Philip Morris aligns for Afta benefits (fwd)

[Robert Weissman <rob@essential.org>]

Philip Morris aligns for Afta benefits
by ACHARA DEBOONME/The Nation
Source: The Nation, Thursday, 10/21/99

KUALA LUMPUR -- Philip Morris has joined hands with Thailand's Siam
Tobacco Export Corp to improve the quality of Thai tobacco, one of the
major moves of the world's largest cigarette producer to secure first
place in Southeast Asia after the Asean Free Trade Area (Afta) scheme
takes full effect in 2010.

The project will cover more than 4,000 farmers and over 6,000 rai in more
than five provinces in Thailand, including Chiang Mai, Chiang Rai and
Phetchabun, according to David Beaman, Philip Morris (Malaysia) leaf and
agronomy manager.

''We have been in business with Thailand for years, buying [tobacco]
leaves from the country,'' said Beaman.

In cooperation with Siam Tobacco Export, a tobacco exporting firm
belonging to the Wongwan family, the biggest tobacco trader in Thailand,
Philip Morris has built up a strong business base.

Beaman said during the interview that Philip Morris is looking for a
possibility to enter into a joint venture with the Thailand Tobacco
Monopoly (TTM).

Provided that the US company is awarded the joint venture agreement from
the TTM after the Corporatisation Law takes effect, it will be supported
by local tobacco supplies and its share in the about-Bt50-billion market
volume could increase from around 5 per cent currently.

Besides Philip Morris, Japan Tobacco Inc (JTI), which recently took over
US-based RJ Reynolds, and British-American Tobacco (BAT), which recently
acquired Rothmans, are also holding talks with TTM. Both have
manufacturing plants in Malaysia which export their products to the rest
of Asia.

Philip Morris, JTI and BAT are three major international players in
Thailand with a share of 56 per cent, 27.94 per cent and 15.96 per cent,
respectively in the international brands market which accounts for 9 per
cent of the total market value. These cigarettes are imported from
Malaysia.

With fiercer competition expected, Philip Morris is intent on
strengthening its role in the Thai cigarette market which has been
controlled by the state-owned TTM, prior to the implementation of the
Common Effective Preferential Tariff (CEPT) in the year 2010 which will
bring the tariffs on agricultural products in the sensitive list to 0-5
per cent in the year.

Companies without production bases in the region are excluded from the
privilege. Companies with production bases in a member country can offer
products at a slightly lower price than importing companies who are
subject to the tariffs. A joint venture with the TTM would thus be eagerly
awaited by Philip Morris.

Currently, the US cigarette maker operates in five Asean countries -- the
Philippines, Vietnam, Thailand, Indonesia and Malaysia -- via partnership
and direct investment.

The Malaysian plant, operating for three years, is the largest now with a
manufacturing capacity of tobacco equivalent to 25 billion cigarettes and
about 13 billion cigarettes which represent 15 per cent of the company's
total production worldwide.

Philip Morris is also gearing up to improve Malaysia's competitiveness via
the same project offered to Thailand.

According to Beaman, as Malaysia starts to reduce import tariffs on
tobacco in the year 2003, an industry restructuring is under way in the
country for higher tobacco quality and more efficient curing quota system.
''[Earlier] there was no need to worry about export/import competition,''
he explained.

It is anticipated that under the programme, Malaysian tobacco farmers will
reap 1,300 kilogrammes per hectare in the year 1999 from 1,210 kg in 1996.

Meanwhile, the company is building an additional expanded tobacco plant in
Malaysia to boost the company's capacity and its standing in the Asean
region.

The higher market share here will also help compensate for the lower
income in other parts of the world where anti-smoking campaigns are
strong. Philip Morris Co, the parent company, yesterday announced lower
sales volumes in the overseas markets due to economic troubles. It
reported a third-quarter net income of US$2 billion, a mere 1.1 per cent
increase from $1.98 billion a year earlier.