International Tobacco Sales, The IMF and the Asian Crisis (fwd)

[Robert Weissman <rob@essential.org>]

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The Progressive Response  19 June 1998   Vol. 2, No. 20
Editor: Tom Barry
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Table of Contents

I. Updates and Out-Takes

*** INTERNATIONAL TOBACCO SALES ***
By Robert Weissman and Ross Hammond


II. Issues of Debate
*** THE IMF AND THE ASIAN CRISIS
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***INTERNATIONAL TOBACCO SALES ***

(Ed. Note: The following is an excerpt from a FPIF brief examining the
threat that the global marketing of tobacco poses to the health of
citizens in developing countries and developing markets. The co-authors
are Robert Weissman [rob@essential.org], co-director of Washington-based
Essential Action and editor of Multinational Monitor, and Ross Hammond
[margross@igc.org], a San Francisco-based economist.) 

*** International Tobacco Sales ***
By Robert Weissman and Ross Hammond

The human costs of tobacco use are staggering and rising dramatically.
More than 3 million people die each year from tobacco-related diseases.
That number will soar to 10 million by the 2020s, according to the World
Health Organization (WHO), with 70% of those deaths occurring in the third
world.  Given these projections, more than 100 million people will die
from tobacco-related disease over the next 30 years, exceeding the toll
from AIDS, tuberculosis, automobile accidents, maternal mortality,
homicide, and suicide combined.

As the world's biggest cigarette exporter and as home to two of the
world's three largest multinational cigarette companies, the U.S. has a
special responsibility to address this catastrophe. Facing declining
markets in developed countries, the U.S. tobacco industry has aggressively
expanded overseas, particularly in recently opened markets in Asia, the
former Soviet Union, and Eastern Europe, where the bulk of the world's
smokers live. Over the past five years, Philip Morris and RJ Reynolds
(RJR) have registered double-digit growth in their international sales and
now sell more cigarettes abroad than they do in the United States. Philip
Morris currently earns more than half its cigarette profits overseas,
garners two-thirds of its tobacco revenues in foreign markets, and sells
three-quarters of its cigarettes outside the United States. The industry's
international gains come after two decades of heavy overseas spending to
advertise its products, buy newly privatized cigarette companies, set up
joint ventures, and build distribution and sales networks.

Multinational cigarette companies like Philip Morris and RJR have long
relied on the U.S. government to help them promote smoking overseas. 
Official U.S. promotion of tobacco exports to developing countries started
in earnest after World War II. Under the guise of providing assistance to
needy countries, the federal government's Food for Peace program shipped
hundreds of millions of dollars worth of tobacco to developing countries
until the end of the 1970s. In the 1980s, the Office of the U.S. Trade
Representative (USTR), working hand-in-glove with U.S. cigarette
companies, used the threat of trade sanctions to pry open key markets in
Japan, Taiwan, South Korea, and Thailand. The Thai case went to the
General Agreement on Tariffs and Trade (GATT), where a trade tribunal
ruled that Thailand must open its tobacco market but-in a rare move for
the trade body-permitted Thailand to maintain stringent health
regulations. This partial deference to human health concerns would likely
be overridden by the Multilateral Agreement on Investment (MAI), a
proposed new investment agreement strongly promoted by the U.S.
government. In addition, the U..S.  government is demanding that China open
its market to foreign cigarettes as a condition of joining the World Trade
Organization (WTO).

Philip Morris and RJR are now truly global companies. Even as the U.S. 
begins to regulate their domestic practices in a meaningful way, they are
exporting not only cigarettes but the slick advertising and marketing
strategies that addicted generations of people in the United States. The
tobacco multinationals hook kids and unsuspecting adults-especially
women-around the world on tobacco using exactly the sorts of promotional
and marketing techniques that have been abandoned or are likely soon to be
outlawed in the U.S.-free cigarette giveaways, television advertising,
promotional T-shirts and hats, sports and rock music concert sponsorships,
etc. There are no U.S. laws or regulations governing the overseas
activities of Big Tobacco other than laws of general prescription, such as
those prohibiting bribery.

Wherever U.S. cigarettes go, teen smoking rates rise, especially among
girls. The opening of Asian markets to U.S. cigarettes escalated Asian
smoking rates 10% above what they would have been, according to one
econometric study. Price competition and advertising were largely
responsible for this rise. With the long lag time between increases in
smoking prevalence and smoking-related mortality and morbidity, these
countries will experience severe and growing economic and human losses for
some time to come.

