Tobacco giant Philip Morris is threatening to sue the Australian government for possibly billions of dollars over its plan to be the first country to introduce plain, brand-less packaging for cigarettes.

The tobacco firm is fearful that plain packaging will damage its cigarette brands like Marlboro and Alpine and reduce their ability to compete against other brands.

The Australian government argues that reducing brand identification will make smoking less attractive and in turn reduce smoking rates and the health costs associated with smoking, which is said by the country’s health authorities to kill 15 000 people a year in Australia.

The fight over cigarette packaging is being watched by other tobacco firms and governments, with New Zealand, Canada and Britain among countries considering similar laws.

Analysts said plain packaging would hit tobacco firms in emerging markets, where they were seeking to lure smokers away from cheap brands to more expensive ones and, if widespread, could lead to takeovers in the industry to cut costs.

Philip Morris Asia said yesterday it had served a notice of legal claim on the government under Australia’s bilateral investment treaty with Hong Kong, which requires the government to protect Hong Kong investments in Australia.

The notice sets a mandatory three-month period for the two sides to negotiate an outcome. If there was no agreement, Philip Morris Asia said it would seek compensation.

“Failing that, we aim to go ahead with a compensation claim for the loss to our business in Australia that would result from plain packaging,” said Philip Morris Asia spokeswoman Anne Edwards.

Compensation would be decided under UN trade rules.

“It will be up to the panel that will operate under the UN international trade rules to look at what evaluation method it would use to determine the loss to our business. We estimate it may be in the billions (of dollars), but ultimately it will be up to this panel to decide.”

Edwards said Philip Morris was still calculating the value of its brands in Australia.

Prime Minister Julia Gillard said yesterday she would go ahead with the new packaging laws, which are expected by January 2012.

“We’re not going to be intimidated by Big Tobacco’s tactics, whether they’re political tactics… public affairs kind of tactics out in the community or… legal tactics,” she said. “We’ve made the right decision and we’ll see it through.”

The legal action is not expected to delay the new laws.

The tobacco industry is running television adverts against the packaging law, asking Australians if they want to live in a “nanny state”.– Reuters