Back to top

Analyst Blog

The Australian government has taken a stricter stance on tobacco giants, imposing higher taxes plus a rule to expand the size of existing graphic warning labels. The recent ruling entails cigarette manufacturers to sell their products in plain packages with warning labels occupying at least three fourths of the front side, compared with the current 30%, when the law takes effect on January 1, 2012.

The bill passed the lower house unopposed and will now go to the upper house, where it is not expected to meet much resistance. This is considered to be the toughest antismoking legislation in the world; a sure move toward the banning of cigarette pack branding.

All packets would come in olive green and will be plastered with graphic health warnings including pictures of diseased eyes, rotting teeth and young children in hospital.

The government is hopeful of taking the country’s smoking habit down to 10% in the coming 10 years, through this ruling.

Prime Minister Julia Gillard will also win favors as smoking-related illnesses kill more than 15,000 Australians each year and lead to $31.5 billion in health costs. Australia has already banned all outdoor and media advertising of cigarettes and the graphic photographs of the affects of cancer that now feature on the packets.

The Tobacco biggies are vehemently opposing the new legislation, claiming that the plain packages are not backed by any evidence of having reduced the smoking rate. In fact, they argue that such austerity might actually aggravate “chopchop” –– the illegal tobacco trade. 

The Australian wing of British American Tobacco Plc. (BTI - Snapshot Report) is now considering pursing the Australian government through courts. It even contemplates seeking legal advice on the matter.

In June, tobacco giant Philip Morris International Inc. (PM - Analyst Report) stood up against the Aussie government’s proposed ban on cigarette-packaging advertisements. It is now seeking billions of Australian dollars in compensation. The company also stated that that it had served a notice of legal claim under Australia's bilateral investment treaty with Hong Kong, which holds the government responsible for protecting Hong Kong investments in the country.

Moreover, tobacco companies and industry groups from Europe and Kenya have issued fresh warnings against the most recent bill. Camel and More cigarettes manufacturer JTI along with Business Europe said that Australia risks facing intellectual property disputes before the World Trade Organization.

The Kenya Association of Manufacturers also warned of political backlash from countries to be impacted by the legislation. Industry groups from Quebec, the Ukraine, Chile, Brazil, Peru and East Africa have raised voices against the bill claiming that it is biased.

However, Australian Medical Association president Steve Hambleton urged senators to support Tobacco Plain Packaging Bill 2011 and Trade Marks Amendment (Tobacco Plain Packaging) Bill 2011. Meanwhile, health minister Nicola Roxon is encouraging other countries to follow Australia's push for plain-packaged tobacco. Roxon will also hail the country’s efforts at a major United Nations summit on chronic diseases next week.

Though Australia would be the first country in the world to mandate plain packaging, New Zealand, Canada and Britain have considered a similar approach. In a ruling passed last month, the Food and Drug Administration asked the tobacco giants of United States to print the latest design set by the council on their cigarette packets from October 2011. Graphic design of a dead body, cancerous lungs and rotten teeth would definitely be a scary intimidation for US smokers each time they pick up a packet of their favorite brands.

Please login to Zacks.com or register to post a comment.