Plain packaging ploy likely to go up in smoke

Turning public debate from the failed emissions trading scheme to universally despised tobacco emissions is a media masterstroke from Kevin Rudd, but the cost could leave a singe in taxpayers' pockets.

During the government's announcement of plain packaging for cigarettes, Rudd and Health Minister Nicola Roxon celebrated it as a world first because no other government has taken similar action.  But other governments haven't done so because of the risks involved.

Only last year the British government rejected plain packaging, arguing that "no studies have shown that introducing plain packaging of tobacco would cut the number of young people smoking".

And while the moral and political arguments for attacking tobacco companies may be sound, there are legal risks involved.

The British government also identified that "given the impact that plain packaging would have on intellectual property rights, the government would need strong and convincing evidence showing the health benefits".

Even with strong evidence about the efficacy of plain packaging, the British government could have exposed itself to legal claims by tobacco companies for expropriating their property rights.  The Rudd government has ignored this message.

Under Australia's Constitution and international trade agreements, the government cannot strip or devalue property without compensation on "just terms", and that includes intellectual property rights such as trademarks.

Some commentators have argued that banning a trademark's display is not tantamount to taking a tobacco company's trademark.  International IP rules say the point of trademarks is to assist in the "capability to distinguish the goods or services".  Introducing plain packaging would devalue a trademark and may require the commonwealth to compensate tobacco firms.

Although the cost of Rudd's reckless move is unknown, my rough calculations show that taxpayers may be required to fatten the profits of tobacco companies by up to $3 billion a year.

The federal government is not the only body in Australia that is cavalier about our IP regime.

Recently, the South Australian parliament passed legislation to enforce the plain packaging of R18+ films unless they are stocked in areas inaccessible to children.  This strips the companies of the value of their trademarks.

However, the difference is that plain packaging of R18+ films is unlikely to lead to serious legal and financial consequences.

The risk of having to compensate tobacco companies with taxpayers' dollars is objectionable not just legally but morally.

The Rudd government also has shown contempt for parliament, given that the Senate's community affairs committee is investigating the legality and efficacy of a plain packaging bill, with submissions due today and the committee set to report in August.

Now these submissions and the recommendations of the parliamentary inquiry may as well be thrown on the junk heap.

It's clear that the objective of Rudd and Roxon's announcement is to distract public attention from the government's numerous policy backflips during the past week.

But this smokescreen is unlikely to be effective.

The tobacco tax hike, effective from midnight, is supposed to discourage new smokers from taking up the dirty habit and encourage existing smokers to quit, while funding the Rudd government's new federal hospital plan.

But collecting an additional $5bn in tobacco taxes is inconsistent with the objective of trying to get smokers to stop paying those taxes.

The Rudd government's tobacco tax increases appear to be a repeat of its failed alcopops tax.  When it introduced the alcopops tax last year, it claimed it was designed to discourage consumption of the beverages, but the government's additional tax calculations were based on consumption continuing unchanged.

Considering the facts, it's hardly surprising that many Australians are looking at the government's plain packaging plan and tobacco tax grab as a distraction that is quickly going up in smoke.

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A PM without a platform

Not everything John Maynard Keynes said was wrong.  Admittedly his General Theory of Employment, Interest and Money became the guidebook for 40 years of big government after it was published in 1936.  But Keynes did know something about financial markets (it wasn't by accident he made a fortune on the stockmarket) and he did know something about people and about politicians.  For example, what he said in the General Theory about the stockmarket in the 1930s could easily apply to Lehman Brothers in 2008 and their collateralised debt obligations.  According to Keynes, for the likes of Lehman Brothers there's only one objective -- to "beat the gun and outwit the crowd".

Keynes had a way with words (which goes a long way towards explaining his massive influence).  He described financial speculation as similar to a game of Snap, Old Maid, or Musical Chairs:  "A pastime in which he is victor who says Snap neither too soon nor too late, who passes the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops.  These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated."

History doesn't record whether Prime Minister Kevin Rudd has read the General Theory, although in his now famous essay on the death of neoliberalism from last year he did mention Keynes several times.  Even if the PM hasn't read all 384 pages of one of the most important books of the 20th century, it can safely be assumed that the senior officers of the Treasury Department have.  Their solution to the global financial crisis was pure Keynesianism, that is, borrow lots of money and spend it, which is exactly what happened.

The government's desire to borrow and spend was as much justified by politics as it was by Keynes' economic theories.  The politics of it was simple.  What Keynes said about a desire for quick investment returns also applies to politics -- "human nature desires quick results".

The Rudd government needed to be seen to be doing something, and doing it in a hurry.  Keynes is well known for his acknowledgement of the role of "animal spirits" in markets, and there's one specific tendency of "animal spirits" upon which he placed great emphasis.  That's the inclination to a "spontaneous urge to action rather than inaction".  Much of the debate about health reform is about which side of politics wants to make the biggest change to the system.

The size of action is the measure of political success, not the quality of the reform.  Rarely do we weigh the benefits of inaction against the costs of action.  Which explains things such as the government's home insulation program and its Building the Education Revolution.  Politicians and bureaucrats felt themselves urged to action and they betrayed their willingness to hope for the best rather than plan for the worst.  Again, as Keynes commented, it is a "characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic".

The campaign Rudd will run to be re-elected later this year contains a paradox, and it is a paradox Keynes would have appreciated.  On the one hand Kevin Rudd will claim it was his "urge to action" that created the stimulus package that "saved" Australia from the global financial crisis.  But at the same time he'd like the public to forget about how, before he became Prime Minister, he urged action to do a whole host of things, many of which will now not be done.  His promise to introduce an emissions trading scheme is the most obvious example.

Everything and anything that gets in the way of an election message based on his response to the economic crisis has been either abandoned, delayed, or neutralised.  For example, the bill of rights has been abandoned, action on climate change has been delayed, and the controversy over population growth has been neutralised with the appointment of a special minister to consider the issue.

It's been said Kevin Rudd is "clearing the decks" for an election, which is true.  His problem is that he risks clearing the decks of so many things eventually there'll be nothing left.  That is precisely the criticism the coalition, and some of his colleagues, are starting to make.

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Rudd's other great big new tax

Economic rent has its origin in the labour theory of value.  Classical economists couldn't understand why natural resources had value when human labour hadn't yet added value.

So the concept of economic rent was invented to fill the gap.  For that purpose it worked well -- but economists now understand that costs do not determine prices;  rather prices determine costs.

The taxation of economic rent should be seen in this light.  The idea that economic value exists independent of markets, human ingenuity and entrepreneurship is simply wrong.  Economic rent is a construct of a failed economic theory.  Taxing rent is equally a bad idea.  Of course, few see it that way.  Most people are taken in by the idea that taxing economic rent is an efficient tax.

We're told in textbooks that these sorts of taxes have no deadweight losses.  Yet, we know there are no free-lunches in any other area of the economy, so should there be one in public finance?  The short answer is that there is no free tax.  Textbooks are about pedagogy;  not real life.

In modern terms people talk about economic rent as being a supernormal profit.  That is the profit earned over and above the cost of capital.  In principle, taxing this profit should have no economic consequences.  But this requires tax officials to be able to estimate the cost of capital that organisations face when making investment decisions.  It also assumes that these types of profits persist in the long-run.  Standard economic theory, however, indicates that they don't persist.  Competition and freedom of entry and exit ensure that only normal profits are earned in the long run.

So the bottom line is that even if these supernormal profits ever existed, they would be temporary.  More likely they are the result of mismeasurement or government fiat.  Resource rents in Australia, for example, are defined as returns in excess of the long-term government bond rate plus five percentage points.  This measure is almost certainly too low.  The government has defined an arbitrary tax base and then taxes it.

The Henry Review is going to recommend a federal resource rent tax.  The arguments in favour of this proposal are already doing the rounds.  They are fallacious.  The idea that mining is extraordinarily profitable over-looks the characteristics of mining.  It is very risky.  Projects have long lead times and require high levels of on-going investment.  The salvage value of most mining operations is close to zero.  Mining companies sell their product into highly competitive global markets.

