Legal Aspects of International Business and Enterprise: Philip Morris International

This article discusses the legislative regulatory framework, treaties, conventions, and agreements surrounding Philip Morris International, a leading tobacco manufacturing organisation from the United States. It explores the controversies surrounding the tobacco industry and the strict legal regulations imposed by governments to ensure customer safety. The article also covers the industry of the company, the number of staff in Australia and globally, the location of the global headquarters, and the taxation regulations that apply to the operations of Philip Morris International.

0
Legal Aspects of International Business and Enterprise
Philip Morris International

1
Question 1
Company Information
Philip Morris International is a leading tobacco manufacturing organisation from the United
States which started its operations in 1847, and since then the enterprise has expanded its
operations across the globe (PMI, 2018). Since the products of the company are harmful to
be consumed by the customers, the corporation has always involved in controversies. While
offering its products in overseas nations, the company has to face strict legal regulations
which are imposed by the governments to ensure that safety of customers.
Industry of the company
The company operates in the tobacco industry, and it offers cigarette and other tobacco-
related products to its customers.
Number of staff in Australia
The company has hired 554 employees in Australia to manage its operations (IBIS World,
2017).
Number of staff globally
More than 82,000 employees are working for Philip Morris International globally (Top
Employer, 2018).
Location of global headquarters
The headquarters is situated in New York City, United States (PMI, 2018).

2
Question 2
Legislative Regulatory Framework
There are a lot of controversies surrounding the tobacco industry as the international
pressure increases regarding a ban on tobacco products. The health risks associated with
tobacco products is substantially high, and in order to mitigate such risks, the governments
are focusing on implementing regulations on banning and controlling the supplies of
tobacco in the country. In the case of Australia, the government focuses on implementing a
regulatory framework in which corporations have to follow while they establish and manage
their operations in Australia. The purpose of the regulations which imposed by the
government on these organisations is to ensure that they ethically operate their business
while complying with competition and consumer safety compliances (Kumar et al., 2013).
The competition between enterprises is crucial for the growth of a nation since it enforces
organisations to offer better products and services to customers while maintaining a
competitive pricing strategy. In the case of Australia, the Competition, and Consumer Act
2010 is the key legislation which provides guidelines that multinational organisations and
small Australia based companies have to follow while offering their products and services in
the nation. The act ensures that corporations are complying with the competition related
policies while maintaining their business in Australia (Richards et al., 2012). Similarly, the
Australian Consumer Law also ensures that corporations did not mislead customers by
making false claims regarding their products in order to conduct fraud.
For example, section 18 of the act prohibits enterprises from making any claims regarding
their products or services which are false and likely to mislead or deceive the customers.
Similarly, the Fair Trading Act 1992 provides a range of compliances for multinational
organisations which they have to comply with while operating in Australia. The act ensures
that the multinational organisations are not trading unfairly in the country and they ensure
that the small corporations are receiving enough opportunities to operate in the market as
well (Austlii, 2018). A health competition resulted in increasing the overall economic growth
of a country. In the case of Philip Morris International, the company complies with these
two policies to ensure that it did not breach any laws while operating its business in
Australia. Philip Morris International has to comply with taxation regulations in Australia as

3
well which provides provisions regarding payment of tax on the incomes generated by
multinational enterprise from their operations situated in Australia. The Australia Tax Law
2016 provides the tax regulations which apply to the operations of Philip Morris
International. Currently, the government imposes a tax on the income of companies at the
rate of 30 percent (ATO, 2018). This tax is paid by them on the income which they generate
from their operations situated in Australia.
Similarly, the enterprise has to pay a tax on the products it offered to its customers. The
Goods and Services Tax is another key taxation regulation which imposed tax on the
products and services offered by the enterprises in Australia. The current GST tax rate in
Australia is 10 percent based on which Philip Morris International have to pay tax on the
income which is generated in the company. Since the enterprise offers tobacco related
products to customers, the regulations are stricter for the company as compared to other
enterprises (Jarman, 2013). Moreover, the enterprise has to ensure that it maintains a
standard while offering its products to customers. The international pressure on tobacco
ban is growing continuously as more and more countries join in international initiatives to
ban tobacco in their respective countries. The purpose of these bans is to promote the
safety of customers and establish a pollution free environment. The Australian government
is a key player in these initiatives, and the enterprise has joined hands with the World
Health Organisation (WHO) to increase awareness between people regarding the negative
health consequences of tobacco products (Wilson et al., 2012). The government has been
enacting laws relating to ban on tobacco and related products for several decades. For
example, Philip Morris International has to put graphic images on its cigarette packs which
showcase the risks associated with smoking.
The purpose of these graphic images is to reduce the number of people who smoke by
highlighting its negative health consequences. The media in Australia is also putting pressure
on Philip Morris International to comply with the legal regulations strictly or else the
enterprise has to face serious issues relating to its brand image and financial penalties. As
per the legislative regulations relating to tobacco, the company has to put graphic warning
signs on cigarette packets which cover 75 percent of the front area of the product and 90
percent of the back area (Legislation, 2018). Furthermore, Philip Morris International has to
comply with the Competition and Consumer (Tobacco) Information Standard 2011 which

