Philip Morris Leads Plain Packs Battle in Global Trade Arena


August 22, 2013

By Andrew Martin

The war between the tobacco industry and anti-smoking forces is heating up as cigarette makers intensify efforts to use treaties to block labeling constraints.

Philip Morris International Inc. (PM) has pressed the U.S. for language that would make it tougher for countries in a proposed Pacific Rim trade pact to require plain packaging or other limits on company logos. Australia’s packaging law is being challenged at the World Trade Organization, and U.S. senators from tobacco-growing states, including Senate Minority Leader Mitch McConnell, recently warned the European Union that smoking controls it’s considering could endanger a U.S. trade deal.

The number of smokers increased about 7 percent to at least 869 million because of population growth, particularly in developing regions with relatively lax anti-smoking regulations, said Shane MacGuill, a Euromonitor tobacco analyst in London. Photographer: Daniel Acker/Bloomberg
Packs of Philip Morris International Inc. cigarettes in plain-packaging are displayed for a photograph in a store in Melbourne, Australia. Photographer: Carla Gottgens/Bloomberg

Cigarette makers defend the efforts as necessary to safeguard the intellectual property protections embedded in treaties. To anti-smoking forces, the tobacco lobby is working a strategy of intimidation.

“They are in this to convince governments it’s not worth the cost” to enact laws to reduce tobacco’s appeal, said Chris Bostic, deputy director for policy at Action on Smoking and Health, a Washington-based nonprofit. “It’s about chilling countries from moving forward.”

The U.K. recently postponed instituting strict cigarette-pack mandates so it could assess Australia’s law.

The Trans-Pacific Partnership being negotiated by Australia, the U.S., Japan, Chile and eight other nations will be a test of sovereign states’ freedom to regulate tobacco, said Gary Fooks, a University of Bath research fellow who has written about the industry’s efforts to influence the pact. The next round of talks is scheduled to begin tomorrow in Brunei.

Safe Harbor

Anti-smoking activists were encouraged last year when the Obama administration wrote a draft proposal to strengthen protections for anti-smoking regulations from challenges. It would have created “a safe harbor” for U.S. Food and Drug Administration tobacco rules, according to a government summary of the draft.

The safe harbor proposal died last week after running into opposition from lawmakers, former trade representatives and business groups, including the Grocery Manufacturers Association. They contended it would set a bad precedent that could lead to other products being singled out in trade pacts.

Instead, the U.S. will ask for a clause requiring that before a case against a tobacco regulation can be filed under the treaty, health authorities of the countries involved must “discuss the measure.” U.S. negotiators will also ask for a provision affirming that tobacco control initiatives are covered by a general exception, typical in trade agreements, that allows countries to enact measures necessary to protect human health.

Industry’s History

“This proposal will, for the first time in a trade agreement, address specifically the public health issues surrounding tobacco,” U.S. Trade Representative Michael Froman said in a statement, and won’t “create a precedent for excluding agricultural products.”

Anti-smoking activists characterized the new proposal as a retreat. It simply “states the obvious,” according to an Aug. 16 statement from five nonprofits, including the American Academy of Pediatrics and the American Lung Association.

“It’s hard for me to see that it makes any difference at all,” said Gregg Haifley, associate director of federal relations at the American Cancer Society Cancer Action Network.

Representative Henry Waxman, a California Democrat, said he was “very disappointed” that the administration was taking a “significant step backwards” from the safe harbor proposal. While the substitute might “be helpful on the margins” if it becomes part of the pact, it won’t do much to prevent challenges to anti-smoking measures, he said.

Suing Thailand

Waxman said he urged Froman to press for a safe harbor, saying tobacco deserves special attention because it can kill when used as intended. “I pointed out to him that tobacco companies have a history of using trade agreements to undermine laws,” he said.

Companies including New York-based Philip Morris International, which sells Marlboro outside the U.S., and British American Tobacco (BATS) Plc, whose brands include Dunhill and Lucky Strike, are in a global battle against moves to curtail branding and make cigarettes unappealing.

The $756 billion industry isn’t focusing only on trade deals. Japan Tobacco Inc. (2914) in June sued Thailand in its courts over a plan to order that health warnings cover 85 percent of a pack cover. In the U.S., five companies successfully sued the FDA to block a plan to require that packs to show a graphic image of cigarettes’ effects, such as a photo of a smoke drifting out of tracheotomy hole or chest staples on a cadaver.

Plain Packs

While the industry says it supports evidence-based regulations that are effective in reducing harm from smoking, companies have made it clear they’ll go after laws such as Australia’s, which requires cigarettes be sold in uniform drab brown packs and limits the size of brand names.

“These policies do not meet the minimum standards that there will be a clear benefit to public health, and at the same time risk fueling the black market,” said Julie Soderlund, Philip Morris’ vice president of communications.