In many developing countries and in Eastern Europe and the former Soviet
Union, there are fledgling tobacco control movements organized by health
professionals who have seen firsthand the devastating impact of
smoking-related illness and death. Lacking significant funds, these groups
have nevertheless scored some impressive victories against the tobacco
companies. Yet as the power and influence of U.S.-based tobacco companies
grows in their countries, these activists are finding their efforts
dwarfed by the pervasiveness of the tobacco multinationals. 

Problems With Current U.S. Policy

In a variety of ways, current U.S. policy fails to restrain the operation
of U.S. tobacco multinationals or promote international tobacco control. In
1997 Congress passed the Doggett Amendment, which banned the use of
government monies from the Commerce, Justice, and State Departments to
promote the sale or export of tobacco overseas or to seek removal of any
nondiscriminatory foreign-country restrictions on tobacco marketing. Early
in 1998, after considerable delay, the Clinton administration issued a
directive to U.S. embassies to implement the law. Yet following recent USTR
pressure on the Thai government challenging an ingredient disclosure
requirement in that country, there are some questions as to whether the
USTR has carried out the mandate of the Doggett Amendment. The amendment is
also limited in that it is subject to renewal, does not cover all federal
agencies, and leaves compliance responsibility in the hands of agencies
(such as the USTR) that have historically been oblivious or antagonistic to
public health concerns. 

The Clinton administration is a major proponent of the MAI, a proposed new
investment treaty that would give dramatic new powers to foreign investors,
including Big Tobacco. Under the MAI, investors have a right to realize
expected earnings from investments, and regulations that interfere with
these expectations arguably interfere with investor rights. The MAI does
not contain the limited exceptions for protection of public health that are
included in GATT. Although GATT can only be enforced by countries-for
example, the U.S. must sue Thailand if Philip Morris doesn't like Thai
tobacco laws-the MAI can be directly enforced by investors. That means that
Philip Morris could sue the Thai government directly if Thailand chose to
sign the MAI. 

Under the MAI, an array of anti-tobacco public health measures could be
deemed illegal, even if they were applied in a nondiscriminatory way. In
the Thai tobacco case, for example, the ban on cigarette advertising would
have been considered discriminatory against foreign companies. No public
health concerns would be allowed to override this argument. Even if
governments could be convinced not to bring these cases, Philip Morris and
other companies would simply be able to sue on their own.

Meanwhile, the Clinton administration is negotiating China's entry into the
WTO. The negotiations have not turned on democratic reforms in China but on
that country's opening of its markets to foreign business-including the
tobacco merchants. The administration has refused to exempt tobacco from
the proposed market liberalization. Smoking rates among Chinese men are
already astronomical; opening the market to U.S. and other multinational
tobacco companies is likely to induce a surge in smoking rates among
Chinese women, very few of whom currently smoke. 
 
The effects of the entrance of the U.S. tobacco pushers into a new market
can be shocking. After South Korea opened its market to U.S. companies in
1988, for example, smoking rates among male Korean teens rose from 18.4% to
29.8% in a single year. The rate among female teens more than quintupled
from 1.6% to 8.7%. 

Overseas, concerned governments and nongovernmental organizations (NGOs)
often lack the resources to fight the predations of the tobacco industry,
which uses its significant economic and political clout to fight
advertising restrictions, fund political parties, sponsor bogus research,
and try to obscure the truth about the health effects of smoking. The U.S.
government is no help in this area, providing only $75,000 to WHO's
international tobacco control efforts in 1997 and no funding to
tobacco-monitoring NGOs overseas. In last year's negotiations between state
attorneys general and the tobacco companies, the companies vigorously
opposed earmarking funds for international tobacco control. They can be
expected to continue this opposition. For its part, WHO only allocates
$60,000 a year and one full-time-equivalent staff person to tobacco
control, with an additional $500,000 in extra-budgetary resources from
donor governments, including the U.S.'s paltry contribution.

Toward a New Foreign Policy

A modest first step by government to curtail U.S. failure to control its
tobacco multinationals from spreading death and disease around the world
would be the adoption of an international tobacco control legislative
package proposed by Senators Durbin, Lautenberg, Wellstone, and Wyden and
Representatives Doggett and Pallone. 

