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(English) WTO Plain packaging
conference on tobacco packagingconference on tobacco packaging

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Certain measures concerning trademarks, geographical indications and other plain packaging requirements applicable to tobacco products and packaging under the WTO

 

Plain packaging and an alleged breach of TRIPS and TBT Agreements

Plain tobacco packaging, also known as generic, standardized or homogeneous packaging, refers to packaging that requires the removal of all branding (colors, imagery, corporate logos and trademarks), permitting manufacturers to print only the brand name in a mandated size, font and place on the pack, in addition to the health warnings and any other legally mandated information such as toxic constituents and tax-paid stamps. The appearance of all tobacco packs is standardized, including the color of the pack. Australia is the only country that currently mandates plain tobacco packaging, as a result of laws that were enacted in 2012. However, the issue steadily gains international attention as plain tobacco packaging is currently being introduced in France, New Zealand, the United Kingdom and Ireland and is being considered in Norway, India, Turkey, Canada, and the European Communities.

Passing the law, the Australian government claimed that plain packaging rules were implemented for the legitimate public purpose of protecting public health. The government maintained that plain packaging measures would help in reducing the appeal of tobacco products, while mandated graphic health warnings would educate consumers about the harmful effects of smoking. Australian Trade Minister Craig Emerson publicly claimed that «it’s not anti-trade; it’s anti-cancer». According to official estimates, smoking alone kills 15,000 Australians each year and costs AU$31 billion (about US$22 billion) in social and economic costs. The unanimous decision to uphold the tobacco control measures has been applauded by public health experts and civil society groups throughout the world, for the most part by the World Health Organization (WHO).

As a result of the emphasized regulations, Australia faced lawsuits within the WTO Dispute Settlement mechanism from the Ukraine (subsequently dropped), Indonesia, Cuba, Honduras, and the Dominican Republic. On April 2014, the WTO Dispute Settlement Body agreed to establish two panels in a dispute against Australia’s plain packaging for tobacco products, bringing the total to five. And it was agreed that a single panel will be appointed to study the five complaints.

Inherently, countries withstanding Australia’s legislation on plain packaging are claiming that Australia is breaching its international trade obligations regarding intellectual property rights, in particular trademarks, and geographical indications. They also are saying that the Australian legislation is injurious to their country’s tobacco industry. For instance, the Dominican Republic and Cuba have held the position that their premium tobacco products, such as cigars, can no longer be differentiated from other products under the Australian legislation.

In response to the WTO complaints, official Canberra said it would participate in the consultations «in a constructive manner».

The alleged violations asserted by complainants include:

Allegedly violated agreement Claim
TRIMS “By stripping all design elements from tobacco packaging and standardizing other packaging features, plain packaging measures undermine the basic features of trademarks and geographical indications (“GIs”) as protected under the TRIPS Agreement, thus breaching it”
TBT “Australian law breaches the WTO’s Technical Barriers to Trade Agreement by being more trade restrictive than necessary to achieve Canberra’s stated public heath objective, along with violating national treatment requirements set in that agreement”

 

Proposed solutions: intra- and intergovernmental measures

Taking into account obvious rising popularity of plain packaging around the world and several legal attempts already undertaken by certain Member States on legalization of such measures within their territories, and interests of other Member States wielding comparative advantage in the tobacco industry and experiencing trade reduction in the light of eventual outcomes of plain packaging practices (e.g., in Australia, tobacco market declined roughly to 3% as of April 2013 since the adoption of plain packaging law), it should be noted that negotiations are the primary source endeavoring to the attainment of consensus which implies proper balance between public health considerations and intellectual property rights. Therefore, we strongly recommend to raise and deliberately discuss the issue of plain packaging and its impacts on trade during the next Ministerial Conferences in the framework of Doha Round, as some Member States are mislead by the allegation that plain packaging “infringes WTO Agreements and some core principles of the organization”. Optimistically, possible solutions of such debates could be classified into 2 groups:

1) Intra-governmental solutions. In the case of investment treaties (e.g., bilateral agreements, BITs), governments can guard themselves to certain extent by clarifying or renegotiating the commitments in existing agreements and by including exceptions or clarifications for tobacco control measures or tobacco products in future agreements. This step can shield governments from legal challenges by the tobacco industry in bilateral investment treaties In this respect, the Australian government has changed its policies regarding investment treaties since the Philip Morris claim filed under the domain of a Hong Kong-Australia BIT. Furthermore, another constructive measure could be the evaluation of lawfulness of the implementation of tobacco control legislation from a trade perspective (for example, if a small country with negligible tobacco consumption rate will stiffen its tobacco control, this will prepare grounds for sound assumption of premeditated trade reduction). Therefore, it requires close collaboration between different governmental agencies such as trade and health ministries.

