TWN Info Service on UN Sustainable Development (Jul18/03)
9 July 2018
Third World Network
   
Australia's tobacco plain packaging not WTO-illegal, says WTO
Published in SUNS #8714 dated 4 July 2018

Geneva, 3 Jul (Kanaga Raja) - A dispute panel at the World Trade Organisation has ruled that the complainants had not demonstrated that Australia's tobacco plain packaging (TPP) regulations were inconsistent with Australia's WTO obligations.

In a landmark ruling of over 880 pages (not including addendum and appendices) on 28 June, the panel rejected the complaints raised by Honduras, the Dominican Republic, Cuba and Indonesia that Australia's TPP measures violated the Agreement on Technical Barriers to Trade (TBT) or trademark rights under the TRIPS Agreement.

In respect of a claim by Cuba, the panel also found that Cuba had not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article IX:4 of the GATT 1994.

Importantly, the panel further found that, individually, each of the four alternative measures proposed by the complainants would not make a contribution to Australia's objective that is equivalent to the contribution made by the TPP measures as part of Australia's broader regulatory framework regarding tobacco control.

The four proposed alternative measures are an increase in the minimum legal purchasing age (MLPA) from 18 to 21 years; increased taxation of tobacco products; social marketing campaigns; and a pre-vetting mechanism.

In conclusion, the panel declined the complainants' requests that the panel recommend that the DSB request Australia to bring the measures at issue into conformity with the TRIPS Agreement and the TBT Agreement (in the case of Cuba's claim, also the GATT 1994).

(For various reactions to the much-awaited ruling, see SUNS #8712 dated 2 July 2018.)

BACKGROUND

Australia's TPP Act of 2011, the TMA Act (Trade Marks Amendment (Tobacco Plain Packaging) Act 2011) and the TPP Regulations form the TPP measures at issue in these disputes.

Honduras had requested consultations with Australia on 4 April 2012 with respect to the measures at issue, while the Dominican Republic requested consultations with Australia on 18 July 2012. Subsequently, on 3 May 2013, Cuba requested consultations with Australia, while on 20 September 2013, Indonesia requested consultations with Australia. These consultations failed to resolve the dispute.

The complainants made claims under the TRIPS Agreement and the TBT Agreement. In addition, Cuba made a claim under the GATT 1994.

ARTICLE 2.2 OF THE TBT AGREEMENT

According to the panel report, with respect to Article 2.2 of the TBT Agreement, the complainants argued that the TPP measures are trade-restrictive, and that they are more trade-restrictive than necessary to fulfil the legitimate objective they pursue, taking into account the risks that non-fulfilment of this objective would create.

Australia considered, however, that the complainants have not established that the measures are trade-restrictive. Australia also argued that the TPP measures were adopted in accordance with the Article 11 FCTC (WHO Framework Convention on Tobacco Control) Guidelines and Article 13 FCTC Guidelines, and thus these measures are "in accordance with relevant international standards" within
the meaning of the second sentence of Article 2.5 of the TBT Agreement.

Consequently, Australia claimed that, to the extent that the definition of a "technical regulation" also encompasses measures affecting the use of a trademark, the TPP measures are "rebuttably presumed" not to create an unnecessary obstacle to international trade under the second sentence of Article 2.5 and that the complainants have not rebutted this presumption.

On whether the Article 11 and Article 13 FCTC Guidelines constitute a "standard" for TPP within the meaning of Annex 1.2 of the TBT Agreement, the panel found that while the Article 11 and Article 13 FCTC Guidelines provide important guidance to FCTC parties in addressing packaging, and, as relevant, implementing plain packaging as an element of a comprehensive scheme of effective tobacco control policies, Australia has not demonstrated that they constitute a "standard" under Annex 1.2 of the TBT Agreement with respect to tobacco plain packaging.

On whether the TPP measures constitute a technical regulation within the meaning of Annex 1.1 of the TBT Agreement, the panel found that the TPP measures (i.e. the TPP Act, the TPP Regulations and the TMA Act, taken together), prescribe a number of detailed characteristics for tobacco products (including in terms of marking, labelling and packaging requirements) falling within the scope of the definition of "technical regulation" under Annex 1. 1 of the TBT Agreement.

On whether the TPP measures are "more trade-restrictive than necessary to fulfil a legitimate objective" within the meaning of Article 2.2, in its analysis, the panel said that in the present proceedings, the FCTC and its Guidelines have been referred to as evidence in support of specific arguments not only by Australia, but also by certain complainants.

