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 The news is a blow to the tobacco industry as such a ruling from the
WTO has been widely anticipated as giving a green light for other
countries to roll out similar laws.
It could have wider implications if applied to packaging for alcohol
and junk food.
The Australian law goes much further than advertising bans and
graphic health warnings enforced in many other countries.
The rules, introduced in 2010, ban logos and distinctive-colored
cigarette packaging in favor of drab olive packets that look more
like military or prison issue, with brand names printed in small
standardized fonts.
Tobacco firms said their trademarks were being infringed, and Cuba,
Honduras, Dominican Republic and Indonesia complained at the WTO
that the rules constituted an illegal barrier to trade.
Although the WTO's final ruling is not expected until July, a
confidential draft said Australia's laws were a legitimate public
health measure, Bloomberg reported.
A WTO official confirmed the draft was sent to parties to the
dispute on Tuesday. "It's a confidential interim report ... and we
don't comment on confidential reports," he said.
Of the biggest international cigarette companies, Imperial Brands'
profits are most exposed to markets that may implement plain
packaging, said analysts at Jefferies.
Imperial's shares fell more than 2 percent, while Philip Morris and
British American Tobacco were up slightly.
A spokeswoman for British American declined to comment on the ruling
until it was made public, but suggested the complainants would keep
fighting.
"As there is a high likelihood of an appeal by some or all of the
parties, it's important to note that this panel report is not the
final word on whether plain packaging is consistent with
international law," she said.
A spokeswoman for Japan Tobacco also declined to comment on the
ruling, but said the fact that the draft had been leaked was
disconcerting and a breach of WTO rules.
"Such breaches completely undermine the integrity of the process,
which has not yet run its full course," she said.
A spokesman for Imperial declined to comment and Philip Morris, the
world leader, was not immediately available.
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DOMINO EFFECT?
The plodding pace of WTO decision-making prompted Australia, which
had the backing of the World Health Organization, to complain that
its challengers were deliberately stalling the proceedings,
producing a "regulatory chilling" effect on other countries wishing
to follow its example.
But since the challenge was made, many other countries began
exploring similar legislation, a sign that they expected the WTO to
rule in Australia's favor.
Britain, France and Hungary have gone ahead with their own
legislation, while Ireland, Canada, South Africa, New Zealand and
Belgium are among those considering it.
Imperial Brands CEO Alison Cooper told reporters on Wednesday that
she did not expect "a particularly significant domino effect in
terms of different markets adopting it".
But Jefferies analysts said on Thursday that an Australian victory
at the WTO would give other countries confidence they could
successfully pass similar measures, which could lead to more action.
The key risk for investors is that disappearing brand equity will
erode pricing power, which is critical for sales and profit growth
in a market that is shrinking as more people quit the deadly habit.
In addition, plain packaging opens the door to newer, cheaper
rivals.
Big tobacco companies have argued that the impact of plain packaging
in Australia can not be adequately discerned from the effect of a
large excise tax increase. They also say it will lead to growth of
the illicit tobacco trade, partly because plain packs are easier to
counterfeit.
(Reporting by Tom Miles and Martinne Geller; editing by John
Stonestreet)
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