Will Hill, a spokesman for British American Tobacco, said the company would “take every action necessary to protect our valuable brands and our right to compete as a legitimate commercial business selling a legal product.”

The industry’s treaty strategy goes back to at least 1993, when nine companies were invited to work together in what became known as the Plain Pack Group. The plan was to combat “the encroachment on the packs of ‘health-related’ information and the possibility of the ‘generic’ pack,” according to a letter from an official at Rothmans International Tobacco, now part of British American Tobacco. The letter surfaced in litigation between U.S. states and tobacco companies and is in a University of California San Francisco archive.

Uruguay’s Case

The group argued that packaging mandates violated trademark rights and treaties, documents in the archive shows.

Not everyone in the industry agreed with the tack. “We are advised that there is no basis for any legal challenge against State and Territorial Governments on these grounds,” according to a memo from W.D. & H.O. Wills (Australia), a tobacco manufacturer, that is in the archive.

While packaging restrictions in Australia and Canada were rejected in the mid-1990’s, they’ve recently gained momentum. Philip Morris International is challenging mandates in Uruguay, including one that health warnings cover 80 percent of the front and back of packs.

Helping Honduras

The company is making its case under Uruguay’s investment treaty with Switzerland, which, like most such pacts, includes an arbitration clause allowing companies to dispute policies that affect their interests. Philip Morris International subsidiaries in Switzerland and Uruguay brought the complaint. The private charity of New York Mayor Michael Bloomberg, founder and majority owner of the parent of Bloomberg News, is paying for some of Uruguay’s defense.

The company is also using investor-state arbitration to contest Australia’s packaging law, claiming it “virtually eliminates Philip Morris’ branded business by expropriating its valuable intellectual property.”

The law is being challenged at the WTO by Ukraine, the Dominican Republic, Honduras and Cuba. Philip Morris is covering some legal costs for the Dominican Republic, which Soderlund said is “common practice in WTO litigation,” and British American is doing the same for Ukraine and Honduras.

The U.S. last year lost a case at the WTO when appellate judges at the Geneva-based organization upheld a ruling that a law banning clove cigarettes is discriminatory because it “accords clove cigarettes less favorable treatment than that accorded to domestic menthol-flavored cigarettes.” Indonesia, the largest maker of clove brands, brought that case.

Photo Warnings

In Europe, the industry opposes some parts of a proposed update to the EU’s Tobacco Products Directive. It calls for text and photo warnings to cover as much as 75 percent of the space on the front and back of packs, bans promotional elements and allows member statesto pass plain-packaging laws.

At Philip Morris International’s annual meeting in May, Chief Executive Officer Andre Calantzopoulos called some elements of the EU update “frankly illogical and devoid of scientific evidence.”

The U.S. senators who oppose it said in a May 7 letter to Joao Vale de Almeida, the EU’s ambassador to the U.S., that the proposed directive would impact “transatlantic trade relations” and could weaken the EU’s ability to “credibly address” barriers to intellectual property rights.

It “calls into question the EU’s ability to deliver on regulatory commitments to the United States that it will have to make under a comprehensive U.S.-E.U. trade agreement,” the letter said. It was signed by McConnell and three of his colleagues, Republicans Rand Paul of Kentucky and Richard Burr of North Carolina and Democrat Kay Hagan of North Carolina.

Threaten, Bully

The industry’s goal is discourage countries from strengthening anti-smoking measures, said Thomas J. Bollyky, a senior fellow at the Council on Foreign Relations and a former negotiator for the U.S. Trade Representative’s Office.

“Tobacco companies are using trade and investment agreements to threaten, bully, and bring trade disputes against developing countries seeking to implement the very same advertising and labeling restrictions that already exist in most developed countries,” he said.

The global smoking prevalence rate among adults has been gradually declining, to 20.6 percent in 2012 from 22.7 percent in 2002, according to Euromonitor International.

More Smokers

At the same time, the number of smokers increased about 7 percent to at least 869 million because of population growth, particularly in developing regions with relatively lax anti-smoking regulations, said Shane MacGuill, a Euromonitor tobacco analyst in London.

Tobacco companies have been consistently profitable, even as anti-smoking efforts have become more aggressive. “They can weather these kinds of events,” said Thilo Wrede, an analyst at Jefferies & Co. in New York. “They have shown in the past that they are successful in challenging regulatory obstacles.”

Philip Morris International spent $9.8 million on lobbying Congress and agencies in 2012 on trade and other issues, according to disclosure records. So far this year, the company has spent $5.1 million.

“Unfortunately the environment in which we operate has become more challenging given the ever-growing proposals and actions to introduce arbitrary measures,” Calantzopoulos said at the annual meeting. “We will continue to vigorously oppose unreasonable and irrational regulatory proposals.”