[Intl-tobacco] World Health Organization Takes On Big Tobacco (But Don't Hold Your Breath) (fwd)

[Robert Weissman]

The World Health Organization Takes On Big Tobacco (But Don't Hold Your
Breath) Anti-smoking advocates are mounting a global campaign. It's going
to be a long, hard fight.

FORTUNE
Monday, September 17, 2001
By Eryn Brown

If you're like most people, you probably didn't know that May 31 was World
No Smoking Day. But that Thursday, as you sat at your desk and stared at
your computer, anti-smoking activists all over the world were getting
together and trumpeting their cause. Clerics in Egypt issued an edict
stating that smoking violates the rules of Islam. The authorities in
Lesotho initiated a ban on smoking in all government buildings and
vehicles.

There was a celebratory chicken-and-chardonnay luncheon at the United
Nations in New York City; in Switzerland, health officials burned "Cowboy
Bob," an effigy made of wadded-up cigarette ads. American movie stars and
athletes made public service announcements. So did officials in China.

Luncheons and bureaucratic edicts are seldom the stuff revolutions are
made of, but while World No Smoking Day may sound toothless and
irrelevant, it actually signals a big and important phenomenon: The
anti-smoking fight is going global. Energized advocates are pooling their
efforts into an ambitious long-term push to curb smoking in the wealthy
nations where it has flourished and to keep it from catching on in the
developing nations where it hasn't.

There's more to this than pronouncements and demonstrations: There's
education, legislation, and a new heap of litigation. Before long, tobacco
opponents should even have a World Health Organization-sanctioned global
treaty, the Framework Convention on Tobacco Control (FCTC)--an agreement
that promises to influence legislation around the world. The FCTC could
make it easier for governments to implement tobacco controls; it could
also put in place a system to monitor compliance. Such steps could prevent
hundreds of millions of people from picking up the habit.

What the FCTC won't do is bring an end to tobacco use--or, for the
foreseeable future, to Big Tobacco. The market is simply vast: some $300
billion a year in sales, with taxes accounting for about half that amount,
according to industry sources. Public health types say that they'll be
very pleased if the FCTC manages to hold the number of smokers steady, at
1.25 billion, over the next 20 years. Companies like Philip Morris,
British American Tobacco, and Japan Tobacco should have plenty of
potential smokers to court for many years to come.

Whether Big Tobacco will woo those prospective customers successfully,
however, is another question. Weak as it may seem when it comes to
eradicating smoking itself, the FCTC could--possibly--affect the rules of
the cigarette-marketing game. Just because there will be more than a
billion smokers in the year 2020, that doesn't mean they'll all buy
Marlboros and Camels.

An important thing to understand about Big Tobacco is that its future
lies, in large part, in the developing world. "You buy Philip Morris in
the long term for their international business," says Bonnie Herzog, an
analyst at Credit Suisse First Boston in New York City. "That's their
growth engine." To get an idea why this is, all you have to do is take a
casual look around: Smoking, at least in countries like the United States,
has become decidedly unfashionable. You can't smoke on planes anymore. You
can't light up in your office. If you live in California, you can't even
have a cigarette over a drink at your favorite bar.

Experts don't base their assessments on what they see in their local pubs,
of course. Much as epidemiologists chart the ebb and flow of infectious
diseases, researchers working with the WHO have developed a four-stage
model to explain how smoking tends to spread--and the model clearly
demonstrates why new markets are the battleground. The underlying
principle is that the addictive nature of smoking, in combination with the
lag time between when a person begins smoking and when he or she gets sick
from it, creates a predictable pattern in smoking rates. The cycle takes
decades to run its course. In stage one, the number of smokers in a given
population is low--either because tobacco is unavailable or because it is
unaffordable. In the second stage, smoking starts to catch on; the rates
for men shoot up past 50% and rates for women creep up to as high as 40%.
In the third stage, smokers start dying en masse--particularly men,
causing male smoking rates to fall steadily. And in the fourth stage, both
male and female smoking rates decline. Men's mortality drops off. Lagging
a few years behind, women's mortality continues to rise.

