The US Supreme Court has rejected an appeal by Canada over a ruling that cleared an American tobacco company, RJ Reynolds, of smuggling billions of cigarettes.

Today's decision is another affirmation that foreign government cannot use our country's judicial system to enforce their revenue laws

RJ Reynolds

A US appeals court had earlier said that RJ Reynolds was not guilty of allegations that it had transported Canadian-made cigarette brands to the US and then smuggled them back across the border to evade Canadian taxes.

By refusing to hear the appeal, the Supreme Court let stand the earlier ruling that Canada's case was an inadmissible attempt to use US courts to collect foreign taxes.

The decision came only several days after the European Union had filed a lawsuit in New York claiming hundreds of millions of dollars in compensation from RJ Reynolds for tax losses arising from alleged operations to Europe and Asia.

RJ Reynolds has described the EU accusations as absurd.

Foreign 'onslaught' prevented

Canada's Attorney-General sued RJ Reynolds and its affiliates in 1999, accusing them of an elaborate smuggling after Canada had significantly raised taxes on cigarettes.

But the lawsuit was dismissed by a federal judge in New York and last year upheld by the appeals court.

RJ Reynolds described the ruling as a significant victory, saying that the repeal of the revenue rule would have opened US courts to an onslaught of foreign tax claims.

"Today's decision is another affirmation that foreign government cannot use our country's judicial system to enforce their revenue laws," Martin Holton, RJ Reynolds' vice-president and assistant general counsel said.

"This ruling has important implications for a number of lawsuits brought by foreign governments against the tobacco industry, including those filed by Belize, Ecuador, Honduras, and the European Community and 10 of its member states."