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WHO's caught with the smoking
gun?
By Gary LaMoshi
HONG
KONG - Name the world's biggest cigarette manufacturer.
If you picked the company that uses cowboys and
rugged vistas of the American west as marketing images,
you're wrong. Ditto if you chose the one with a
dromedary for a brand, or the one that tries to con you
using associations with extreme sports, like whitewater
rafting, that are awfully difficult to do with a lit
cigarette.
Here's a hint: The world's largest
cigarette maker has a near-captive market of an
estimated quarter-billion smokers. It is one component
of a massive conglomerate that includes food processing,
steel, telecommunications, and banking. And, as the ads
said about an infamous cartoon camel, wherever you find
it, there's a party.
The world's largest
cigarette maker, with twice the output of the closest
contender, is the prosaically named State Tobacco
Monopoly Authority, maker of Deng Xiaoping's favorite,
Little Panda, and hundreds of other brands. Its owner is
the People's Republic of China.
Patriotic
puffing State tobacco companies are the rule, rather
than the exception, in East Asia. South Korea, Taiwan,
Thailand, Vietnam and even Japan have government-owned
cigarette makers that enjoy different monopoly
privileges. They all hold dominant market shares in
their respective countries, and some have significant
exports.
With those advantages, of course, state
tobacco companies are enormously profitable. Thai
Tobacco Monopoly's 2001 reported net profit was US$141
million, and its total contribution to the Thai treasury
(including taxes) topped $850 million. State cigarette
makers also support thousands of jobs and provide a
guaranteed market for thousands more tobacco farmers,
many of them with production costs far above world
standards.
Generally, these companies enjoy a
monopoly on manufacturing cigarettes within their
country. Competitors face import restrictions, including
tariffs, and often marketing and excise tax
disadvantages. The leading international cigarette
companies - Philip Morris, British American Tobacco,
and, by virtue of its purchase of RJ Reynolds
International in 1999, Japan Tobacco - increasingly
focus their growth on overseas markets as anti-smoking
measures and courtroom losses become the rule at home.
(On Tuesday, Philip Morris abandoned its 2003 earnings
forecast, citing shrinking US industry sales, and its
stock tumbled 14 percent.) Big Tobacco gripes about the
uneven playing field in overseas markets, but who cares?
WHO cares WHO indeed, as in the United
Nations' World Health Organization, which is drafting a
Framework Convention on Tobacco Control, scheduled for
presentation to nations for ratification next May. It
will ask the owners of the biggest cigarette company in
the world, and other governments that profit enormously
from tobacco, to endorse measures designed to wound that
cash cow.
Every government faces a conflict when
it comes to anti-smoking measures. Even for countries
without a state tobacco company, cigarette taxes
represent a huge chunk of revenue. The experience in the
United States with the 1998 settlement between the
tobacco industry and state governments has shown that
there is a limit to how high taxes can go before they
cut into revenue by cutting consumption (which is the
idea of anti-smoking measures). Health advocates argue
that decreased health care costs for sick smokers will
make up for lost tax receipts, but the theory is
unproved and the math fuzzy. Despite its huge profits
from tobacco, Thailand's government has been one of the
global leaders in tobacco restrictions. New regulations
took effect this month that forbid smoking in
air-conditioned restaurants; eateries groaned about a 20
percent drop in business over the first weekend of the
ban. (Girlie bars that don't serve food remain exempt,
despite the hot meat available for customers.) But most
Asian governments have been reluctant to crack down on
smoking meaningfully.
The WHO treaty will ask
Asian governments/cigarette makers to take a bigger hit,
on taxes and on state-company profits. Or will it?
A look at the WHO's Tobacco Free Initiative web
site indicates that the key intended target of the
treaty is those evil international cigarette companies.
(Full disclosure: I've been hired and fired by
one such company.) Anti-cigarette advocates often seem
at least as interested in curbing Big Tobacco as in
curbing smoking. While it makes little sense for the WHO
to antagonize cigarette-producing governments that will
be asked to endorse the treaty, demonizing the
international competition certainly serves state tobacco
interests.
Frozen solid Advertising
restrictions are a main plank of the WHO draft treaty.
The international cigarette companies, whose cynicism
was demonstrated during a half-century of mounting
evidence about the health consequences of smoking,
rejected that out of hand, though they hardly have a
veto in the matter. The effect of a ban on advertising,
for any product in any market, is to freeze market
share.
That explains why US market leader Philip
Morris pushed rival companies to accept severe
advertising and promotion restrictions in the US
settlement. Its brands boasted a market share of above
50 percent in 2001. In Japan - by far the most open
market among the state-tobacco-company countries - PM's
share is in the low 20s, while Japan Tobacco's share
remains well above 50 percent.
In other Asian
monopoly countries, foreign-brand market shares rarely
reach double digits. In China, the combination of
single-digit share, repeated government rebuffs for a
manufacturing joint venture, and rampant counterfeiting
led Philip Morris quietly to abandon the market in 2000,
despite spending millions on (ahem) lobbying and
promotions, including a five-year sponsorship of China's
national soccer league. China is a lot of things, but
not Marlboro Country by a long shot.
Still,
every sale of a foreign brand is a sale that isn't going
to a state company, and the history of open markets -
surprise - is that the monopoly's share declines. It's
tough to improve on 100 percent. Competition means
harder work, including costly promotions, just to keep
what state companies already have. So tobacco-monopoly
countries welcome marketing restrictions that the WHO
proposes as protection for their home markets.
Whether such restrictions will protect health is
another question. It's worth noting that smoking rates
in closed markets, such as South Korea and the Soviet
bloc, were among the highest in the world, while they
declined steadily in the United States even before the
Draconian anti-smoking measures of the 1990s. It's not
Joe Camel's fault that more than 60 percent of
Vietnamese men smoke. Ho Chi Minh puffed Marlboro Lights
while US bombs rained down on his country, but he
started on a local brand.
Because of pressure in
the United States, international tobacco companies have
launched youth-smoking prevention campaigns in 90
overseas markets. Executives report that state tobacco
companies either obstruct these efforts or are at best
reluctant partners. Philip Morris's web site gives
extensive information on the health impacts of smoking
and the benefits of quitting; progressive Thailand's
tobacco-monopoly web site gives instructions for buying
cigarettes online.
International tobacco
companies have done plenty to earn WHO's distrust and
disdain, but anti-smoking forces should be careful what
they wish for. If the tobacco treaty leaves state
monopolies unchallenged, then tobacco control measures
will face state cigarette companies that have little
incentive to cooperate with the rules, whatever they may
be, and sit closer to the levers of power than Big
Tobacco ever dreamed.
(©2002 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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