[Intl-tobacco] Tobacco firms behind tax protest (fwd)

[Robert Weissman]

Tobacco firms behind tax protest "Spontaneous grass-roots" tobacco-tax
protests were secretly organized by big cigarette companies to press the
federal and provi
by WILLIAM MARSDEN / The Gazette
Source: Montreal Gazette, Monday, 1/17/00

While Canada's major tobacco companies were funneling billions of
cigarettes into the United States only to be smuggled back into Canada,
they staged a series of so-called "spontaneous grass-roots" tobacco-tax
protests, tagging one of them with the code name Boston Tea Party.

Secret industry documents that have recently come to light in U.S. civil
actions show the degree to which these protests, which took place between
1991 and 1994, were little more than well-orchestrated industry
initiatives designed to press the federal and provincial governments to
reduce taxes.

They demonstrate the determination of the industry to dominate the
government agenda and push the questionable view that smuggling was a
direct result of high taxes.

The documents show the careful planning that went into orchestrating the
so-called "grass-roots" protests, letter-writing campaigns and the
organizing of industry-favourable reports on smuggling. One document
admits that RJR-Macdonald used smuggling and offshore production as
"political leverage" against high taxes.

In many ways, the tobacco companies were playing a deceitful role - on the
one hand, feeding and encouraging the smuggling; on the other hand,
pretending to offer the government support in its law-enforcement
attempts.

But the strategy worked. It escalated the smuggling and the political
protests to such a level that in 1994 the federal government and the
eastern provinces rolled back tobacco taxes by about $20 a carton.

"Throughout this period, the industry played the government like a
violin," former RJR-Macdonald sales executive Les Thompson said in an
interview.

"They played the government like the dumb kid next door. They lied to
them," he added.

"They complained about smuggling and, meanwhile, they were fueling the
black market. They were speaking out of both sides of their mouths."

Thompson is the only tobacco executive to have been convicted of a
smuggling offence. He pleaded guilty last year in U.S. Federal Court in
Syracuse, N.Y., to a money-laundering charge and now faces 70 months in a
U.S. prison.

In interviews with The Gazette, he said the tobacco companies organized
the tax protests "from the bottom up."

Michel Descoteaux, public-relations director for Imperial Tobacco, played
a major role in co-ordinating and writing press releases for the tax
protests. Asked whether, while organizing protests, he was aware that
Imperial and RJR-MacDonald were shipping cigarettes to New York state to
be smuggled back into Canada, Descoteaux said: "Well, uh, sir, the company
certainly was (aware). The extent to which I personally was, the answer to
that was, I don't know. =C9 That would be irrelevant, sir."

The so-called "Boston Tea Party" was the first of the protests organized
by the tobacco companies in 1991. They spent $3 million to mobilize
smokers for a mail-in campaign to oppose high tobacco taxes.

Working through their industry association, the Canadian Tobacco
Manufacturers Council, or CTMC, Imperial Tobacco and RJR-Macdonald
financed marketing and focus-group studies to gain support for the
campaign and to show that it was "spontaneous."

According to Imperial Tobacco documents, the impression of spontaneity was
a prerequisite for a "successful program."

The protest itself consisted of forms printed on the slide-out back of
cigarette packs.

The forms were titled "Tax Protest" and carried the following message to
the prime minister: "I want you to stop the unfair taxation of tobacco
products in Canada." Because they were addressed to the prime minister,
postage was free. The protester simply printed his or her name and address
on the form and slipped it into a mailbox. A protester could send any
number of these tax-protest "postcards."

The companies printed 50 million forms. Before issuing them, they launched
a public-relations campaign to ensure smokers and non-smokers alike knew
about the "spontaneous" campaign against high taxes.

According to Imperial documents, RJR-Macdonald and Imperial spent $1.8
million advertising the tax-protest forms in 66 newspapers across the
country and another $932,000 for 30-second spots on 46 radio stations.
They also spent additional funds tracking the protest to gauge its
effectiveness.

The companies also ordered their field salesmen to push cigarette
retailers to promote the protest.

Thompson, who at the time was in charge of tobacco sales in Ontario for
RJR-Macdonald, said his company was responsible for pushing the
convenience-store chains while Imperial had the drugstore chains, some of
which their parent company, Imasco, owned.

He said that while Rothmans didn't print the tax forms on their packages,
they agreed to lobby the food and other chain stores.

The campaign, officially launched May 31 by the Canadian Tobacco
Manufacturers Council, received front-page coverage in many dailies. The
industry never disclosed the fact that it code-named the project the
Boston Tea Party, a reference to an event in U.S. history that marked the
beginning of the American Revolution.

At the launch, CTMC president William Neville read a statement approved by
the tobacco companies in which he claimed smokers had been "calling and
writing our member companies to protest the tax increases."

He added that smokers approached manufacturers "out of a sense of
helplessness."

"They felt they were lone, unheard voices and were frustrated and angry,"
he said. "That is why we decided to do what we could to help them vent
that frustration and anger. =C9 Again, our only role in this exercise is
that of a conduit."

Descoteaux said in an interview that he could not remember how many calls
tobacco companies received from irate smokers. Also unanswered was the
question of why smokers, if they were so irate, couldn't just write to the
government themselves. Postage was free, after all.

Internal documents show that in April 1991 the tobacco companies formed
focus groups from which they obtained a string of comments they claimed
supported their contention that the movement was "grass roots."

Cited Focus-Group Comments Included:

- "It's not fair. Smokers and drinkers always get screwed."

- "The tobacco industry has shown no inclination to support smokers in the
past. Will we be alone again?"

A CTMC document, stamped confidential and titled "Boston Tea Party II -
Possible Questions and Appropriate Answers," instructed CTMC officials to
state that high taxes were causing smuggling: "The cause of smuggling is
simple: Canadian tobacco taxes are much too high in relation to those in
the United States."