This legislation would effectively extend the Doggett Amendment to all
federal agencies and make it permanent. The trade provision in the package
would permit U.S. government agencies to advance U.S. tobacco interests
when other countries were discriminating against U.S. tobacco-an
unfortunate concession-but it would first require an explicit finding by
the Secretary of Health and Human Services that the foreign regulation or
practice did not serve a significant public health purpose. The principle
of lodging determinations of public health matters within the U.S. health
agency, rather than in the trade bureaucracy, is a vital one meriting
support. The purported U.S. commitment to advancing public health measures
stands in marked contrast to its support for the proposed MAI and for
demands that China open its domestic market to foreign tobacco products.
Both the MAI support and the Chinese tobacco market pursuit should be
abandoned. 

The international tobacco control legislative package would require U.S.
companies (and their subsidiaries and affiliates) to adhere at least to the
same marketing and labeling standards abroad as domestically. Under the
legislative proposal, other countries would maintain the option to impose
more stringent standards. The package also would create a bounty for
individuals who provide information to the U.S. government leading to the
conviction of a company for violating labeling and marketing rules.
Unfortunately, the filing of private suits by citizens (which would have
the effect of strengthening the global enforcement of a single-standards
rule for U.S. companies) would not be authorized under the legislation.
Another useful enforcement approach would be to impose additional taxes on
U.S. tobacco companies' overseas profits earned in those countries where
they do not adhere to U.S. marketing and labeling standards. 

Keeping with the principle that the double standard in U.S. tobacco control
policy be eliminated, the U.S. government should require that tobacco
companies turn over documents on their foreign expansion activities
(virtually all industry document disclosures thus far have concerned
domestic operations). Similarly, if cigarette performance standards like
nicotine levels are adopted in the U.S., they should also apply to
cigarettes sold abroad by U.S. companies. There must also be assurances
that non-U.S. tobacco victims will be permitted to maintain their limited
rights to sue U.S. companies in U.S. courts-though the best way to avoid
this problem is not to grant the industry any special protections from
lawsuits. 

Although bilateral and multilateral aid is increasingly being channeled
through NGOs, this is not true in the field of tobacco control. Though
direct U.S. government funding for foreign NGOs is not desirable, the
proposed international legislative package would create a private,
nonprofit foundation to provide financial and technical assistance to
foreign NGOs performing tobacco control work. This foundation would have a
nonpartisan board composed of public health experts and would be
accountable to Congress. Should this mechanism not pass muster in Congress,
funds could be channeled through U.S.-based NGOs and NGO funding mechanisms
within WHO and UNICEF. 

The election of Gro Harlem Brundtland as the head of WHO is promising, as
she has vowed to make tobacco one of the agency's two major priorities. For
WHO to devote resources that are commensurate with the scale of the tobacco
epidemic, however, it will need the strong support of congressional allies
to ensure that its overall funding from the U.S. is not jeopardized by the
lobbying activities of the tobacco companies. The U.S. government should
massively increase its funding of international tobacco control activities.
This funding should go primarily to WHO, to the Department of Health and
Human Services, and to foreign NGOs. Imposing a special licensing fee on
tobacco companies or earmarking a portion of new tobacco taxes for tobacco
control work would secure funds for this effort without requiring annual
debates over funding levels. 

The U.S. should also encourage efforts to adopt an International Framework
Convention on Tobacco Control. The WHO-sponsored framework convention would
function as a kind of model law to which all signatory countries would
aspire. 

Sources for More Information

Advocacy Institute
http://www.advocacy.org 

Center for Communications, Health & the Environment
http://www.igc.org/ceche 

Essential Action
http://www.essential.org/action 

INFACT
http://www.infact.org 

National Center for Tobacco Free Kids
http://www.tobaccofreekids.org 	

San Francisco Tobacco Free Coalition
http://www.globalink.org/gtm/SFTFC 

GlobaLink-International Union Against Cancer
http://www.uicc.ch

IRRC Tobacco Information Service
http://www.irrc.org/profile/tis/tishome.htm

International Tobacco Listserve: 
Send the  message "subscribe intl-tobacco <your name>" to 
<listproc@essential.org>

