Australian government’s $50m investment in defending against Big Tobacco legal thuggery

Imagine you were about to buy a property and were advised that in two years time, a major freeway would be built two hundred metres away, greatly diminishing the value of your purchase. Then imagine you went ahead anyway, the freeway was built, and your property value went down as expected. You took the person who sold you the property and the government who built the freeway to court, seeking compensation.

Fools and their money are easily parted.

This is, in effect, what the tobacco transnational Philip Morris has done with Australia’s plain tobacco packaging laws, fully implemented in December 2012, when it started legal proceedings against the Australian government under a bilateral trade agreement between Hong Kong and Australia signed in 1993. The arrogant claim being made is that our plain packaging law breaches the agreement between the government of Hong Kong and the government of Australia for the promotion and protection of investments.

The Rudd government announced plain packaging on April 29, 2010. At that time, Philip Morris tobacco products in Australia were manufactured by Philip Morris Australia. On February 23, 2011, Philip Morris Asia purchased Philip Morris Australia and on June 27, 2011 – a full 14 months after knowing the government intended to introduce plain packs – Philip Morris Asia served its notice of claim to the Australian government.

So after 14 months of full knowledge that Australia was going to legislate for plain packs, Philip Morris Asia (PMA) knowingly “purchased” Philip Morris Australia. The case has so far run up A$50m in legal bills for the Australian government.

The proceedings in what is known as the BIT (bilateral trade) case are governed by the United Nations Commission on International Trade Law Rules of Arbitration 2010 (UNCITRAL Rules), and are being overseen by a three-member arbitral tribunal. Philip Morris Asia has requested that the case be heard in secret and only limited documents published (with redactions), as it is entitled to do under the UNCITRAL rules.

Monash University legal expert Mark Davison is convinced that its case for compensation is worthless.

Article 6 of the BIT specifically refers to how compensation should be calculated. It states that the 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.

The investment is defined in Article 1 of the BIT as the investment of the Hong Kong investors, that is, PMA. So what was the value of the “investment” that PMA had before the impending “deprivation” became public knowledge? It seems that it did not have any investment at all at the time that the impending “deprivation” became public knowledge.

No doubt PMA will have some argument on the point but, as a general rule, the value of nothing is nothing.

So why has it embarked on this fool’s errand? A large part of Philip Morris’ motivation is undoubtedly to frighten other nations into shelving plans for plain packaging. Twelve nations have already either introduced plain packaging legislation or are preparing to do so. Poorer countries might well be financially bullied into not proceeding by the prospect of the legal costs.

Both the current Coalition and previous Labor government’s continuing support for the international legal attacks are truly magnificent contributions to fighting off this corporate thuggery and setting precedents for the world’s poorer nations which would be loathe to be in the front line of legal defence against Big Tobacco.

With tobacco causing 5.4 million deaths a year, with one billion forecast this century, our government’s investment to fend off Big Tobacco’s global ambitions to wreck effective tobacco control is of enormous importance in the history of controlling the epidemics of preventable non-communicable diseases such as lung cancer, respiratory and heart disease.

Since plain packaging was introduced, smoking prevalence has continued to fall in Australia. The 2013 triennial national survey shows just 12.8% of Australians aged 14 and up smoke daily. This is the lowest in the world. National accounts data for the March 2015 quarter show tobacco consumption has fallen a staggering 17.5% since the September 2012 quarter, just before plain packs were introduced.

Big Tobacco’s cracked record response to this is to repeatedly claim that one in seven cigarettes now smoked in Australia is illegally sourced. Here, we are supposed to believe that legions of Australia’s smokers all know how to source smuggled illicit tobacco every day, but the hapless federal police haven’t got a clue where they can investigate the alleged ubiquitous supply chains.

Big Tobacco’s unctuous hypocrisy about the source of large amounts of illict traded tobacco is seldom mentioned in all this. Long known to be involved in supplying tobacco to nations through which large scale international smuggling is organised, British Revenue and Customs' recent estimate, for 2011, is that “the aggregate actual supply of some brands of hand-rolling tobacco to some countries exceeded legitimate demand by 240%”.

Simon Chapman & Becky Freeman’s recent book on Australia’s plain packaging strategy is available here for free.