2) Inter-governmental solutions. First of all it should be noted that Member States misinterpreting the clauses of relevant treaties described below are undermining the very concept of such agreements. For that reason, it would be rewarding to clarify relevant points of these accords dealing directly with public health argument (see below) during motions of Ministerial Conferences, dedicated to the plain packaging. Moreover, concern has also been expressed by the tobacco industry that plain packaging would increase the sales of counterfeit cigarettes. According to Roy Ramm, former commander of Specialist Operations at New Scotland Yard and founding member of The Common Sense Alliance, a think tank supported by British American Tobacco, it would be “disastrous if the government, by introducing plain-packaging legislation, [removed] the simplest mechanism for the ordinary consumer to tell whether their cigarettes are counterfeit or not”. Other arguments against plain packaging include its effect on smuggling, its effect on shops and retailers, and its possible illegality. To avoid this, it may be beneficial for states to apply some specific procedures proving the genuineness of imported products (in this case, cigarettes) as labeling, special marking, etc, as well as indicating country of origin on the packages. Extensive negotiations on the mentioned potential policies should be carried out with major tobacco and tobacco production exporting countries (such as China, India, Indonesia, Zimbabwe, Swaziland, Malawi, Pakistan, Turkey, Dominican Republic, and so forth), as well as countries eager to legally enforce plain packaging on the national level in the future (for the list of countries, see above). As a result, the potential loss of exporting countries will be moderately compensated, and the states implementing the plain packaging would somewhat enjoy the liberty of doing so.

Major obstacles and challenges for implementation: negation and understatement

Notwithstanding the fact that claimant countries are stiffening their stance on the argument that the plain packaging act violates the TRIPS and TBT Agreements at once, it should be noted that these “breaches” are justified by certain opportunities and flexibilities provided by the aforementioned agreements. To our mind, states fundamentally mischaracterize the relevant legal issues, significantly overstating the constraints that international trade agreements impose on governments’ sovereignty to regulate in the public interest in general and for public health in particular by understating the room for regulations and flexibilities in the agreements, which is probably the key obstacle in further progression.

First and foremost, the breach of TRIMS agreement appears to be unreasonable due to the fact that discussed anti-tobacco legislation which Australia plans to extend to cigars and loose-leaf tobacco products has already been under discussion at the WTO TRIPS Council since June 2011. Even though it’s true that, as the tobacco industry says, the TRIPS Agreement does not contain a public health “exception”, the Agreement is underpinned by the principle expressed in Article 8.1 that members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement. Hence, it emphasizes the flexibilities that are found throughout the Agreement, which are to be interpreted and applied in light of the importance of public health. Moreover, in the November 2001 Doha Declaration on the TRIPS Agreement and Public Health, the WTO’s Ministerial Conference agreed “that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health”. It affirmed that “the Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all” (§5, clause D, ‘exhaustion’ of rights principle). Additionally, the Punta del Este Declaration clearly states that in the light of the provisions contained in Articles 7 and 8 of the TRIPS Agreement and in the Doha Declaration, Parties may adopt measures to protect public health, including regulating the exercise of intellectual property rights in accordance with national public health policies, provided that such measures are consistent with the TRIPS Agreement. Coming to the infringement in TBT Agreement, it should be added that  the TBT agreement also allows for trade restrictions where they are necessary to protect public health, stated in perambulatory clauses. Likewise, it is worth adding that states adopting plain packaging are merely implementing their duties under the WHO Framework Convention on Tobacco Control.

Moreover, the plain packaging act faced critical reaction from the tobacco industry which is another challenger of the implementation of alike measures,  arguing that WTO law requires States to introduce “alternative measure”’ that would purportedly be less trade restrictive than plain packaging, such as education programmes and tax increases. But this is not how WTO law really works. The WTO’s Appellate Body has recognized that some public policy challenges can be addressed only through the adoption and implementation of multiple, complementary measures. In the Brazil Tyres case, it said: “We recognize that certain complex public health or environmental problems may be tackled only with a comprehensive policy comprising a multiplicity of interacting measures”.