The resource rent tax was invented in the context of a developing economy that couldn't capture the benefits of mining operations.  That is hardly true in Australia.  Mines contribute to the economy through employment opportunities, local investment and knock on effects.  Not to mention corporate tax.  According to the latest ATO taxation statistics the mining industry paid 13.9 per cent of Australian corporate income tax with net tax to taxable income being 27.8 per cent in 2007-08.  The average rate for all Australian firms was 24.55 percent.  The Australian government does very well out of the mining industry.

There is an argument that a rent resource tax would constitute some sort of profit-share arrangement.  But the appropriate mechanism for profit sharing is the equity market.  Not only do miners already pay their fair share of the corporate income tax, but their profits are widely distributed through the community via equity ownership and compulsory superannuation.  The structure of the rent resource tax could reduce miners' capacity to pay franked dividends increasing the government's tax take at the expense of those shareholders with low marginal tax rates.

The worst argument doing the rounds is that it doesn't really matter if a rent resource tax adversely impacted the mining industry.  After all that industry is contributing to a "two-speed economy" and an over-valued currency.  Bringing mining back to the pack would make macroeconomic policy making a whole lot easier.  Not only is this argument economically defeatist;  it is obscene.  Taxing winners in order to provide essential government services is the very nature of modern taxation.  Taxing winners in order to inhibit comparative advantage and undermine the imperative for ongoing economic reform is irresponsible.

The implementation of a rent resource tax will be fraught.  To the extent that it only applies to new projects, we might not see any revenue gains for some time.  Applying the tax to existing projects constitutes a sovereign risk hazard.  Of course, it could substitute for existing royalty payments that miners already pay to State governments.  It is not clear why the States should transfer those property rights to the Commonwealth at a zero price.

When evaluating the rent resource tax proposal some tough questions need to be answered.  The Rudd government doesn't need new sources of income;  it needs to cut spending.  It can't really afford to place an additional cost on a highly productive sector of the economy without very careful analysis.  Simply conjuring up a free-lunch and then taxing it is hardly sufficient.

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Is there a plan B for the ETS?

F. Scott Fitzgerald once remarked:  "The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function."  By this criterion, Kevin Rudd is a highly intelligent politician.

At the weekend, the Prime Minister told the Sydney Morning Herald that he was still fully committed to an emissions trading scheme.  Climate change "remains a fundamental economic, environmental and moral challenge, he said.  "Whether it's newsworthy or not in a particular season is beside the point.  We haven't changed our view of this."

Today, without missing a beat, the same newspaper revealed the Prime Minister's decision to shelve the ETS for at least three years.  According to Lenore Taylor, Labor "has decided to put the scheme on ice to undercut the 'great new tax' scare campaign."

So, Kevin Rudd is either committed to an ETS or he is not.  He is either prepared to sell his case on the hustings;  or he is scare of a political fight.  He either truly believes climate change is a great moral challenge that justifies a new policy to reduce carbon emissions;  or he doesn't.  If it is the latter, he is an opportunist of such proportions that the only thing that exceeds his reach is his grasp.

He can't be both.  His back flip over the ETS may confirm Fitzgerald's tart remark, but it also represents two political truths.

The first is his decision to shelve the ETS represents a betrayal of the many thousands of Australians who voted for him at the last election in the hope that his government would take decisive action to reduce carbon emissions.  Many of his loyal high-profile supporters during the 2007 election -- think Robert Manne, Phillip Adams, Tim Flannery -- will surely now concede that the Prime Minister is not one of them, that there is always an air of detached calculation about his public performances, a sense that in different circumstances he will just as happily be arguing the opposing case.

Nor is his position on the ETS an isolated incident:  think of his oscillations over border protection, economic reform and population growth.

The second truth is that Rudd's back-flip represents a victory for Tony Abbott, Nick Minchin and other conservatives who have opposed what the Liberal leader calls a "great big tax" that could cause economic pain for no environmental gain.

Put simply, they did not follow the press gallery's script -- and they have subsequently been vindicated, both politically and intellectually.

Until Malcolm Turnbull's defeat in the Liberal party room last December, the conventional wisdom held that climate change would wedge the conservative parties.  If the Liberals opposed the ETS, the argument went, it would lead to a massive backlash at the ballot box.

But however much this argument had merit in 2007-09, it increasingly lacks validity in a post-Copenhagen world that does not conform to the expectations of Al Gore and Clive Hamilton.  Politics, after all, is never fixed;  it is always in a state of flux.  The only certainty is that the political climate always changes.  And the wind, far from blowing conservative parties off the electoral map, threatens to turn into a perfect storm for Kevin Rudd.

Which is why he has flip-flopped on the ETS so dramatically.  The power of his U-turns and reverse gear is up to the best international standards.

Meanwhile, climate change fatigue is setting in all over the globe.  The governments in Beijing and Delhi insist they won't join the West in what they see as an economic suicide pact.  In France, the Sarkozy government recently shelved plans to introduce a carbon tax.  In Germany, polls show only 42 per cent of Germans worry about global warming.  In the European Union, the ETS has been a victim of fraudulent traders and done little to curb emissions.  In Canada, climate law is stalled in legislative limbo.  Even New Zealanders now doubt the merits of a going-it-alone strategy!

Kevin Rudd still held out hope that the climate could change in his favour.  In Obama's America, which accounts for 20 per cent of all greenhouse gases, it was argued that somehow the Senate would pass a cap-and-trade (or emissions trading) bill that would reignite global talks for a new international agreement.  Indeed, just yesterday [Monday], three US senators were scheduled to introduce comprehensive climate and energy legislation to reduce carbon emissions.

But with the Senate's apparent decision at the weekend to shelve climate legislation and instead take up President Obama's call for urgent immigration reform, one key law-maker Lindsey Graham is likely to withdraw his support from the landmark bill.

The chances for any US climate and energy law in an election year were already small.  But Senator Graham's likely defection represents a death knell for the White House's campaign to deal with climate change.  That is not just because he is the only Republican senator to endorse a broad approach to tackling global warming.  It's because the climate, politically speaking, has also changed dramatically in the US since June when the House of Representatives narrowly passed a climate bill.

The recession, record snowstorms, massive Tea Party rallies, rising public scepticism of climate-change science, mounting industry opposition, climate-gate and glacier-gate scandals, other pressing policy priorities (financial reform, immigration, Afghanistan, tackling 9.7 per cent unemployment) -- these have all dampened the political climate for a cap-and-trade law.

As Interior secretary Ken Salazar recently acknowledged:  "I think the term 'cap and trade' is not in the lexicon anymore".

All of this has grave consequences for the next round of global climate talks in Mexico City where world leaders hope to map out a successor treaty to the Kyoto protocol which expires in 2012.  Judging by Kevin Rudd's and Barack Obama's rapidly changing priorities in recent days, hopes for any verifiable, enforceable and legally binding agreement to reduce greenhouse gases -- and to include developing nations such as China and India that are polluting their way to prosperity -- are a chimera.

Is there a Plan B?

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Green policies: too much of not enough

It can't be a coincidence:  the worst examples of bad policy making and implementation in the last few years have been green policies.

The Federal Government has spent the last few months trying to neutralise the fallout from the home insulation scheme.  And not totally successfully:  last night's Four Corners program uncovered even more prior warnings about the dangers of the Government's policy.  Kevin Rudd can't fire Peter Garrett twice.

But don't forget:  the Government has also been embarrassed by problems with its solar panel subsidies.  And its green loans scheme.  And its National Green Jobs Corps.

There's just something about the environment that leads politicians to abandon the basic principles of good policy making.

The Hawke Review of the Administration of the Home Insulation Program, released this month, found public policy essentials, like eligibility criteria, means testing and co-payments -- that is, getting homeowners to put a little skin in the game by contributing some of their money -- were conspicuously absent from the program.

Whether the program should have included co-payment was apparently raised in Cabinet.  It was rejected.

And the Hawke Review found that advice to homeowners that they get at least two quotes for installation was abandoned before the program was fully launched.  Recommending consumers follow basic market diligence was against the Government's interests.

