Prime Minister John Key says he is expecting legal challenges if the Government goes ahead with a plan to introduce plain packaging for cigarettes.
Government is expected to follow Australia in introducing unbranded, standardised cigarette packets with large health warnings.
An announcement is due today or tomorrow.
Mr Key told reporters this morning that if plain packaging was introduced it could be expected that New Zealand would face legal action from tobacco companies or trade partners.
Australia is being sued for its plain-packaging regime by tobacco giant Philip Morris on the grounds that it breaches a free trade agreement with Hong Kong.
Several countries are also suing Australia through the World Trade Organisation, claiming plain packaging is a barrier to trade and a breach of intellectual property rights.
The National-led Government has the backing of Labour, which said this morning it would approve legislation to progress plain packets.
Labour leader David Shearer said the Government was doing the right thing.
"I congratulate the Government on putting it forward. I think it's a good idea, it will benefit New Zealanders, it will have health benefits, bring down health costs."
The Government hopes plain packs will discourage smoking by cutting off the tobacco industry's last avenue of marketing.
Government documents said legal challenges from tobacco companies could cost up to $6 million per case to contest, and challenged from countries could cost up to $2 million.
These figures did not include the cost of compensation if a case was lost.