"We see no basis to dismiss ex ante the relevance of these instruments, based solely on the fact that they do not constitute an "international standard" for the purposes of the second sentence of Article 2.5 of the TBT Agreement. In particular, we see no reason to assume that the FCTC, which has been adopted by 180 countries, and related instruments adopted under its auspices could not inform, together with other relevant evidence before us, our understanding of relevant aspects of the matters with which they are concerned, namely "tobacco control measures ... to reduce ... the prevalence of tobacco use"."

"Our determination above in respect of the second sentence of Article 2.5 i s, therefore, without prejudice to the relevance and probative value to be given to the FCTC and related instruments in the context of other aspects of our analysis of the claims before us," said the panel.

The panel stressed that any assessment and observations it makes under this, or any other section of its Reports, with respect to the FCTC, its Guidelines, or any other FCTC instrument, is for the sole purpose of resolving the specific legal and factual questions that stand before it in these proceedings, in relation to the claims before it under the relevant WTO covered agreements and pursuant to its limited mandate under the DSU.

Having determined that the objective pursued by the TPP measures is to improve public health by reducing the use of, and exposure to, tobacco products and that this is a legitimate objective within the meaning of Article 2.2 of the TBT Agreement, the panel conducted a relational analysis of different factors, including the degree to which the TPP measures contribute to this objective , the extent to which they are trade-restrictive, and the nature of the risks of non-fulfilment of the objective pursued and the gravity of the consequences that would arise from such non-fulfilment.

In its overall conclusion on evidence relating to the design, structure and operation of the TPP measures, the panel said its review of the evidence before it in relation to the design, structure and intended operation of the TPP measures does not persuade it that, as the complainants argue, they would not be cap able of contributing to Australia's objective of improving public health by reducing the use of, and exposure to, tobacco products, through the operation of the mechanisms identified in the TPP Act, in combination with other relevant tobacco control measures applied by Australia.

"Rather, our review of the relevant evidence suggests that it is recognized that various branding features are capable of being used on tobacco packaging in order to convey certain positive associations with the products, and that a body of research exists, that sought to investigate the impact of removing this type of features through plain packaging of tobacco products, on the types of "proximal outcomes" now reflected in the TPP Act."

While individual studies within this body of research may suffer from certain limitations, the panel said it is not persuaded that the complainants have demonstrated that these are such that it could not be considered reputable science and relied upon as relevant in relation to the anticipated impact of tobacco plain packaging on the measured outcomes, including a reduction in the appeal of tobacco products, an increased effectiveness of GHWs (graphic health warnings) and reducing the ability of packaging to mislead consumers about the harmful effects of smoking.

The panel also took note of the body of research devoted to the study of the relationship between product perceptions, intentions and behaviours discussed by the parties, including the recognition that this relationship is complex and may be influenced by a range of factors in a given context.

"We further note the evidence presented to us in relation to the drivers of the smoking behaviours that the TPP measures seek to influence, namely initiation, cessation and relapse. Overall, this evidence, while it makes clear the complexity and multiplicity of factors driving smoking behaviours, is consistent, in our view, with the proposition underlying the design and structure of TPP measures that relevant behaviours may be influenced by a reduction in the appeal of tobacco products or an improved awareness and understanding of health risks of smoking, or both."

The panel said the evidence before it, including a review by the complainants' own experts of data collected in a national tracking survey conducted specifically to assess the impact of the TPP measures, is consistent with the view that, together with the enlarged GHWs, these measures have led in particular to a reduction in the appeal of tobacco products, as hypothesized in the TPP
literature, and to a greater noticeability of GHWs. The fact that pre-existing downward trends in smoking prevalence and overall sales and consumption of tobacco products have not only continued but accelerated since the implementation of the TPP measures, and that the TPP measures and enlarged GHWs had a negative and statistically significant impact on smoking prevalence and cigarette wholes ale sales, is also consistent with the hypothesis that the measures have had an impact on actual smoking behaviours, notwithstanding the fact that some of the targeted behavioural outcomes could be expected to manifest themselves over a longer period of time.

The panel noted in this respect the limited evidence before it addressing the relationship between observed proximal outcomes and actual smoking behaviours, which suggests that further analysis will be required in this respect.

Overall, the panel found that the complainants have not demonstrated that the TPP measures are not apt to make a contribution to Australia's objective of improving public health by reducing the use of, and exposure to, tobacco products. Rather, the panel found that the evidence before it, taken in its totality, supports the view that the TPP measures, in combination with other tobacco-control measures maintained by Australia (including the enlarged GHWs introduced simultaneously with TPP), are apt to, and do in fact, contribute to Australia's objective of reducing the use of, and exposure to, tobacco products.