4
provides guidelines relating to cover the cigarette packets with graphic images in order to
increase awareness between people regarding adverse health implications of smoking and
tobacco use. Thus, there are a number of regulations which imposed by the government of
Australia on multinational enterprises. Similarly, these regulations implemented on the
operations of Philip Morris International and the company has to ensure that it effectively
comply with these regulations to avoid legal consequences (Adkison et al., 2013). The legal
framework which implemented by the government of Australia on the operations of Philip
Morris International focuses on ensuring that the enterprise is not promoting its products in
any way to increase the number of smokers in the country.

5
Question 3
Treaties, conventions, and agreements
The treaties are referred to agreements relating to international laws based on which
sovereign states and international organisations enter into agreements for different
purposes. Generally, the objective of trade treaties constructed between enterprises is to
create new trading relationships between different nations. It brings more foreign
investments to the country which contributes to the economy of the country. The trade
treaties bring new employment opportunities in the nations and improve the overall living
standard of citizens. The Australian Government has formed various treaties and
agreements with other nations in order to encourage trading practices between both
nations to support the economy of the nation. These treading treaties create employment
opportunities for Australian citizens while at the same time improve their living standard
(Kirchner, 2012). These treaties have both favourable and adverse impact on the operations
of Philip Morris International while managing and expanding its operations in different
nations which have entered into trade treaties. Philip Morris International provides its
products in both Australia and New Zealand; therefore, the treaties formed between these
two nations affect its business operations. Both nations have entered into a treaty titled
Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). This is a
key treaty which is signed between both nations with an objective to create business ties
and relationships which support the economic growth of both countries (Elms, 2013).
Due to this treaty, both nations are able to improve the overall living standard of their
citizen by providing them employment opportunities and better healthcare support.
However, in the case of Philip Morris International, the company offers tobacco-related
products which are unhealthy for customers, and they cause serious health issues as well.
Thus, both nations impose heavy taxes and fee on the products of Philip Morris
International in order to minimize their usage in the country in order to maintain the health
of their citizens. In New Zealand, the government has imposed ‘Smoke-Free Environment
Act’ which is focused towards reducing the pollution in the country due to which the
government puts a ban on the heated products offered by Philip Morris International to its
customers (George, 2018). The government and the organisation were involved in a suit in

6
which the court gave judgement on Philip Morris International side. Based on the
judgement, the government of New Zealand has to remove the ban from the products of
Philip Morris International since the enterprise did not breach any laws. Another key treaty
which creates difficulties for Philip Morris International is ASEAN Australia New Zealand FTA
(AANZFTA). Although the objective of this treaty is to create new trade ties between the two
nations by encouraging and supporting the trade practices of small and multinational
companies (Frater, 2014).
However, since Philip Morris International operates in the tobacco industry, the enterprise
has to pay heavy taxes on the products which it offers to its customers. Furthermore, the
corporation has to maintain a standard while manufacturing its products in order to
minimize the negative impact on the health of users. The regulatory framework for Philip
Morris International is complex than compared to other organisations because the
government is continuously forcing the enterprise to pay heavy taxes or put a ban on its
operations. For example, the government of Australia and Hong Kong have entered into a
bilateral trade agreement based on which the government removes various restrictions
from the companies while they operate in either nation (Human Rights, 2015). Based on
these regulations, Philip Morris International wanted to avoid putting graphic signs on its
products while they are offered in Australia. However, the Australian government wanted
the enterprise to cover 75 percent of the front and 90 percent of the back area with graphic
images of warning signs. The company argued that as per Australia’s Investment Promotion
and Protection Agreement, the enterprise did not have to put such signs on its products
while they are offered to the public (Chapman, 2015). A suit was filed by the company in the
court, and the judgement was given in favour of the Australian Government.
The court provided that the World Health Organisation’s Framework Convention on
Tobacco Control prevails over the terms of the treaty signed between both nations because
they are in the interest of the public (Gilmour et al., 2015). Thus, the court ordered Philip
Morris International to put the warning signs on the cigarette packets of the company.
Furthermore, Philip Morris International is primarily based in the United States, thus, the
FTA treaty signed by the government of Australia and the United States assisted the
enterprise in expanding its operations in both countries. This treaty is signed by these
nations in order to improve their trade relationships while at the same time supporting the

7
overall economy of the nation. However, Philip Morris International has to comply with a
stricter regulatory framework than compared to other organisations because the enterprise
offers tobacco related products to its customers (Kirchner, 20112). The Australian
governments ensure that the tobacco organisations which offer their products in the
nations have to pay heavy charges in tariff and other fees. Thus, it results in increasing the
prices of the products offered by Philip Morris International in the country which resulted in
affecting its profitability. Therefore, the treaties signed between nations affect the products
and services offered by Philip Morris International in Australia.

