[Intl-tobacco] Vietnam's losing battle against the tobacco smugglers (fwd)

[Robert Weissman]

Vietnam's losing battle against the tobacco smugglers
Source: The Guardian/The Observer, Wednesday, 2/2/00

=09 In the years since the end of the war, Vietnam had fought a
seemingly losing battle against smugglers. Until 1990, the "transit" or
smuggled market into Vietnam was estimated by BAT to be 12-18 billion
cigarettes a year. Then, after a clampdown that September, "smuggling was
virtually eliminated for 18 months", according to a report to Paul Adams,
Asia-Pacific regional director.

The hiatus did not last long. As border conditions relaxed, contraband
routes again appeared, particularly through Cambodia. In 1992, the
company's Cambodia business plan referred to this situation as,
apparently, a temporary contingency: "Cambodia will continue to service
the Vietnamese market until the [Vietnamese cigarette import] ban is
lifted".

Soon, contraband into Vietnam was climbing to pre-1990 levels. In 1992, Mr
Adams was told that BAT's State Express 555 brand cigarettes was the
"major smuggled brand in the area ... there is no doubt it has a
tremendous image and sales potential". Sales of smuggled SE555 were then
estimated to be about one billion cigarettes, worth roughly =A310m a year.

A series of company papers showed that from 1991, BAT pursued a twin-track
strategy to maximise earnings from Vietnam. One track was to negotiate
with the Vietnamese government and its tobacco monopoly, Vintaba, to
produce international brand cigarettes locally. The other track was
monitored from BAT's Asia-Pacific Regional Business Unit, where one
executive made notes on "the high margins on illegal product [being]
justified on grounds of risk. The amount of handling associated with
imported distribution [is] coupled with the requirement of frequent
concealment".

Both projects went ahead. By mid-1993, BAT State Express 555 brand
cigarettes were being sold as "Made in Vietnam".

Meanwhile, back in Britain, executives in BAT's Far East Support Unit
(FESU) juggled complex calculations to assess what balance of trade
channels would deliver maximum profit.

In a document suggesting the clarity and precision of BAT's understanding
of pricing in the GT trade, Brookes was told that: "Ex-factory price
should be such that retail price falls at parity with GT (not fully
controllable). GT price structure is: BATUKE to SUTL, $245, SUTL to
importer, $290, Importer to Wholesaler, $348, Wholesaler to Trader
(Cambodian border) $350". In other words - and in recognition of the
independence of smugglers - BAT staff in Britain seemed to wish to adjust
the sale price of their cigarettes to their agent to set the final
end-market price in Vietnam.

BAT's records suggest that Vietnamese officials treated the company's
conduct with suspicion - and told them so. Company executives had a series
of meetings with Le Dinh Thuy, director general of the Vietnamese Vintaba
tobacco company. A letter from Singapore to BAT's headquarters, then in
Staines, Middlesex, reported that at a June 1991 meeting "Mr Thuy was
obviously fully aware of both BATUKE's and SUTL's activities in Vietnam,
stating 'what are these people doing visiting Vietnam when the import of
cigarettes is banned?' It is a point I think should be taken very
seriously".

Similar enterprises took place across Asia. In Taiwan, BAT reckoned in the
early 1990s that it had about a one billion share of the four billion a
year "transit" market. In Thailand, the market was more than 555 million a
year. In Vietnam, it was one billion.

In 1993, BAT employed a single senior executive to take charge of GT sales
around the world. The post of "senior regional export manager" was based
at BATCo's HQ in Staines. Although the job was to co-ordinate sales in
Asia and the Pacific, the executive's second task was "co-ordinator of GT
worldwide".

In this capacity, the manager was made "responsible to all five regional
directors for the co-ordination of all BATCo general trade sales
worldwide". This person was charged with the "maintenance of profiles of
all main dealers, and monitoring of supply routes; negotiation of
trans-regional accounts, [for example] SUTL".

But there was a special warning "due to the nature of export general trade
business, the distributors handling this are not easy to manage and
difficult to motivate. Their loyalty is sometimes questionable. Due to the
type of business and the sums involved, bribery attempts are frequent ...
[The person appointed] must be permanently alert to the confidentiality
needed in some areas of the business".

The executive had to be on continual alert for new trade by conducting a
"proactive search for new GT business".

The report concluded, without any apparent irony, that "integrity is an
absolute must".

The disclosed BAT documents indicate that "GT", "transit" or, more
plainly, smuggling, seemed to be seen by BAT Industries in the early 1990s
as a necessary and substantial part of being competitive and successful in
the international tobacco business. Its directors were told in a 1993
paper that "a significant proportion of the world export trade is transit.
It exists wherever there are widely different excise rates and trade
restrictions, and is expected to continue.

 Guardian Unlimited =A9 Guardian Newspapers Limited 2000