JULY/AUGUST 1997 · VOLUME 18 · NUMBERS 7 & 8
I N T E R V I E W
JULY/AUGUST 1997 · VOLUME 18 · NUMBERS 7 & 8
I N T E R V I E W
Multinational Monitor: From a developing country perspective, why does it matter if foreign tobacco companies enter the market?
Judith Mackay: In general, the traditional monopolies in the developing countries don't deny the health evidence, don't advertise, market or promote their cigarettes and don't obstruct government action. In these three ways, they are diametrically different than the transnational tobacco companies.
When the transnational tobacco companies enter the market, they bring a sea change in the whole tobacco control scenario. Very few developing countries have had any experience standing up to tobacco industry executives and lawyers. It complicates the efforts of developing countries of trying to bring the epidemic down.
MM: Which are the leading foreign companies operating in Asia?
Mackay: They are principally the American and British companies: Philip Morris, R.J. Reynolds, British American Tobacco (which is Brown and Williamson in the United States) and Rothmans. And I think one now has to add Japan Tobacco International (JTI), which markets Mild 7 throughout Asia, and behaves very much like a transnational.
MM: So JTI has a similar effect as Philip Morris or BAT?
Mackay: Just for the last few years. This is a very good example of another problem of the transnationals coming into a market: the national monopolies change from being a simple government department, and rather inefficient and bureaucratic; they learn very quickly that if they are going to compete then they have to beat the devil at his own game. JTI has now changed into becoming a company that advertises and promotes cigarettes just like the American and British transnationals.
MM: That change came in response to the foreign companies entering into Japan?
Mackay: In 1985, when Japan was threatened by the United States with 301 sanctions -- that is, if it did not allow American cigarettes into the market and allow advertising of these cigarettes, that Japanese goods would not be allowed into America -- it was reported that the Japanese tobacco industry said, "If we have to accept American cigarettes being pushed into the Japanese market, we will beat the Americans at their own game in Asia." Whether that rumor is true or not, they changed dramatically into behaving just like a transnational.
MM: To what extent has this phenomenon taken place in countries other than Japan?
Mackay: Outside Japan, it is just starting.
For example, in China, the national tobacco monopoly has just started to advertise and promote their cigarettes. Luckily, China has passed a tobacco advertising ban, so it hasn't been too wayward. But the national monopoly in China has a few advertisements in Hong Kong -- not many and very simple compared with the way the foreign tobacco companies operate -- but they are certainly beginning to learn.
One of the things that really worries me is that Philip Morris has signed a joint cooperation agreement with the Chinese monopoly. It says that Philip Morris will help the monopoly produce Marlboro cigarettes in China, they'll help them with the quality of their cigarettes, they'll help them with their export market. That is much more sinister than just having a joint venture. One has to remember that the Chinese government monopoly is the biggest tobacco company in the world.
MM: What kinds of marketing and promotion efforts do the foreign companies undertake in developing countries?
Mackay: You name it and they do it. Wherever they can, they have overt, direct advertising -- on television, on billboards, in the print media, everywhere. That now includes advertising for women, with cigarettes such as Virginia Slims.
If developing countries struggle to get an advertising ban in place, there is an immediate switch to the indirect advertising. Malaysia is the best example of that. They have a ban on direct advertising. But Kuala Lumpur is filled with billboards and other advertising for sponsorships, bistros and rock concerts, travel agents, all sorts of things with the tobacco company names. It is the only country in the world where I have ever been where they have advertising on in-house hotel movies. They actually interrupt the movies, and 100 percent of it is indirect tobacco advertising.
When it comes to sponsorship, again you name it and they sponsor it. They sponsor sports and arts. Recently, in Asia, they sponsored the Camel Rally in Mongolia. They sponsored Michael Chang and Pete Sampras to come play tennis in Asia. They sponsor rock concerts, karaoke bars, discos. The Hope Library in China. Training to be a physiotherapist in China. Chinese football. I could rattle off one after another.
This is a very big problem in developing countries. They think that they are banning advertising when they have a direct advertising ban, and they learn within days and at the latest weeks that that just isn't so.
MM: Are the companies still giving away cigarettes?
Mackay: They are. In Hong Kong, we have just banned that, though it has not yet been implemented. Apparently at the time of the Hong Kong handover on July 1, the Regent Hotel had a big happening: all the waiters were dressed in Western garb until 12:00 midnight, and then they changed into Chinese garb. It was the trendy in-place in Hong Kong for the handover night. I wasn't at that, but people tell me the cigarette girls were everywhere throughout the hotel handing out cigarettes, throughout the whole evening.
