Alcohol: plain packaging’s next casualty

Two years after its implementation, plain packaging’s impact upon smoking and the illicit cigarette trade remains the subject of vigorous debate. No longer debatable, however, is plain packaging’s negative affect upon the alcohol industry and other non-tobacco sectors of the Australian economy.

The unintended effects of plain packaging have the potential to vastly outweigh the legislation’s intended public health benefits, real or imagined. In fact, Australia’s imposition of plain packaging on tobacco opened a Pandora’s Box of potential trade costs with the nation’s alcohol sector set to become the first example of the policy’s collateral damage.

Indonesian farmers recently rallied in front of the Australian embassy in Jakarta in support of their government’s targeting of Australian alcohol. The Indonesian trade ministry is preparing to mandate the plain packaging of alcohol products, including Australian wine, with the respective labelling devoted to warnings of the adverse health consequences associated with alcohol consumption.

Providing political support for these plans are Indonesian business lobbyists seeking to protect their domestic market from foreign competition, as well as global and domestic public health NGOs who support plain packaging on all manner of ‘unhealthy’ consumer products, including alcohol and tobacco.

Such support would not have mattered to the Indonesian government if Australia had not opted for plain packaging in late 2011. But, then-Prime Minister Julia Gillard’s Labor government could not resist the temptation to become the global ‘leader’ in tobacco control policy. Consequently, Australia is now embroiled in a messy trade dispute that may spill over into a costly trade war.

Indonesia and four other countries are challenging Australia’s plain packaging law at the World Trade Organization (WTO). This particular trade challenge is shaping up to be one of the most significant in recent years, given the sheer number of parties involved, as well as the substantive effect regarding the interpretation of WTO provisions. The latter will define how key global trade rules are interpreted and applied in the future, not just in relation to tobacco, but to other controversial products, including alcohol.

The WTO framework provides stability and consistency in international trade rules. The rules, which are the result of decades of negotiations, were drafted to provide regulators with the flexibility to implement measures to protect public health, the environment, and public morality. These global rules require all regulators to ensure that any measure that is adopted is actually effective in practice and is proportional in achieving its public policy objectives.

From a trade perspective, plain packaging’s fundamental problem is it requires the confiscation of the intellectual property owned by the companies that manufacture, brand, and label the affected products. Specifically, Australia’s plain packaging law constitutes a fundamental attack on the global protection of intellectual property rights contained in the General Agreement on Trade and Tariffs’ “Trade Related Aspects of Intellectual Property Rights” (TRIPS). 

 Indonesia and her fellow WTO complainants argue that, among other effects, plain packaging amounts to an unjustifiable infringement of corporate trademarks, which is in direct violation of TRIPS Article 20. They also assert that plain packaging violates Article 2.2 of the

Global Agreement on Technical Barriers to Trade, which requires technical regulations not to create unnecessary obstacles to international trade.

Whatever the outcome at the WTO, both Australia and her alcohol sector face a lose-lose situation. If the WTO rules against Australia and if the Abbott government refuses to bring the country’s plain packaging law into compliance with global trade rules, Australia would face retaliatory protectionist measures on its exports to Indonesia and probably other nations, too. She will also suffer the tangible reputational damage associated with losing such a high profile case at the global trade body.

Of course, if Australia prevails at the WTO, plain packaging would be legitimized as a valid regulatory measure to curb consumption of harmful consumer goods, such as tobacco, or potentially harmful goods, such as alcohol. However, the tangible economic downside is that Australian producers of wine, beer, and spirits would face the very real prospect of plain packaging being applied on some or all alcoholic beverages for reasons of public health, morality, or both. 

The bottom-line is that Australia’s alcohol sector could face packaging restrictions in overseas markets solely because the Australian government mandated comparable restrictions on domestic tobacco products.

The dispute between Australia and Indonesia boils down to a high-stakes, tit-for-tat political row. Regulatory retribution, if you will. Nonetheless, it is an expensive political reality that now confronts the Abbott government.

Its predecessor should have thought more carefully about the unintended, yet entirely predictable, domino effect of plain packaging-induced trade retribution. The United Kingdom, New Zealand, Ireland and other trade-dependent countries currently considering plain packaging should think twice before setting into motion a comparable fiasco.