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As Australia Shows, Plain Packaging For Cigarettes Does Not Work

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Plain packaging of cigarettes, heralded as the “next giant leap” to reduce smoking, is more of a euphemism. Critics describe it as more “medical pornography”, with sometimes grotesque images of gangrenous feet, rotting teeth, and cancer-riddled lungs. But it also has unintended consequences for law and order, with the poorest and most vulnerable paying the highest price.

Australia, in December 2012, and Britain and France, in May 2016, announced the plain packaging of cigarettes in an effort to reduce smoking, especially among younger smokers. Canada, India, and Ireland also have legislation on the table.

The main purpose of plain packaging is that cigarette packets are the last vestige of advertising space for tobacco companies. This is in the context that advertising cigarettes is a criminal offence in Britain and Australia.

Tobacco companies claim that branding cigarette packages is more about marketing and to maintain brand loyalty than encouraging people to smoke. This also allowed premium brands to ask for premium prices, which most consumers were willing to pay.

In Australia, in the few months following the implementation of plain packaging, tobacco companies could only compete on price – and lo and behold with reduced prices came increased consumption.

This spurned the Australian government to introduce three major tax hikes, with one more on the horizon.

The British Political Background

The British law on plain packaging was a very closely run matter. After an excellent campaign from the Freedom Organisation for the Right to Enjoy Smoking Tobacco (Forest), and especially Head of Campaign Angela Harbutt, my contacts told me it was not going to be implemented.

As Chairman of Freedom2Choose, I was also in the studio, earpiece and headphones on for TV and radio, and writing for Breitbart London.

However, the Labour and Liberal Democrat parties cried foul. Approaching the 2015 General Election, David Cameron’s chief advisor (now) Sir Lynton Crosby was accused of a conflict of interests.

His lobbying firm in Australia had done some paid work for Philip Morris International, the makers of Marlboro. It is believed that to shed the millstone round his neck, plain packaging was passed.

Australian Background

The original instigator of plain packaging was Professor Simon Chapman. Head of Public Health at New South Wales University, he is the person who has been behind smoking and tobacco restrictions in Australasia and Asia.

Not known for his charm, he is viewed to be a socialist, if not a Marxist, disliking “Big Pharma” as well as “Big Tobacco”. It is his way of carrying on the revolution.

Philip Morris’ Fight

Philip Morris International (PMI) has been in the vanguard to fight the legislation in court.

A worry in separate World Trade Organization (WTO) case that pitted PMI against Uruguay is that the measures did not deny “fair and equitable treatment” and was not “unreasonably and discriminatorily” to deny Philip Morris the use and enjoyment of its trademark rights, as they were legitimate policy concerns and were not motivated by an intention to deprive Philip Morris of the value of its investment

Other losses included the Permanent Court of Arbitration in Australia in May this year. PMI was accused of “abuse of rights”. They had moved their head office from Geneva to Hong Kong, specifically to challenge the Australian government, again.

In May this year, the British government and the European Union also defeated PMI’s suit.

On Friday the 8th July 2016, Uruguay won at an Arbitral Tribunal for plain packaging.

However, PMI has not given up.

World Trade Organization Dispute

One hoped the WTO would see a bit more sense. It seems directly against the principles of Article 20 of Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) from the 1986 Uruguay Round.

The clause is quite unambiguous: “The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings.”

Also cited were other aspects of TRIPS. A number of countries including Ukraine, Honduras, Dominican Republic, and Cuba lodged objections.

The appeal began on the 13th March 2012. However, I had a glance at the WTO’s website to catch-up on the latest news and it appears that, shockingly, the original complainant Ukraine has withdrawn the protest.

“On 28 May 2015, Ukraine requested the panel to suspend its proceedings in accordance with Article 12.12 of the DSU. In a letter dated 29 May 2015, Australia supported Ukraine’s request to suspend the proceedings on the basis that, as Ukraine stated in its letter, that the suspension would be ‘with a view to finding a mutually agreed solution’.

“On 2 June 2015, the panel informed the DSB of its decision of 29 May 2015 to grant Ukraine’s request and suspend its work.”

 

There are still four other countries pushing forward – Dominican Republic, Indonesia, Cuba, and Honduras – and and the case is expected to be decided soon.

Plain Packaging Efficacy

The results are mixed as to how effective plain packaging has been in Australia, given that:

  • The Post Implementation Review was delayed;
  • Before tax hikes smoking went up; and
  • There has been a statistically significant rise in smuggling.

If we look at the graph there seems to be an overall decrease in smoking in the last three and a half years.

smoking

Although analysis shows, as I alluded to earlier, that smoking rates rose on the first year by six per cent.