Tobacco Industry Information
http://www.gate.net/~jcannon/tobacco.html

Tobacco News and Analysis
http://www.tobacco.org

Washington Post Series
http://www.washingtonpost.com/wp-srv/inatl/daily/nov/18/series.htm

World Health Organization
http://www.who.ch/programmes/psa/toh.htm

John Bloom, "International Interests in U.S. Tobacco Legislation," Health
Science Analysis Project (Washington, DC: Advocacy Institute, 1998).
http://scarcnet.org/hsap/international.htm

Multinational Monitor, July/August 1997.
http://www.essential.org/monitor 
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II. Issues of Debate

*** THE IMF AND THE ASIAN CRISIS ***

(Ed. Note: The following is excerpted from the Conclusion and the
Recommendations of a new report on the Asian crisis published by Focus on
the Global South and CAFOD, a London-based development agency. Nicola
Bullard ,Walden Bello, and Kamal Malhotra¾all of whom are associated with
Focus on the Global South¾authored the report. Duncan Green of CAFOD was
the editor.)

Criticising the solutions imposed by the IMF in no way implies an
uncritical endorsement of Asian development models. Economic development in
these countries has brought some overall improvements in health, education
and living standards. But the cost has been high in terms of sharpening the
divide between rich and poor, environmental exploitation and loss of
community control over natural resources, and growth without economic
democracy or expansion of political participation.

In this sense, the crisis is a moment of opportunity to re-assess the
economic and political directions taken in the past and to devise a
development model based on economic democracy, political participation and
environmental sustainability. Certainly, this is what the peoples'
organisations in Thailand, Indonesia and South Korea are demanding. Sadly,
the impetus is in the opposite direction, and it seems likely that the
pressure to export their way out of debt will simply deepen the inequities
of the existing models.

There is growing agreement, even from within, on the need critically to
evaluate, and if necessary, to overhaul the Bretton Wood institutions. A
crucial role should be played by the governments of the European Union,
which together make up the largest voting bloc on the IMF board. The
governments should ensure that their voting and lobbying records at the
Fund are fully coherent with their stated policy goals of furthering
poverty eradication and sustainable social and economic development around
the globe.

So far, however, the European governments have stayed on the sidelines,
only emerging as a chorus line to support Washington in urging the Asian
governments to comply with the demands of the IMF.

At least two key issues need urgent attention: reviewing the role,
policies, accountability and suitability of the IMF as presently
constituted and establishing a global mechanism for the governance of
international financial transactions.

Recommendations

On the International Monetary Fund:

There should be an immediate and thorough review of the Bretton Woods
institutions to assess their relevance to present global economic
conditions with the possibility of either replacing the IMF and World Bank
or rewriting their constitutions.

In the meantime, some immediate measures must be taken, including:

* strictly limiting the role of the International Monetary Fund to
preventing a breakdown in trade caused by exchange rate volatility or
balance of payments difficulties.

* opposing any changes to the IMF's Articles of Agreement, such as
extending their remit to include capital account liberalisation, pending a
full review of the Fund's role and performance.

* clearly separating the short-term 'clearing' or stabilisation mission of
the IMF from the long-term development missions of other institutions, such
as the World Bank or Regional Development Banks.

* eliminating cross-conditionalities between the IMF and the World Bank.

* de-linking all trade and investment liberalisation and democratisation
and good governance conditions from IMF funding.

* restructuring the IMF to increase transparency, accountability and
equality between members, regardless of their level of contribution to the
Fund.

* ensuring the neutrality and impartiality of the advice given by the IMF
so that it cannot be used to "police national economic policies and force
them into a convergence toward the reigning consensus."

Unless and until the IMF can be reformed along these lines, regional
initiatives such as the Asian Monetary Fund should be encouraged in order
to mobilise additional resources of capital and offer alternatives to the
IMF's narrow policy prescriptions.

On financial flows:

Mechanisms to monitor, regulate and if necessary control, international
financial flows, especially of speculative short-term capital, are urgently
needed to prevent further crises.

On debt:

A system should be established for the effective resolution of private
sector debt crises, based on clear rules and bankruptcy procedures. These
should govern international debtor-creditor relations, providing an
alternative to the state assuming full responsibility for unrecoverable
private sector debts.

For more information, contact:

Focus on the Global South
Email: admin@focusweb.org
Website: http://focusweb.org

CAFOD
Website: http://www.cafod.org.uk/
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