The panel concluded that to the extent that the TPP measures contribute to a reduction in the use of tobacco products, they will also have some impact on the reduction of exposure to such products.

"We have found that the nature of the risks of non-fulfilment of the TPP measures' objective is that public health would not be improved as the use of, and exposure to, tobacco products would not be reduced. The consequences of non-fulfilment of this objective, therefore, entail a public health problem as a result of the lack of reduction in the use of, and exposure to, tobacco products. This public health problem is linked to the consequences of the use of, and exposure to, tobacco products in general, and more specifically within Australia, given that the challenged measures apply and aim to achieve their objective in Australia."

The panel found that it is widely recognized, and undisputed in these proceedings, that the public health consequences of the use of, and exposure to, tobacco, including in Australia, are particularly grave.

The panel said in light of the objective of the TPP measures and taking into account in particular the available scientific and technical evidence, "we have found that the nature of the risks non-fulfilment of the objective would create is that public health would not be improved as the use of, and exposure to, tobacco products would not be reduced. We have also found that the public health consequences of not fulfilling this objective are particularly grave."

OVERALL CONCLUSION ON ARTICLE 2.2 OF TBT AGREEMENT

The panel said that an assessment of whether a technical regulation is more trade-restrictive than necessary under Article 2.2 of the TBT Agreement involves the holistic weighing and balancing of various elements, including the degree of contribution made by the challenged measure to the legitimate objective at issue; the trade- restrictiveness of the measure; and the nature of the risks at issue as well as the gravity of the consequences that would arise from non-fulfilment of the objective pursued by the Member through the measure. In addition, where a comparison of the challenged measure and possible alternative measures proposed by the complainant is undertaken, consideration must be given to whether the proposed alternative would be less trade-restrictive; whether it would make an equivalent contribution to the relevant legitimate objective, taking account of the risks non-fulfilment would create; and whether it is reasonably available to the Member.

In its assessment of the complainants' claims under Article 2.2 of the TBT Agreement, the panel reached the following conclusions in respect of the various relevant factors:

a. The objective of the TPP measures is to improve public health by reducing the use of, and exposure to, tobacco products.

b. The TPP measures are apt to, and do, make a meaningful contribution to this objective;

c. The TPP measures are trade-restrictive, to the extent that they result in a reduction in the total volume of imports; and

d. The nature of the risks that would arise from the non-fulfilment of Australia's objective is that public health would not be improved, as the use of, or exposure to, tobacco products, would not be reduced, and the consequences of such use, and exposure, are particularly grave.

The panel said it has also considered each of the four alternative measures proposed by the complainants, and determined, in respect of each of these, that the complainants have not demonstrated that it would constitute a less trade-restrictive alternative measure that would make an equivalent contribution to Australia's objective, as a substitute for the TPP measures.

"Our determinations as to the degree of contribution achieved by the TPP measures, and our comparison with the contribution that would be made by reasonably available alternative measures, are made within the context of the comprehensive strategy designed and implemented by Australia to address tobacco control," said the panel.

"In this connection, we consider highly relevant the recognition in a number of sources of the comprehensive nature of tobacco control in particular, including the numerous iterations to this effect within the FCTC and its supporting guidelines for implementation."

"The multi-faceted nature of tobacco control policies in particular is underscored throughout the evidence on record before us, and underscores the proposition mentioned above, that the use of, and exposure to, tobacco products should be addressed through a combination of measures working together."

The panel also noted, in this respect, Australia's observation on the importance of avoiding a regulatory gap in the product coverage of the measures by covering all tobacco products. This is consistent also with the FCTC's recommendation for comprehensive, multi-sectoral tobacco control measures addressing all tobacco products.

Specifically, the panel said it is mindful that the TPP measures are, by their design, not intended to operate as a stand-alone policy, but rather were implemented as part of "a comprehensive suite of reforms to reduce smoking and its harmful effects" in Australia.

"In our view, taking due account of this broader regulatory context of the TPP measures is essential to our understanding of their degree of contribution to Australia's objective. We have thus given due weight in our analysis to the fact that the TPP measures operate in conjunction with a number of other wide-ranging tobacco control measures, including mandatory GHWs, restrictions on advertisement and promotion, taxation measures, restrictions on the sale and consumption of tobacco products, social marketing campaigns, and measures to address illicit tobacco trade."

The panel said that it has found that, in the particular context of tobacco control and the regulatory efforts of Australia to improve public health by reducing the use of, and exposure to, tobacco products, none of the alternatives proposed by complainants would contribute to Australia's objective to an equivalent degree as the TPP measures, taking into account the risks non-fulfilment of the objective would create and the actual contribution made by the challenged measures as well as the principle reflected in the sixth recital of the TBT Agreement, that no Member should be prevented from pursuing legitimate objectives "at the levels it considers appropriate".

