[Intl-tobacco] China caves in to US tobacco demands (fwd)

[Robert Weissman]

Trade deal helps leaf firms
China has agreed to cut tariffs on U.S. cigarettes 
as well as leaf tobacco

by JOHN HALL / Media General News Service
Richmond Times-Dispatch, Sunday, 3/19/00

WASHINGTON -- In a move with huge potential for the reeling U.S. tobacco
industry, the new trade agreement with China now awaiting a congressional
vote would drastically slash China's steep tariffs on American cigarettes
and leaf tobacco, according to White House documents.

Anti-smoking organizations say the deal, if approved, could bring hundreds
of millions of dollars in new revenue to U.S. tobacco companies that have
been trying for years to crack the Chinese market.

"China is a gold mine," said Ross Hammond, a trade specialists and
consultant to the Campaign for Tobacco Free Kids. "There are more smokers
in China than there are people in the United States."

The tariff reductions were buried in a sheaf of new industry-by-industry
documents released on Capitol Hill last week by the White House as it
began a campaign to win approval of legislation bestowing permanent trade
status on China. The bill, which would replace year-by- year renewal of
trade concessions, is the key to approval of the huge deal in which China
agreed to remove barriers to American products as a condition for entry
into the World Trade Organization.

Big concessions

The tariff reductions for tobacco were among the largest concessions
Charlene Barshefsky, the U.S. trade representative, was able to wring out
of the Chinese negotiators. For cigarettes, the current tariff of 65
percent would fall in equal installments to 25 percent by 2004.  And for
leaf tobacco, the tariff would fall from 40 percent to 10 percent in the
same period. What's more, once it joins the WTO, China will have to
abandon its current position banning America tobacco as unsanitary because
of "blue mold," U.S. official said.

What exactly that will mean for American tobacco companies' bottom line
isn't known. The Chinese state- owned tobacco company is the largest in
the world and has resisted competition from abroad. Barshefsky was not
able to win the same marketing and distribution rights for American
tobacco companies she negotiated for other industries.

But even a little share of China's market could mean big dollars. A U.S.
trade official noted that China's cigarette consumption is the highest in
the world despite official government attempts to discourage smoking.

The Clinton administration has proposed a 25-cents- per-pack increase on
each pack of cigarettes sold in the United States after failing to win an
even higher levy as part of a huge settlement of tobacco lawsuits.

Inconsistent, Hammond says

The fact that it has now negotiated a reduction in Chinese taxes on
American cigarettes and tobacco struck Hammond as somewhat inconsistent.
In effect, Hammond said, the administration now wants to raise taxes on
Americans to discourage consumption of American tobacco products, and
lower taxes on Chinese to encourage consumption of U.S. cigarettes.

"It's outrageous," said Hammond. "It's something they need to reconsider.
Congress should take a close look at this."

A U.S. trade official said lowering the tobacco tariff was proposed when
negotiations began with China 13 years ago, long before the tobacco
settlement was in the works. The trade representative's office said its
mission was to level the playing field, not promote health and social
policy.

Hammond said Philip Morris has been pushing the trade agreement with China
for several years and one of its biggest priorities was to gain access to
the Chinese market. It has placed heavy emphasis on opening up the market
to investment so it can build manufacturing plants using mainly Asian
tobacco.

China's bloated, inefficient state bureaucracy, which knows little about
marketing, would be no match for a company such as Philip Morris, with its
cigarette giveaways, bags and T-shirts, Hammond said.

According to the British-based Action against Smoking and Health, American
and British cigarette companies beginning in 1915 were instrumental in
encouraging the Chinese people to smoke.

Numbers rise

Within 30 years, China's annual consumption of cigarettes rose from a
negligible number to 100 billion cigarettes; by 1994 it stood at more than
1.6 trillion cigarettes.

After World War II, the United States began exporting tobacco under the
"Food for Peace" program -- $1 billion worth in the first 25 years. During
the 1980s, international sales rose dramatically and in 1994, 220 billion
U.S.  manufactured cigarettes were shipped abroad, a 55 percent increase
since 1989.

One reason for this upsurge was that the U.S. threatened trade sanctions
against Japan, Taiwan, South Korea and Thailand unless they opened up
their markets to American cigarettes. All four countries gave in, but
Thailand later won the right to ban cigarette advertising under a ruling
by the General Agreement on Tariffs and Trade that said countries could
give "priority to human health over trade liberalization."