The Government still claims we had an insulation subsidy-led economic recovery.  As Lindsay Tanner has argued:  "I don't think it's right to say we should have sat back ... dotting the i's and crossing the t's because we were in a crisis situation."

There must have been a few more i's left to dot.  The cost of cleaning up the insulation scheme (around $1 billion) is nearly as much as the cost of implementing it in the first place ($1.5 billion was spent before the scheme was pulled).

By any standard, that makes the home insulation program an absolute debacle.

But the insulation program was perhaps not as much a debacle as the less-publicised green loans program.  Under this program, homeowners could borrow up to $10,000 for four years to make sustainability improvements to their houses.  The Government helpfully paid the interest on the loan.

Unsurprisingly, such generosity led to widespread rorting.  The Government was forced to shut the whole thing down.  Penny Wong announced last week that taxpayers are going to cough up another $4 million to audit the green loans.

Another policy fiasco:  the solar panel subsidy scheme.  That also had to be shut down early.  It was supposed to cost $150 million.  The final price tag is around $1 billion.

Then there is the Government's National Green Jobs Corps.  Apparently, when it announced it mid-2009, the Government didn't actually mean to imply they would be green "jobs" -- they'd be work experience for people getting Centrelink benefits.

I guess you shouldn't judge a policy by its title.

Last year, Liberal MP Joanna Gash rightly described the green corps as "basically work for the dole with a green bent".

But then in January Tony Abbott announced his own low-carbon copy -- a 15,000-person green army.

Indeed, the Opposition's direct action climate policy is swollen full of clever little green schemes.  Twenty million trees will be planted.  Grants will be provided for towns to convert to geothermal, tidal, and solar power.  Rebates for home solar panels will be extended.

Abbott's environmental centrepiece is an annual $1.2 billion emissions reduction fund.  Companies which reduce their emissions below an individually determined baseline will be compensated.  Those which exceed their baseline will be penalised.

The most important thing for a company will be getting a favourable baseline.  Imagine how many opportunities there will be to game that system.

A report last week from the Commonwealth Auditor General found that state and federal governments are usually uninterested if their climate change policies are successful or not.  The public accountability of individual environmental policies "has generally been poor."

The Auditor General counted at least 550 separate climate change programs across the country, many of which were Howard government programs.  We don't really know which ones work.  And if the ad hoc way bureaucrats report the results of their environmental programs is any indication, governments don't seem to mind.

Obviously, it's about green quantity, not green quality.

Could we expect anything else of policies which have "save the planet" as their criteria for success?  Public debate about the environment is characterised by emotion and ideology.  Governments respond with the same.

The insulation program, the green corps, the solar panel subsidies, and the green loans program made stately headlines when they were first announced.

But the goodwill generated by those headlines doesn't last when time reveals how poorly thought out the green policies actually are.

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The murky business of sport

Lost in the endless vilification of Melbourne Storm is the notion of what salary capping means.  It is an agreement by a group of businesses to suppress the wages of their key employees.

Think of it like all the nation's banks forming a cartel and agreeing that they will limit the salaries of all their front line managers and analysts.  Such an agreement would boost the banks' profits or allow revenue to be diverted to beneficiaries other than the key players.

The consequences of such actions outside of the business of sport would be legion.

For a start, our fearless regulator, the Australian Competition and Consumer Commission (ACCC), would be hiring its favoured lawyers, courtesy of the taxpayer, to prosecute the agreement's perpetrators.  But even if it was minded to take such action on Rugby League salary caps, the ACCC is heavily conflicted since its chairman, Graeme Samuel, was a major mover in a similar trade-restricting cartel that operates with the AFL.

Similarly, our trade unions would be up in arms defending the high earnings, as they do with those in the mining industry, and point-blank refusing any suggestion of a cap on them.  But again the silence is deafening.

Many people think that young sportsmen are overpaid.  After all getting $500,000 a year for having a good time kicking a ball around looks like a bit of a whiz.  Many of this view would also condemn the high earnings of young pop stars, top car salesmen, and even successful software nerds.

But, as with other categories of workers, placing a cap on sportsmen's high earnings brings adverse repercussions.

It means some reduction in talented people choosing the profession.  Given the earnings that the most successful young sportsmen can command, even with a salary cap, this might sound unlikely.

However, only the real superstars obtain the million dollar payouts and no young man can predict that he will emerge in that bracket.  Moreover, life at the top is, at most, a five year window and there is a very high chance of injuries cutting that short, while reaching the required peak and holding oneself there is likely to bring longer term health issues.

Forcing down the front line employees' wages means money is diverted to other areas of spending.  It probably means more is spent on administration, travel, ground quality, promotion, training and so on.  While all of these areas of expenditure are worthwhile, they are likely to be less than optional.

A salary cap means a diversion from the spending that the fans really want -- which is on attracting and rewarding the players who will give them the excellent performances they pay to watch.

Genetics, family influences, and formal coaching all play a role in creating great players and in ensuring the game is at its peak in attracting people.  But the salary cap distorts the combination.  Its effects are reinforced by other distortions.

Players are not allowed to choose who they will initially play for and they require their club's permission to move elsewhere.  These restrictions would be illegal in any other activity.

Forty years ago English soccer had a salary cap, equivalent to about twice the average worker's earnings.  The English salary cap was only eliminated when the cartel of soccer clubs that imposed it was confronted by another cartel, professional footballers, who saw themselves as being swindled by it.

And this is at the heart of the issue.  A salary cap is a regulatory measure that a cartel imposes to reduce the earnings of the best and most valuable workers.  Those workers are, as a consequence, underpaid.  And, the fans also lose out as the ceiling on players' wages makes it difficult for a club to attract players from another to create combinations that will excite the fans.

The consequences of the English soccer salary cap were becoming apparent with the demise of the English game in international competition and some high profile departures of players to Continental Europe.  The upshot of overturning the regulation is that soccer players now earn colossal salaries and the game has improved to such a degree that, as evidenced by its followers, it is the world's most popular sporting code.

And this underlines a vulnerability that the Rugby League and AFL salary cap approaches can create.  The codes may become less attractive than alternative codes and see their sporting popularity decline.

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Our Great Books

In his review of 100 Great Books of Liberty, edited by John Roskam and Chris Berg, with Andrew Kemp, Merv Bendle argues our book "obscures the extent to which liberty had to won [sic] in spite of the immense power wielded over the millennia by Platonic and related metaphysical systems of thought."

In his review, Bendle reproduces part of the book's blurb and spends more than 2,000 words critiquing it.

Fortunately most, if not all, of his concerns about 100 Great Books of Liberty are dealt with in the introduction.

Bendle's review is less about the book we have produced, and more about what book he would have preferred we produce.

100 Great Books of Liberty is not a narrow compendium, seeking to measure the works of the past by the tight ideological standards of the present.  As the subtitle -- "The essential guide to the greatest idea of Western Civilisation" -- makes clear, our purpose is different.

We seek to demonstrate the supreme achievement of Western Civilisation is the idea of liberty -- the idea that individuals should be free to pursue their own goals, constrained only by the equally-applied rule of law.

While the desire for freedom from repression is a universal constant, found in every civilisation and in every historical period, only within the West has it developed into a systematic program.

Bendle characterises the modern coherence of this program as an illustration of the "fundamental unity of liberal thought" -- he argues our book fails to demonstrate this unity -- but to describe it as Bendle does is entirely ahistorical.

It is not possible to fully grasp liberty and liberalism without having some appreciation of how the debates over, say, the Glorious, or French, or American Revolutions, or over natural rights, or empiricism, or the Renaissance played out.  Liberty-seeking thinkers have fallen on both sides of each of those issues.  Their contributions should not be casually dismissed.

Take the French Revolution.  Bendle argues that the inclusion of both Edmund Burke's Reflections on the Revolution in France and Thomas Paine's Rights of Man undermines the project, "as if they were [both] champions of liberty."

But both illuminate the quest for, and ideals, of liberty in important ways -- conservative and revolutionary liberalism are two major strands of thought about the struggle for freedom.  A liberalism that cannot accommodate both is a weak liberalism.  Should change be radical or evolutionary?  The history of Western Civilisation is a chronicle of attempts to answer that question.

