Tobacco Trade Dilemmas as Significant as Beef and Boats

By Lauren Gumbs

Indonesia is currently challenging Australia’s tough plain packaging policy for tobacco as unlawful under the World Trade Organisation’s General Agreement on Tariffs and Trade.

More talks are scheduled between Susilo Bambang Yudhoyono and Tony Abbott to discuss trade and economics, however tobacco will almost certainly skip the agenda. If there were anticipated diplomatic departures between the two leaders over beef and boats, then on the issue of tobacco, SBY might find a friend in Abbott.

Tony Abbott was criticised by Labour for taking donations from tobacco companies during his election campaign and has stated Labour’s tax hike on cigarettes was unfair for smokers.Previously in September 2011, Abbott’s Coalition suggested reviewing allowances for Investor State Dispute Settlement (ISDS) clauses in regional Trans-Pacific Partnership agreements. This means that foreign companies could directly sue the federal government over trade disputes, which Indonesia would surely do rather than take the dispute through the GATT.

While the challenge by the Indonesian Ministry of Trade to Australia’s standardised packaging laws has so far evaded public scrutiny, it is tobacco control more so than beef exports and asylum seekers that could create complications for Indonesia and Australia. Tobacco is one of Indonesia’s economic mainstays, but tobacco 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, illustrates another example besides beef where the policies of both nations produce ripple effects for each other, and a situation where the relationship is tested. In July, Indonesian newspapers such as Satu Harapan reported on the challenge to Australia’s packaging policy from tobacco giants Phillip Morris and British American Tobacco who claim the policy breaches trade agreements and in any case does not reduce numbers of smokers.

Indonesia’s Ministry of Trade has since joined the WTO complaints process regarding the illegality of Australia’s policy, becoming the fifth country to do so. Indonesia joins the challenge with other concerned tobacco producing nations, the Ukraine, Cuba, Honduras, and the Dominican Republic where the complaint has led to litigation.

Activist Kartono Muhammad said in a recent Jakarta Globe report that tobacco control activists strongly condemn the Indonesian government’s challenge. “The government is acting in the interests of tobacco companies not public health.”

“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.

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

Tobacco is Indonesia’s fourth largest source of government revenue and the industry provides millions of jobs. Smoking in Indonesia is a deeply acculturated habit due to a lack of limitations and fierce domestic advertising; 65 million Indonesians smoke. With most of the adult male population smoking, women and children are on tobacco companies’ hit lists as tobacco companies seek to expand their reach to new consumers.

Contrast this with around three million Australian smokers, who, according to some research, are slowly getting turned off cigarettes by confronting images and excessive prices, and Australia doesn’t present much of a market for Indonesia’s tobacco. In fact, at 16% and declining, rates of smoking in Australia are among the lowest in the world.

The WTO challenge though is not being levelled to gain access to and increase the numbers of Australian smokers, but a concerted effort by big tobacco acting behind the scenes with the Indonesian government to prevent the loss of many more consumers as standardised packaging creates an international current.

New Zealand, Scotland, and Ireland also plan to zip up tobacco tolerance if Australia’s scheme is successful, but England postponed equivalent legislation in July this year after being cowed by tobacco lobbyists. Indonesia is the only ASEAN nation that has not ratified the World Trade Organisation’s Framework Convention on Tobacco Control (FCTC).

Yet other ASEAN nations are steadily increasing limitations on tobacco, with Thailand the ASEAN leader in restricting tobacco usage for example, by 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 under the GATT, "the WTO allows a country to pass non-discriminatory measures in the interest of public health."

In a letter sent to President SBY on September 29th SEATCA said, “Australia introduced 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.”

As Australia radically smothers and censors smoking with high taxes, restrictions on visibility, and a total ban on package advertising, other developed and developing countries will follow suit, making producer Indonesia a pariah in tobacco control efforts. A wave of tobacco restraint across countries committed to the FCTC 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.

Australia’s and Indonesia’s relationship is as dynamic and provocative at the level of trade and policy as it is on social political regional issues, however even in Australia it took a concerted grassroots effort from the medical community and civil society organisations to push through the legislation that prevents some of the 200 000 new smokers a year from joining the death train. Tobacco kills a third to half of its users, in Indonesia this amounts to an incredible 200 000 people a year dying from smoking related diseases.

Should the WTO rule that Australia is in breach, the WTO's disputes settlement body can authorise retaliatory trade measures against Australia if the country does not comply. Tony Abbott is not averse to the generosity of big tobacco and would very likely sympathise with Indonesia’s dilemmas in balancing a toxic industry with livelihoods and vast government revenues, but the most he can do at this point in Australian tobacco control, short of allowing foreign companies to sue, is to block further tax hikes on cigarettes.

 

Indonesia is trying to keep its markets open for tobacco, but its status as an unobstructed smoking haven depends on the support of big tobacco for ongoing legal challenges and constant pressure against anti-tobacco laws. Australia’s restrictions on tobacco, like Indonesia’s on cattle exports, could encourage black markets and increased opportunities for corruption as the two neighbours, one of the most tobacco liberal countries, argues trade illegality with one of the most tobacco antagonistic.

Lauren is a freelance journalist and human rights student based in East Java.