Since then, three draconian tax rises of 12.5 per cent, a total compound figure of 42.4 per cent, has probably been far more influential. Looking at previous reductions in smoking the downward slope does not seem to have accelerated.

The main target was youth smoking, though it appears that forbidden fruit is even more sweeter.

In Tasmania, youth smoking has risen with the number of people smoking between the ages of 15 to 24 increasing by 6.7 per cent in three years. This has prompted a call to raise the smoking age to 21.

In Australia from 2012 to 2013, there was an increase in smoking of 2.5 per cent to 3.4 per cent of 12 to 17 years olds. That is an increase of 36 per cent.

One could argue that the heavy hitting images at worst have made no difference, and one could argue logically it may have encouraged younger people to take up smoking.

Smuggling

On the subject of smuggling let us first look at who is involved. State funded anti-smoking charity Action on Smoking and Health (ASH) Scotland wrote in 2011:

“The Taliban, al-Qaeda, Hezbollah and the Kurdistan Workers Party (PKK) are involved in smuggling cigarettes as is the Columbian FARC. Both the Provisional IRA and the splinter group the Real IRA have been linked with tobacco smuggling as a way of raising money to fund their activities. Chinese Triads are central to the traffic to the UK of counterfeit cigarettes produced in highly sophisticated factories in the Far East”.

Aside from the KPMG paper on the rise in smoking, but as I wrote for Breitbart London:

“Brian Flynn and Darren Fletcher, posing as buyers, visited Indonesian black marketer on the island of Java to see what he can offer. Many will be shocked. His factory churns out 20,000 cigarettes a minute and is ‘getting through 100 tons of tobacco every two to three days’.

“Asked about plain packaging, he said, ‘I support the UK government! …We will make more money. We can make it cheaper but sell for the same price. It’s good for you, good for me.’”

As I mentioned, the “brand” Manchester manufactured in the Middle East has a market share in Australia of 1.3 per cent, the provenance is in the KPMG report. The latest tax hike will see the price of a packet of cigarettes rise to Aus $40 (USA $30, UK £23).

The price of an illicit packet is Aus $10 and the temptation must be overwhelming. Chris Snowdon of the Institute of Economic Affairs has estimated that:

“The average smoker from the poorest fifth of households spends between 18 and 22 per cent of their disposable income on cigarettes. The tax on these cigarettes consumes 15 to 17 per cent of their income”.

If you are blue collar, working class you are twice as likely to smoke.

In Australia, the seizures of cigarettes and loose tobacco called “chop-chop” have risen. It is estimated that it costs the Australian Treasury Aus $1.4 billion a year in revenue and constitutes a loss of 14 per cent sales for retailers.

A fourth annual increase in taxation means the Australian Government seems to acknowledge upward pressures on smuggling. In their 2016-2017 smuggling review they state, “To counter any increased risk from tobacco being illegally smuggled into Australia, the government will also enhance the compliance and enforcement framework for illicit tobacco activity.”

British American Tobacco estimate that the number of cigarettes on the black market per year are after one seizure to be  “2.5 million counterfeit cigarettes (equal to 2500 kg)” which is “less than 1 per cent of the total amount of illegal tobacco making its way into Australia each year”.

Unintended Consequences

Whether the Ukraine or another country breathes new life into the WTO Trade dispute is a moot point. However, fresh trade wars may break out.

Indonesia, a tobacco growing nation, has threatened to retaliate against Australia and Britain. Both countries are alcohol exporters and their products may be forced to come in plain packing with appropriate health warnings. This is very worrying.

Free trade has beyond our wildest imagination improved the prospects of the world’s poorest, especially with the significant reduction of tariffs on developing world exports.

The United Nations reported, “Never in history have the living conditions and prospects of so many people changed so dramatically and so fast.”

East Asia and the Pacific region have seen a reduction in absolute poverty from 77.2 per cent to 14.3 per cent between 1981 and 2008. I believe the current figure is 9.4 per cent. This maybe the worst unintended consequence.

Plain packing has encouraged California, the cradle of the nanny state, two years ago, to mandate fizzy (soda) drinks to now come with the following warning:

“STATE OF CALIFORNIA SAFETY WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay.”

Anti-obesity campaigners have also targeted sugar and fast food for the same attention.

Conclusion

Like much of government legislation, it fails in its primary purpose and comes with unintended, negative consequences.

To look at the empirical evidence, plain packaging has not led to statistically-significant reductions in smoking. Youth smoking has not been reduced, and organised crime has an ample opportunity to undermine democratic countries and the rule of law.

The saddest consequence is that if trade disputes become more aggressive the poorest and most vulnerable will pay the highest price.

It is time for Australia and the world to think again.

 


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