Modern liberals are the heirs of both Burke and Paine.

This is why we cast a wide net for one hundred books which illuminate the struggle for liberty.  We include the obvious -- Smith, Hume, Hayek, de Tocqueville, Friedman, Rothbard, and Mises.  We include works that focus on certain elements of liberalism -- Perez Zagorin's How the Idea of Religious Toleration Came to the West, Matt Ridley's The Origin of Virtue, and Tyler Cowen's In Praise of Commercial Culture.  We include character studies, such as Robert Caro's magnificent multi-volume study of Lyndon Baines Johnson.  No work better explores the drive for political power than Caro's as-yet-incomplete biography.

We include works which explore particular historical periods where liberty developed.  And unusually for a collection such as this, we look at the development of Australian liberalism.

We include the ultimate statement of totalitarianism, Plato's The Republic, and Karl Popper's devastating rebuttal.

That should be the first clue that we're not just trying to draw up an arid list of "approved" books.  We're trying to explore every facet of liberty and Western Civilisation in an accessible and engaging way.

So what about the book Bendle would have preferred?

He would like Hobbes' Leviathan to have been included -- which is fair enough -- but would prefer Burke's Reflections on the Revolution in France to be excluded for deviationism.

Burke opposed the French Revolution because he feared it would not further the cause of French liberty.  Hobbes defended a state with almost limitless power.  Yet it is Burke who Bendle would like to kick out of liberty's canon.

Likewise with Jacob Burckhardt, who, in his later years, expressed a distinctly nineteenth century conservative's pessimism about individualism, democracy, and technological progress.  But as Charles Richardson makes clear in his contribution, those views did not stop his Civilisation of the Renaissance in Italy from identifying the Renaissance as critical for the development of many of the liberal ideals he personally opposed.  If a student is to grasp the cultural origins of individualism, they're going to have to read Burckhardt, even if he was a bit of a pessimist.

Ayn Rand was crazy -- nobody is disputing that -- but her books remain one of the most powerful ways to get young people interested in individualism and liberty.

Following Bendle, we could easily pick faults in almost every book and author in the canon.

He rightly recommends John Locke's Second Treatise of Government, but Locke's labour theory of value is not totally sound.  No one would exclude Friedrich Hayek from the liberal canon, but that doesn't mean they have to accept the model constitution he proposes in Law, Legislation and Liberty.

Alexander Hamilton -- who Bendle praises -- was an advocate of "energetic" government.  Karl Popper wrote that "Marx was right in asserting that increasing misery tends to be the result of laissez-faire capitalism".  And John Stuart Mill supported industry protection.  Ludwig von Mises wrote some very un-Misean work while he was an Austrian bureaucrat.

Oh, and George Orwell was a proud socialist.

But that doesn't mean their books didn't make liberty the greatest idea of Western Civilisation.

Bendle may prefer five great books of liberty to our one hundred, but if we were to follow his advice, liberalism would be sterile and fragile.

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Governing in ignorance: Australian governments legislating, without understanding, intellectual property

ABBREVIATIONS

AUSFTA = Australia United States Free Trade Agreement
EU = European Union
FCTC = Framework Convention on Tobacco Control
FTA = Free Trade Agreement
IP = Intellectual Property
Paris Convention = Paris Convention for the Protection of Industrial Property
TBT = Technical Barriers to Trade
TRIPS = Agreement on Trade Related Aspects of Intellectual Property Rights
US = United States
WHO = World Health Organisation
WIPO = World Intellectual Property Organisation
WTO = World Trade Organisation

1.0 EXECUTIVE SUMMARY

Monday, 26th of April 2010 is World Intellectual Property Day.  Intellectual property is one of the most poorly understood areas of public policy, but also one of the most important to understand in a knowledge economy.  Yet legislators regularly advocate for, and sometimes actually amend IP legislation without understanding how the consequences to Australia's international IP obligations.  And there are two very real examples in the area of trademarks.

Recently the South Australian Parliament passed the Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009 which requires the plain packaging of R 18+ videos, essentially stripping them of their trademarks.

The Federal Parliament is currently considering the Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009 designed to strip tobacco products of any branding other than government health warnings about the health consequences of smoking and limited descriptions sufficient for suppliers, retailers and consumers to differentiate products.

By introducing plain packaging, the intellectual property of films and tobacco products -- their trademarks -- will be stripped from packaging.  The effect will be:

• As required under Section 51 (xxxi) of the Commonwealth Constitution, Australian taxpayers may be required to gift to film and tobacco companies billions of dollars to compensate for the loss of their trademarks.  In the case of films an indicative calculated range could be $119m to $357m per year, and in the case of tobacco products the gift from taxpayers to tobacco companies could range from $1,009m to $3,027m per year.
• Australia will breach its international obligations under the Paris Convention for the protection of intellectual property, the World Trade Organisation's Agreement on Trade Related Aspects of Intellectual Property Rights and its free trade agreement obligations to not discriminate against the registration and use of trademarks.  Doing so may allow for retaliatory measures to be taken against Australia's exports.
• Under Australia's free trade agreements, equivalent compensation may be required as under Section 51 (xxxi) of the Constitution for the expropriation of an investor's property.

Considering Australia's international standing in major multilateral fora like the World Trade Organisation an open flouting of our obligations is likely to seriously damage Australia's international reputation and credibility as an honest broker for free trade.

Countries that export products affected by these Bills may be entitled to enact retaliatory measures against Australia's exports equivalent to the value of lost income.

And Australia will also lose significant moral authority internationally in arguing against violations of the patents, trademarks and copyright in other markets owned by Australian innovators, companies and creative artists.

2.0 INTRODUCTION

Intellectual Property is one of the most poorly understood areas of public policy, especially by legislators.  Increasingly IP is in the spotlight because public policy issues are arising as a result of different perspectives and understandings of IP by consumers, owners and governments.

Internationally there are significant debates about the role of IP in promoting the development and access to medicines and climate change technologies as well as the role of copyright to promote the creation and access to artistic works.

But out of the three core forms of IP (patents, copyright and trademarks), trademarks are often ignored and fall prey to bad legislation.  And there are two significant recent examples.

First, the South Australian Parliament passed the Family First-proposed Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009.  The Act introduces the obligation for R 18+ classified films to be separated from non-R 18+ films.  And if the films were not separated from non-R 18+ films they must be displayed in plain packaging.  The only permissible branding on the film case is the "name of the film in letters of 10 millimetres or less in height" and necessary classification details.

Second, the Senate Community Affairs Committee is holding an Inquiry into the Family First-proposed Plain Tobacco Packaging (Removing branding from Cigarette Packs) Bill 2009.  The Bill requires the removal of all branding from cigarette packaging in favour of a single colour (Pantone 154) packaging that, excluding health warnings and minor descriptors, removes any branding or labelling.  The only permissible branding on the packet is standardised twelve point, black Helevetica font text on the front outlining the product's contents, as well as equivalent text relating to the manufacturer in eight point on the side of the packaging.

This research paper will assess the recent trend towards plain packaging of trademarked goods and explore the potential consequences for Australia should it head down this path.

3.0 THE TREND TOWARD STRIPPING TRADEMARKS

There is plenty of literature assessing the impact of branding and trademarks and how they can increase the attractiveness of a product to consumers.  But in the past few years there has been an emerging body of literature that seeks to assess the perceived negative or undesirable nature of branding and trademarks for certain products and the perceived benefits of removing it.

In the August 2007 a study was released assessing the impact of branding and its contribution to the attractiveness of certain food products to children.  The article published in the Archives of Paediatrics and Adolescent Medicine based on research from Stanford University's School of Medicine ⁽¹⁾ found that by adding McDonald's branding to certain food products increased their attractiveness to children.  The study also identified that by the age of 2 children were capable of understanding the value of brands.

The study involved a small group of children each tasting five pairs of different McDonald's foods with one in McDonald's packaging and one in plain packaging.  After being fed the different food pairs the study found that children overwhelming preferred foods packaged from McDonalds.  Table 1 outlines the preference rate for the foods in the study.

