SECTION 1: INTRODUCTION

1. The Commonwealth of Australia ("Australian Governrnent") provides this Response to the Notice of Arbitration received frorn Philip Morris Asia Limited ("PM Asia") on 21 Novernber 2011, pursuant to Article 4 of the 2010 Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Arbitration Rules").

2. PM Asia seeks to challenge Australia's enactment and enforcement of legislation to require all tobacco products to be manufactured and sold in Australia in plain packaging ("plain packaging legislation") pursuant to the Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments of 1993 ("BIT").

3. The plain packaging legislation forms part of a comprehensive government strategy to reduce smoking rates in Australia. This strategy is designed to address one of the leading causes of preventable death and disease in Australia, which kills around 15,000 Australians each year, causes chronic disease for many others and is a significant burden both on productivity and on Australia's health care system. The implementation of these measures is a legitimate exercise of the Australian Government's regulatory powers to protect the health of its citizens.

4. PM Asia is incorporated in Hong Kong and asserts that the plain packaging measure impacts on investments that PM Asia owns or controls in Australia, namely its shares in Philip Morris Australia Limited ("PM Australia"), the shares that are held by PM Australia in Philip Morris Limited ("PML"), and the intellectual property and goodwill of PML. PM Asia acquired its shareholding in PM Australia (and hence a purported indirect interest in the shares and assets of PML) only on 23 February 2011.