[Intl-tobacco] Argentina Seeks Crackdown on Contraband Cigarettes, Other Goods (fwd)

[Robert Weissman]

Argentina Seeks Crackdown on Contraband Cigarettes, Other Goods
by John Lyons
Source: Bloomberg News, Thursday, 1/27/00

     Buenos Aires, Jan. 27 (Bloomberg) -- Argentine President Fernando de
la Rua wants to crack down on sales of contraband goods such as
cigarettes, which are estimated to cost tobacco companies more than $340
million in lost sales this year.

The government is working with companies such as Massalin Particulares SA,
a unit of the world's No. 1 tobacco company Philip Morris, to deliver a
bill to congress next month that will propose retraining and expanding
Argentine border enforcement units, and arming them with advanced vehicle
scanning equipment.

Contraband cigarettes account for as much as 12 percent of the $3.3
billion Argentine cigarette market, a jump from 1 percent in 1992, based
on a Massalin study. Cigarette makers are concerned illicit tobacco will
capture more of the market as the price of legal cigarettes is jacked up
by recent tax increases.

     ``Contraband has a great impact on potential sales,'' said Massalin
President Rafael Arguelles. He noted that the legal market for cigarettes
had stagnated around $2.9 billion as contraband cigarette consumption grew
in the last half of the decade. ``Two separate markets are developing, and
once that starts, it's very hard to turn back.''

Massalin, which has about 64 percent of the legal market, could be losing
more than $200 million in possible sales to contraband cigarettes, the
company said.

                             Paraguay

     Much of the contraband cigarettes originate or pass through Paraguay,
a landlocked country that's winning a reputation for lax enforcement along
its borders with Brazil, Argentina and Bolivia, officials said. Smugglers
and contraband profiteers there are taking advantage of growing demand for
cheap black-market goods in Argentina, where consumers are squeezed by new
taxes and a yearlong recession.

Argentina, which recently raised taxes on cigarettes, has a higher such
tax than all of its neighbors. About 73 percent of the price of a Massalin
cigarette is tax, the company said Today, Argentine customs officials
confiscated 140,000 packs of cigarettes in Argentina's Cordoba province --
much of which originated in Paraguay,

Officials say the Argentine cigarette market is supplied mainly through
two methods.

First, excess production of cheap cigarettes from Paraguayan factories,
which have an estimated capacity of 20-times local demand, is smuggled
over the border into Argentina.

In a second scenario, called ``round-tripping,'' Argentine cigarette
manufacturers export their cigarettes to buyers in Paraguay and Chile,
where the cigarettes are smuggled back into Argentina.

Massalin, which earned $70.6 million in the first nine months of 1999, up
from $57.7 million in the year-ago period, nearly closed its 500-employee
plant in Corrientes province this month because rising tax and contraband
pressure was hurting profits there. The plant remained open after the
government delivered assurances that extraordinary measures would be taken
to block the flow of contraband cigarettes