Table 1 | Preference for McDonald's food based on its packaging, per cent

McDonald's food	McDonald's packaged	Plain packaged
Hamburger	48.3	36.7
McNuggets	59	18
French fries	76.7	13.3
Carrots	54.1	23
Milk or apple juice	61.3	21

Source:  Robinson, T.N., Borzekowski, D.L.G., Matheson, D.M. & Kraemer, H.C., 2007,
"Effects of fast food branding on young children's taste preferences",
in Archive of Paediatric and Adolescent Medicine, v161, n8

While the study was small, the result is indicative of the power of branding and the contribution it has product sales.  In light of debates surrounding obesity rates in the developed world it is unsurprising that such studies that trademarks and branding should be considered in whether to make certain food products more, or less, attractive.

Advertising of branding appears regularly as a theme to be addressed in the National Preventative Health Taskforce's report either explicitly through recommendations to remove branding, or implicitly through the promotion of branding through advertising.

3.1 STRIPPING TRADEMARKS FROM FILMS

The South Australian Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009 appears to be without precedent.  In Australia and overseas it has always been accepted that X 18+, or equivalent rated films, must be displayed separately from content accessible my minors.

However the introduction of plain packaging of R 18+ films is a new development that extends the theme of limiting access of certain film products to minors, but with the punishment of removing branding and trademarks if retailers choose not to comply.

3.2 STRIPPING TRADEMARKS FROM TOBACCO PRODUCTS

Internationally there has been a longstanding push to regulate the international trade of tobacco products and equally to develop international standards to be adopted on a country-by-country basis to limit the availability and consumption of tobacco products.

The high watermark of the international campaign against tobacco products was in 2003 following the negotiation of the Framework Convention on Tobacco Control under the World Health Organisation.  The FCTC outlines a series of objectives that clearly seek to reduce the consumption of tobacco products and obligations for governments to develop laws and regulations to achieve this purpose within their sovereign territory, including on "packaging and labelling of tobacco products". ⁽²⁾

Article 11 of the FCTC includes the obligation to introduce measures such as health warnings on packets and to ensure that the packaging and labelling is not "false, misleading, deceptive or likely to create an erroneous impression about its characteristics". ⁽³⁾

Article 13 also includes regulations relating to advertising, promotion and sponsorship by the tobacco industry. ⁽⁴⁾

Following the conclusion of negotiations of the FCTC, the WHO Secretariat has developed guidelines for implementation of the provisions of the FCTC.  However the WHO has taken license and included under the implementation guidelines for Article 11 of the FCTC that

"parties should consider adopting measures to restrict or prohibit the use of logos, colours, brand images or promotional information on packaging other than brand names and product names displayed in a standard colour and font style (plain packaging)". ⁽⁵⁾

It is important to note that these guidelines were developed by WHO bureaucrats and do not hold the same legal status as the FCTC text.  Furthermore the original FCTC does not mention plain packaging.

In Australia the National Preventative Health Taskforce's report, Australia the healthiest country by 2020, released in June of 2009 included analysis and recommendations of potential regulations to limit the availability and consumption of tobacco products along the same lines as the provisions in the FCTC.

The Taskforce made reference to the idea of plain packaging in its second Technical Report that focused on tobacco and argued that

"consumer research indicates that decreasing the number of design elements on the packet reduces its appeal and perceptions about the likely enjoyment and desirability of smoking". ⁽⁶⁾

But what the Taskforce left out of its report is that the study cited relates to the evaluation of a training program for people with mental illnesses.  The study used a basket of measures to discourage the consumption of tobacco products with no sufficient assessment of plain packaging in isolation to warrant such a claim. ⁽⁷⁾

The reality is that there is no evidence that plain packaging works.  In February 2009 in response to the submission of an e-petition calling for the introduction of tobacco product sales restrictions and plain packaging, the British Government highlighted that

"no studies have shown that introducing plain packaging of tobacco would cut the number of young people smoking or enable people who want to quit, to do so". ⁽⁸⁾

In fact the British government argued that

"Given the impact that plain packaging would have on intellectual property rights, the Government would need strong and convincing evidence showing the health benefits of this policy before it would be acceptable at an international level". ⁽⁹⁾

Britain is not the only country that has considered plain packaging, the proposal has also been debated in Canada and New Zealand and has been rejected in both countries.

The Taskforce's recommendations for the first phase (2010 -- 2013) of its proposed plan is the elimination of

"the promotion of tobacco products through design of packaging ... (including) amend(ing the) Tobacco Advertising Prohibition Act 1992 to require that no tobacco product may be sold except in packaging of a shape, size, material and colour prescribed by government(, and) amend Trade Practice CPIS (Tobacco) Regulations 2004 to specify exact requirements for plain packaging". ⁽¹⁰⁾

The Federal government is now in receipt of the Taskforce's report and is considering its response.  Concurrently it now has to consider the merit of a Bill that seeks to turn the principles of plain packaging into a reality.

While the idea of plain packaging is not new, because Australia is the first country in the world to seriously consider legislation the Parliament is entering uncharted legal waters and the unintended consequences of passing this Bill need to be appropriately scrutinised.

4.0 THE PLAIN PACKAGING BILLS

On the 29th of April 2009 Leader of the Family First Party in the South Australian Parliament and Legislative Councillor, Dennis Hood, introduced the Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009.  The Bill sought to regulate the display of R 18+ films in South Australian retail outlets to make them inaccessible to children unless they appeared in plain packaging.  Should a film be plain packaged it must specifically:

• bear "no images or markings"
• only have "the name of the film in letters of 10 millimetres or less in height"
• and "markings relevant to its classification". ⁽¹¹⁾

The Bill also includes penalties for retailers who do not comply and equivalent regulations and penalties related to the promotion of films.

With low public awareness of the Bill or its impact, the Bill passed the South Australian Parliament at the end of 2009 and came into force in January 2010.

On the 20th of August 2009 Leader of the Family First Party and Victorian Senator, Steve Fielding, introduced the Plain Tobacco Packaging (Removing branding from cigarette packs) Bill 2009.  The Bill primarily seeks to regulate the outward display of cigarette packs by removing the capacity for a product to include any branding or the presentation of a trademark.  The specific requirements are that cigarette packets must be:

• the "colour identified as PMS 154 on the Pantone Matching System, reproduced with a non-gloss finish"
• be "without illustration or decoration" including "decorative ridges, embossing, bulges or other irregularities"
• may only include the "brand name of the product" in black, non-bolded, Helvetica size 12 text on the bottom of the front side of the packet and the number of cigarettes in the packet and/or the weight of tobacco only
• may only include size 8 text naming the "manufacturer or importer of the package" with their contact details. ⁽¹²⁾

The Bill also stipulates the size of the packet, that no packaging (for example transparent plastic) around the main packet can have additional information, branding or bear trademarks, and that the maximum number of cigarettes in each pack is limited to twenty-five. ⁽¹³⁾

In his second reading speech to Parliament Senator Fielding argued that "responsible legislators ... need to do our very best to put in place measures that will discourage as many people from smoking as possible".  And that the legislation will "take the polish and attractiveness off cigarette branding and positive images that tobacco giants try to associate with their products". ⁽¹⁴⁾

5.0 UNINTENDED CONSTITUTIONAL CONSEQUENCES

These Bills have significant problems.  Under Section (xviii) of the Commonwealth Constitution the Commonwealth Parliament has legislative power over "copyrights, patents of inventions and designs, and trade marks".

The spirit of the Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009 is clearly to encourage the placement of R 18+ films in a separate location from films with a lower classification such as MA 15+, M 15+, PG or G.  However, the effect of the legislation, should retailers decide not to separate R 18+ films, is to strip them of their branding and trademarks for display.

Considering the conflict between the powers of the Commonwealth over IP law and the South Australian Parliament's legislation stripping legal products of their trademarks, the South Australia's legislation may conflict with Federal powers.

The Commonwealth Plain Tobacco Packaging (Removing branding from cigarette packs) Bill 2009 is explicitly designed to introduce plain packaging for all tobacco products and deliberately remove branding and trademarks.

