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Big Tobacco is losing the fight to stop plain packaging of cigarettes

Dr Enrico Bonadio, a Senior Lecturer in the City Law School, says the tobacco industry’s bid to avoid plain packaging by relying on legal arguments around trade and intellectual property rights, is being systematically dismissed by courts around the world.

https://www.city.ac.uk/news/2017/may/big-tobacco-is-losing-the-fight-to-stop-plain-packaging-of-cigarettes

You may already have seen the tobacco packs currently sold in the UK: a dark, murky green colour with large graphic health-warning images and scary messages aimed at informing current and potential smokers about the devastating consequences of tobacco consumption. They have no colourful logos, with the brand name just displayed in small characters in a standard font.

These packs are now required by new regulations which entered into force in May 2016. There has been a one-year transitional period for the sell-through of old stock – and from May 20 2017 all tobacco products on sale in the UK must comply with the new rules.

The legislative move has been recommended to all countries by the World Health Organisation to reduce the attractiveness of smoking and eventually reduce consumption. Australia was the first country to introduce such strict packaging requirements in December 2012. France and, of course, the UK have since followed suit.

It follows significant research that shows these new standardised cigarette packs are much less appealing to consumers – and young people especially.
The industry’s legal defeats

No wonder tobacco companies have challenged the measure in the courts. They have argued that it is useless, too harsh – and is an infringement of their fundamental and intellectual property rights, especially trademarks. Yet, their claims are based on weak arguments and have been rejected by both the High Court of England and Wales and the Court of Appeal.

The tobacco industry has faced numerous courtroom defeats of late. Last year Uruguay won a landmark case against the Swiss giant Philip Morris International. The company had sued the Latin American state after it introduced two measures affecting tobacco packaging and trademarks. These were mandatory graphic health warnings covering 80% of cigarette packets (a measure very close to plain packaging) and the obligation for tobacco companies to adopt a single presentation for their brands, dropping for example the “gold” and “blue” descriptors, that could lead smokers to believe one variant was safer than another.

The fact that the courts sided with Uruguay would have been encouraging to other countries aiming to introduce controls on tobacco packaging. And even greater encouragement came recently from a World Trade Organisation ruling which deemed that the plain packaging requirements introduced by Australia as compliant with international trade and intellectual property rules – and are therefore a legitimate public health measure.

The decision has not been officially announced, but a confidential draft of the interim ruling was leaked to the media and the final decision is expected later this year. The Australian measure had been challenged at the WTO tribunal by Cuba, Dominican Republic, Indonesia and Honduras, countries whose economies strongly rely on the tobacco industry.

A domino effect

This is a blow to the industry. The short-term consequences of the WTO ruling – Imperial Tobacco’s shares fell more than 2% after the decision was leaked – reflects the longer-term danger that this ruling poses. It will likely convince other states to introduce plain packaging legislation without fear of violating international trade and intellectual property laws. It basically gives them a green light by removing the regulatory chilling effect that such legal action has produced on countries that wanted to follow Australia’s example.

After all, more and more countries seem interested in adopting standardised packaging. As well as France and the UK, Ireland and Norway will introduce packaging restrictions later in 2017, and Hungary in 2018. Many other states are debating similar measures, including New Zealand, Canada, Belgium, Slovenia, Belgium, Singapore and Thailand.

So, a legislative trend has started which aims to restrict the ability of tobacco manufacturers to make their products appealing to consumers by using eye-catching words, logos or ornamental features on the pack. And attempts by Big Tobacco to stop it by relying on legal arguments around trade and intellectual property rights are being systematically dismissed by courts around the world.

Ultimately, the industry needs to accept the fact that its ability to use fancy brands, especially on packaging, may be reduced by governments for public health reasons. Also that a company’s property rights are not absolute or untouchable. Not only does it not have enough legal basis – as has now been confirmed by several courts and tribunals – but it also disregards legitimate policies adopted by democratically elected governments.

