Australia's plain packaging stoush with the tobacco industry has created policy ripples in some unexpected places, as members of the European Parliament use the Australian stand-off to argue against a free trade agreement with the United States.

The decision by tobacco giant Philip Morris to take legal action against the Australian government has caught the attention of the European Parliament, which is using the legal wrangle to pour cold water on a trade deal currently under negotiation between the EU and the United States.

Many in Europe are concerned that once the deal is reached, legitimate health and social policies could then attract legal action taken on the part of aggrieved corporations, and opponents are using Australia's clash with Philip Morris as an example of how badly things can go wrong.