Under Section 51 (xxxi) of the Commonwealth Constitution the Parliament has legislative power over "the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws".  As a consequence the Commonwealth is legally entitled under Australian law to legislate plain packaging and the devaluing of trademarks.

But acquiring the trademarks of companies on "just terms" would require the Commonwealth to compensate film and tobacco companies for the acquisition.

With annual retail sales for films at $1 billion per annum and tobacco products at $10 billion per annum ⁽¹⁵⁾ it is likely that the removal of trademarks would result in taxpayers being required to contribute hundreds of millions of dollars, and potentially billions.

Table 2 | Indicative compensation range for trade mark loss by product per year, AUD$m

Products	Expenditure	10%	30%
Films	$1,193	$119	$357
Tobacco	$10,091	$1,009	$3,027

Source:  Author's calculations, based on 2006 data from Scollo, M.M. & Winstanley, M.H. (Eds), 2008, "Tobacco in Australia:  Facts and Issues", Chapter 2, Third Edition, Cancer Council Victoria, Melbourne, Australia, and Australia Visual Software Distributors Association, 2008, "Statistics"

Research has been completed identifying the overall contribution trademarks make to the productivity of companies ranging from ten to thirty per cent. ⁽¹⁶⁾  Table 2 outlines the potential cost that may need to be compensated by taxpayers to the affected industries from stripping trademarks from films and tobacco products per year.

It is substantially less likely that film companies could seek compensation for the loss of their trademarks since they have an alternative to their loss.  But the same does not apply to tobacco products.  Additionally, the loss would need to be made by the South Australian government.  However, compensation for the expropriation of intellectual property may be securable through Australia's international free trade agreement obligations as outlined in Section 6.2.2.

6.0 UNINTENDED INTERNATIONAL LEGAL
AND REPUTATIONAL CONSEQUENCES

The introduction of plain packaging also poses serious risks that Australia will breach a number of its international obligations under relevant trade and intellectual property treaties.

6.1 THE PARIS CONVENTION

Australia has been a ratifying Party of the Paris Convention for the protection of Industrial property since October 1925 and its provisions have informed the development of Australia's patent and trademark regime.

6.1.1 Relevant Articles

Article 6_quinquies(A)(1) of the Paris Convention makes it clear that Australia has an obligation to recognise trademarks, stating:

"Every trademark duly registered in the country of origin shall be accepted for filing and protected as is in the other countries of the Union, subject to the reservations indicated in this Article". ⁽¹⁷⁾

Article 6_quinquies(B) includes the "reservations" for either denying the registration or invalidating a trademark:

1. "when they are of such a nature as to infringe rights acquired by third parties in the country here protection is claimed.
2. when they are devoid of any distinctive character, or consist exclusively of signs or indications which may serve, in trade, to designate the kind, quality, quantity, intended purpose, value, place of origin, of the goods, or the time of production, or have become customary in the current language or in the bona fide and established practices of the trade of the country where protection is claimed.
3. when they are contrary to morality or public order and, in particular, of such a nature as to deceive the public.  It is understood that a mark may not be considered contrary to public order for the sole reason that it does not conform to a provision of the legislation on marks, except if such provision itself relates to public order". ⁽¹⁸⁾

Article 7 further clarifies that

"The nature of the goods to which a trademark is to be applied shall in no case form an obstacle to the registration of the mark". ⁽¹⁹⁾

6.1.2 Discussion

Article 6_quinquies(A)(1) of the Paris Convention clearly states the obligations of a country to register a trademark and respecting foreign trademarks, except in the situation of the "reservations".

Of the "reservations" included under Article 6_quinquies(B) none provide a justification to limit the registration of a trademark.  Article 6_quinquies(B)(3) could be misinterpreted as giving some justification because R 18+ films and tobacco products may be "contrary to morality or public order", but this section explicitly states that it is relevant to the trademark, and not the product.

Article 7 reinforces this point making it clear that the nature of R 18+ films and tobacco products "shall in no case form an obstacle to the registration of the (trade)mark".

It highly likely from the relevant provisions that the introduction of plain packaging for R 18+ films and tobacco products would be in direct violation of Australia's obligations under the Paris Convention.

6.2 THE WORLD TRADE ORGANISATION

To become a member of the WTO requires countries to accept the full obligations of the numerous WTO Agreements such as the General Agreement on Tariffs and Trade, the General Agreement on Trade in Services and numerous other agreements, including, relevantly, the Agreement on Trade Related Aspects of Intellectual Property Rights.

TRIPS has always been an extremely controversial agreement because of the binding obligations it places on WTO members to administer and enforce an IP regime.  However, for a country like Australia the passage of TRIPS was relatively uncontroversial because we already had an operating and affective IP regime.  TRIPS merely reiterated our obligations with nominal changes to domestic legislation.

A relatively short Agreement, TRIPS builds on the principles of the WIPO Administered treaties including the Paris Convention and binds WTO members that were not already parties to these treaties or enforcing them.

6.2.1 Relevant Articles

As an agreement, TRIPS is primarily focused on requiring individual countries to have an IP regime and gives broad obligations that give countries license to adapt the principles of the Agreement into domestic legislation based on their unique legal system and governance systems.

However, there are some specific requirements in TRIPS such as the minimum twenty year patent life requirement from the filing date under Article 33.

And another specific section of the Agreement is Section 2, Article 20 that stipulates:

"The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings". ⁽²⁰⁾

Further, under Section 2, Article 15(4) it states:

"The nature of the goods or services to which a trademark is to be applied shall in no case form an obstacle to registration of the trademark". ⁽²¹⁾

Section 2, Article 17 of TRIPS states there are exceptions provided for governments to the overall obligations described, however the agreement only allows for

"limited exceptions ... such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties". ⁽²²⁾

The wording of this Article strongly suggests that exceptions should be limited and interpreted narrowly.

6.2.2 Discussion

TRIPS was one of the most heavily negotiated and contentious international agreements that exists because of its binding obligations on WTO members irrespective of their earlier participation in IP treaties administered by WIPO.

As a consequence, many TRIPS provisions provide significant flexibility for individual countries to take the principles of IP and then to legislate them based on their own national circumstances and values.  As a result there are few specific provisions in the Agreement.

But the relevant passages relating to the recognition and restrictions on trademarks are descriptive and explicit.

Section 2, Article 20 is such a provision that makes clear that a trademark cannot be

"unjustifiably encumbered by special requirements ... in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings". ⁽²³⁾

But that is precisely what plain packaging for R 18 + films and tobacco products would achieve by removing trademarks that would enable consumers to distinguish between products and brands.

Similarly Section 2, Article (15)(4) is also a clear provision stating that the nature of goods and services cannot be an "obstacle to registration of the trademark".  While the provisions of the Bill do not seek to limit the registration of a trademark, it would seek to limit the intended value of such a mark, including the exclusive eight to exploit its recognition.

It's also important to note that Australia's bilateral free trade agreements require the continued observance of TRIPS in their intellectual property chapters.

By adopting plain packaging Australia would not just be violating its obligations under the WTO, but also its obligations under free trade agreements with ASEAN countries, ⁽²⁴⁾ Chile, ⁽²⁵⁾ New Zealand, ⁽²⁶⁾ Singapore, ⁽²⁷⁾ Thailand ⁽²⁸⁾ and the United States. ⁽²⁹⁾

For example, the Chapter 17 of the AUSFTA covers intellectual property rights and obliges members to reaffirm their obligations under the Paris Convention under Article 1(2) and to the TRIPS Agreement under Article 1(3).

Furthermore, the government should also be concerned with investment chapters in free trade agreements that could invoke the same principles as Section 51 (xxxi) of the Constitution that oblige compensation for directly or indirectly expropriated or nationalised investment.

For example, Chapter 11 of the AUSFTA includes provisions related to direct or indirect "measures equivalent to expropriation or nationalisation" ⁽³⁰⁾ of investment that may require the Commonwealth to compensate film and tobacco companies for the deliberate expropriation of the value of their trademark.

The validity of the potential for the expropriation of a trademark is further highlighted in Article 17(5) of Chapter 11 which recognises the potential expropriation of IP so long as the "limitation, or creation" of the trademark "is consistent with Chapter Seventeen" of the AUSFTA.

