By William James and Martinne Geller
LONDON (Reuters) - Britain signaled it would force tobacco companies to scrap branded cigarette packaging on Thursday in an attempt to reduce the number of children who may be drawn to smoking by striking and brightly colored packs.
In a surprise decision that was welcomed by cancer research charities but scorned by some tobacco companies, the government said it was appointing a pediatrician to examine whether plain packaging would reduce the human and financial cost of smoking.
It was unexpected as Prime Minister David Cameron had in July appeared to shelve plans to force companies such as Imperial Tobacco, Japan Tobacco Inc, British American Tobacco and Philip Morris International to sell cigarettes in plain packaging.
"Stopping cigarettes being marketed to children as a glamorous and desirable accessory is one of the greatest gifts we can give the next generation," said Harpal Kumar, chief executive of Cancer Research UK.
The government's decision helped wipe $1.6 billion off the value of London-listed Imperial Tobacco, which has a 44 percent share of the UK cigarette market, and British American Tobacco (BAT) in mid-morning trading.
Marlboro maker Philip Morris was not due to trade on Thursday due to the Thanksgiving holiday in the United States.
If implemented, Britain would be one of the first countries in Europe to remove branding and possibly replace it with graphic images of smoking-related diseases. Australia is the only country in the world to have implemented such a law, while Ireland has said it also plans to ban branding on packets.
Lawyers said the move could trigger legal disputes, with tobacco firms arguing that plain packaging laws violate their trademark rights and may restrict free trade. Australia is already facing challenges at the World Trade Organization over complaints the laws create illegal obstacles to commerce.
"If the government goes ahead with the proposals, it could still face a huge challenge to make it reality," said Sarah Byrt, intellectual property partner at law firm Mayer Brown.
Britain's tobacco market, worth about $28 billion a year at retail according to Euromonitor International, is dominated by Imperial and Japan Tobacco, followed by BAT and Philip Morris.
The biggest cigarette groups have been grappling with declining sales in a number of markets due to increasing government regulation and more health-aware consumers, as well as smuggling and the economic downturn.
Though smoking has declined in Britain to the lowest levels in a century, around one in five people still smoke and tobacco use is one of the biggest causes of preventable disease.
Britain has ratcheted up taxes on cigarettes so that a pack of 20 Marlboro now costs around 8 pounds ($13.02) while most forms of tobacco advertising have been banned since 2003 and eye-catching displays were banned from supermarkets in 2012.
But Cameron in July angered anti-smoking campaigners by appearing to waver over packaging, drawing criticism from the opposition Labour party over his relationship with Lynton Crosby, an Australian advising him on how to win the next election in 2015.
Crosby's consultancy firm has previously worked on behalf of Philip Morris. Cameron's spokesman said on Thursday that questions over whether Crosby was informed of the decision to launch a review were "irrelevant".
Australia last year passed a law saying cigarettes must be sold in plain olive green packets with no branding but with graphic images of the health effects of smoking, and with the name of the product printed in a standardized small font.
But the Tobacco Manufacturers' Association said early evidence from Australia showed no reduction in smoking, and an increase in smuggling of cigarettes.
"Why would the UK government pursue a counter-productive policy like standardizing cigarette packs when other measures such as the display ban has not been given time to be implemented, let alone evaluated?" a spokesman said.
Like many countries around the world, Britain already has strict regulations on how cigarettes can be displayed and packaged, as well as a ban on smoking in public places.
Britain's health ministry said Cyril Chantler, a respected pediatrician who was knighted for services to medicine, would examine whether plain packages would cut child smoking. The review will report in March 2014.
"It's good news that this is back on the government's agenda, said Paul Aveyard, professor of behavioral medicine at the University of Oxford. "I am confident that the review will recommend proceeding to legislate and I hope that will be soon."
(Additional reporting by Kate Kelland, Ben Hirschler, Kate Holton, Paul Sandle and Stephen Addison; Writing by Guy Faulconbridge; Editing by Pravin Char)