[Intl-tobacco] Marlboro Man wants freedom to roam in SA

[Robert Weissman]

This is a hugely important story given ongoing US negotiations for a
free trade agreement with Southern African countries, including South Africa.


Marlboro Man wants freedom to roam in SA
Business Day
December 17, 2003

International Affairs Editor

SA IS set to witness the battle of the tobacco giants as Philip Morris
International, the makers of Marlboro, prepares to return to the country
and reclaim market share from its rival British American Tobacco (BAT).

However, Philip Morris says SA's regulations are in the way and that the
proposed ban on displaying cigarettes in shops and high customs duties
effectively protects the dominant position of BAT, which has more than
90% of the cigarette market in SA.

Philip Morris International's decision to move from importing to the
local manufacture of its brands, such as Marlboro, will only be possible
if it can break BAT's grip on the market.

David Davies, Philip Morris's head of corporate affairs who was in SA
last week to speak to government about what he sees as regulator
protection of a monopolist, said his company had to achieve a critical
mass in sales to manufacture in SA.

These views are clearly shared in part by owners of the Camel brand, JT
International, which earlier this year filed a complaint with the
Competition Commission alleging that BAT was restricting its retail
sales.

Davies has been trying to urge government to drop a proposed amendment
to the Tobacco Control Act that would ban shops displaying cigarettes.
The company insists that all it is seeking is a level playing field in
its competition with BAT, rather than an easing up on tobacco
restrictions.

It says that a proposed ban on the display of cigarettes in shops as
well as high customs duties on imported tobacco products do not help
meet public health goals, but instead protects its rival by maintaining
high barriers to entry. Davies says the ban on in- store displays is not
only a denial of commercial free speech, but would, "protect and
solidify the position of BAT."

"What does that accomplish in terms of the government's public health
goal? It simply entrenches the position of BAT," he said. The only way a
new entrant into the South African cigarette market could make smokers
aware of their brands, apart from through word of mouth, is through the
right to have its brands displayed in the store, he said.

Philip Morris and BAT each have about 15% of the global market. The
highest selling brand of Philip Morris International is Marlboro.

Leading brands of BAT include Rothmans and Peter Stuyvesant. With
worldwide cigarette sales expected to experience little or no growth
over the next 10 years, gaining market share is a shared strategy.

Philip Morris' decision to return to SA amounts to a direct challenge to
BAT which controls an estimated 93% of sales and 98% of local
manufacturing production.

Philip Morris, which is now Swiss based to take advantage of a less
litigious environment, pulled out in 1986 because of the growing clamour
in the US against corporations with interests in SA, but says it has
been investigating returning for almost 10 years.

Davies say although SA import tariffs on average have fallen from 28% to
10% since 1994, those on cigarettes rose from 30% to 45%.

Some of Philip Morris' brands will be imported to SA early next year and
only much later will a decision be made on local manufacture. A
manufacturing investment would create more jobs than an import operation
alone which relies on existing wholesalers.