The model is based on the smoking adoption patterns seen in Western
countries, and it assumes that smoking rates rise as economies
industrialize and people have more money to spend. (Broadly speaking, this
is perfectly plausible: Tobacco companies will attest that their sales go
up as GDP rises.) Rich nations are far along on the curve: The U.S.,
Canada, Australia, and Western Europe are entering stage four. Eastern
Europe and Japan are in stage three. China, India, and other developing
nations are in stage two, the smoking-boom phase. Sub-Saharan Africa is in
stage one.

The model suggests that smoking rates will never crash suddenly to zero.
People generally begin wanting to quit only when they see their neighbors
get sick and die--i.e., after puffing away steadily for 40 years. And
because tobacco is addictive, wanting to quit and actually quitting are
very different things. When you consider also that the stage-two countries
where cigarette-smoking uptake is soaring are also the countries where
population growth is greatest--China, India--it becomes very clear why the
developing world could become a gold mine for the tobacco companies. (It
also becomes obvious why people at the WHO say they'd be thrilled merely
to keep the number of tobacco smokers where it is today. If the model is
an accurate predictor, there will be far, far more than 1.25 billion
people smoking by the time 2020 rolls around.)

The WHO would love to nip Third World smoking in the bud, to keep those
stage-one and stage-two countries from having to go through stages three
and four. It's a tall order, yet there's reason to believe the FCTC could
make some inroads. In a number of countries, regulations championed by
anti-smoking activists have already lowered smoking rates.

Take South Africa. When apartheid ended, new President Nelson Mandela
brought in health ministers who worked to ban cigarette advertising, raise
tobacco taxes, and make all public places smoke-free. Smoking rates
dropped 22% by 2000. Canada carries things a step further: In addition to
all that South Africa does, it requires manufacturers to print large--and
horrifically graphic--photos and health warnings on packs of cigarettes
sold in its stores. Canada has enjoyed an annual 2% decline in smoking
rates over the past 20 years. The U.S. has had its anti-smoking coups
too--although overall its record is mixed. In 1970 some 44% of American
men smoked. Today only 28% do, and the number is dropping steadily. At the
same time, the U.S. government continues to offer price supports to
tobacco growers; and arguably, American pop culture still glamorizes
smoking far more often than it knocks it.

The FCTC proposes to collect measures like those that have worked so well
in South Africa, Canada, and the U.S. in a single document to guide
countries that have not yet initiated tobacco control. "In a lot of
countries, a well-crafted FCTC can serve as a much-needed model," says
Ross Hammond, a San Francisco consultant who works with the Campaign for
Tobacco-Free Kids.

The treaty might recommend placing restrictions on where people can smoke,
outlawing lighting up in government offices, airplanes, and hospitals. It
might promote educational programs that explain, in plain language,
exactly how cigarettes affect the human body. It might enforce rules
against marketing to teens, which, according to a recent study by the WHO
and the Centers for Disease Control, is intense in the Third World (where
cigarette companies still distribute free samples). It could work to curb
smuggling.

It could jack up the price of cigarettes by urging countries to levy high
taxes. At its strongest, the convention would also ban tobacco advertising
and sponsorships.

Some people inside the industry think such controls are directed squarely
against the tobacco multinationals--that the FCTC won't do much at all to
curb smoking writ large, but could go a long way toward making it hard for
the big companies to sell their products in developing nations. "The thing
you find yourself asking is," says Michael Prideaux, head of corporate
affairs at British American Tobacco (BAT), "Is this designed to help
public health, or is it designed to hurt the international companies?"
Adds Michael Smith, an analyst at Morgan Stanley in London: "Talking to
the World Health Organization, it's clear that it's Philip Morris and BAT
they're interested in."

Big Tobacco, after all, is selling image as much as it's selling a
nicotine buzz. But the appetite for expensive, branded cigarettes could
fall off if tough marketing curbs prevail and it gets harder for companies
to advertise.

Brand cachet (and sales) will suffer, too, if the WHO succeeds in getting
governments to put big ugly warnings like Canada's photos of bleeding
brains and rotting teeth on otherwise elegant packs of premium butts.
What's more, if the WHO does persuade nations to tax cigarettes heavily,
high prices might push Third World smokers toward cheaper alternatives,
like hand-rolled or counterfeit cigarettes--which, unlike the big
companies' exports, could evade the tax radar. "People are willing to
trade down when packaged cigarettes get too expensive," says Morgan
Stanley's Smith.

