Here’s Why Tobacco Companies Are Shaking In Their Boots

Australia has taken a significant step to change the way cigarettes are marketed in that country: glitzy logos and rich foil sleeves are part of the past. Now, cigarette packages are labeled with graphic images of gangrenous limbs and cancer victims, while brand names are printed in a uniform font on a background legally defined as “drab dark brown.”

These restrictions are the future of cigarette marketing. Regulators in the United Kingdom, New Zealand, Turkey, and the European Union are examining packaging rules like Australia’s. The regulation, which went into effect on October 1, is the world’s first plain-packaging law. In comparison, a U.S. court blocked a similar change to America’s tobacco health warnings in August.

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“With so many countries lined up to ride on Australia’s coattails, what we hope to see is a domino effect for the good of public health,” said World Health Organization director-general Margaret Chan, in an August statement.

According to the Australia’s government standards, the images and health warnings must cover 75 percent of the front of the cigarette packages. These include a gangrenous foot, a cancerous tongue, and a skeletal man named Bryan dying of lung cancer. Further warnings must appear on the sides of the package and cover 90 percent of the back.

The legislation, passed last December, bans “decorative ridges, embossing, bulges, or other irregularities of shape or texture,” and determines the form of the packs, the way they open, and the color of the glue that holds them together.

Health officials believe that by requiring packaging to dramatically show the side-effects of smoking, they can create a greater deterrent to stop smoking than the postage-stamp-sized warnings that previously labeled tobacco products.

On Tuesday, the High Court of Australia released its rationale for dismissing an August challenge of the law from tobacco companies, which claimed that the government illegally seized their intellectual property without the proper compensation. The court’s 6-1 decision maintained that because the government did not benefit from the removal of trademarks, it did not have to compensate the companies.

“We will be policing plain packaging very closely,” the country’s health minister, Tanya Plibersek, said in a Sept. 12 interview with Channel 10 television. “Young people are the ones most affected by the packaging and by the advertising, and no parent wants their kid to start smoking.”

Even though ordinary packs can be sold until December 1, the first plain packages from Philip Morris (NYSE:PM) were delivered to stores in Sydney and imports of plain-packaged cigarettes from Imperial Tobacco’s (ITYBY.PK) overseas factories have begun as well. At British American Tobacco (NYSEAMEX:BTI) and Philip Morris, production and packaging of the old-style cigarettes halted on October 1, in accordance with the law. Government inspectors will be charged with scrutinizing the packets over the next two months to lookout for small deviations from the rules.

British American Tobacco has begun working with approximately 33,000 retailers around the country to ensure they can return unsold packs to avoid penalties of up to $1.1 million Australian dollars that apply for each pack sold after the December 1 deadline.

However, the World Health Organization is not completely satisfied with the regulations.

“The images that had appeared on some of the packs — graphic health warnings, photos of people with gangrene — weren’t as sharp as they could have been,” said Simon Crittle, a spokesman for Plibersek, to Bloomberg. “The reds weren’t as red as they should be.”

Other measures are to be included with the packaging regulations, including a 25 percent tax increase and a cut to duty-free allowances. The new law is intended to reduce the prevalence of smoking from the current 15 percent of the population to 10 percent by 2018.

Tobacco producing nations, like Honduras, Ukraine and the Dominican Republic, have further appealed the Australian plain-packaging law at the World Health Organization, claiming it violates trademark rights and restricts trade. Furthermore, cigarette companies are fearing that the new regulations will spread to other countries.

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