less expensive products more appealing through a reduction in the ability to differentiate competing products and;

Contributes to an increase in smoking prevalence within the illicit tobacco market by making it easier to produce counterfeit branded tobacco products and harder for consumers to distinguish between legitimate products and illicit tobacco products.

  1. The removal of tobacco branding destroys brand loyalty. The result is that competition based on price becomes the predominant factor driving consumer choice, thereby increasing the market share of cheaper tobacco and incentivising the production of cheaper tobacco. According to Australian industry monitor InfoView, the market share of deep discount and low price tobacco increased significantly since the introduction of plain packaging in December 2012, rising from 32% to 37% over 2013, while the market share of mid-price and premium tobacco diminished.[13] Australian Association of Convenience Stores spokesperson Jeff Rogut has noted that since the introduction of plain packaging, consumers have frequently asked store owners for the cheapest product available.[14]
  2. Similarly, a report by international accounting firm KPMG has found that the market share of illicit tobacco in Australia rose sharply following the introduction of plain packaging laws in December 2012.[15] Since then, illegal tobacco sales have gone up by 30%. The black market in tobacco is now estimated to account for 15% of the total market – the country’s highest level on record. The absence of branding makes illicit products relatively less unattractive compared to legal products and ultimately contributes to this trend.

 

Plain packaging has not enhanced the effectiveness of existing graphic health warnings in reducing the appeal of tobacco products or reducing the ability of tobacco packaging to mislead consumers about the harmful effects of smoking.

  1. An Australian government-commissioned post-implementation review of plain packaging laws found that it was impossible to isolate the effectiveness of plain packaging laws from that of graphic warnings which have existed in Australia since 2006.[16] Survey data has shown that graphic health warnings on tobacco packets are regarded by consumers as unappealing.[17] However, an independent 2017 review of the study and data found that the effectiveness of graphic health warnings in deterring smoking did not increase since the introduction of plain packaging and that the combined effect of graphic health warnings and plain packaging did not contribute to an increase in actual smoking cessation attempts by consumers.[18] The WTO panel at first instance has hence erred as the abovementioned evidence precludes the conclusion these laws have achieved their public health objective of contributing to a decrease in the appeal of smoking or rendering existing anti-smoking appeal strategies more effective.

Plain packaging is more trade-restrictive than necessary to achieve its objective as the alternative, less trade-restrictive measure of legalising alternative nicotine delivery mechanisms such as nicotine vaping (through the use of an e-cigarette or ‘vape’) would make a greater contribution to the objective of reducing smoking prevalence.

  1. It was mentioned above at point 3, that the UK and USA have experienced significant declines in their smoking prevalence rates at the same time that the decline of smoking prevalence in Australia has stagnated following the introduction of plain packaging. This period (broadly, since 2011) has coincided with the rapid uptake and rise in popularity of safer alternatives to tobacco which deliver nicotine electronically, such as e-cigarettes or vapes. Unlike the USA and UK, vaping with nicotine has been and remains illegal in Australia and nicotine solutions cannot be sold or possessed for this purpose. It is submitted that the legalisation of vaping with nicotine and nicotine liquids for the purpose of vaping, present a less trade-restrictive alternative to plain packaging which is more effective in achieving the stated objectives of reducing smoking prevalence and lowering tobacco consumption. It is submitted that the WTO panel at first instance erred by failing to consider this alternative and less trade-restrictive policy option.

