Page 1 of
2 Smoking US-Indonesia trade
debate By Bill Guerin
JAKARTA - A bill under deliberation by the
US Congress has caused much concern among
Indonesia's big cigarette producers and threatens
to ignite a bilateral trade row if the restrictive
legislation is fully implemented.
It could
also represent a setback for US tobacco giant
Altria Group, owner of Philip Morris
International, as well as Indonesia's largest
clove-cigarette producer, Sampoerna, which has
staked its
future profits on operations
in less-regulated developing countries, including
Indonesia.
The Family Smoking Prevention
and Tobacco Act aims to give the US Food and Drug
Administration (FDA) full authority over all
tobacco products in the United States and would
prohibit the import of cigarettes containing any
artificial or natural flavor other than tobacco or
menthol.
The overt aim of the legislation
is too ban cigarette producers from marketing
candy-flavored smokes, but also extends to cover
Indonesian clove cigarettes, known as
kreteks. US statistics estimate that
currently 3% of US high-school and 2% of
middle-school students regularly smoke
kreteks.
Philip Morris
International and Sampoerna in July launched the
world's first clove-flavored Marlboro. The new,
filtered "Marlboro Mix 9" is the strongest
Marlboro available on the market, delivering a fix
of 1.8 milligrams of nicotine and containing 30mg
of tar. That is comparable to other full-strength
kreteks on sale in Indonesia, but twice as
strong as regular Marlboros on sale elsewhere in
the world.
Philip Morris USA, oddly one of
the US tobacco bill's main backers, does not
manufacture cigarettes in the US with any of the
prohibited flavors - although it makes menthol
cigarettes. Some tobacco-sector analysts claim
regulation by the FDA would in effect help
solidify Philip Morris's position as the leading
cigarette manufacturer.
US Senator Michael
B Enzi told a Senate Committee in July, "We must
win the war on tobacco, not sign a peace treaty
with Phillip Morris." He has introduced an
alternative bill, Help End Addiction to Lethal
Tobacco Habits, or the HEALTH Act, which he
promises would "truly prevent smoking and control
tobacco".
The effect of the legislation on
the Indonesian market, at least at the moment,
would appear to be small. Indonesia's cigarette
exports totaled Rp2.6 trillion (US$282.2 million)
in 2006 and represented about 8% of the world's
total clove-cigarette exports, according to Imam
Haryono, director of food and tobacco at the
Department of Industry.
Nonetheless,
Indonesian officials are jumping to the
money-spinning industry's defense. Trade Minister
Mari Pangestu recently warned that a legislated
ban would contravene World Trade
Organization-mandated trade regulations. Jakarta
aims to collect Rp42.03 trillion from tobacco
excise duties this year, representing a 9%
increase over last year's tax haul.
Hazy debate Sudjadnan,
Indonesia's ambassador to the US, said the
proposed ban is "discriminative" and "protective"
because it bans cloves but not menthol. He also
claimed there is no scientific proof showing that
clove-flavored cigarettes are any more dangerous
than menthol cigarettes and that undisclosed
research findings show that US clove cigarette
smokers account for only 0.1% of the total smoking
population and that only 0.8% of that number are
considered to be young people.
Although
there have been no threats of retaliatory trade
actions so far, Jakarta appears determined to
claim foul play. "Foreign players can trade freely
here. So we expect the same kind of fairness,"
Ismanu Soemiran, head of the Indonesian Clove
Cigarette Producers Association, was quoted as
saying.
That's not how US regulators view
the risks, however. According to the US Centers
for Disease Control and Prevention (CDC),
standardized machine-smoking analysis indicates
that kreteks deliver more nicotine, carbon
monoxide and tar than regular cigarettes. The CDC
also notes that research in Indonesia has shown
that regular kretek smokers have 13-20
times the risk for abnormal lung function as
non-smokers.
Eugenol, a phenolic compound
in cloves, enhances the effect of the tar. Though
tests have shown that it alone causes extensive
lung damage when smoked, it has sedative
properties and gives smokers a "feel good"
sensation, similar, perhaps, to that felt by those
who have become very rich through kretek
production.
The three largest
Indonesia-based producers - Sampoerna, Gudang
Garum, and Djarum - account for more than 72% of
the national market and all are among Indonesia's
top 10 companies in sales and profits. Sampoerna
has a 28.2% share of the market, followed by
Gudang Garam's 23.6% and Djarum's 20.4%.
Gudang Garam posted a net profit of
Rp710.56 billion in the first half of 2007, up
about 31% from the same period last year.
Sampoerna's profits in the same period were up
9.5% to Rp2.074
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