6.3 BROADER IMPLICATIONS

The strength of Australia's position in multilateral trade fora, and in particular the WTO, is based on an international recognition of Australia's capacity to act as an 'honest broker'.

The foundations of that position are built on our traditionally strong commitment to multilateralism, our recent history of unilateral liberalisation and commitment to trade liberalisation which aligns Australia closely to the objectives of the WTO.  And also because of the general international recognition that we uphold our obligations under the WTO including acting as a market economy built on respect for property rights.

The benefits of a strong standing enables Australia to shape the agenda in the WTO and ensure that both liberalisation and our national interest are advanced.

But the passage of plain packaging legislation puts that standing at risk.  Knowingly and flagrantly breaching our international obligations is likely to harm Australia's profile as an honest broker in these fora.  Australia would be openly flouting its WTO and WIPO Treaty obligations that would become a basis for other countries to ignore their equivalent obligations.

Internationally IP rights are controversial.  Australia is one of the few countries that has a long standing, credible and respected IP regime and we rightly seek to educate the world in establishing, operating and enforcing their IP regimes to promote their and our mutual national interest.

By introducing plain packaging Australia will also lose significant moral authority internationally in arguing against violations of the patents, trademarks and copyright in other markets to the detriment of Australian innovators, companies and creative artists.

In the past Australia has instigated dispute settlements through the WTO and has acted as a third party in IP specific WTO disputes. ⁽³¹⁾  But passing plain packaging would also harm Australia's credibility in the WTO's dispute settlement process because we would be knowingly ignoring our obligations.

The passage of plain packaging will also open an opportunity for countries that export products stripped of their trademarks to Australia to enact retaliatory measures under the WTO against Australian exports equivalent to the harm incurred on their exports.  As a consequence many industries may face new trade barriers in established or emerging markets.

And it is highly likely that the world's largest exporter of IP, the United States, will complain about the South Australian Parliament's legislation stripping film products of their trademarks through the WTO.

The same is likely to apply to tobacco products.  Arguing that the public health risks associated with tobacco consumption will decrease opposition from countries through the WTO does not stand scrutiny.

Countries are willing to raise breaches on tobacco products in WTO fora.  In November 2009 a number of countries raised concerns about trade restrictions perceived to be trade barriers at the Technical Barriers to Trade Committee meeting. ⁽³²⁾

7.0 CONCLUSIONS

Irrespective of the good intentions of plain packaging legislation, they both have serious, unintended consequences.

Removing trademarks from R 18+ films and tobacco products will significantly devalue the intellectual property rights giving them the opportunity to demand compensation on "just terms".  Similar compensation may also be required under investment provisions in free trade agreements like the USFTA.  And with compensation calculated to range from $119 million to $3.4 billion per year the price tag is not cheap.

On a moral ground most Australians would be offended that up to $3 billion of their tax dollars could be handed to the profits of tobacco companies because the Parliament decided to pass ill-considered legislation.

The removal of trademarks would also breach Australia's intellectual property obligations under the Paris Convention for the protection of industrial property, the World Trade Organisation's Agreement on Trade Related Aspects of Intellectual Property Rights as well as free trade agreements requiring that these agreements be respected.

The consequences of Australia's international standing and credibility in multilateral fora will be diminished and our capacity to credibly criticise other countries who flaunt their international IP requirements will also be harmed.

Because of a potential WTO violation, the countries affected will also be entitled to impose retaliatory measures that will harm Australia's exports in key markets.

Should Australia continue down the plain packaging path we would be the first country to do so and would be heading into uncharted waters in violating Australia's international obligations.

Before passing this Bill the Parliament should give serious consideration to whether it is prepared to accept the financial and reputational consequences of its passage.

8.0 REFERENCE LIST

Australia Visual Software Distributors Association, 2008, "Statistics"

Department of Foreign Affairs and Trade, 2009, "ASEAN-Australia-New Zealand Free Trade Agreement", Chapter 13, Commonwealth of Australian, Canberra, Australia

Department of Foreign Affairs and Trade, 2008, "Australia-Chile Free Trade Agreement", Chapter 17, Commonwealth of Australia, Canberra, Australia

Department of Foreign Affairs and Trade, 2005, "Australia-United States Free Trade Agreement", Chapter 17, Commonwealth of Australia, Canberra, Australia

Department of Foreign Affairs and Trade, 2005, "Australia-United States Free Trade Agreement", Chapter 11, Commonwealth of Australia, Canberra, Australia

Department of Foreign Affairs and Trade, 2003, "Singapore-Australia Free Trade Agreement", Chapter 13, Commonwealth of Australia, Canberra, Australia

Department of Foreign Affairs and Trade, 2005, "Thailand-Australia Free Trade Agreement", Chapter 13, Commonwealth of Australia, Canberra, Australia

Fielding, S., 2009, "Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009", Senate, The Parliament of the Commonwealth of Australia, August 20

Fielding, S., 2009, "Second reading speech:  Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009", Senate, The Parliament of the Commonwealth of Australia

Greenhalgh, C. & Rogers, M., 2007, "Trade Marks and Performance in UK Firms:  Evidence of Schumpeterian Competition through innovation", Oxford Intellectual Property Research Centre, University of Oxford, Oxford, United Kingdom

Hood, D., 2009, "Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009", South Australian Parliament, April 29

National Preventative Health Taskforce, 2009, "Australia:  The healthiest country -- National Preventative Health Strategy -- Overview", National Preventative Health Secretariat, Canberra, Australia, p17

National Preventative Health Taskforce, 2009, "Tobacco Control in Australia:  Making smoking history", National Preventative Health Secretariat, Technical Paper 2, Canberra, Australia

Number10.gov.uk, 2009, "Tobaccoyouth -- epetition response", Government of Great Britain and Northern Ireland, September 25

Prochaska, J., Fromont, S., Leek, D., Suchanek Hudmon, K., Louie, A., Jacobs, M. & Hall, S., 2008, "Evaluation of an Evidence-Based Tobacco Treatment Curriculum for Psychiatry Residency Training Programs", Academic Psychiatry, v322, pp 484–492

Robinson, T.N., Borzekowski, D.L.G., Matheson, D.M. & Kraemer, H.C., 2007, "Effects of fast food branding on young children's taste preferences", in Archive of Paediatric and Adolescent Medicine, v161, n8

Scollo, M.M. & Winstanley, M.H. (Eds), 2008, "Tobacco in Australia:  Facts and Issues", Chapter 2, Third Edition, Cancer Council Victoria, Melbourne, Australia

World Health Organsation, 2003, "World Health Organisation Framework Convention on Tobacco Control", World Health Organisation, Geneva, Switzerland, pv

World Health Organisation, 2009, "WHO Framework Convention on Tobacco Control:  Guidelines for implementation Article 5.3;  Article 8;  Article 11;  Article 13", United Nations, Geneva, Switzerland, p41

World Intellectual Property Organisation, 1883, "Paris Convention for the protection of industrial property", Geneva, Switzerland

World Trade Organisation, 1994, "Agreement on the Trade Related Aspects of Intellectual Property Rights", Geneva, Switzerland

World Trade Organisation, 2009, "China — Measures Affecting the Protection and Enforcement of Intellectual Property Rights", World Trade Organisation, Geneva, Switzerland, DS362

World Trade Organisation, 2009, "Tobacco and poultry among members' trade concerns", World Trade Organisation, Geneva, Switzerland, 6 November

---

ENDNOTES

1.  Robinson, T.N., Borzekowski, D.L.G., Matheson, D.M. & Kraemer, H.C., 2007, "Effects of fast food branding on young children's taste preferences", in Archive of Paediatric and Adolescent Medicine, v161, n8

2.  World Health Organisation, 2003, "World Health Organisation Framework Convention on Tobacco Control", World Health Organisation, Geneva, Switzerland, pv

3.  World Health Organisation, 2003, "World Health Organisation Framework Convention on Tobacco Control", World Health Organisation, Geneva, Switzerland, p9