Overall, on the basis of the above, the panel concluded that the complainants have not demonstrated that the TPP measures are more trade-restrictive than necessary to fulfil a legitimate objective, within the meaning of Article 2.2 of the TBT Agreement.

CLAIMS UNDER THE TRIPS AGREEMENT

The panel then examined the complainants' claims relating to the provisions of the TRIPS Agreement, first addressing those provisions that concern the protection of trademarks.

The complainants claimed violations of Article 6quinquies of the Paris Convention (1967), which obliges Members to accept for filing and protect " as is" trademarks duly registered in other WTO Members, and of Article 15.4 of the TRIPS Agreement, which prohibits Members from refusing trademark registration on the basis of the nature of the goods and services to which a trademark is to be applied.

The panel concluded that the complainants have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 15.4 of the TRIPS Agreement.

The complainants also claimed violations of Article 16.1 and Article 16.3 o f the TRIPS Agreement.

Following its analysis, the panel concluded that the complainants have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 16.1 of the TRIPS Agreement. It also concluded that Cuba and Indonesia have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 16.3 of the TRIPS Agreement.

With respect to Article 20 relating to "special requirements" that "encumber" the use of a trademark, the panel found that the TPP measures, to the extent they restrict the use of word marks to certain forms prescribed by the TPP Regulations and prohibit the use of stylized word marks, composite marks, and figurative marks in the specified situations, amount to "special requirements" that "encumber" the use of a trademark within the meaning of Article 20.

The panel said these determinations are without prejudice to the question of whether these special requirements encumber use "in the course of trade", or do so "unjustifiably".

On whether the special requirements in the TPP measures encumber the "use o f a trademark" "in the course of trade", the panel found that the trademark requirements of the TPP measures amount to special requirements that encumber "the use of a trademark in the course of trade".

On whether the TPP measures "unjustifiably" encumber the use of trademarks in the course of trade, the panel concluded that special requirements that involve a high degree of encumbrance, such as those in the TPP measures that prohibit the use of stylized word marks, composite marks, and figurative marks, are not per se unjustifiable.

In the circumstances of the present case, the panel noted Australia's explanation that the removal of stylized fonts, logos, emblems and other branding imagery from trademarks on tobacco packaging and products is intended to prevent th e use of such imagery to communicate specific messages to targeted demographic groups or to convey any positive associations. It further explains that the TPP measures are not concerned with the specific features of particular trademarks; rather, their premise is that prescribing a standardized, plain appearance for tobacco packages and products is intended to minimize the ability of tobacco packages and products to increase the appeal of tobacco products, detract from the effectiveness of graphic health warnings, or mislead consumers as to the harms of tobacco use.

"We consider that this approach is not, per se, unjustifiable. Rather, as described above, to the extent that the requirements at issue relate to an entire class of marks or signs, an assessment of their unjustifiability is best approached in terms of the extent to which this is supported by the reasons for their adoption."

In its analysis, the panel found that the complainants have not demonstrate d that the trademark requirements of the TPP measures are per se inconsistent with Australia's obligations under Article 20 on the grounds that they do not provide for individual assessment of trademarks and their specific features.

The panel noted that the parties are in agreement about the importance of public health as a policy concern. They, furthermore, agree on the importance of effective tobacco control measures to reduce the public health burden resulting from tobacco use. The panel also recalled that the Appellate Body has recognized the preservation of human life and health as a value that is "both vital and important in the highest degree".

Overall, the panel said that it is not persuaded that the complainants have demonstrated that Australia has acted beyond the bounds of the latitude available to it under Article 20 to choose an appropriate policy intervention to address its public health concerns in relation to tobacco products, in imposing certain special requirements under the TPP measures that encumber the use of trademarks in the course of trade. While recognizing that trademarks have substantial economic value and that the special requirements are far-reaching in terms of the trademark owners' possibilities to extract economic value from the use of figurative or stylized features of trademarks, the panel noted that the TPP measures, including their trademark restrictions, are an integral part of Australia's comprehensive tobacco control policies, and designed to complement the pre-existing measures.

The fact that the special requirements, as part of the overall TPP measures and in combination with other tobacco-control measures maintained by Australia, are capable of contributing, and do in fact contribute, to Australia's objective of improving public health by reducing the use of, and exposure to, tobacco products, suggests that the reasons for which these special requirements are applied provide sufficient support for the application of the resulting encumbrances on the use of trademarks.

