The Government has received estimates of $2 - $6 million for legal bills it could incur should big tobacco companies fight its proposal for plain packaging.
Australia is to introduce plain packaging for tobacco products from December.
The New Zealand Government has agreed in principle to the move.
A Ministry of Health consultation paper released on Monday said plain-packaging could relegate branding to just a small portion on the front of a tobacco packet.
The paper also flags the risk of legal action, saying it could cost as much as $2 million to defend the change before the World Trade Organisation.
An international investment arbitration case could cost the Government as much as $6m.
Prime Minister John Key says such a risk needs to be taken into consideration when deciding if plain packaging will go ahead.
"As the National Party we haven't made the decision about whether we would support that any further. It's a genuine consultation document and let's see what issues it brings up. But I think it is something very worthy of consideration."
Anti-smoking group ASH is confident plain packaging could become a reality within the next two years.
However, Lower Hutt-based tobacco company British American wants the idea shelved.
Spokesperson Nick Booth says plain packaging could create a number of unintended consequences.
He says the proposal could erode intellectual property rights, damage New Zealand's trade reputation and fuel the black market for tobacco.
ASH says it is no surprise one of the main tobacco companies in New Zealand is opposed to the idea of plain packaging.
An ASH director, Ben Youdan, says plain packaging would impact on the tobacco industry's profits.
Mr Booth says it's too early to say what British American Tobacco might ultimately do to combat plain packaging.
Submissions on plain packaging close on 5 October.