Giving away free cigarettes is permitted in most countries in Asia at the moment. I've seen it, for example, in Cambodia. If you go into a hotel or a coffee shop in Phnom Penh, you see the cigarette girls in their red and white colors for Marlboro, handing out free samples to very young people. You can see them go across to the young lads sitting together. They'll go, they'll flirt with them, they'll offer them cigarettes and then they will use their lighters in a very seductive way to light the cigarette in the mouths of these young men and then sit and chat with them. It almost looks like prostitution, if you didn't know it had to do with tobacco.
MM: How do these marketing and advertising strategies affect smoking rates?
Mackay: Only a few studies have been done on that. One that was done examined principally the 301 countries [where U.S. pressure opened foreign markets]: Japan, Taiwan, Thailand and South Korea. This study concluded that once the markets were pried open and advertising of foreign cigarettes was allowed, there was a 10 percent increase in smoking over and above what would have been expected from other factors. There was of course a marked brand shift as well, toward the foreign cigarettes.
There is no doubt that there has been an increase not just in market share, but in overall cigarette consumption as well.
MM: How effective are regulations at stopping these strategies, once the companies come in?
Mackay: If you look back at Asia 10 years ago, Singapore and Hong Kong were the only two countries that had really taken any action on tobacco. Singapore and Hong Kong now have not only the lowest smoking rates in Asia, they have the lowest smoking rates in the world. This is an example that Asian and developing countries can do it, and they can do it effectively.
In Asia, you are seeing nations move from dealing with malaria and infant mortality to tobacco in a very short period of time. Implementation of tobacco control measures is occurring much more rapidly than it did in the West, which took 40 years to get where it is today. The Asian countries are passing legislation and getting things done.
All of the Asian countries are now celebrating World No Tobacco Day on May 31, even the small island states in the Pacific.
About two thirds of the countries have some really useful legislation. Singapore must come at the top of the list. Mongolia has close to a model law. Thailand has a good law, as do Taiwan and Hong Kong. The Asian nations are extremely competent once it is shown what needs to be done.
China has ad bans in place on the electronic media, the print media and most outdoor advertising, and they have an all-but comprehensive ban on brand-name sponsorship. This has also happened over a very short time period.
On the other hand, if you look at consumption figures, there is going to be a huge increase in tobacco consumption until at least 2025, due to population increases, increase in lifespans and increases in women's smoking rates. Although the systems to reduce tobacco smoking have been put in place, the epidemic is going to get much worse before the situation improves.
We are going to have at least half a billion more smokers by 2025 in the world, most of those in developing countries.
MM: What accounts for the rise in women smokers?
Mackay: I think it is a combination of reasons, including linking tobacco with sophistication and emancipation. And Asia is probably the best example, because we are on an economic roll, which is why the tobacco industry is even more interested in Asian girls and women than they are in India or Africa, for example. Women are becoming more independent, women have more money to spend, women are becoming less "obedient" in that they no longer do what their fathers or brothers or sons tell them to do. They are going out to work more, they are seeing women smoking in foreign films, they are seeing lots of women tourists smoking. And the tobacco industry is also marketing toward women.
There are so many images that are having an effect on these young girls.
You've got people like Paula Abdul singing around Asia and being linked with tobacco.
Even stars like Michael Chang. At least half of the people who go to see him play tennis in Asia are female. You only have to go outside his hotel and see all the teenyboppers with their autograph books in their hands, all shouting, "Michael, Michael." And when he comes to Asia, who does he represent? He represents Salem. He always plays under a tobacco banner. He accepts the Salem trophy. He speaks warmly of R.J. Reynolds.
Promotion is even happening in Singapore, in spite of a total advertising ban 25 years ago, and practically the whole of Singapore public places being smokefree. They have even banned duty free cigarettes. But the girls there are starting to smoke. If you ask health officials why, they say that they are getting satellite, internet and cable tobacco advertising, but especially that the girls are going to see western films in which women are smoking.
MM: How do the multinational tobacco companies affect government policies?
Mackay: It is the companies and it is also the embassies.
Hong Kong is a good example of the corporate pressure tactics. In the last sitting of our Legislative Council, just before the handover, we got a fairly comprehensive tobacco law through. But it was a real battle and a half. What happens is the tobacco industry lobbies. They lobby governments, they lobby the media. They buy up full page ads in the newspapers. They misrepresent data. They bring in their lawyers, their executives. They make representations to government. They several times threatened to sue the Hong Kong government if this law went through, because they said it contravened our basic constitution, our Bill of Rights -- which it doesn't. But it can be very intimidating to a government to be threatened to be sued by the tobacco industry.