  2. United States adult smoking rates have fallen rapidly between 2011 and 2015 – from 18.9% to a record low of 15.1% which is below Australia’s adult smoking rate. Notably, the decline between 2014 and 2015 was especially sharp: See figure below illustrating US government statistics:[19]
  3. Similar developments have occurred in the UK. After a period of significant smoking rate reduction, the UK adult smoking rate stalled in the late-2000s, then sharply reduced between 2011 and 2014 at which point it hit a record low of 17.4%. Over the same time period, there has been a rapid uptake of safer alternatives to cigarettes including vapes. The smoking prevalence rate dropped only 0.5% in the 5 years between 2007 and 2012 despite the institution of multiple smoking deterrence measures (see below). After safer alternatives to tobacco became mainstream and enjoyed a rapid uptake post-2011 however, the smoking rate experienced nearly 9 times the decline seen in the previous period. The only significant anti-tobacco reform during this period was a display ban which did not take effect until 2015 towards the end of the period.

  4. The UK Royal College of Physicians has found that nicotine delivery products such as vapes and heat-not-burn products such are AT LEAST 95% less harmful than conventional smoking of combustible tobacco.[20] A long-term, cross-sectional study found that transitioning from cigarettes to alternative nicotine delivery products drastically lowers the build-up of carcinogens and tar in the bodies of smokers.[21] No study has linked alternative nicotine delivery products to any long-term material health risks. Multiple studies have instead found that alternative nicotine delivery products do not pose any material risk to passive smokers.[22] [23] [24] For these reasons, the Royal College of Physicians and Public Health England, not only recommend the legalisation of alternative nicotine delivery products, but advise doctors to recommend these products to patients who wish to quit smoking.[25] Public Health England also recommends that smoke-free workplace laws and laws which prohibit indoor smoking do not apply to alternative nicotine delivery products in recognition of the lack of risk these products pose for passive smokers.[26]

Conclusion

We urge the World Trade Organisation appellate body to overturn the first instance decision in this matter and uphold legitimate intellectual property rights in light of the abovementioned evidence that plain packaging is ineffective, more trade-restrictive than necessary and therefore contravenes rules stipulated in the TBT agreement, TRIPS and the Paris Convention.

We again thank the appellate body for the opportunity to provide the abovementioned evidence and hope that it will be of assistance.

Yours sincerely,

Satyajeet 'Satya' Marar

Director of Policy

Australian Taxpayers' Alliance

_____________________________________________________________________________________________________

[1] Panel Report, paras. 7.483-7.1045.

[2] See, e.g. Panel Report, paras. 7.1024-7.1034.

[3] Panel Report, para. 7.1044.

[4] See, e.g. Panel Report, paras. 7.974, 7.1036, and 7.1043.

[5] Panel Report, paras. 7.2394-7.2396, 7.2430, and related paras. 7.2439-7.2442, and 7.2492-7.2508.

[6] http://www.health.gov.au/internet/main/publishing.nsf/Content/tobacco-kff    

[7] Davidson, S. 2016c. Submission to the Slovenian Restriction of the Use of Tobacco (Products) and Related Products Act Inquiry; Davidson, S. and A. de Silva. 2014. The Plain Truth about Plain Packaging: An Econometric Analysis of the Australian 2011 Tobacco Plain Packaging ActAgenda: A Journal of Policy Analysis and Reform. 21(1): 27 – 43.

[8] Tasneem Chipty, 2016, Study of the Impact of the Tobacco Plain Packaging Measure on Smoking Prevalence in Australia. In Post-Implementation Review: Tobacco Plain Packaging.  https://www.health.gov.au/internet/main/publishing.nsf/content/491CE0444F7B0A76CA257FBE00195BF3/$File/PIR%20of%20Tobacco%20Plain%20Packaging%20-%20with%20Addendum.docx

[9] Victorian Cancer Council figure of smoking prevalence in Australian mainland states Source: Fact sheet no. 4: What is happening to the prevalence of smoking in Australia? (2015) http://www.cancervic.org.au/downloads/plainfacts/Facts_sheets/Facts_Sheet_no._4_PrevalenceMar16.pdf   

[10] Household Final Consumption Expenditure on Cigarettes and tobacco March 2012 – December 2015: Chain volume measure, seasonally adjusted. Source: Australian Bureau of Statistics (ABS) Cat. 5206.0 Table 8.