What’s keeping Indonesia, China addicted to smoking?

A World Trade Organisation ruling backing Australia’s hard line on cigarette packaging highlights a gulf between Asia and much of the rest of the world

http://www.scmp.com/week-asia/society/article/2094162/whats-keeping-indonesia-china-addicted-smoking

It was during a trip to Egypt in 1995 when Edison Siahaan first felt that something wasn’t quite right with his throat. Four decades had gone by since he started smoking at the age of 15. His voice had been raspy for years. Maybe this was just the dry air tickling the back of his throat.

But it wasn’t dry air and it wasn’t a tickle. It was cancer. Doctors excised a portion of his trachea leaving a hole the size of a nickel at the base of the throat. He lost his bank job because for a year following the surgery he couldn’t speak. Even now, what passes for speech makes him sound like the emperor from Star Wars only with more hissing. Now 79, Siahaan, a kindly old gent with a full head of hair, is tough to look at. “I see kids smoking all the time here,” he says, gesturing back and forth along the length of the street from his front room. “It makes me sick to think they are going to ruin their life. I point at this hole in my throat and say to them: do you want to look like this?”

Asian men already account for the lion’s share of the world’s tobacco related illnesses, yet a World Trade Organisation ruling this week that upheld tough anti-smoking rules introduced in Australia in 2012, showed that if anything, the gap in attitudes between Asia and the rest of the world may be widening.

“Tobacco in China is absolutely devastating,” says Dr Angela Pratt who helps handle external relations at the World Health Organisation’s office for the Western Pacific in Manila.

In China, roughly 300 million people smoke, according to the WHO. Most of these are men. More than half of Chinese adults are smokers and two-thirds of young Chinese men start smoking. While smoking rates are steady, the absolute number of smokers is rising in line with population growth. Chinese smokers account for 44 per cent of all the cigarettes puffed in the world. At current rates 200 million Chinese will die this century from tobacco-related illnesses, Pratt says. “That’s a huge burden. The people afflicted are often the sole income earners,” she says.

This week, the WTO ruled that Australia’s plain packaging rules, which ban branding and distinctive colouring from packs of cigarettes, were a legitimate public health measure. The ruling knocked back a complaint from Indonesia, Cuba, Honduras and the Dominican Republic, who said the rule amounted to an illegal trade barrier. As the former chief of staff to the Australian health minister who introduced the plain packaging measures, Nicola Roxon, Pratt helped develop the policy, bulletproofing it from court challenges from tobacco companies and governments.

“We were proud to be taking on plain packaging,” Pratt recalls. “But we wanted to be sure to be able to defend it.”

Together with graphic warnings and taxes that will push cigarettes up to A$40 (HK$230) per pack by 2020, the measure is credited with accelerating the fall in Australia’s smoking rate. The most recent figures show about 13 per cent of Australian adults smoke and less than five per cent of school children. A dozen countries, from Canada to Chile and Britain to Uruguay are either introducing similar rules or seriously considering them.

At the other extreme is Indonesia. The most recent figures, which date back to 2013, show 240,000 Indonesians die every year from tobacco related illnesses. Two-thirds of Indonesian men and boys, over the age of 15, smoke, according to the Ministry of Health.

Most troubling are the numbers of new young smokers throughout the archipelago, says Dr Widyastuti Soerojo, chair of the tobacco control unit at the Indonesian Public Health Association. She says some 16 million Indonesian youngsters between the ages of 10 and 19 experiment with smoking every year – a rate of about 44,000 every day.

Indonesia is among the few countries that are not signatories to the United Nation’s Framework Convention on Tobacco Control, which among other things aims to curb the appeal of smoking for children.

Indonesia television and billboards feature handsome intrepid men jumping out of planes or into business meetings. Roadside kiosks individually sell clove cigarettes, known as kretek, for as little as 10 US cents each.

Governments in Jakarta and local governments in vote-rich provinces, such as Central Java and East Java, fend off calls for more curbs on smoking saying they provide badly needed jobs to rural families.