4.  World Health Organisation, 2003, "World Health Organisation Framework Convention on Tobacco Control", World Health Organisation, Geneva, Switzerland, p11

5.  World Health Organisation, 2009, "WHO Framework Convention on Tobacco Control:  Guidelines for implementation Article 5.3;  Article 8;  Article 11;  Article 13", United Nations, Geneva, Switzerland, p41

6.  National Preventative Health Taskforce, 2009, "Tobacco Control in Australia:  Making smoking history", National Preventative Health Secretariat, Technical Paper 2, Canberra, Australia

7.  Prochaska, J., Fromont, S., Leek, D., Suchanek Hudmon, K., Louie, A., Jacobs, M. & Hall, S., 2008, "Evaluation of an Evidence-Based Tobacco Treatment Curriculum for Psychiatry Residency Training Programs", Academic Psychiatry, v322, pp 484–492

8.  Number10.gov.uk, 2009, "Tobaccoyouth -- epetition response", Government of Great Britain and Northern Ireland, September 25

9.  Number10.gov.uk, 2009, "Tobaccoyouth -- epetition response", Government of Great Britain and Northern Ireland, September 25

10.  National Preventative Health Taskforce, 2009, "Australia:  The healthiest country -- National Preventative Health Strategy -- Overview", National Preventative Health Secretariat, Canberra, Australia, p17

11.  Hood, D., 2009, "Classification (Publications, Films and Computer Games) (R 18+ Films) Amendment Bill 2009", South Australian Parliament, April 29

12.  Fielding, S., 2009, "Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009", Senate, The Parliament of the Commonwealth of Australia, August 20

13.  Fielding, S., 2009, "Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009", Senate, The Parliament of the Commonwealth of Australia, August 20

14.  Fielding, S., 2009, "Second reading speech:  Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009", Senate, The Parliament of the Commonwealth of Australia

15.  Scollo, M.M. & Winstanley, M.H. (Eds), 2008, "Tobacco in Australia:  Facts and Issues", Chapter 2, Third Edition, Cancer Council Victoria, Melbourne, Australia

16.  Greenhalgh, C. & Rogers, M., 2007, "Trade Marks and Performance in UK Firms:  Evidence of Schumpeterian Competition through innovation", Oxford Intellectual Property Research Centre, University of Oxford, Oxford, United Kingdom

17.  World Intellectual Property Organisation, 1883, "Paris Convention for the protection of industrial property", Geneva, Switzerland

18.  World Intellectual Property Organisation, 1883, "Paris Convention for the protection of industrial property", Geneva, Switzerland

19.  World Intellectual Property Organisation, 1883, "Paris Convention for the protection of industrial property", Geneva, Switzerland

20.  World Trade Organisation, 1994, "Agreement on the Trade Related Aspects of Intellectual Property Rights", Geneva, Switzerland

21.  World Trade Organisation, 1994, "Agreement on the Trade Related Aspects of Intellectual Property Rights", Geneva, Switzerland

22.  World Trade Organisation, 1994, "Agreement on the Trade Related Aspects of Intellectual Property Rights", Geneva, Switzerland

23.  World Trade Organisation, 1994, "Agreement on the Trade Related Aspects of Intellectual Property Rights", Geneva, Switzerland

24.  Department of Foreign Affairs and Trade, 2009, "ASEAN-Australia-New Zealand Free Trade Agreement", Chapter 13, Commonwealth of Australian, Canberra, Australia

25.  Department of Foreign Affairs and Trade, 2008, "Australia-Chile Free Trade Agreement", Chapter 17, Commonwealth of Australia, Canberra, Australia

26.  Department of Foreign Affairs and Trade, 2009, "ASEAN-Australia-New Zealand Free Trade Agreement", Chapter 13, Commonwealth of Australian, Canberra, Australia

27.  Department of Foreign Affairs and Trade, 2003, "Singapore-Australia Free Trade Agreement", Chapter 13, Commonwealth of Australia, Canberra, Australia

28.  Department of Foreign Affairs and Trade, 2005, "Thailand-Australia Free Trade Agreement", Chapter 13, Commonwealth of Australia, Canberra, Australia

29.  Department of Foreign Affairs and Trade, 2005, "Australia-United States Free Trade Agreement", Chapter 17, Commonwealth of Australia, Canberra, Australia

30.  Department of Foreign Affairs and Trade, 2005, "Australia-United States Free Trade Agreement", Chapter 11, Commonwealth of Australia, Canberra, Australia

31.  World Trade Organisation, 2009, "China — Measures Affecting the Protection and Enforcement of Intellectual Property Rights", World Trade Organisation, Geneva, Switzerland, DS362

32.  World Trade Organisation, 2009, "Tobacco and poultry among members' trade concerns", World Trade Organisation, Geneva, Switzerland, 6 November

Chance to combat climate change through policy has come and gone

On the ABC1's 7.30 Report last week, Barack Obama reiterated his belief that putting a price on carbon was the best way to reduce greenhouse gas emissions.  However sweet the rhetoric about combating global warming, the cold reality is this:  comprehensive climate legislation, which US senators will unveil next week, is unlikely to pass into law this year.  Here are five reasons why.

PUBLIC OPINION:  In the wake of climate-gate, glacier-gate and the recent record-breaking snow storms, polls show rising scepticism of the science of man-made global warming.  A Harris poll last year found that only 51 per cent of Americans believe the Earth is getting warmer -- down from 71 per cent two years ago.  And according to a January Pew Survey, climate change is ranked dead last in a list of policy priorities;  only 28 per cent think reducing carbon emissions is a top priority.

THE ECONOMY:  The American people, not to mention nervous politicians up for re-election, are always wary of new taxes, especially when unemployment remains at 9.7 per cent.  Outgoing Democrat Senator Evan Bayh spoke for many colleagues when he recently said:  "We need to deal with the phenomena of global warming, but I think it is very difficult in the economic circumstances we have right now."  In this environment, it is politically dangerous for, say, a Democrat politician facing re-election in a Rust Belt state to tell constituents they should pay higher taxes to help China become more energy efficient and more economically competitive.

GEOGRAPHY:  In Washington, climate politics is just as much about geography as partisanship:  where a majority of voters in the Pacific coast and the Northeast are green, people in other regions are brown.  To secure passage of climate legislation, Obama has to win over not only a few Republican but also several "blue dog" Democrat senators from the South as well as "brown dog" Democrats from the Midwest and Great Plains, whose states are heavily dependent on oil, coal and manufacturing.  And that is before the substantially amended legislation requires a stamp of approval from the House of Representatives which only narrowly passed an even less pork-ridden Bill last June.

OFF-SHORE DRILLING:  To appeal to sceptics on the Right, Obama supports plans to expand nuclear power generation and off-shore drilling.  Although conservatives are largely in favour of ending the drilling ban, many Republicans warn that the President's proposal is too modest.  Besides, environmental groups and liberal Democrats, especially from oceanside states, are strongly opposed to off-shore drilling.  So Obama's overture could very well be counterproductive:  he could fail to win over unconverted Republicans even as he drives away erstwhile supporters.

INTERNATIONAL CLIMATE:  It is difficult for US politicians to sell the imperative of pricing carbon at home when the rest of the world is suffering global-warming fatigue.  Copenhagen failed to secure any kind of legally binding, verifiable and enforceable global climate deal.  And with China and India chugging along the smoky path to prosperity, the chances of a post-Kyoto agreement at Mexico City are small.

Beijing and Delhi insist they will not join the West in what they see as an economic suicide pact.  In France, the Sarkozy government recently jettisoned the idea of a carbon tax.  In Canada, the emissions trading scheme is stalled in legislative limbo.  And in Australia, public confidence in what Tony Abbott calls Labor's "big new tax" has collapsed.

These factors explain why comprehensive US climate legislation is unlikely to pass this year.  And with Republicans set to gain seats in both the House and Senate in November's mid-term elections, any serious climate and energy Bill is even less likely to become US law in the next few years.

The political climate is changing so dramatically that even Obama's Interior Secretary Ken Salazar recently said:  "I think the term 'cap and trade' (or emissions trading) is not in the lexicon any more."  Al Gore's moment has come and gone.

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