Canadian Tobacco giant turned blind eye to smuggling (fwd)

[Robert Weissman <rob@essential.org>]

Tobacco giant turned blind eye to smuggling 
Letter shows Imperial increased U.S. exports knowing that product would be
smuggled back
by Mark Kennedy
Source: Ottawa Citizen, Monday, 12/13/99

The head of Canada's largest tobacco manufacturer revealed in an internal
1993 letter that the company planned to increase cigarette exports to the
United States even though it knew the products would be smuggled back into
Canada, according to recently released documents.

The documents also reveal that Montreal-based Imperial Tobacco Ltd.
believed it could compile a good estimate of just how many of those
exported cigarettes would be illegally transported back across the border.

Anti-tobacco groups are pointing to the documents as evidence that should
prompt a Parliamentary inquiry and a police probe into Imperial's actions.

But the company insists it did nothing wrong, that the documents are being
taken out of context, and that Imperial has conducted its business affairs
in an ethical manner.

The documents are stored in Guildford, England -- home of the
international conglomerate, British American Tobacco (BAT), which has
cigarette companies around the world under its corporate wing. Included in
the BAT family is Imperial, which controls 70 per cent of the cigarette
market in Canada.

Three weeks ago, federal Health Minister Allan Rock released documents
that his officials unearthed from the Guildford files during a visit
earlier this year. The documents reveal the tobacco companies knew that
nicotine is addictive, that they looked at ways to fortify nicotine levels
to keep smokers satisfied and targeted young smokers to replenish those
who were giving up the habit or dying from its hazardous effects.

As well, there are the records pertaining to cross-border smuggling -- a
phenomenon that appeared in the early '90s and only came to an end when
the Chretien government and some provinces dramatically slashed cigarette
taxes in 1994.

On June 3, 1993, Imperial president Don Brown wrote Ulrich Herter, another
senior executive at BAT Industries, that federal tax increases had created
a "difficult situation" for Imperial.

"As you are aware, smuggled cigarettes (due to exorbitant tax levels)
represent nearly 30 per cent of total sales in Canada, and the level is
growing," wrote Mr. Brown.

"Although we agreed to support the federal government's effort to reduce
smuggling by limiting our exports to the U.S.A., our competitors did not.
Subsequently, we have decided to remove the limits on our exports to
regain our share of Canadian smokers. To do otherwise would place the
long-term welfare of our trademarks in the home market at great risk.
Until the smuggling issue is resolved, an increasing volume of our
domestic sales in Canada will be exported, then smuggled back for sale
here."

Imperial produces popular brands such as duMaurier and controlled the
rights to the duMaurier trademark for the Canadian market. But as Mr.
Brown pointed out in his letter, Imperial was obliged to pay a
five-per-cent royalty rate for the duMaurier cigarettes sold outside of
Canada.

In the letter, Mr. Brown indicated that Imperial was prepared to pay those
royalties on exports that actually remained in the U.S., but did not want
to do so on exports that were smuggled back to Canada and sold here.

"We can fairly accurately estimate those volumes sold outside of Canada
and those returning from the total," wrote Mr. Brown. "We would ask you to
consider an agreement whereby we would not pay royalty on the volume
actually sold in Canada or at worst at a considerably reduced royalty
rate."

Anti-tobacco activists believe the letter puts the lie to the tobacco
industry's claim that it watched innocently as the smuggling problem
occurred.

"In this case, we have the president of Imperial Tobacco talking about
regaining market share and the market he is talking about is the smuggling
market," said Francis Thompson, of the Non-Smokers' Rights Association.

Cynthia Callard, of Physicians for a Smoke-Free Canada, expressed
concerns, at the very least, about Imperial's corporate ethics.

"Clearly, a company that goes this far in integrating the black market
into its business strategy is a very unusual company indeed," she said.