And then you have to add in the embassy dimension. For example, the U.S. embassy in Thailand has been making a representation on behalf of the tobacco companies. That is a pretty powerful force.
MM: What were you able to achieve in the Hong Kong law?
Mackay: It is not perfect. We still have the very thorny problem of indirect advertising. We already have a ban on electronic media advertising, on TV, radio and cinema. The new law will ban all advertising in print media, in magazines and journals -- even in imported journals like Time and Newsweek. It will ban outdoor display advertising on the sides of walls, billboards. We already have quite a lot of smokefree areas, such as public transport and lifts; the law will add on things like a requirement that restaurants with more than 200 seats must provide a third no-smoking seats. The public areas of banks and shopping malls and of our new airport will be smokefree. Nobody in Hong Kong will be allowed to put tobacco advertisement on the internet. You won't be able to give out free gifts commercially. When this law is fully implemented, it will put us about fourth in Asia in terms of tobacco control legislation.
MM: What is the current state of tobacco regulation in China?
Mackay: In 1990, China established the equivalent of the U.S. Office of Smoking and Health. They established the quasi-independent Chinese Association on Smoking and Health (CASH). It has already set up provincial organizations in more than half the provinces in China. Since 1990, CASH has organized a national conference which encourages and coordinates all the work that is being done throughout China.
As far as legislation goes, there have been health warnings on cigarettes in China since the early 1990s. There is now an advertising ban on all electronic and print media. And there are clauses about displaying advertising in public places, in sports stadiums and so on. By the end of the year, 300 cities in China are expected to have declared themselves to be smokefree cities, which means there will be no advertising and most of their public places will be smokefree.
Certainly the Ministry of Health and many of the other ministries have become smokefree areas, as have hospitals and clinics. I am certainly not saying that this is implemented absolutely 100 percent throughout China. But the ball is really rolling on this.
China banned all smoking on internal flights in 1983, long before most countries. In 1996, they declared all their airlines to be smokefree, going along with the international standard.
And there are lots of health education programs going on.
MM: What is the degree of foreign company penetration in China?
Mackay: It is difficult to say, because most of the foreign cigarettes in China are smuggled. After 1994, China was required to open its market to tobacco products, after a year-long U.S. Section 301 investigation into the market. Prior to that, the tobacco companies were only allowed to have 1 percent of the market, and they had to distribute their cigarettes through the tobacco monopoly, and they could only sell cigarettes at foreign hotels or places frequented by foreigners. But since then there has been a great opening of the market.
The official figures are really useless, and making any accurate estimate is really difficult. Everywhere you go in China you see cigarettes sold without the health warning -- they are smuggled cigarettes. We have a case in the Hong Kong courts at the moment, just one single case, involving $1.2 billion of cigarettes of Brown and Williamson that were smuggled into China.
Everybody says that smoking foreign cigarettes is prestigious and trendy, that the young people want to do it. You see people with a packet of Marlboro which has two openings. The top opening is a genuine opening with a genuine Marlboro cigarette, which a guy will offer to his boss or someone he really wants to impress. Out of the bottom comes the cheap Chinese cigarette that he will himself knock out and smoke when no one else is around.
When you get a situation like that, where foreign companies have such appeal, then you worry about market expansion of the foreign tobacco companies.
Joint ventures have opened in Xiamen and Shandong, and now there is this massive cooperation agreement between Philip Morris and the monopoly -- I think this will be the deathknell for the China monopoly. It might take awhile, because the monopoly is so huge. But I don't think they can stand up to the foreign companies. All of the Eastern European state tobacco companies have fallen over like nine pins, and I think the same will happen in Asia.
MM: Do you blame the foreign companies for the smuggling problem?
Mackay: It would be libelous to suggest that the foreign tobacco companies are actually smuggling their own cigarettes. But it is the case that approximately one third of all cigarettes are smuggled and unaccounted for in company ledgers, and that this is an important issue that needs to be addressed.
MM: In China, if the monopoly is going to be defeated by the foreign companies, where does that leave tobacco control in China?
