[Intl-tobacco] Another story on Korea 10 Pct Tariff Due on Cigarettes (fwd)

[Robert Weissman]

10 Pct Tariff Due on Cigarettes
by Park Yoon-bae / Staff Reporter
Source: Korea Times, Thursday, 6/14/01

 A 10 percent customs duty will be imposed on imported cigarettes
effective July 1, and the government plans to raise the tariff by 10
percentage points annually to reach the 40 percent target in 2004.

  The Ministry of Finance and Economy yesterday announced the cigarette
tariff scheme after reaching an agreement with the United States during
the two-day negotiations that ended in Seoul on Wednesday.

  South Korea has never levied customs duty on cigarettes since the
country allowed tobacco imports in 1988 under a memorandum of
understanding with the U.S.

  The no tariff rule has been enforced for the past 13 years as Korea was
allowed to maintain its state monopoly on cigarette manufacturing.

  However, the Korean government has decided to lift the monopoly starting
July 1 by revising the tobacco business act and related regulations.

  With the imminent lifting of the monopoly, the country has pushed for
the introduction of a 40 percent tariff on imported cigarettes.

  As American and other multinational cigarette producers strongly opposed
the high tariff plan, Korea had to make a compromise on the matter and
decided on a 10-percent duty this year, gradually increasing it to 40
percent until July 2004.

  ``We've agreed on the tariff scheme, considering that foreign tobacco
firms are unable to produce cigarettes in Korea over the next two to three
years immediately after the scrapping of state monopoly,'' said a ministry
official.

  He also said that the gradual increase of tariffs would help the nation
avoid trade frictions with the U.S. and other cigarette- exporting
countries.

  The market share of foreign cigarettes soared to 15 percent in April
from 9.4 percent at the end of last year, 6.5 percent in 1999 and 4.9
percent in 1998.

  The ministry has also decided to ease the minimum production requirement
for foreign investors to set up cigarette-making lines here in Korea.

  Korea had planned to grant business licenses to foreign investors who
can set up both leaf tobacco processing facilities and cigarette packing
lines in Korea with an annual capacity of at least 250 million packs.
(Each pack contains 20 cigarettes.)

 But, the government decided to ease the regulations to allow foreign
firms with a production capacity of 250-500 million packs in Korea to
bring in processed leaf tobacco to be used for cigarette packing.

  Thus, multinational companies will be able to pack cigarettes without
setting up processing facilities for leaf tobacco if their output does not
exceed 500 million packs annually. Their minimum capital requirement is
fixed at 30 billion won ($23 million) as planned.

  ``We accepted multinational firms' demand that Korea should ease the
requirement, given that it is difficult for small firms to set up leaf
tobacco processing plants,'' said another official.

  He conceded that only firms with an annual capacity of producing more
than 500 million packs of cigarettes can establish and operate leaf
tobacco processing lines.