Govt should own up to cost of tobacco litigation

On Tuesday, Fairfax Media economics writer Peter Martin made the startling revelation that the government’s ongoing legal dispute with Philip Morris has already cost the country $50 million (“Tobacco box legal row costs hit $50m”, July 29, p5). Martin’s information was from an unnamed source. The government has refused to disclose what is being spent, even to the Productivity Commission.

Most legal experts agree that Australia should eventually win the case. But the reasoning provided by these experts is largely based on legal technicalities. No one is suggesting that health policy is immune from challenge in “investor state dispute settlement” (ISDS). 

What is also concerning is that even if the government wins it may not be able to recoup the enormous cost of defending the plain packaging legislation. We know very little about the case, which is being heard by a private arbitration tribunal behind closed doors in Singapore. But what is certain is that the arbitrators are not bound by a “loser pays” rule.  What that means is that Australian taxpayers may end up footing the bill regardless.

While it is outrageous that Australia should have to spend millions defending our right to regulate a product that is expected to kill two thirds of Australia’s 2.7 million smokers, there is no question that plain packaging is a policy worth defending. 

Even at this early stage, the evidence is clear: plain packaging is achieving its objectives: reducing the appeal of tobacco packs, increasing the effectiveness of health-warnings and reducing the ability of packaging to mislead people about the harm that tobacco causes. Since the introduction of tobacco plain packaging and the suite of other tobacco control measures that came in at the same time, tobacco consumption has fallen at record rates. In this context, even $50 million is money well spent. 

However, while it is laudable that the government continues to fight Philip Morris despite the cost, other countries put in the same position may not have this luxury. The government of Uruguay has admitted that it would have had to give up its defence of similar tobacco packaging rules in ISDS, had it not received financial support from an non-profit organisation in the United States.

And US news reporter/comedian John Oliver revealed earlier this year that Togo, Namibia, and the Solomon Islands have all received letters from Big Tobacco threatening litigation over proposed laws. These countries would not be able to fathom a $50 million legal bill.

Given the high costs and the importance of the public policy issues at stake, it is not hard to understand why the list of opponents to ISDS continues to grow. The Productivity Commission, the Chief Justice of the High Court, a Reserve Bank board member, and the director-general of the World Health Organisation have all criticised ISDS. The Greens are firmly opposed to ISDS and at its recent party conference, Labor committed to eliminating ISDS from all existing Australian treaties if it is returned to power.

In fact, the only people in Australia that seem ready to defend ISDS are the Prime Minister and Minister for Trade and Investment.

Initially, the Abbott government suggested that it would consider ISDS on a case-by-case basis, but provided no objective criteria for how decisions on this issue would be made. Having signed agreements with Korea and China that include ISDS, the government is now faced with its biggest decision yet: whether to agree to ISDS in the Trans Pacific Partnership Agreement (TPP).

Negotiators are currently in Hawaii trying to bash out a deal to get the TPP signed before the narrow window that President Obama has to get it through Congress before the 2016 elections closes.

Statements from Andrew Robb suggest that Australia’s acceptance of ISDS is up for grabs.

The TPP is significant not just because it is big – 12 countries are involved in the negotiations – but also because the US is at the table. US corporations are the biggest users of ISDS.

One of the main reasons that Australia hasn’t yet been exposed to more ISDS cases is that the Howard government declined to accept its inclusion in the Australia-US Free Trade Agreement.

We now know how much just one case (that hasn’t even ended) can cost taxpayers. To avoid having to make such expenditures in the future to defend much-needed health and environmental policies, the government needs to reject an ISDS clause applying to Australia in the TPP.

Kyla Tienhaara is a research fellow at the Regulatory Institutions Network, Australian National University.

Deborah Gleeson is a lecturer in public health at La Trobe University. She is currently in Maui observing the TPP negotiations from the sidelines.

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