Is the WTO plain packaging saga here to stay?

On 28 June 2018, the WTO panel circulated its report in the famous dispute between several WTO Members and Australia over its plain packaging laws. One of the contested measures – the Australian Tobacco Plain Packaging Act – sets certain restrictions on the colour, size and format of tobacco products’ packaging and establishes the rules applicable to the appearance of brand, company and variant names on packs. According to the Act, all tobacco packaging needs to be in drab dark brown colour in a matt finish. It also prohibits the use of any trademarks or other marks on the retail packaging of tobacco products except for “the brand, business or company name for the tobacco products, and any variant name for the tobacco products”. All elements which appear on the packaging have to be placed in a specific area and be displayed in a standardized font of small size. A separate piece of legislation sets very stringent requirements for the health warnings that must appear on tobacco packaging, e.g. the size of health warnings was increased from 30% of the front side of a package to 75%, while 90% was kept for the back side. Taken together, these measures have established a very strict regime for the packaging of tobacco products.

The measures have been contested at the WTO by Ukraine in 2012 which however later dropped the case. The complaint was subsequently followed by a number of other WTO Members (i.e. Honduras, Dominican Republic, Cuba and Indonesia). All of them maintained that the Australian measures violated various provisions of the TBT Agreement – a WTO treaty dealing with technical barriers to trade. Additional claims over the plain packing measures related to potential violations of certain intellectual property (IP) obligations as enshrined in the TRIPS Agreement and other international treaties.

The Panel Report

After nearly six years the Panel issued its over 800-pages report in what is known as one of the most factually-intensive case in the history of the WTO adjudication. The panel rejected all the claims made by the Claimants and provided certain important clarification on relevant WTO provisions.

Claims under the TBT Agreement

The panel held that the Australian measures constituted ‘technical regulations’ and therefore they were subject to disciplines of the TBT Agreement. It concluded that they were not more trade restrictive than necessary to achieve the Australian objective of health protection. In this context, the panel found that the plain packaging laws made a genuine contribution to this objective and in this sense they were necessary. Simultaneously, none of the ‘less trade restrictive alternatives’ identified by the Complainants (e.g. increased taxation, improved social marketing campaigns) were found to be able to make an equal contribution. In other words those alternatives could not achieve the level of health protection sought by Australia.

The legal value of the FCTC guidelines

In the course of the proceeding, Australia claimed that its measures conformed to relevant international standards provided by two FCTC guidelines (i.e. Article 11 and Article 13). This was a rational litigation strategy as measures conforming to international standards are considered under the TBT Agreement as necessary. Although the panel did not exclude such possibility, it found that specific FCTC guidelines, referred to by Australia, could not have been regarded as relevant international standards for the plain packaging requirements. According to the panel they were too imprecise to meet the required threshold.

Claims related to IP obligations

With respect to the IP claims, the most interesting related to the rules on registration of trademarks, the scope of protection provided by the TRIPS Agreement to trademark owners and permissible restrictions on the use of trademarks. Although the plain packaging act did not prevent registration of new trademarks for tobacco products, the Complainants argued that it  constituted a de facto obstacle to the registration of specific type of trademarks (i.e. new and not inherently distinctive non-word signs) because such trademarks would not be able to acquire distinctiveness through use. The Panel disagreed and held that registrability of such signs was not an obligation but simply an option for WTO Members.

The Panel also held that the TRIPS Agreement construed trademark rights narrowly as negative rights i.e. providing the owner with the right to prevent others from unauthorized use of trademarks. This meant that a trademark did not give the owner any additional rights such as the right to protect against reduction of the distinctiveness of a trademark, or a right to protect against lesser awareness of a trademark among consumers.

Finally, the Panel found that the Australian measures constituted an encumbrance on the use of a trademark as they required use in a special form or use in a manner detrimental to its capability to distinguish the goods of one undertaking from those of other undertakings. At the same time, it held that such encumbrance was justified. It was found that the measures were supported by sufficient scientific evidence, while the alternatives identified by the Complainants were not able to provide the same level of protection.

The appeal stage

Under WTO law, each party to the dispute can appeal a panel report to the Appellate Body (AB). The AB is composed of seven members, three of whom decided an individual appeal. Its review is limited to the questions of law. It can uphold, modify, or reverse the legal findings and conclusions of the panel. If a respondent loses a case, it is obliged to bring its measure into conformity with the applicable WTO rules as determined in a specific report. Of course, no action is required if a panel/the AB finds no violation.

Honduras and the Dominican Republic appealed the panel report, which were subsequently consolidated by the AB into one proceeding in September 2018. Other two complainants, Cuba and Indonesia, decided not to lodge any appeal.

In its communication on this case, the AB stated that it would not be able to deliver the report within the prescribed period of time, that is 60 or 90 days from the date a party to the dispute formally notifies its decision to appeal. This is partially a result of the complexity of the dispute and the number of issues that were appealed.

The most important reason behind the delay is a backlog of appeals resulting from the incomplete composition of the body. As we discussed here, there are only four AB members now, and if the appointment crisis provoked by the United States is not resolved by December 2019 – when the term of office of two members will expire – the AB will not be able to issue its reports, as three members are needed to form a bench. In the worst-case scenario, the dispute may remain unresolved for a lengthy period of time.

In spite of this delay, some WTO Members have moved ahead on introducing plain packaging laws in their national jurisdictions. As of today, a number of other countries also require or will requires soon standardized packaging. This particularly includes France (January 2017), United Kingdom (May 2017), New Zealand (June 2018), Norway (July 2018), Ireland (September 2018), Saudi Arabia (May 2019), Singapore, Belgium and Turkey (2020).

Aside from the question of uncertainty on the timing of a final decision and the appropriateness of introducing similar to Australia legislation during international judicial proceedings, another important open question is the extent to which the findings in this case will come to bear on packaging restrictions which may be introduced on other products based on health protection grounds. Time will only show the impact of plain packaging on public health and the business operators affected by these measures.

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