Indonesia-Oz Dispute over Tobacco

Australia’s tough new tobacco packaging policy, which allows for no logos or brand imagery, is facing tough going in Indonesia, which has joined four other nations in challenging Australia’s plain-packaging policy for tobacco in the World Trade Organization as a restraint of trade.

However, Indonesia may have found a friend in Tony Abbott, who during his election campaign said Labor’s tax hike on cigarettes was unfair to smokers and, in 2011, suggested reviewing allowing foreign companies to be able to sue the Australian government over trade disputes. Indonesia would rather try the Australian courts than taking the dispute to the WTO.

It is tobacco control more so than beef exports and asylum seekers, both of which were discussed during Abbott’s recent trip to Jakarta, that could create complications for the two countries. Tobacco is one of Indonesia’s economic mainstays, but control measures generate black market enterprise, another form of corruption and criminality to add to Indonesia’s woes and Australia’s vexation.

Australia’s ever tougher policies on tobacco, and Indonesia’s ever more stubborn resistance to its control, are examples where the policies of both nations produce ripple effects for each other, and a situation where the relationship is tested. Under Australia’s law, which went into effect in September, cigarette packets can’t show logos, brand imagery or promotional text as well and restrict the color, size, format and packaging. All tobacco products must be labelled with new and expanded health warnings saying tobacco can kill.

“The plaintiff countries maintain that Australia’s law breaches international trade rules and intellectual property rights to brands — arguments rejected by Canberra and which also failed to convince Australia’s High Court in a case brought by tobacco firms,” the Jakarta Globe said in a recent editorial.

Tobacco companies have stated publicly that they are helping countries bring claims to the WTO and supported Indonesia’s WTO legal challenge in the US over the ban on clove cigarettes. They are involved in Indonesia’s challenge against Australia now.

The WTO challenge though is not being leveled to gain access to and increase the numbers of Australian smokers, who are among the fewest in the world as a proportion of population, but a concerted effort by big tobacco acting with the Indonesian government to prevent the loss of many more consumers as standardized plain packaging gains fans in other countries. For instance, New Zealand, Scotland and Ireland also plan to zip up tobacco tolerance if Australia’s scheme is successful, although England postponed equivalent legislation in July this year under pressure from tobacco interests.

As other countries have backed away from tobacco because of the fact that smoking and chewing kill anywhere between a third and half of the people who take up the habit, Indonesia has remained stubbornly open to the product.

Indonesia, with a major component of GDP dependent on smokers, is the only ASEAN nation that has not ratified the WTO Framework Convention on Tobacco Control as other nations increase limitations on tobacco, with Thailand the leader in restricting tobacco usage for example, following Australia’s ban on visible packs at point of sale locations.

The Bangkok based South East Asian Tobacco Control Alliance (SEATCA) is calling for Indonesia to drop the WTO complaint, arguing that "the WTO allows a country to pass non-discriminatory measures in the interest of public health."

In a letter sent to SBY on Sept. 29, the alliance: “Australia introduced the plain packaging law in the interest of public health to encourage smokers to quit, prevent children from starting to smoke, and increase public awareness on the dangers of smoking.”

A wave of tobacco restraint across countries committed to the convention on control would sorely impact on Indonesia’s large tobacco industry, and possibly validate claims from big tobacco that increases in taxes would lead to a surge in the black market tobacco industry, thereby giving Indonesia and Australia one more area of criminal enterprise to vacillate over in addition to the burdens induced by people smugglers.

Should the WTO rule that Australia is in breach, the WTO's disputes settlement body can authorize retaliatory trade measures against Australia if the country does not comply. Although Abbott took considerable campaign donations from tobacco companies, and may well sympathize with Indonesia’s dilemmas in balancing a toxic industry with livelihoods and vast government revenues, the most he can do, short of allowing foreign companies to sue, is to block further tax hikes.