[Intl-tobacco] *Very Impt Story*: Chinese tobacco industry discusses affects of entry into WTO

[Robert Weissman]

China's Tobacco: At the Door of WTO
Source: Tobacco China, Tuesday, 3/28/00

    Today the economic globalization is the trend of the times. The
multilateral trade system with the World Trade Organization (WTO) as the
representative has become an important carrier for globalization.

To join WTO, of which the trade volume and investment account for more
than 95 percent of the world's total, will enable China to gradually
connect with the world and really flow into the sea of the world's
economy. In the spring of 1999, the governments of China and the United
States issued a joint statement, which announced the major progress
achieved by China and the United States on China's access to WTO.

The United States clearly undertook to resolutely support China to enter
WTO. The marathon negotiation which lasted for 13 years reappeared
vitality. People expect that China will have its own seat in those
worn-out chairs in the gray building of the WTO headquarters at the river
bank of Geneva.

To join WTO makes the realization of the target of opening to be nearer,
and brings some urgency and press to China's tobacco industry which has
enjoyed the protection of high customs barrier. China's tobacco has walked
at the door of WTO.

It is worth saying that the day when China opens to the outside world is
the time when we make a decisive battle with foreign cigarette. An
international competition is survival of the fittest, and one has to do
all he can to catch up or retreat in low spirit. These are choices for
China's tobacco enterprises.

China is a huge market with more than 300 million smokers. The number is
more than the total population of the United States and Britain. At
present, the anti-smoke drive runs high in the West. Therefore, tobacco
companies from the United States and Britain eye covetously at China's
huge market.

Since China has adopted high tariff and strict import license system for
imports of cigarette, US and British companies are not able to develop
their ability to the full, and just make preparation for occupying China's
market. Since 1990, various major international tobacco companies have set
up many offices in China and made advertisements in may large and
medium-sized cities in coastal and interior areas. Streets are flooded
with billboards of "Malboro" and "555" cigarette, which are used as
champion for league matches of football and basketball.

To join WTO also means that we must open our market to the outside world.
This will open the door for American and British companies to easily enter
China's market, and inevitably make us to suffer.

1. We have to bear the duty of reducing tariffs and gradually abolishing
import license and other tariff barrier. At present, China's composite tax
rate from imported cigarette is 218 percent, of which the tariff is 36
percent. Take Malboro cigarette as an example. Its cost insurance and
freight (CIF) is 26.1 yuan/carton and reaches 83 yuan/carton after adding
various taxes. Its retail sales is 100 yuan/carton. China has promised to
reduce import tariffs to 15 percent in 2000. Even if its tariffs remain
unchangeable, the retail price for Malboro cigarette will be down to 80
yuan/carton. This will affect China's high-grade cigarette market.

2. At present, there is a gap between China's cigarette and foreign
cigarette in terms of scientific content and quality. China's mixed
cigarette is unable to compete with foreign brand cigarette.

In line with the above-mentioned unfavorable conditions, some people might
say that to join WTO means to push small sampans of Chinese tobacco
enterprises to compete with aircraft carriers of multi-national tobacco
corporations. Are Chinese enterprises, which have been under the situation
of block and protection for years, able to compete? Doubts and worries are
normal. Meanwhile, someone has asked a question in reply that how many
wattled walls can block other's aircraft carriers.

What is more, can small sampans be replaced with aircraft carriers?
Besides, our tobacco enterprises are not all small sampans. Facts proves
that tree in hothouse can not grow into a large tree, and a child in the
arms of his parents can not walk himself.

There is a famous story among the economic circle that in the past when
the oxygen equipment was not developed, large amount of fish fries died on
the long-distance transport and traders suffered greatly. Later on,
someone put catfish into the water trough. To avoid being eaten by
catfish, all fish fries swam at fast speed thus taking in oxygen, and
their death rate dropped sharply.

The catfish effect indicates that powerful competitive partner may
stimulate the survival potential of weak opponent. China's color
television market was almost occupied by Japan in the 1980s. Through years
of hard efforts, Chinese-made color television has occupied three fourth
of the market at present. The temporary labor pains will exchange for the
promotion of efficiency and quality of the whole economy.

To enter WTO will form a huge challenge for the development of China's
tobacco industry. Meanwhile, China's tobacco industry will gain an
opportunity for development by leaps and bounds.

China's output of tobacco and cigarette ranks first in the world. However,
in the world's tobacco trade, China's market shares are far from its
position of being the world's tobacco producer. In 1998, China's export of
cigarette accounted for only 1.81 percent of the world's total. After
joining WTO, China may follow the stipulation on the most favored nation
treatment and national treatment, and its products will enjoy
multilateral, unconditional, stable and long-run most favored nation
treatment and indiscrimination treatment among 134 treaty powers thus
greatly improving the international environment for China's tobacco trade
and offering more opportunities for China's tobacco and cigarette to
participate in the international competition.

WTO's basic spirit is to base on market economy and form a rational
allocation of resources through free competition among enterprises. This
has forced us to speed up the change of China's tobacco system and
rearrange the organization structure of tobacco enterprises so as to
enable to connect with worldwide enterprises as quickly as possible. Only
by doing so, can we stand still in the process of the integration of the
world's economy.

In recent years, regional embargo and local protectionism, just like a
persistent ailment, shackle the overall development of China's tobacco
industry. WTO's "principle of fair trade and free competition" and its
"principle of indiscrimination trade" help break local embargo so as to
form a nationwide circulation and market thus enabling Chinese enterprises
to foster the excellent and scrap the obsolete in the competition among
themselves and develop healthily in the fair and free competition.

To enter WTO does not mean that meat pies will be fallen from the sky or
fierce floods and savage will come. Because we have the monopoly system;
there is an evolutionary process for the reduction of cigarette import
tariffs; we still have national brand cigarette which meets the needs of
customers' taste and is appreciated by customers; and we have a complete
retail and sales network.

The present strength of China's tobacco industry is not at the same
starting line with multi-national corporations. However, so long as we
have the feeling of urgency and worry, positively participated in the
competition and work hard, we surely win a market share and develop China
from a large country of tobacco into a powerful country of tobacco.