 

References & Footnotes

  1. Australia’s official page at the WTO web-site (https://www.wto.org/english/thewto_e/countries_e/australia_e.htm)
  2. Australia and the World Trade Organization, report of Joint Standing Committee on Treaties of Australian Parliament, 2001
  • The Australian Market Access Conditions and their Compatibility with the World Trade Law, by Dr. Dominic Thielle
  1. Trade Policy Review Report by Australia, WTO, March 2011
  2. World Bank data on tariff rate, weighted mean (http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS)
  3. Agreement on Trade-Related Aspects of Intellectual Property Rights, Annex 1C of the Marrakech Agreement Establishing the World Trade Organization
  • Uruguay Round Agreement: Agreement on Technical Barriers to Trade
  • Plain tobacco packaging (https://en.wikipedia.org/wiki/Plain_tobacco_packaging)
  1. Ukraine Launches WTO Challenge Against Australia Cigarette Packaging Law, Bridges News (vol.16, #11), International Center for Trade and Sustainable Development, 21 March 2012
  2. Responding to the Tobacco Industry’s Claims that Plain Packaging Breaches International Trade and Investment Law, by M. Davidson, J. Lieberman, and A. Mitchell, May 2014
  3. Concerns with Respect to Proposals for Plain Packaging of Tobacco Products in the United Kingdom and Ireland, statement by the EU at the TRIPS Council, February 2015
  • WTO do Consider Five Australia Plain Packaging Disputes under One Panel, by C. Saez and W. New, Intellectual Property Watch, April 2014
  • Australia Wins Intentional Legal Battle with Philip Morris over Plain Packaging, by D. Hurst, the Guardian, December 2015
  • Tobacco cigarettes exports by country (http://www.worldstopexports.com/tobacco-cigarettes-exports-country/)
  1. Tobacco key facts and figures, the Department of Health of Australian Government
  • Dispute DS434: Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, 13 March 2012
  • Dispute DS332: Brazil – Measures Affecting Imports of Retreaded Tyres, 29 August 2008

 

Liberalization of logistics sector in Azerbaijan: possible measures to take
Апрель 6, 2016
1
dilerler_en

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i. The context and perspectives

At its simplest, Euro-Atlantic integration refers to the accession of post-socialist countries to NATO and the EU. From the vantage point of Washington D.C., this is a process of stabilization, democratization, and alliance formation. The process in Southeastern Europe is seen as the continuation of the earlier integration of Eastern and Central Europe in the 1990s. Moreover, this trend (integration) is likely to cover more areas by for instance, adding to its list of the countries Georgia and Azerbaijan.
Azerbaijan, which plays the role of a bridge between Europe and Asia, has huge transit opportunities. The fact that routes from the East to the West and from the North to the South pass through Azerbaijan, makes the country a significant logistics hub and a junction of major trade routes between the East and the West and the North and the South.
A number of large-scale infrastructure projects have recently been carried out in Azerbaijan’s transport sector. This included the construction of the Baku International Sea Trade Port, state-of-the-art airports and roads of international importance, renewal of the railway lines in the direction of the East-West and North-South transport corridors. These projects have made a crucial contribution to the expansion of the country’s foreign economic relations.
It should be noted that Azerbaijan’s favorable geostrategic position gives it a special advantage as a center of trade as well, being able to use its auspicious position to develop strong logistics capabilities as well as industries that rely on trade logistics to exploit this competitive edge. Having a look at the logistic sector of Azerbaijan, it is plausible to drive basic assumptions that local trucks can carry cargo between Asia and Europe, and its logistics centers can support both Asian and European production networks. Agriculture is another area that Azerbaijan can develop into a long-term economic driver. The sector, which is currently contributing only 7% of GDP, can develop significantly with improvements in production, transportation, and chain logistics1. Aside from budgeting over $0.5 billion for highway improvement, Azerbaijan invests $1.5 billion to upgrade its rail system and to support the Georgian government with a $200 million concessionary loan for building the Georgia portion of the Kars–Tbilisi–Baku (KTB) railway1. When completed, the KTB railway will connect Azerbaijan’s rail system with that of Turkey to form a sea-to-sea intercontinental rail link that runs from the United Kingdom to the People’s Republic of China. The $1.5 billion rail restructuring program will include the acquisition of a new alternating current (AC) electrification system, a new signaling system, new locomotives, and new wagons, and the replacement of large sections of existing tracks.