But mechanisation and growing taste for machine-made cancer sticks rather than hand-rolled types, belie that argument. Tobacco accounts for about half of one per cent of all jobs in Indonesia, according to the Southeast Asia Tobacco Control Alliance. Campaigners are quick to point out the country’s richest families have tobacco to thank.

The Hartonos, Indonesia’s richest family and worth US$17 billion, own kretek maker Djarum.

Indonesian cigarette sales totaled US$16 billion in 2015. Sampoerna, which is more than 90 per cent owned by Philip Morris, is Indonesia’s most valuable company.

“The government treats tobacco like it’s a normal industry but really this is neocolonialism by tobacco companies,” Dr Soerojo says.

In China, the culprit for health advocates is the China National Tobacco Corporation, which controls more than 98 per cent of the local market. Implementation of the UN tobacco convention falls to the Ministry of Industry, which is also home to the body that owns China Tobacco. “A parallel would be, back when I was with the health ministry, meetings were chaired by a representative of Philip Morris,” Pratt said. “There’s plenty of room for conflict of interest.”

Still, there’s progress. Beijing, Shanghai and Shenzhen, with a combined population of more than 60 million, have banned smoking in public areas. China hiked taxes on cigarettes in 2015. The move resulted in a 20 per cent jump in the retail prices of the cheapest brands. Owing to its massive market, that move alone resulted in a more than 2 per cent drop in world tobacco consumption in 2016.

In Indonesia, smoking is banned in most public spaces but enforcement peters out the further one travels from the centre of Jakarta. Indonesia introduced graphic warnings on packaging in 2012 and hiked excise taxes on cigarettes by 15 per cent in 2016. Even so, additional hikes for this year were scotched. Glimmers of light are on the horizon, says WHO’s Pratt, but plain packaging is still “a long way off”.

For Siahaan, his government’s halting go-slow approach is proof that cigarettes are insidious, and for him, more ruinous than narcotics. “At least with drugs you can get help,” he gasps. “For cigarettes, you see them everywhere.”

Justice Ministry says iQOS product will be treated as ordinary tobacco

Previously, the company asked the US Food and Drug Administration to recognize iQOS as “modified-risk product.”

http://www.jpost.com/Business-and-Innovation/Health-and-Science/Justice-Ministry-says-iQOS-product-will-be-treated-as-ordinary-tobacco-485912

The world’s largest tobacco company, Philip Morris International, faced an obstacle in Israel that has apparently influenced its position toward its heated-tobacco product iQOS.

Previously, the company asked the US Food and Drug Administration to recognize iQOS as “modified-risk product.”

Last week, Israel’s Justice Ministry notified the company that it accepted the position of three voluntary organizations in Israel that the product is actually a “tobacco product,” and all the restrictions that apply to tobacco products should apply to iQOS.

In parallel, Philip Morris reversed its previous position towards the FDA and now wants iQOS to first be recognized as a “tobacco product.”

The small Society for Progressive Democracy thus “made history,” as the new position will set the definition of the product for deliberations by the FDA.

The Israel Medical Association, the Israel Cancer Association and the small Society for Progressive Democracy thus “made history,” as the new position will set the definition of the product for deliberations by the FDA.

While the Israel Cancer Association and the Israel Medical Association sent letters to the authorities to protest against Health Minister Ya’acov Litzman for preventing restrictions on the sale and marketing of iQOS in Israel, the Society for Progressive Democracy headed by lawyer Shabi Gatenio actually applied to the High Court of Justice and asked for an Injunction againt him.

“It is a story of the little David toppling Goliath, Philip Morris,” commented lawyer Amos Hausner, the chairman of the Israel Council for the Prevention of Smoking.

The limitations that now apply to all tobacco products will include iQOS, such as prohibiting its sale to minors, prohibiting smoking it in all public places where conventional cigarettes may not be smoked, excluding it from advertising in the electronic media and media for children and teens, and other restrictions for which violators are fined.