The industry never disclosed to the public or the government that during
this time, RJR-Macdonald was supplying smugglers through Buffalo, N.Y.,
free-trade zones and was switching production offshore. The smuggling
market became so lucrative for RJR-Macdonald that by the end of 1991 as
much as 50 per cent of its shipments were going to the United States to be
smuggled back into Canada.

Thompson, who was one of the RJR-Macdonald executives overseeing the sales
into the black market, told The Gazette that by 1993 more than 60 per cent
of the company's net profits came from cigarettes sold to smugglers.

The Boston Tea Party protest lasted two weeks. Tracking reports by the
tobacco companies showed that about 9 per cent of Canadians (26 per cent
of smokers) mailed the protest form.

The complete story of the tobacco industry's lobbying attempts is
contained in a report written in August 1994 by Descoteaux. The report was
sent to David Bishop, tobacco-tax manager for British American Tobacco Co.
Ltd., which owned 42.3 per cent of Imperial Tobacco's parent company,
Imasco. (BAT says it will close a deal Feb. 2 to buy the remaining shares
of Imasco.)

The report refers to the Boston Tea Party project as the "most spectacular
'untraditional' initiative" pulled off by the industry. '

But that was only part of the industry's anti-tax campaign. Descoteaux
notes that to give the government an indication of the size of the
smuggling problem, the industry in 1992 hired outside expert Rod Stamler,
a former RCMP superintendent working for a private investigation company
in Toronto.

Stamler came up with a series of reports that the industry distributed to
government departments. The reports indicated that smuggling in 1993
accounted for as much as 40 per cent of the tobacco market, a figure the
government used when it reduced taxes in February 1994.

His reports have since been criticized by anti-smoking organizations for
broadly overstating the smuggling problem. The government has since
admitted the 40-per-cent figure was exaggerated.

The industry sent Stamler on a publicity tour across Canada to push the
argument that high taxes caused massive smuggling.

Descoteaux's report goes on to state that the industry arranged for
Stamler to meet politicians and government officials "so that his report
could become the document of reference on these aspects of the issue."

Stamler's reports never mentioned that the tobacco companies were actively
feeding the smuggling networks.

(Stamler also hired himself out to the National Coalition Against Crime
and Tobacco Contraband, a Washington, D.C., lobby group financed by RJ
Reynolds Tobacco Co. Big tobacco in the United States has been lobbying
heavily against increased tobacco taxes. Stamler has written a series of
reports for the coalition, titled Organized Crime and the Smuggling of
Cigarettes in the United States. The latest is dated 1999. It describes
the smuggling situation in Canada during the early 1990s and gives the
same erroneous figures he used in his Canadian smuggling reports.

(The coalition sent Stamler on a 16-city tour during which he warned that
gun-toting smugglers from Mexico would be pushing black-market cigarettes
on U.S. children. The coalition boasts that Stamler's reports have been
referenced by U.S. government agencies. Nowhere in his reports does he
mention the part played by RJR-Macdonald or its parent RJR-Nabisco in
smuggling.)

Stamler did not return phone calls.

Under the subtitle "More Mobilization," Descoteaux described how tobacco
companies helped organize in 1993 a protest by growers, wholesalers and
unions called the Quebec Coalition for Fair Tobacco Taxation. He states
the protest finally caused the Quebec government to agree to lobby the
federal government to roll back taxes.

"The government did not want to face the electorate without having solved
a problem that showed up daily in question period and in the media,"
Descoteaux said.

Finally, Descoteaux describes a small group of retailers in Quebec who
publicly announced that they would sell black-market cigarettes, "in
effect daring the government to arrest them." He says this "last
initiative" was "probably the straw that broke the camel's back" and
forced the federal government to roll back taxes on Feb. 8, 1994.

But that wasn't enough for Imperial. Descoteaux bemoans the fact the five
western provinces did not join the rollback, that the tax reductions are
probably temporary, and that with tax increases in the United States,
tobacco taxes in Canada will probably rise anew. He said this still
represents a "problem" for the industry.

That tobacco-company executives used smuggling as a lever against the
government is probably best summed up by a statement made by RJR-Macdonald
president Ed Lang.

In a 1993 strategic report that commented on taxation issues in Canada,
Lang states: "Offshore production will be maintained to optimize (market)
share and political leverage."

He was referring to the fact that RJR-Macdonald had transferred production
of Export A cigarettes to Puerto Rico, from where they were shipped to
smugglers. The company was also producing fine-cut tobacco out of a plant
in North Carolina. This production was also shipped to smugglers.

The Canadian government launched a $1-billion lawsuit in Syracuse, N.Y.,
last month against RJR-Macdonald, several affiliate companies and the
CTMC, claiming they defrauded and lied to the government. The lawsuit
claims the CTMC knew RJR-Macdonald was involved with smuggling but
nevertheless "falsely claimed, through meetings, letters and agreements
with Canada, to be engaged in active steps to combat smuggling."

Federal justice and revenue ministers have stated that the government is
also examining the conduct of Imperial Tobacco and Rothmans Benson &
Hedges.

The government initiated a policy of high taxes in the mid-1980s to
discourage people, mostly adolescents, from smoking.

The tobacco industry hired Ottawa consulting firm Informetrica Ltd. in
1990 to prepare a report that said the federal government was losing huge
revenues because the "prevalence of cigarette smoking has plunged with the
price increases."

When this argument failed to reverse the tax hikes, three years later big
tobacco again hired Informetrica. This time the report stated that high
taxes were not discouraging smoking because of cheaper black-market
cigarettes.

Smuggling and the subsequent tax rollback have caused the government to
lose at least $5 billion in taxes.