ii. Critique of liberalization policy

The liberalization of logistics sector would turn Azerbaijan into a key transit county between two continents because of its advantageous strategic location comprehensively covered above. Such a policy plays a crucial role on achieving economic progress, but it is costly and brings a lot of challenges with itself at the same time. There are 4 main groups of stakeholders that will be affected by this policy either in a positive or negative way. These are: suppliers of logistic services, the government, exporters depending upon logistic services, and subsequently, importers relying on logistic services.
Logistic service industry is a sector with substantial growth potential, but as a result of recent policy held by government large long-term investments in logistics sector are very rare. For instance, 5% customs duty and 18% VAT raises prices for a unit of European-made truck approximately till $200.0001. Consequently, most of the cargos in Azerbaijan are carried by foreign truck companies (as Network Global Logistics (Turkey), Van der Wal Transport (The Netherlands), Hellmann Worldwide Logistics (Germany), Tuvia (Italy), Globex (Georgia), etc.2). However, there are several local trucking companies (Azərtrans, Buta Logistics Services, Forward Cargo Services, Azlogistika etc.2), but they are small proprietorships with no more than 50 trucks2. In the case of liberalization, entrance to this field will be much easier as initial cost of trucks will decline drastically. More competitive logistic sector within country will enable the advancement in logistics performance, for which Azerbaijan holds 128th place out of 150 possible3. Liberalization would be disadvantageous for already functioning trucking companies as they will face the risk of shrinking market share, but if they use first-mover advantage reasonably, they can partially eliminate these shortcomings. Simultaneously, a drawback for market newcomers is inadequate infrastructure and lack of know-how which will make cargo carriages riskier in earlier period of liberalization, but in the long term, with government making investment in roads in order to reach world standards as a part of liberalization policy, this risk will diminish.
Liberalization of logistic sector will ambiguously affect the government. In fact, oil and gas industry is the main sector where Azerbaijan has competitive advantage and represents considerably high portion in GDP of the country. But Azerbaijan is not in the position to intervene into oil and gas prices worldwide; in this case, such dependence on the mentioned natural resources will negatively affect country’s economy (here we can take the example of latest decline in oil prices, which caused noticeably increasing inflation rate within the country4 and double devaluation of the local currency, Azeri manat). Hence, the development of non-oil sector and diversification of economy are listed among the urgent aims to be attained. If government will announce complete liberalization, then there would appear the risk of negative trade balance, with imports exceeding export, potentially causing decrease in investment into country. That would be because of the fact that Azerbaijan retains comparative-disadvantage in most of the non-oil sectors, and immediate trade liberalization will lead to abrupt influx of foreign producers wielding comparative advantage in relevant fields. Another imperfection of liberalization could be the outflow of economic resources from the country.
The logistics sector is a particularly important services sector for all domestic economies and, therefore, the rewards of domestic liberalization can be especially significant. In this regard, globalization has highlighted the need for and importance of liberalization of logistics services. As a result of globalization, a vast range of products – perishable and non-perishable alike – can be sourced from all over the world. It is in this context that the “cost of time” has become a critical factor from the perspective of exporters, importers and suppliers of logistics services. The time it takes to get a product to market may determine whether or not a product gains entry into a foreign market. Furthermore, time may still affect the volume of trade, even in cases where entry into the foreign market has been achieved5. Topical studies indicate that a 10% increase in time reduced bilateral trade volumes by between 5 and 8%5. The cost of time becomes all the more pressing if the product is perishable and has a short shelf-life and/or if the product is needed for just-in-time production. Additionally, perishable products must be safe and edible to consume upon arrival in the destination market. Thus, gradual (not immediate) liberalization of realms assisting the diversification of economy, which undoubtedly involves logistics, is allowable. In order to achieve growth of non-oil sector’s proportion in GDP, giving short-term conditional subsidies to local producers is a better policy to follow for the government in incumbent (which justifies the concept of progressive liberalization, being agreed upon). After gaining competitive-advantage in selected fields, or ensuring the protected industry is mature enough, government can completely support free trade in the given sector.
In the short run, the liberalization of logistics sector will also increase governmental spending. Inadequate infrastructure, especially in roads and railways (in Azerbaijan, large sections of roadways are disintegrated with main lines, 80% of passenger wagons are over 15 years old and more than half of freight wagons are useless1) will be a root cause of this.
As mentioned above, by liberalization of logistic sector, the number of truck companies will increase, which can in turn increase government income from taxes and customs fees.
Exporters and importers dependent upon logistic services will be better off by liberalization in this sector as their cost of import/export will decrease and they will have more alternatives to choose between.
Taking into account current state of affairs, the long-term effect of the liberalization of logistics sector of Azerbaijan may turn out to be beneficial to the domestic economy.

