Philip Morris’ Trade Card

International trade rules bar Canada from prohibiting the use of the terms “light” and “mild” on tobacco packaging.

That, at least, is the position of Philip Morris, which has submitted comments in response to Canadian regulations to eliminate the use of the terms.

Canada proposed the regulation in response to a consensus among public health experts that the mild and light descriptors are fundamentally misleading. Mild and light cigarettes are not less hazardous to smokers’ health, in part because it has been determined that smokers compensate for reduced tar and nicotine by inhaling more deeply, covering the “vents” on filters and by other means.

“We believe that the use of descriptors such as ‘light’ and ‘mild’ on tobacco product packaging is confusing smokers and misleading them to believe that these products are less harmful to their health,” said Canadian Health Minister Allan Rock in announcing the regulations in late 2001. “‘Light’ and ‘mild’ cigarettes can be just as harmful as regular cigarettes and today we are taking the first step towards the adoption of regulations to help protect the health of Canadians.”

In announcing the regulatory proposal, Canada’s health department cited survey data which suggested that more than a third of smokers of “light” or “mild” cigarettes choose these products for health reasons.

In its comments — produced in response to a U.S. announcement of the regulation, after the Canadian notice and comment period had concluded — Philip Morris disclaims any health benefits for “light” or “ultralight” cigarettes, and agrees that “consumers should not be given the message that descriptors means that any brand of cigarettes has been shown to be less harmful than other brands.”

But the company insists it should still be able to use the terms, which it alleges communicate differences of taste to consumers. Barring use of the terms, Philip Morris claims, would violate Canada’s obligations under the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) agreements.

“The ban would be tantamount to an expropriation of tobacco trademarks containing descriptive terms [e.g., ”light“] as well as of the substantial investment in and goodwill associated with those marks and the brands they represent,” Philip Morris argues in it submission. The company claims that the “descriptive terms such as ‘lights’ are an integral part of [its] registered trademarks” for products such as Benson & Hedges Lights and Rothmans Extra Light.

Under NAFTA’s controversial Chapter 11, countries are barred from taking measures that either take investors’ property without payment of compensation, or even which are “tantamount” to a taking [see “NAFTA’s Investor Rights,” Multinational Monitor, April 2001].

In its submission, Philip Morris points to a recent NAFTA arbitration tribunal decision to illustrate the breadth of Chapter 11. In the case of Metalclad v. United Mexican States, the panel stated, “Expropriation ... includes not only open, deliberate and acknowledged takings of property ... but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property, even if not necessarily to the obvious benefit of the host state.”

Chapter 11 of NAFTA also confers on investors such as Philip Morris standing to sue, meaning they can bring claims directly against governments. Under other trade agreement provisions, company complaints can only be brought by their home country governments.

If Philip Morris were to bring and win a Chapter 11 lawsuit, Canada would be obligated to pay the corporation the value of the lost property, here the value of the trademark and associated goodwill.

Philip Morris also claims in its submission that the Canadian regulation violates WTO rules.

The bar on use of terms would “encumber the use and function of valuable, well known tobacco trademarks” in violation the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), the company contends. The public health exception to TRIPS only permits measures which are otherwise compatible with TRIPS — an exception which critics say is no exception at all — and Philip Morris points out that the Canadian regulation would not be protected by this provision.

“A ban would substantially impede the ability of manufacturers to distinguish regular, full flavor brands from their low yield counterparts,” the company argues. “In addition, given the increasingly generic appearance of tobacco packaging caused by the recently mandated graphic warnings, and the universal ban on tobacco product advertising in Canada, removing additional identifying features from the pack face would further undermine the ability of tobacco trademarks to distinguish the goods of different manufacturers.”

In a third, separate claim, Philip Morris contends the Canadian regulation would violate the WTO’s Technical Barriers to Trade Agreement. The agreement requires countries to choose the least trade restrictive means to pursue legitimate regulatory objectives, such as protection of public health. In the case of the ban on use of “light” and “mild,” Philip Morris argues, a less trade restrictive means exists to ensure consumers are not misled into believing there is a health benefit to these products.

In place of the ban on the terms, Canada could enact, and Philip Morris says it would support, labeling requirements that state that “light” products have not been shown to be safer than other cigarettes.

Philip Morris has not indicated that it intends to bring suit against Canada under Chapter 11, and it is not likely to be able to get the U.S. government, at least, to file a WTO challenge against Canada on the matter.

But even if Philip Morris takes no further action, tobacco control advocates say the threats will likely chill many other governments, less resolute in pushing tobacco control measures, and more vulnerable to legal threats, from enacting Canadian-style tobacco control regulations.

— Robert Weissman