[Intl-tobacco] Vietnam: smuggling adds value

[Robert Weissman]

Vietnam: smuggling adds value
By Luk Joosens
( Tobacco Control 2003;12: 119-20)

The industry has always claimed that smuggling is the result of taxes being
too high. This is not the case with SE555 in Vietnam: the price of the
smuggled 555, considered to be of higher quality, is higher than the same
brand manufactured in Vietnam.

This is the story...

Vietnam: smuggling adds value

Internal BAT documents1 have been explicit about the knowledge of cigarette
smuggling into Vietnam. In one document, Vietnam Status Report (12 May
1995), it was stated, "Cigarette imports were banned 6 years ago. Smuggled
sales into Vietnam are currently estimated at approximately 7 bn [billion]
p.a. although prior to a  crackdown in 1990 (when all smuggling was
virtually eliminated for 18 months) it was in the region of 12-17 bn p.a."2
The same document also stated, "SE [State Express] 555 is the major smuggled
brand and there is no doubt it has a tremendous image and sales
potential in
the country. BAT has resisted agreeing to manufacture 555 in Vietnam due
both to concerns about the ability to sell the brand as a locally
manufactured product and to the possible impact of a licence outside
Vietnam. However, Vinataba [the Vietnamese State monopoly] sees a
licence of
555 as an attractive opportunity for the JV [joint venture], and believes
that BAT's opposition to a licence is simply to 'protect the smuggling'
trade."3
A series of company papers showed that BAT pursued a twin-track strategy to
maximize its earnings from Vietnam. One track was to negotiate with the
Vietnamese government and Vinataba to produce international brand cigarettes
locally.4 The other track was smuggling. Documents describe in a detailed
way the smuggling route for 555: cigarettes were produced in the UK, shipped
to Singapore, sold to importers and traders in Cambodia and then transported
illegally across the border.5 Both tracks went ahead. A licensing agreement
to produce BAT brands locally was reached in 1994. By the end of that year,
BAT State Express 555 was launched in Ho Chi Minh City as 'Made in Vietnam,'
retailing at 10,000 Dong, cheaper than the price of smuggled 555, 11,000
Dong.6 BAT was controlling both the price of locally produced 555 and of the
smuggled 555 and decided that the local 555 should be less expensive "as an
opportunity to establish itself." BAT was clearly proud of 555's
position as
a 'luxury' brand, and wanted Vietnamese people to perceive it as a status
symbol. In 1998, Fred Combe, general manager of BAT in Vietnam, told the
trade journal Tobacco Reporter, "In Vietnam, smoking State Express 555 means
that you've made it."7
During a visit to Hanoi in March this year to attend a regional workshop on
tobacco tax policy in Southeast Asia, I could see that smuggling of SE 555
is still going on. I asked the price of the local and the smuggled 555
at 10
street sellers in Hanoi. The average price for the 'Made in Vietnam' 555 was
16,000 Dong, whereas the smuggled ones were 28,000 Dong (US$1 = 15,300
Dong). A Vietnamese researcher observed that smuggled imports of 555 and
Marlboro fetch higher prices because consumers consider them to be of higher
quality, or "more refined."8 My own mini survey confirmed this: street
sellers explained that the 'Vietnamese' 555 was "no good," and that smuggled
555 were much better, as they came from Singapore. The front and the
back of
both packs look similar, but there are significant differences on the sides.
The local 555 have a tax banderol, a health warning in Vietnamese, a
marking, 'Made in Vietnam', a label 'Exceptional tobacco for superior
smoothness,' a bar code and a number. The smuggled 555 were made in the UK,
had English language European Union health warnings, a bar code and number,
and, showing they were intended for duty free sale in Singapore, specified
on the side that Singapore duty had not been paid.
The case of SE 555 smuggling raises several questions. Cigarette packs have
specific codes that allow tobacco companies to track where their products
are sold, so BAT should have known that SE 555 has continued to be sold
illegally in Vietnam. The packs indicate that the cigarettes were sold to
Singapore traders; so why has BAT not stopped supplying these traders? The
fact that the cigarettes were marked for sale in duty free outlets in
Singapore, but ended up in the illegal market in Vietnam, illustrates how
duty free outlets are facilitating smuggling, and reinforces the need
for a
ban on all duty free tobacco sales.
There is continued wide-scale smuggling of tobacco products worldwide.
It is
happening with the clear knowledge of major cigarette companies, and is
aiding international organised crime. Given this situation, why have
governments not moved faster to require anti-smuggling measures such as the
mandatory use of tracking and tracing technology on all cigarette packs?
The industry has always claimed that smuggling is the result of taxes being
too high. This is not the case with SE555 in Vietnam: the price of the
smuggled 555, considered to be of higher quality, is higher than the same
brand manufactured in Vietnam. As there has been an import ban of cigarettes
in Vietnam since 1990, the only way to sell SE 555 cigarettes 'Made in
England' in Vietnam is through smuggling. A policy revealed in the internal
BAT documents seems to continue today.


LUK JOOSSENS
Consultant to European Cancer Leagues & International Union against Cancer
Brussels, Belgium
joossens@globalink.org


1 Several internal BAT documents on Vietnam are  available on the website
www.ash.org.uk/smuggling
2 Kemball B J, to Bramley B D, Vietnam - Status Report, 12 May 1995, BAT
Guilford depository, bates number 500045875-91, nr 20 of the internal BAT
documents available on www.ash.org.uk/smuggling
3 idem
4 Center for Public Integrity,  Global Reach of Tobacco Company's
Involvement in Cigarette Smuggling Exposed in Company Papers , web posted
February 2, 2000  http://www.public-i.org/story_01_020200.htm
5 Mc Phaill to O'Keeffe P C, Vietnam: 12.1093 to 19.10.93, 21 October 1993,
BAT Guilford depository, bates number 203472751-5,  nr 72 of the internal
BAT documents available on www.ash.org.uk/smuggling
6 Fred Combe,  BAT/SUTL meeting 11 November 1994, November 24 1994, BAT
Guilford depository, bates number 503868731-6, nr 138 of the internal BAT
documents available on www.ash.org.uk/smuggling
7 Tuinstra T, The train to success. State Express 555 means status in Asia,
Tobacco Reporter, Summer 1998, 34-35
8 Van Kinh H, Bales S, Tobacco in Vietnam: the industry, demand, control
policies and employment, in: Economic, social and health issues in tobacco
control, Report of a WHO international meeting Kobe, Japan, 3-4 December,
Centre for Health Development, World Health Organisation, Japan, Kobe, 2003,
144-168.