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Plain packaging and international law: thoughts from across the ditch

07 May 2014

This article first appeared in Australasian Lawyer online.

​In most respects, New Zealand likes to be independent.  This often means differentiating itself from, and sometimes competing with, its next door neighbour. 

This tendency is perhaps most pronounced on our sports fields, but extends also to international law issues. For instance, New Zealand famously adopted a nuclear free policy in 1984, resulting in difficulties for the ANZUS relationship. 

In 2008, without reference to Australia, New Zealand became the first developed country to sign a comprehensive free trade agreement (FTA) with China.  And in 2010 the World Trade Organisation resolved a civilised argument between our two countries over market access for New Zealand apples (Australia – Measures Affecting the Importation of Apples from New Zealand 10-6392, 29 November 2010 (Report of the Appellate Body)).

But occasionally, New Zealand prefers to hang back and allow Australia to take the lead.  A recent example is the whaling case Australia took against Japan at the International Court of Justice, with New Zealand as a third party supporter (Whaling in the Antarctic (Australia v Japan: New Zealand Intervening) (Merits) ICJ General List No. 148, 31 March 2014.)

Another example is the decision to introduce laws requiring tobacco products to be sold in plain packaging.  The Australian Parliament passed such legislation on 1 December 2011 to come into full effect on 1 December 2012.  The predictable result was litigation. 

Tobacco companies have challenged these new provisions domestically by invoking property protection rights enshrined in Australia’s Constitution (JT International SA v Commonwealth of Australia [2012] HCA 43) and internationally through an investor-state arbitration commenced under a bilateral investment treaty signed between Australia and Hong Kong. 

Australia’s actions have also been challenged at the WTO by the Ukraine, Honduras, the Dominican Republic, Cuba and Indonesia.  The domestic action is over: Australia won.  The international proceedings remain ongoing.

In February, New Zealand introduced its own plain packaging law - the Smokefree Environments (Tobacco Plain Packaging) Amendment Bill – but will wait until the litigation against Australia is resolved before passing the Bill into law.

Progress so far is relatively slow.  Panelists have not yet been selected in any of the five WTO cases.  Any final decision in the Philip Morris case also seems distant.  An arbitral tribunal has been constituted, but has made only procedural orders to date, dividing the proceedings into jurisdictional and merits phases. Philip Morris has brought a similar action against Uruguay, and the tribunal has confirmed its jurisdiction to consider the claims with a merits hearing now to come (Philip Morris v Oriental Republic of Uruguay ICSID Case No. ARB/10/7, Decision on Jurisdiction (2 July 2013)). 

A more immediate development is likely to be the effect of the Philip Morris proceedings on attitudes towards investment treaty arbitration in Australasia.  Not long after the proceedings commenced, the Australian Productivity Commission issued a report recommending that Australia cease signing up to investor-state dispute settlement (ISDS) mechanisms.  The Gillard administration accepted this recommendation, meaning that for a time Australia’s official policy was to say no to ISDS mechanisms.

With a change of Government comes a change of perspective, however.  Australia has this year signed a FTA with South Korea which contains ISDS mechanisms, although the FTA recently entered with Japan does not.

These mechanisms undoubtedly remain controversial, with the sovereign risk they entail still the subject of significant debate.  Some argue that they are an unnecessary legal protection for foreign corporations which should be consigned to neo-liberal history.  Others claim they are a profound advance for international dispute settlement. 

The continuing debate has assisted States to focus on better drafting of treaty text, which remains paramount.  All treaties involve constraints, usually mutually, on freedom of action.  The trick is to clearly define which actions are constrained and which are not.

One can only safely predict the outcome of litigation after it has finished.  But one advance perspective on the Philip Morris case is that Australia’s participation and increasing familiarity may increase, rather than decrease, Australia’s confidence with the ISDS system.  Australia and New Zealand now both have significant experience with WTO proceedings.  ISDS proceedings are not so terribly different.  Moreover – as both New Zealand and Australia know from judicial review before their own courts – to be a respondent is not to lose a case.  It is merely to be required to defend oneself.  Depending on how this case progresses, Australia may start to get a better feel for how best to plan its defences, prepare its regulatory frameworks and draft future treaties. 

A recent study has surveyed all of the published ISDS decisions from the International Centre for Settlement of Investment Disputes, concluding that the greatest area of risk to States is measures arising from executive action, not legislative decisions. This is as it should be.  There is no distinction at international law between the two branches of government.  But the prerogative of a duly elected Parliament is at the heart of our shared Westminster system of government.

New Zealand will be watching closely to see what it can learn – including from Australia’s experience of ISDS proceedings – before bringing its own plain packaging legislation into force.

This article was written by Daniel Kalderimis. Daniel specialises in commercial disputes and international arbitration and trade law.

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