8
References
Adkison, S.E., O'Connor, R.J., Bansal-Travers, M., Hyland, A., Borland, R., Yong, H.H.,
Cummings, K.M., McNeill, A., Thrasher, J.F., Hammond, D. and Fong, G.T. (2013) Electronic
nicotine delivery systems: international tobacco control four-country survey. American
journal of preventive medicine, 44(3), pp.207-215.
ATO. (2018) Corporate tax rates. [Online] Available from:
https://www.ato.gov.au/Rates/Company-tax/ [Accessed 30/08/2018].
Austlii. (2018) Fair Trading (Australian Consumer Law) Act 1992. [Online] Available from:
http://classic.austlii.edu.au/au/legis/act/consol_act/ftcla1992356/ [Accessed 30/08/2018].
Chapman, S. (2015) Australian government’s $50m investment in defending against Big
Tobacco legal thuggery. [Online] Available from: https://theconversation.com/australian-
governments-50m-investment-in-defending-against-big-tobacco-legal-thuggery-45427
[Accessed 30/08/2018].
Elms, D. (2013) The Trans-Pacific Partnership: The challenges of unraveling the noodle
bowl. International Negotiation, 18(1), pp.25-47.
Frater, C. (2014) International economic law. New Zealand Yearbook of International Law,
The, 12, p.200.
George, D. (2018) Court dismisses charges against Philip Morris over sale of non-burning
tobacco sticks. [Online] Available from: https://www.stuff.co.nz/national/102647281/court-
dismisses-charges-against-philip-morris-over-sale-of-nonburning-tobacco-sticks [Accessed
30/08/2018].
Gilmour, S., Moffiet, T., d'Espaignet, E.T., Stevens, G.A., Commar, A., Tuyl, F., Hudson, I. and
Shibuya, K. (2015) Global trends and projections for tobacco use, 1990–2025: an analysis of
smoking indicators from the WHO Comprehensive Information Systems for Tobacco
Control. The Lancet, 385(9972), pp.966-976.

9
Human Rights. (2015) Philip Morris international arbitration (re Australian plain packaging
law). [Online] Available from: https://www.business-humanrights.org/en/philip-morris-
international-arbitration-re-australian-plain-packaging-law [Accessed 30/08/2018].
IBIS World. (2017) Philip Morris (Australia) Limited - Premium Company Report Australia.
[Online] Available from: https://www.ibisworld.com.au/australian-company-research-
reports/wholesale-trade/philip-morris-australia-limited-company.html [Accessed
30/08/2018].
Jarman, H. (2013) Attack on Australia: Tobacco industry challenges to plain
packaging. Journal of public health policy, 34(3), pp.375-387.
Kirchner, S. (2012) Foreign direct investment in Australia following the Australia–US free
trade agreement. Australian Economic Review, 45(4), pp.410-421.
Kumar, V., Sharma, A., Shah, R. and Rajan, B. (2013) Establishing profitable customer loyalty
for multinational companies in the emerging economies: a conceptual framework. Journal of
International Marketing, 21(1), pp.57-80.
Legislation. (2018) Competition and Consumer (Tobacco) Information Standard 2011.
[Online] Available from: https://www.legislation.gov.au/Details/F2011L02766 [Accessed
30/08/2018].
PMI. (2018) Key milestones. [Online] Available from:
https://www.pmi.com/who-we-are/key-milestones [Accessed 30/08/2018].
Richards, C., Lawrence, G., Loong, M. and Burch, D. (2012) A toothless chihuahua? The
Australian Competition and Consumer Commission, neoliberalism and supermarket power
in Australia. Rural Society, 21(3), pp.250-263.
Top Employer. (2018) Philip Morris International. [Online] Available from: https://www.top-
employers.com/en/companyprofiles/uk/philip-morris-international/ [Accessed
30/08/2018].
Wilson, L.M., Avila Tang, E., Chander, G., Hutton, H.E., Odelola, O.A., Elf, J.L., Heckman-
Stoddard, B.M., Bass, E.B., Little, E.A., Haberl, E.B. and Apelberg, B.J. (2012) Impact of

10
tobacco control interventions on smoking initiation, cessation, and prevalence: a systematic
review. Journal of environmental and public health, 2012.