China could turn out to be a unique headache for Big Tobacco. With 320
million smokers, the market is almost unimaginably large. But China may
very well decide to protect its state monopoly, China National Tobacco
Corp. So far, the signals are mixed. BAT, for example, recently was able
to lease land for a factory in Sichuan, but the government-sanctioned
tobacco-industry association protested loudly against rumored large-scale
production plans.

It will take a long time for any broad changes to come about; the FCTC
will have influence only when countries ratify it. The WHO wants to have
the convention signed, sealed, and delivered by May 2003; while Smith
thinks the WHO can pull it off, many Wall Street analysts who follow the
tobacco multinationals don't expect to see anything solid for more like
ten years. "It's such a lengthy process, and it's going to be very hard to
get all the countries to pull together," CSFB's Herzog says. "If anything
happens, it will take a long time, and it will be diluted from what it is
now." Agrees analyst Jonathan Fell of Merrill Lynch in London: "I don't
think this is going to be huge. The more detailed, the more prescriptive
this gets, the more difficult it will be to reach a consensus."

Indeed, disagreements are already popping up at the WHO. There has been
debate about wording and bylaws, even about how many votes it should take
to ratify the convention. Anti-smoking people complain that powerful
countries, including the U.S., Germany, and Japan, are trying to weaken
the agreement. "If the U.S. cannot play a positive role, its delegates
should just stay home," says Cassandra Welch, director of field advocacy
for the American Lung Association. When the head of the U.S. delegation,
Thomas Novotny, announced his resignation on Aug. 1, many believed he was
protesting Bush Administration proposals that would soften advertising
restrictions and ease taxation requirements.

Ratification is not the only obstacle; after the WHO delegates vote on the
convention, someone has to enforce it--and there is no guarantee that
governments will fall into step. In 1998 the four largest U.S. tobacco
firms settled with 46 American states, agreeing to fork over $206 billion
over 25 years to offset the cost of smoking-related illnesses. But some of
those states are already beginning to soften their anti-tobacco positions;
Florida's pension fund, for example, just dropped its four-year ban on
investing in tobacco stocks (which are up 7.5% for the year at press time,
vs. a 10% decline for the Fortune 500 index). In some countries, including
China and Turkey, tobacco production is government owned. The European
Union tried to impose a ban on tobacco advertising, but the European Court
of Justice overturned the directive last October.

Taxation, too, can be a thorny issue. Around the world, countries reap
anywhere from 0.5% to 9% of their annual tax revenues on tobacco sales.
Evidence suggests that when governments raise taxes on tobacco they make
money off the deal, at least in the short term: A 1995 study cited by the
World Bank showed that the United Kingdom's tax income from tobacco sales
has risen in the 30 years since the country started raising tax rates (and
lowering smoking rates). Still, many governments worry that they'll lose
money if they raise taxes on cigarettes, because too many smokers will
decide to quit. Admits Hammond: "The success of the FCTC is very
uncertain.

It depends on how serious governments--especially countries like the U.S.
that wield so much influence--are going to be about bringing this under
control."

All the players can do for now is hold their ground and wait to see how it
all shakes out. Big Tobacco has long been accustomed to working under
stiff regulation. Says Philip Morris International senior vice president
David Greenberg: "Whatever the rules are, consistently applied to all
companies, we're happy to compete." Meanwhile, his company is doing what
it can to fight against strict marketing controls and against outright
bans of tobacco products. BAT's Prideaux is also engaged, but less
inclined to mince words.

"You could make real progress if people took a grown-up attitude," he
says. "More than a billion people are going to smoke, no matter what. I
hope regulators will see that it's better to work with the industry. If we
become smaller players, the bulk of the business goes to organized crime,"
he says.

In other words, governments should deal with the devil they know--Big
Tobacco--rather than the devil they don't.

Anti-tobacco advocates are hanging in there too. They'll likely be
debating FCTC specifics for months; honing regulations, country by
country, for years; planning World No Smoking Days for decades. And that,
to them, seems okay. "We won't see results from this work for another
generation," a WHO official remarked on World No Smoking Day, as he looked
around the room during the U.N.-sponsored luncheon. His wine glass half
full, he turned cheerfully to his colleagues and joined in as they toasted
their cause.

Source:
http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=204049