[Intl-tobacco] EU: Emerging Deal with PM on Smuggling

[Robert Weissman]

Industry mulls Philip Morris deal with Brussels
By George Parker in Brussels, Mariko Sanchanta in Osaka and Lisa
Urquhart in London
Published: April 5 2004 19:51 | Last Updated: April 6 2004 8:39

Philip Morris International's offer to pay the European Union $1bn (=80832m=
,
=A3550m) to head off lawsuits over alleged collusion with smugglers looked =
set=A0on
Monday=A0to pave the way for similar deals in the industry.

Philip Morris said its payment would help fight cigarette smuggling and
counterfeiting, and Japan Tobacco, maker of Camel and Winston
cigarettes, said
it wanted to co-operate with authorities in the same way.

Japan Tobacco, the world's third largest tobacco company, confirmed it had
talked to the European Commission over co-operation to fight the illicit tr=
ade.

Guy Cote, a Japan Tobacco spokesman, said that until now Brussels-based
regulators had rejected his company's offers to settle all eventual
legal disputes
and pay money to fight smuggling.

He said he hoped the latest development would enable serious
negotiations to be
reopened. "Perhaps they wanted to deal with the biggest player first,"
Mr Cote
told Dow Jones.

The European Commission launched legal action against Philip Morris, Japan
Tobacco and RJ Reynolds in 2000, claiming that the companies colluded with
smugglers to bring their products into the EU, so avoiding excise
duties. That
case was rejected by the US courts, but Brussels is now pursuing a related
claim against RJ Reynolds for alleged money-laundering.

Michaele Schreyer, the EU budget commissioner, said she hoped the
Commission and 10 EU member states would be able to agree a deal with Phili=
p
Morris "very soon" to end the legal dispute.

She refused to say whether the litigation against Japan Tobacco had been
suspended because talks with the company were continuing.

"We are willing to have discussions with all companies that show they are
serious about their fight against this illegal trade," she said.

The $1bn payment would be the largest amount ever extracted by the EU
from a
private company, and exceeds the ?497m antitrust fine levied last month aga=
inst
Microsoft.

However, the Commission said the money, to be paid over 12 years, was not
guaranteed to be spent on fighting the illegal trade in tobacco, saying
only that
the funds "could be made available" for that purpose.

Japan Tobacco last year warned that rising excise rates in the 10
countries due
to join the European Union next year could lead to a flood of contraband.

It argued that long borders between some of the new EU member states and
countries such as Ukraine could allow extensive smuggling.

Philip Morris International's $1bn payment is designed to arrest the
flow of bogus
cigarettes from markets like Russia and the Ukraine into the new EU.

But what is less clear, says Michael Smith of JP Morgan, is whether
governments will be able to tackle intra-EU movements from countries such
Poland to Germany and France effectively after they join the EU on May 1.