[Intl-tobacco] Indian Govt rejects Philip Morris arm's local unit proposal (fwd)

[Robert Weissman]

Govt rejects Philip Morris arm's local unit proposal
The Economic Times, Thursday Jun 08 2000
Javed Sayed & Arshdeep Sehgal

NEW DELHI : IN A major setback to tobacco major Philip Morris' India
plans, the government has shot down the proposal of its Swiss subsidiary,
FTR Holdings, to set up a wholly-owned arm in the country.

The government has communicated to FTR that it has decided to ``close the
case'' and not consider its proposal as the company has not submitted a
declaration stating that it did not have any existing joint venture in the
``same or allied field'' as is required by official regulations prescribed
by press note 18. Philip Morris holds a 35.9 per cent stake in the K K
Modi-promoted cigarette company Godfrey Phillips India.

FTR is, however, not taking the rejection lying low. In a stronglyworded
letter, written by its legal representatives to the government, it has
stated that the grounds cited for closing the case are factually incorrect
and unjustified. It has asked the government to reopen the case and
approve its application which it says is not for the manufacture of
cigarettes but for agronomy and bulk processing of tobacco.

The issue of allowing 100 per cent FDI in the tobacco sector has generated
intense controversy over the last few years and the present government
does not seem to be in favour of permitting wholly owned subsidiaries in
this sector.

FTR has stated that the government's charge that it has failed to submit
the requested declaration is incorrect. It has pointed out that in its
original proposal it had said that it had no equity investment in India
and that a US based affiliate has a 35.9 per cent minority interest in
Godfrey Phillips.

FTR has further argued that the provisions of press note 18 do not apply
to its proposal as its planned end activities are not similar to Godfrey
Phillips. It has stated that its end product will be processed tobacco and
not cigarettes. Therefore, the activities to be done by the new subsidiary
will not overlap with any business conducted by Godfrey Phillips.

Moreover, the technology it is bringing in is not licensed to anyone in
India and distinct from the technology provided by a group company to
Godfrey Phillips.

Notwithstanding FTR's claims that its activities will not overlap with
Godfrey Phillips, sources point out that one of the proposed activities
listed in the company's application relate to providing marketing,
advertising and distribution support to licensed manufacturers of
cigarettes.

Lobbying for its proposal, FTR has said India is the world's third largest
tobacco growing country and the introduction of modern agronomy techniques
and processes would enable Indian tobacco growers to improve the quality
and yield of their crops.

FTR had in December 1998 sought government permission to set up a
wholly-owned subsidiary in the country for establishing an international
standard tobacco processing plant using proprietary technology and for
establishing a Research and Technical Service Centre to implement
programmes with farmers to improve tobacco leaf production.

The 100 per cent subsidiary also proposed to sell cut tobacco products in
bulk to licensed manufacturers of cigarettes.