[Intl-tobacco] BAT hit by fresh claims it used smuggling to expand into Asia

[robert weissman]

Business Analysis: BAT hit by fresh claims it used smuggling to expand
into Asia
DTI under pressure after investigation of tobacco giant was dropped in Marc=
h

The Independent (UK)
By Rachel Stevenson

24 November 2004

New allegations that smuggling played a central role in British American
Tobacco's (BAT) expansion into Asia are emerging through research
published today.

 From detailed analysis of millions of BAT's own internal documents by
researchers at the London School of Hygiene and Tropical Medicine
(LSHTM), the company is accused of condoning and profiting from the
smuggling of its brands into Asian countries such as China, Cambodia and
Thailand in the 1990s, when the region had restrictions on foreign
imports. The LSHTM research team, which is publishing its findings on
BAT's activities in Asia today, also alleges that BAT carried out
dubious lobbying techniques to manipulate governments in the region away
from cigarette advertising controls and health warnings.

BAT has always denied any involvement or assistance in smuggling and a
three-year investigation by the Department of Trade and Industry (DTI)
into allegations of criminal activity was dropped in March. It concluded
there was no evidence to support claims the company had been involved in
illegal activity and no further action was taken. "We work actively with
Government and Customs and Excise authorities worldwide to help them
eliminate both smuggling and counterfeit tobacco products, which are
caused by tax differentials, weak border controls and import
restrictions or bans," a statement from BAT said yesterday.

But the LSHTM, after studying BAT's internal documents, asserts that
contraband trade in Asia was considered vitally important to exploit
what were then closed markets to foreign companies. As consumption of
cigarettes in Western markets began to decline in the 1980s, tobacco
companies undertook a scramble to hook the millions in the developing
world on their brands. The Asia-Pacific region is now the second largest
for BAT, with nearly one-quarter of its cigarette volumes sold there.

Contraband cigarettes are referred to by a variety of euphemisms by BAT
in its documents, such as "transit trade", "general trade" and "duty not
paid". Internal memos included in the LSHTM research state that BAT's
mission was to maximise its share of global exports market,
"irrespective of which sub-channel of exports is involved". Highlighting
its priorities on illegal versus legal trade, one memo says: "It is in
BAT's interest that markets are legal, taxed and controlled. However,
our primary responsibility is to meet consumers' demands as profitably
as possible."

According to one document unearthed by the researchers, general trade
accounted for 72 per cent of exports in the Asia-Pacific region from
1992 to March 1994. A memo discovered from the then chief executive of
BAT, Barry Bramley, in 1992, states BAT's strategy in the Far East was
one of consolidating its position as an importer "as well as building on
the successful general trade business in the region". A document
referring to a report on a visit to Thailand showed BAT's average
monthly transit volume was about 22 million cigarettes in the late
1980s, "earning a total group trading profit of the order of =A31m per annu=
m".

BAT is alleged to have condoned smuggling into China, a key market for
tobacco companies. China is the biggest cigarette market in the world,
with 350 million smokers and 1.7 trillion cigarettes, or "sticks",
smoked a year. Since China re-opened to foreign investment in the 1980s,
BAT tried to get back in to the country but was faced with tight import
restrictions. LSHTM says it circumvented import restrictions by allowing
contraband cigarettes to flow into the country from Hong Kong. In 1990,
BAT internal records show sales to China of 28 billion sticks a year.
Official government figures for the level of all legal tobacco imports
at the time were 10.5 billion.

The revelations about BAT's activities in China come at a critical time
for the company, as it is trying to set up a factory there. In July this
year, it announced a major venture in China but was left embarrassed
when the Chinese state tobacco authority denied it permission to build.
Talks with the Chinese authorities continue.

The lack of tobacco marketing restrictions in Asia was also exploited by
BAT, according to the research. In Cambodia, for example, there were no
restrictions on tobacco advertising in the 1990s, and as the government
emerged from 20 years of civil war, BAT identified the country as an
ideal new market. Cambodia, according to the researchers, was also seen
as perfectly placed as a base from which contraband cigarettes could
travel into Vietnam and Thailand.

The research pinpoints documents relating to Thailand, where tobacco
companies, including BAT, orchestrated a campaign to stop the government
forcing ingredients labelling on cigarettes. Fearing the legislation
would go against it, a BAT memo says: "We need to be ready to pump in GT
[general trade] stocks in case the supply is disrupted by the regulation."

Researchers have brought the evidence of these alleged activities to
light after a secretive four-year operation to request, copy and scan 8
million internal documents from BAT's archives. BAT was ordered by a US
court in 1998 to make its documents available to the public after a case
against the tobacco industry by US states to recover the health costs of
treating people with smoke-related illnesses. The company established a
depository in Guildford, but LSHTM researchers claim it was extremely
difficult to get access to the archive and some documents had been
tampered with. The archive is due to close in 2009 and in May, a team
from LSHTM announced it had copied all the documents in the depository
and published the archive on the internet to secure public access to the
documents indefinitely.

It is now in the process of further analysing the documents, and the
Asia revelations follow research by LSHTM of BAT's documents relating to
the former Soviet Union. This research, published in June, alleges that
in the break-up of the bloc and the subsequent economic hardship in the
region, BAT targeted money from EU aid packages to fuel cigarette imports.

In light of the body of new research that is now stockpiling against
BAT, anti-smoking campaigners and MPs say the DTI has serious questions
to answer over its investigation. Its report was never made public and
researchers from the LSHTM believe there is a weight of evidence showing
the extent the company relied on smuggled cigarettes to penetrate Asian
markets.

David Hinchliffe MP, the chairman of the Health Select Committee, which
ordered the DTI to conduct its investigation, said yesterday: "I was
very disappointed that the DTI would not make its report publicly
available. I will be looking at this research very carefully."

Jeff Collin, co-author of the LSHTM research papers, said he was
"astonished" by the DTI's decision. "Asia is the key to BAT's future
prospects and its own documents highlight how important illicit trade
was to the company. It could not get normal access to the region,
because of trade bans and state monopolies. Smuggled cigarettes got its
brands into the countries, and it would then use the existence of
contraband cigarettes as a means of persuading governments to let them
in legitimately with a low tax rate. There is evidence here that makes
the failure of the DTI to take any action incredible," he said.