Under the rules of administrative law, the position of Justice Ministry professionals is binding upon all governmental agencies in Israel, and their position supersedes the one expressed by any political figure – in this case, the health minister.

Attorney-General Avichai Mandelblit has yet to decide on a petition by Avir Naki, a voluntary organization that aims to fight smoking, to prohibit Litzman from having any involvement in decisions on tobacco matters.

Dubek, the Israel tobacco producer and importer, has also filed an application in the High Court against Litzman, arguing that he was giving Philip Morris benefits that Dubek did not enjoy.

Hausner said that Philip Morris “officially changed its position here while its application was pending in the FDA, as a negative consequence in Israel might have negatively influenced the company’s position in its deliberations with the US over iQOS. We clearly learn from this case that politicians cannot determine policy on major public health issues like this; they must leave it to ministry professionals to set policy.

It turned out that Litzman was more protective of Philip Morris than the company itself demanded. As to Philip Morris, Hausner said that their products should meet the requirements of professionals and not only of the politicians.”

Commenting on the Justice Ministry decision, Philip Morris Ltd.’s spokesman in Israel said that it would “continue to market iQOS in Israel in a responsible way according to law so that adult smokers would have better alternatives than continuing to smoke cigarettes.”

The ministry said in a statement after the court decision was announced that “while waiting for the FDA’s position, we plan at this stage to place on the product all restrictions on tobacco products regarding marketing, advertising and smoking in public places.”

PMI to convert Greek cigarette plant to make iQOS sticks

Philip Morris International (PMI) will invest EUR 300 million (USD 323 million) to convert a Greek cigarette factory to into a plant capable of turning out 20 billion tobacco sticks for its iQOS heat-not-burn device, the company said.

http://www.tobaccojournal.com/PMI_to_convert_Greek_cigarette_plant_to_make_iQOS_sticks.54155.0.html

Expansion and remodeling the Aspropyrgos plant operated by affiliate company Papastratos will create 400 new jobs in addition to the 800 current ones, PMI said. Construction will begin immediately with operations expected to start in January 2018.

“This investment is further evidence of our progress towards a smoke-free future. We are encouraged by the 1.4 million smokers who have already switched to IQOS around the world, and we expect this momentum to continue,” said Frederic de Wilde, PMI regional president for the European Union.

Aspropyrgos will be the third facility dedicated to iQOS production. Production currently is centred in a specially built facility in Crespellano, Italy and a small scale Industrial Development Centre in Neuchatel, Switzerland.

Health Ministry sued over soft treatment of iQOS

Dubek, a manufacturer and importer of tobacco products, sued the Health Ministry for showing favouritism by allowing Philip Morris International to skirt advertising restrictions in marketing iQOS, the Jerusalem Post said.

http://www.tobaccojournal.com/Health_Ministry_sued_over_soft_treatment_of_iQOS.54143.0.html

Health Minister Ya’acov Litzman reportedly is waiting to see how US regulators deal with the tobacco heating device. In the meantime, iQOS is being sold and marketed without restriction in Israel. In its complaint to the High Court of Justice, Dubek said this discriminated against its tobacco products, which face restrictions, the Post said.

Tobacco company files suit against Health Ministry

Philip Morris chose Israel to be one of the first countries to market iQOS.

http://www.jpost.com/Business-and-Innovation/Health-and-Science/Tobacco-company-files-suit-against-Health-Ministry-484079

Dubek, Israel’s tobacco manufacturer and importer, filed a suit in the High Court of Justice against the Health Ministry on Monday for showing “favoritism” to the international tobacco company Philip Morris, which is marketing its no-smoke heated- tobacco cigarette iQOS.

Dubek said it is limited in marketing and advertising its own products, while Health Minister Ya’acov Litzman – against the views of public health professionals inside and outside his ministry – allows iQOS to be sold and advertised without limit.