Mackay: That is an interesting question. It makes it imperative to try and get the most done before the foreign tobacco companies get more powerful. It is a horse race between the Marlboro cowboy and trying to get legislation in place. Very few countries go back on legislation once it is passed. Therefore, it is important to adopt legislation, even if a country has difficulty implementing a bill. In Mongolia, the Ministry of Health asked me to help them draft a tobacco control law, which I did, and it is one of the best in the world. They cannot fully implement it yet. For example, they've got thousands of miles of border with Russia and China and it is snowed under most of the time. They can't check things like health warnings of cigarettes coming in. But the key is to get measures in place before the tobacco companies get too powerful, and implementation can follow.
Looking back to 1987, we were alerted to the fact that smokeless tobacco was going to be introduced into Hong Kong, and we did a preemptive strike and banned the whole lot: importation and sale of smokeless tobacco before it reached us. We had a fairly big fight with U.S. Tobacco, which sells Skoal and other brands, and their lawyers, supported by the U.S. consul representative, but nothing like what we would have today. There was an ability in the early days, like in Norway and Singapore, to get legislation through.
MM: How were you able to convince the Chinese monopoly to go along with tobacco regulations?
Mackay: It really started in 1987, when Richard Peto from Oxford and I were in China. There was a meeting in Tianjin which many of the leading scientists from medical and health organizations in China attended. Richard spoke about the epidemic in the West, and his predictions for China, and I spoke about tobacco control in other countries in Asia and gave ideas about tobacco control policy and legislation.
The Chinese scientists spent a year or two checking over these predictions. The deaths then were not so obvious. There are now over half a million annual deaths from tobacco-related causes in China, but in 1987 there were really comparatively few. Once the government, and the Minister of Health in particular, realized that this was for real and it was going to have a massive health and economic effect on the country, they began to mobilize. Maybe it harks back to the Chinese record of preventative health, which is astonishing and a model for developing countries -- the way they have tackled everything from population to immunization and infectious diseases -- but they have shown an enormous amount of serious intent and made real progress.
The conflict has been that their tobacco industry has been a great tax earner and a very privileged industry. At the very beginning, though, the monopoly wasn't a very formidable force. If the government said put on a health warning, they put on a health warning. If the government said don't advertise, they didn't advertise.
I met the chairman of the China monopoly on several occasions. One of the arguments I used with him to support the advertising ban on the electronic and print media was to say, "You will never be able to compete with these foreign companies." Not only was an advertising ban important to protect Chinese children, I said, but if you allow advertising to continue, you will be hugely disadvantaged by the foreign tobacco companies. The chairman said to me, "Of course smoking harms people, everybody knows that." He also said that if everyone stopped smoking in China tomorrow, that would be fine. He would just go and administer another government department. Ten years ago, there was that kind of ability to find ways to work together. It was a strange alliance, I can tell you.
The national monopoly and the health people are now moving on to war footing. Especially now that Philip Morris is working with them, it has become much more difficult to have any kind of cooperation with them whatsoever. It is moving much more toward hostility. In some ways, that is a good sign -- that tobacco control measures are beginning to take effect.
Multinational Monitor: What is the extent of foreign tobacco company penetration in Poland?
Witold Zatonski: As you know, all the countries in Eastern Europe now have open economies. After opening up our market, unfortunately, one of the first industries to come was tobacco, with many foreign tobacco companies buying local companies. In some of the countries, the foreign tobacco companies were already present in joint ventures with state monopolies. The foreign tobacco companies are now present in all Eastern European countries, especially in the Central European countries -- Poland, the Czech Republic, Hungary -- where the economy is more stable.
MM: Which foreign companies have the biggest presence in Eastern Europe?
Zatonski: Probably the biggest three are Philip Morris, Reynolds, and British American Tobacco. However, there are other companies, from Denmark, from Spain, from Japan. All of them are here.
MM: Have they made new investments in Eastern Europe or have they entered largely through the joint ventures and buying up old companies?
Zatonski: The vast majority bought old factories. However, Reynolds, for example, built a new factory here which has the capacity to produce 10 billion cigarettes a year, about 10 percent of our market.
I think the normal strategy is for them to buy an old factory and then renovate it.
MM: Are they selling the old domestic brands or have they introduced international brands?
Zatonski: They are trying to introduce international brands. However, there is still quite a big segment of smokers in Eastern Europe which prefer the domestic brands. And many foreign companies are now producing domestic names and domestic brands.
MM: What are some of the new marketing practices that the foreign companies brought into Eastern Europe?
Zatonski: You must remember that marketing did not exist in Poland before the introduction of a market economy. All the tactics which the companies are now using did not exist here before.
The companies started with new technical advertising in the beginning of the 1990s. They introduced quite aggressive and sophisticated, at least for us, technical advertising. In fact there was some excitement among Polish people about this technical advertising. Many people were saying, "Look. They have decorated our streets with these posters. They are very beautiful. They are putting these beautiful pictures in public places." Many people were quite pleased in the beginning with this new fashion, with this new art which was developing around us.