iii. Policy options
Adherence to the liberalization of logistics sector of domestic economy will reap desirable benefits with following policy options implemented:
 Market-access commitments. A compelling tool to liberalize a sector in a country is through granting the market access to suppliers from other countries, whether on a bilateral or multilateral basis. Liberalization through market-access commitments may entail the arrival of more foreign suppliers, which could transform into lower costs, but not unavoidably a drop in the number of domestic suppliers. Furthermore, the bilateral (multilateral) essence of this policy option should be strongly emphasized, so that henceforwardly both national and foreign suppliers could benefit from liberalization.
 Domestic competition policy. In order to someway steer clear of sudden shrink in the number of local providers of logistics services, government should stimulate them via various means as short-term subsidies and national procurement (prior to the liberalization), non-formal tools for boosting competition (e.g., national competitions) and investment. It may also be relevant to mergers, alliances and cooperative arrangements that are to be struck between companies supplying services within and/or between segments of the logistics supply chain.
 Simplification of trade control systems and relevant regulations. Azerbaijan must be vigilant in defending its competitive advantages and constantly strive to make it the most trade and transit friendly country. Reinvestment in infrastructure is a good start, but the government must reform its laws and regulations, improve its transparency and increase the competitiveness of Azerbaijan’s logistics industry. Trade in goods and services in Azerbaijan is subjected to a wide variety of government controls and regulations from different ministries and governmental bodies. These include the Ministry of Economic Development, Ministry of Agriculture, Ministry of Health, State Customs Committee, Ministry of Transportation, Statistical Committee, Ministry of Taxes, and Ministry of Ecology and Natural Resources. The complex web of government controls and regulations and the lack of transparency in the trade regulatory regime increase the difficulty in conducting trade in Azerbaijan. According to the Trade Facilitation Indicators published by the Organization of Economic Cooperation and Development (OECD)6, as of 2013, Azerbaijan still needs improvements in the fields of formalities (simplification and harmonization of documents), (internal) border agency cooperation, formalities (streamlining of procedures), fees and charges (it should be also noted that advancement in TFIs may lead to the improvement of the investment climate in Azerbaijan). Nevertheless, in appraising governmental border measures that may have an impact upon the supply of logistics services, their rationale needs to be considered particularly in light of the globalised context in which such services are supplied, where real security threats at national borders exist.
 Adoption of comprehensive transport infrastructure strategy. Despite implementing trade facilitation policy reforms in recent years, such as drafting new trade laws and regulations, streamlining trade procedures, and modernizing customs, Azerbaijan does not have an integrated and separate transport infrastructure strategy. By approving one, it is possible to achieve higher returns on initial investment, ensure seamless air/truck/rail/sea (multimodal) integration, and develop multimodal cargo facilities, logistics centers as well as specifically equipped storage facilities, which may positively influence investment climate in the country.
 Promoting the development of Small & Medium Enterprises, particularly engaged in agriculture, supply chain services, transportation and logistics, to further develop country’s logistical potential, and provide market for suppliers of logistics services for internal/cross-border transportation. By implementing this step, it will be feasible to maintain a market for local providers of logistics services chiefly engaged in inter-country transportations, expand a market for both national and international logistic companies aimed at international carriage of goods thus slightly mitigating the effect of intense competition, and strengthen national logistical potential.
 Enhancing national logistics curriculum to create a base for sustainable development of logistics industry of Azerbaijan as nowadays the state of knowledge about the main international bodies (IRU, OSJD, etc.) and documents (CMR Convention, TIR Convention, COTIF/SMGS Conventions, and so forth) appears to be inadequate, and the realization of the global concept of 3PL (Third Party Logistics) seems to be deficient7.

iv. References
1 – ADB, “Azerbaijan: Trade Facilitation and Logistics Development Strategy Report”, 2009
2 – http://www.biznesinfo.az/business/directory/transport/logistics/params/ln/ru
3 – http://lpi.worldbank.org/international/global?sort=desc&order=Logistics%20competence#datatable
4 – http://www.tradingeconomics.com/azerbaijan/inflation-cpi
5 – OECD, “Logistics and Time as a Trade Barrier”, OECD Trade Policy Working Paper No. 35, 30 May 2006, p 7.
6 – OECD, “OECD Trade Facilitation Indicators – Azerbaijan”, 2013
7 – “Куда движется рынок логистики?”, 2012, article by Zakir Salimov

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