This laxity will continue, Litzman decided recently, until the US Food and Drug Administration decides what to do about the product.

The sale and marketing of iQOS has been prohibited in the US and other countries until the FDA releases its ruling.

A few days ago, Avir Naki, a nonprofit organization that fights smoking, petitioned Attorney-General Avichai Mandelblit to revoke Litzman’s authority on all tobacco legislation and regulation because he has shown a “personal connection” to a number of issues relating to tobacco. Litzman met with Philip Morris lobbyists before announcing his decision.

Dubek said the ministry “has ignored blunt violations of the law for restricting advertising and marketing of tobacco products” by Philip Morris, thus carrying out unfair competition. It also charged that the Tax Authority does not levy sales taxes on iQOS and “causes a huge loss of revenue to the state coffers.” Sales taxes constitute 80% of the price of regular cigarettes.

IQOS, Dubek said, claims to be a “less-harmful product” than conventional cigarettes because the tobacco and additional chemicals are warmed but not burned.

But Philip Morris’s claim has not been proven, Dubek said, also complaining that iQOS is not required to carry any health warnings on the package.

Philip Morris chose Israel to be among the first countries to market iQOS, thus turning its population into “guinea pigs” in a “huge experiment for which we will all pay,” the Israel Medical Association’s Society for the Prevention of Smoking and Smoking Cessation said early this year.

iQOS: A Product Of Innovation Or Necessity For Philip Morris?

Philip Morris aims to garner 10-15% of its sales from its Reduced-Risk Products (RRPs) portfolio within a decade. It is betting on one such product, iQOS, and feels it will become more popular than e-cigarettes sold by other companies.

http://seekingalpha.com/article/4049300-iqos-product-innovation-necessity-philip-morris

Philip Morrris expects its RRPs to approach breakeven Operating Companies Income (OCI) in 2017, and to start contributing positively by 2018. It is targeting 30-50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range.

Conversion rates of iQOS purchasers who have fully or predominantly moved to the product have grown over time, and stood at approximately 70% at the end of 2016. As of year-end 2016, the company estimates that approximately 1.4 million adult consumers have quit cigarettes and converted to iQOS.

Philip Morris International (NYSE:PM) uses the term Reduced-Risk Products (RRPs) to refer to products with the “potential to reduce individual risk and population harm, in comparison to smoking cigarettes.” The company has a number of products in various stages of development and commercialization, with numerous scientific studies being carried out to determine whether the claims for reduced risks can be substantiated. The firm’s aim is to garner 10-15% of its sales from its RRPs portfolio within a decade.

The company is betting on one such product, iQOS, a black pen-shaped device that heats sticks containing tobacco, and feels it will become more popular than e-cigarettes sold by other companies. Philip Morris has collaborated with Altria (NYSE:MO) for developing its RRP portfolio, which includes joint research, development, and a technology sharing agreement, wherein the e-vapor products developed would be commercialized in the US by Altria and in markets outside the US by PM. The company is also leveraging the popularity of the Marlboro brand by deploying Marlboro heatsticks in iQOS

PM Thailand facing USD 2.8 billion in fines

Philip Morris Thailand was charged with underpaying import duty on cigarettes shipped from Indonesia, accusations that come one year after similar charges were filed over Philippine shipments, company documents show.

http://www.tobaccojournal.com/PM_Thailand_facing_USD_2.8_billion_in_fines.54073.0.html

Philip Morris International’s (PMI) Thai subsidiary faces fines totalling THB 100.6 billion (USD 2.85 billion) in the two cases, PMI said in its annual report filed with the US Securities and Exchange Commission. The latest charges filed on 26 January in Bangkok Criminal Court concern cigarette imports from Indonesia between 2002 and 2003, the document shows. The Public Prosecutor is seeking fines of THB 19.8 billion. A procedural hearing is scheduled for April.

