[Intl-tobacco] Romania hikes tobacco tax, big firms threaten exit (fwd)

[Robert Weissman]

Romania hikes tobacco tax, big firms threaten exit
by Radu Marinas
Source: Reuters, Thursday, 3/22/01

BUCHAREST, March 22 (Reuters) - Romania's leftist government decided on
Thursday to raise cigarette taxes by around 20 percent, drawing a hostile
response from foreign tobacco firms which threatened to shut their
factories and leave the country.

Four of the world's top cigarette makers -- British American Tobacco,
Japan Tobacco , Philip Morris and Papastratos -- have joined forces to
protest against the change.

The four say they are being punished for paying taxes, while state firm
Tutunul Romanesc is effectively allowed to run up vast arrears.

And they accuse Romania's leaders of penalising the big foreign investors
they need to kick-start an economy which has shrunk by a quarter in the
past decade.

For its part, the government, which is finalising a tight 2001 budget that
has to balance tax breaks for entrepreneurs with new revenue, says higher
duty is needed to offset falling numbers of smokers.

But the cigarette firms said the real beneficiaries would be smugglers and
warned few would be able to afford higher prices in a country where 40
percent of the population lives below the poverty line.

``It's obvious sales will drop given the plunging purchasing power in
Romania,'' BAT Romania's corporate affairs director Adrian Popa told
Reuters.  ``So budget revenues will fall too.''

JOBS AND FOREIGN INVESTMENT AT RISK

In a letter to Prime Minister Adrian Nastase last week, the companies,
which make two-thirds of the cigarettes smoked in Romania, warned the
government was putting 3,000 jobs and $240 million of direct foreign
investment at risk by hiking taxes.

``If sales drop dramatically we will have to reassess staff numbers at our
plant,'' Popa said. ``And if we start losing money then we will have to
rethink our position on the market here.''

Although few expect the firms to abandon Romania completely, their threat
to shift production should ring alarm bells.

``We are of course foreign companies, but our workers are Romanians,''
Japan Tobacco spokeswoman Gilda Lazar said.

But analysts say the government is taking a cavalier attitude to the
foreign investment it is keen to promote by ignoring the requests of big
companies who are already here.

``These foreign firms are employing locals and paying good wages and
taxes,'' political analyst Dorel Sandor said. ``But the government seems
more interested in bailing out their ailing Romanian competitor when it
can't pay its bills.''

Bucharest daily Evenimentul Zilei quoted a junior cabinet minister on
Thursday as saying the firms' threats were empty.

``Not one investor is going to leave,'' the paper quoted Petre Mihailescu,
the government's secretary general, as saying.

``But if they want to they should feel free.''

That gamble is a risk that Romania, which has attracted just $5 billion of
direct foreign investment in the decade since the overthrow of communism,
should be wary of taking, analysts warn.

``The budget is being made possible by these foreign firms who cover the
bills that loss-making Romanian businesses run up and always get
rescheduled by the government,'' Sandor said.