New Zealand taxpayers are facing millions in legal bills as the battle with global tobacco giants fires up.
The warning comes on the first day of the ban on publicly displaying tobacco products, and as the Government forges ahead with plans to introduce plain packaging for cigarettes.
The Government says smoking kills around 5000 New Zealanders each year.
It wants the country smokefree by 2025 and is calling for public submissions on plans to introduce plain packaging.
But Ministry of Health officials have warned the Government that defending a case at the World Trade Organisation could cost taxpayers between $1.5 million to $2 million.
And it could be up to $6 million if there is a challenge from one of New Zealand's trade agreement partners.
Compensation payments could also be lumped on top of that, but Associate Health Minister Tariana Turia says there are health caveats in our trade agreements.
"Well of course it is always a concern, but the arguments that they are using about trade and multilateral agreements in fact don't warrant here in New Zealand," Turia said.
However, leaked documents from the secret Trans-Pacific Partnership negotiations, which New Zealand is a party to, show foreign companies could sue Governments if they introduce policies which affect their profits.
And one tobacco giant says it is already considering legal action.
"We're reviewing all of our options at the moment our preference would be not to go down the legal path but we may be forced to," British American Tobacco spokesman Nick Booth said.
"It would have an impact on our business because it would be taking away our valuable intellectual property and that's why we are so concerned about the minister's proposal."
Australia will introduce plain packaging in December and is already embroiled in legal action.
Turia told TV ONE's Breakfast this morning that the consultation document "will enable people from all sectors to have a say on whether they think plain packaging is an option for the Government to consider".
Those opposed to smoking say plain packaging for cigarettes makes sense.
"We do know that kids are very attracted to the packages and so they see the package as their badge of masculinity or femininity showing their rebelliousness," said Tobacco Addiction Expert Dr Joseph Di Franza.
Submissions close in October and Turia hopes plain packaging can be introduced next year.
The full document can be viewed here.
Tobacco hidden as display ban comes into effect
The Smoke-free Environments Amendment Act means that tobacco products can no longer be displayed in public view in retail outlets, including dairies, supermarkets, petrol stations and convenience stores.
If asked, retailers will have to show customers a menu with price details.
"All the evidence is showing us, that in terms of uptake, particularly by young people, this is a really good solid move from stopping them from taking it up," Turia said of the tobacco display ban.
Failure to comply with the new restrictions could end up with a fine of up to $10,000.
Tobacco companies are paying for new cabinets to be fitted in shops and inspectors will be dropping in on stores today.