The panel further noted that Australia, while having been the first country to implement tobacco plain packaging, has pursued its relevant domestic public health objective in line with the emerging multilateral public health policies in the area of tobacco control as reflected in the FCTC and the work under its auspices, including the Article 11 and Article 13 FCTC Guidelines.

In light of the above, the panel concluded that the complainants have not demonstrated that the trademark-related requirements of the TPP measures unjustifiably encumber the use of trademarks in the course of trade within the meaning of Article 20 of the TRIPS Agreement. The panel found that the complainants have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 20 of the TRIPS Agreement.

The panel then addressed the issue of whether the TPP measures compel acts by market participants in respect of GIs (geographical indications) that constitute acts of unfair competition that Australia is obliged to prohibit.

The complainants argue that the TPP measures compel market participants to engage in the types of acts of unfair competition listed in Article 10bis(3 )(3) of the Paris Convention (1967). They allege that Australia, in doing so, violates its obligations under Article 22.2(b) of the TRIPS Agreement, in conjunction with Article 10bis of the Paris Convention (1967).

Following its analysis, the panel said that it is not persuaded that the complainants have demonstrated that the public would be liable to be misled about product characteristics within the meaning of Article 10bis(3)(3) in respect of GIs as a result of the requirement to present tobacco products for retail sale in a standardized form under the TPP measures.

"As a consequence, we are also not persuaded that actions undertaken by market actors in order to comply with the regulatory requirements of the TPP measures constitute acts of unfair competition amounting to indications or allegations the use of which is liable to mislead the public within the meaning of Article 10bis(3)(3) in respect of GIs."

The panel, therefore, found that the complainants have not demonstrated that the TPP measures compel market actors to engage in acts of unfair competition that would amount to misleading indications or allegations within the meaning of paragraph 3(3) of Article 10bis of the Paris Convention (1967) in respect of GIs. It, therefore, also found that the complainants have not demonstrated that Australia, in maintaining these measures, fails to provide the legal means for interested parties to prevent such acts in respect of GIs, in violation of Article 22.2(b) of the TRIPS Agreement.

In light of the above, the panel found that the complainants have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 22.2(b) of the TRIPS Agreement. The panel said it does not find it necessary to address the parties' arguments concerning the scope of the definition of a GI and whether the Cuban Government Warranty Seal is protected as a GI in Australia.

With respect to Article 24.3 of the TRIPS Agreement, in that a Member shall not diminish the protection of geographical indications that existed in that Member immediately prior to the date of entry into force of the WTO Agreement, the panel found that the complainants have not demonstrated that the TPP measures are inconsistent with Australia's obligations under Article 24.3 of the TRIPS Agreement.

CLAIMS UNDER ARTICLE IX:4 OF GATT 1994

Article IX:4 of the GATT 1994 provides that: "The laws and regulations of Members relating to the marking of imported products shall be such as to permit compliance without seriously damaging the products, or materially reducing their value, or unreasonably increasing their cost."

Cuba, the sole complainant bringing this claim, argued that the TPP measures violate Article IX:4 of the GATT 1994.

Based on the ordinary meaning of the terms "mark" and "origin", Cuba argued that the TPP measures, insofar as they limit the use of the Habanos GI (and GIs more generally), are measures that affect "marks" and, by extension, the "marking" of tobacco products.

According to Cuba, the TPP measures violate Article IX:4 of the GATT 1994 because they materially reduce the value of Cuban LHM (large hand-made) cigars by prohibiting the Habanos GI and the Cuban Government Warranty Seal from being affixed on the packaging of tobacco products from Cuba.

"We have determined that the TPP measures, insofar as they limit the use of the Habanos sign or the Cuban Government Warranty Seal, do not constitute "laws and regulations relating to the marking of imported products" within the meaning of Article IX:4," said the panel.

The panel said even assuming that they were covered by Article IX:4, "we have additionally found that Cuba has not demonstrated that the value of the Cub an LHM cigars has been materially reduced within the meaning of Article IX:4 of the GATT 1994 as a result of the TPP measures' limitations on the use of the Habanos sign and the Cuban Government Warranty Seal on tobacco retail packaging and products."

Accordingly, the panel concluded that Cuba has not demonstrated that the TPP measures are inconsistent with Article IX:4, insofar as they limit the use of the Habanos sign and the Cuban Government Warranty Seal on tobacco products and packaging.

"As a consequence, we need not address Australia's arguments, or Cuba's arguments in response, that the measures are justified under Article XX(b) of the GATT 1994," said the panel.