[11] Davidson, S. 2016c. Submission to the Slovenian Restriction of the Use of Tobacco (Products) and Related Products Act Inquiry; Davidson, S. and A. de Silva. 2014. The Plain Truth about Plain Packaging: An Econometric Analysis of the Australian 2011 Tobacco Plain Packaging ActAgenda: A Journal of Policy Analysis and Reform. 21(1): 27 – 43.

[12] “Britain is winning the war on tobacco, health chief insists” The Guardian July 3rd 2018 https://www.theguardian.com/society/2018/jul/03/britain-is-winning-the-war-on-tobacco-health-chief-insists

[13] Christian Kerr, “Labor’s plain packaging fails as cigarette sales rise” The Australian June 6, 2014 http://www.theaustralian.com.au/national-affairs/labors-plain-packaging-fails-as-cigarette-sales-rise/news-story/78ee3d2608e1a01fbbb5fd4c22acafbc

[14] Ibid.

[15] https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2018/05/australia_illicit_tobacco_report_2017.pdf   

[16]Tasneem Chipty, 2016, Study of the Impact of the Tobacco Plain Packaging Measure on Smoking Prevalence in Australia. In Post-Implementation Review: Tobacco Plain Packaging.  https://www.health.gov.au/internet/main/publishing.nsf/content/491CE0444F7B0A76CA257FBE00195BF3/$File/PIR%20of%20Tobacco%20Plain%20Packaging%20-%20with%20Addendum.docx

[17] Wakefield, Melanie, et al. "Australian adult smokers’ responses to plain packaging with larger graphic health warnings 1 year after implementation: results from a national cross-sectional tracking survey." Tobacco control 24.Suppl 2 (2015): ii17-ii25.

[18] Davidson, S. and A. de Silva. 2017. What the Government Demanded As Proof for Plain Packaging Efficacy: An Analysis the Public Health Lobby Did Not Perform. SSRN Working Paper.

[19] CDC, National Health Interview Survey, 2015 https://www.cdc.gov/nchs/nhis/nhis_2015_data_release.htm

[20] Royal College of Physicians (London), Nicotine without smoke: tobacco harm reduction. 28 April 2016.   https://www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-harm-reduction-0

[21] Shahab L, Goniewicz ML, Blount BC, Brown J, McNeill A, Alwis KU, et al. Nicotine, Carcinogen, and Toxin Exposure in Long-Term E-Cigarette and Nicotine Replacement Therapy Users: A Cross-sectional Study. Ann Intern Med. [Epub ahead of print 7 February 2017] doi: 10.7326/M16-1107 http://annals.org/aim/article/2599869/nicotine-carcinogen-toxin-exposure-long-term-e-cigarette-nicotine-replacement

[22] Hall W, Gartner C, Forlini C. Ethical issues raised by a ban on the sale of electronic nicotine devices. Addiction 2015; 110:1061–7  http://onlinelibrary.wiley.com/doi/10.1111/add.12898/abstract

[23] Igor Burstyn, “Peering Through the Mist: Systematic Review of What the Chemistry of Contaminants in Electronic Cigarettes Tells Us About Health Risks,” BMC Public Health 14 (January 2014), http://bmcpublichealth.biomedcentral.com/articles/10.1186/1471-2458-14-18

[24] Royal College of Physicians, Nicotine without Smoke: Tobacco Harm Reduction,

April 2016, https://www.rcplondon.ac.uk/projects/outputs/nicotinewithout-smoke-tobacco-harm-reduction-0

[25] UK Govt policy paper, 18 July 2017: https://www.gov.uk/government/publications/towards-a-smoke-free-generation-tobacco-control-plan-for-england

[26] Public Health England. 'Use of e-cigarettes in public places and work places'. 6 July 2016. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/534586/PHE-advice-on-use-of-e-cigarettes-in-public-places-and-workplaces.PDF

 

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