A year ago, PM Thailand was charged over cigarette shipments from the Philippines between 2003 and 2007. Fines in that case amount to THB 80.8 billion. Trials are scheduled to begin late this year, the PMI filing shows.

Philip Morris Facing More Thai Tax Evasion Charges

By Bryan Koenig https://www.law360.com/articles/891973/philip-morris-facing-more-thai-tax-evasion-charges

Law360, Washington (February 14, 2017, 6:38 PM EST) — Philip Morris International Inc. announced a widening Tuesday of the government of Thailand’s long-running criminal investigation seeking billions of dollars in potential penalties based on allegations the company deliberately shorted cigarette import prices to avoid full taxation.

The charges announced in Philip Morris’ annual report with the U.S. Securities and Exchange Commission were filed Jan. 26 and follow charges levied against the company a year earlier. While the January 2016 charges are seeking more than $2 billion in fines purportedly stemming from imports from the Philippines, the new charges cover cigarettes imported from Indonesia, Philip Morris said in the report.

“The government is seeking a fine of approximately THB 19.8 billion (approximately $562 million). The first hearing, which will focus on preliminary procedural matters, is scheduled for April 2017,” Philip Morris said in the filing. “PM Thailand disagrees with the allegations and believes that its declared import prices are in compliance with the Customs Valuation Agreement of the [World Trade Organization] and Thai law.”

According to the cigarette giant, the Thailand Department of Special Investigation, or DSI, probed Indonesian imports and the subsequent excise taxes and customs duties paid from 2000 through 2003. The late-January charges the public prosecutor filed in Bangkok Criminal Court also targeted a Thai ex-employee, Philip Morris said.

The company stands accused of working with the employee “with the intention to defraud the Thai government” on “under declared import prices of cigarettes” from 780 import entries between January 2002 and July 2003, all to avoid full taxation and duties, according to the filing.

The charges filed last year against Philip Morris (Thailand) Ltd. and seven current and former workers in the same court followed an investigation into the period from 2003 to 2007, according to the filing. Those charges cover allegedly “under declared import prices” from 272 entries brought in from the Philippines from July 2003 to June 2006, Philip Morris said.

“The government is seeking a fine of approximately THB 80.8 billion (approximately US$2.29 billion). The case is in the pre-trial evidentiary phase. Trials are scheduled to begin during the last quarter of 2017,” the company said.

“PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law and that the allegations of the public prosecutor are inconsistent with several decisions already taken by Thai Customs and other Thai governmental agencies.”

The Thailand charges are not the end of Philip Morris’ international tax woes.

Tuesday’s filing also discussed a South Korean Board of Audit and Inspection probe into whether inventory changes by cigarette companies like Philip Morris Korea Inc. complied with the country’s tax laws in the run up to a Jan. 1, 2015, cigarette tax increase. According to the filing, the audit wrapped up in November with the assessment of underpaid taxes and penalties. In order to avoid “nonpayment financial costs,” Philip Morris’ Korean affiliate paid the full amount of taxes assessed to the tune of about $185 million, according to the company.

Philip Morris also reported an early 2017 demand for around US$46 million total from other government authorities. The company vowed to appeal the assessments, while noting that the matter has been referred to the public prosecutor, who will investigate the potential for criminal charges against the company and others.

“If the public prosecutor decides to prosecute, it may seek up to three times the underpaid tax for company criminal penalties and up to five times the underpaid tax for individual criminal penalties,” the company said. “PM Korea believes that it has paid cigarette-related taxes in compliance with the South Korean tax laws.”

South Korea’s Ministry of Strategy and Finance has also filed criminal charges against the country’s Philip Morris unit and its managing director, according to the filing, which characterized the charges as allegations that it went over monthly product withdrawal restrictions imposed by the ministry. The public prosecutor will conduct an investigation into that complaint and make a decision about pursuing a case, according to Philip Morris, which noted disagreement with the allegations.

Does the public know that iQOS uses Cast Leaf technology to create its HEET stick capsules?

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