However, people quickly recognized that this advertising was, in the vast majority of cases, directed to very young people, and that it was not providing information about products -- what you would think advertising is for -- but was designed to create a positive image for the products.
The problem became more serious as the foreign tobacco companies started massively using promotions, rock concert sponsorships and other opportunities to come into very close contact with young people. All the biggest Polish rock and pop music concerts are now quite massively connected with tobacco producers.
MM: Do the companies give away cigarettes in Eastern Europe?
Zatonski: They are now using this technique quite massively, at least in Poland.
This has had an influence on a younger segment of the population. In Poland, at least, after the introduction of this technique, tobacco consumption among younger people has increased.
MM: How have the companies marketed and advertised toward girls and women and what effect has that had on smoking among females?
Zatonski: Until now, this is mainly connected with young men. There are some signs of direct advertising to young women and that they are introducing some cigarettes which are targeted to young women. But this is still less prevalent than in Western countries.
You must remember that many Eastern European countries are more "east." There are still some cultural restrictions for young women, especially in rural areas. The smoking rate among young women in the Ukraine, for example, is relatively low.
MM: What are smoking rates in Eastern Europe?
Zatonski: Smoking is a habit which was essentially introduced especially in male populations after the second world war. By the 1970s and 1980s, all Eastern European countries had quite high levels of tobacco consumption and tobacco-related diseases.
In central European countries (Poland, the Czech Republic and Hungary), we now have the highest level of tobacco-related diseases in middle-aged men. The level of lung cancer in young men and in middle-aged men, for example, is the highest ever observed in Europe. It's much higher in Eastern Europe than it ever was in Western European countries.
According to the World Health Organization, the chance of a 15-year-old boy living in a former socialistic economy reaching 60 is lower than an inhabitant of China, Latin America or even India. This is one of our biggest challenges: returning to normality. The level of premature death is really very, very high nowadays in Eastern Europe and the vast majority of this premature death is connected with chronic diseases -- cardiovascular diseases and cancer. Surely one of the major reasons for this is the level of tobacco consumption.
Premature mortality is so high that it has become a hindrance to regional economic competitiveness.
MM: What sort of tobacco control measures has Poland undertaken?
Zatonski: After consulting with our colleagues and friends in Western Europe, we recognized that to address teenage tobacco use, we needed to do two things: first, have comprehensive tobacco control legislation, which would be building some possibility for tobacco control; second, use mass media.
We have been doing both. You are not able to do legislation without the support of mass media, and to have support from mass media you must have some good scientific data, you must have your own data from your own country, you must demonstrate why it is important, you must have data on the incidence of chronic disease and you must demonstrate to people that the disease is caused by smoking. However, you must also have some good idea -- some news -- to sell to the mass media.
Immediately after the democratization of our country and the election of a new parliament in 1990 and this upper chamber, we started looking for members of parliament who would be interested in this topic. In all Eastern European countries, there are many, many doctors who were elected to parliament, and they are a group which is quite eager to take legislative steps to regulate tobacco.
This is exactly what's happened in Poland. We were in the beginning quite optimistic. We were thinking it would be possible to do this legislation relatively quickly. But, unfortunately, this is a long-distance walk. In Poland it took us five years. Finally, in November 1995, we were able to pass comprehensive tobacco control legislation in Poland.
MM: What are some of the most important provisions in the comprehensive tobacco legislation?
Zatonski: One of the most important is that our legislation requires the government to produce an action plan for controlling tobacco-dependent diseases in Poland. Every year, the Polish government must prepare an action program and allocate resources for executing this program.
Second, every year, our government is obliged to give information on what's happened in the last year in this field.
Third, the legislation places an obligation on the government to secure for all non-smokers a tobacco-free workplace and tobacco-free public places. Many people were quite skeptical about this, but it seems that the tobacco-free workplace policy is working quite well.
Not only non-smokers are interested in having a chance to breathe air free from tobacco, but it really seems that the owners of many factories are interested in having smoke-free workplaces. People who produce sweets or cake say it's very important, technologically, to be smoke free. And many factories say it's quite important for them because it's protecting them from losing work time. If people are not smoking in work places, their productivity is higher.
The state tobacco industry was trying to attack this part of the legislation, but they were not very successful because many business people agreed with our action. Many businessmen say, "Our talented and educated workers are ill because they are smoking too much," and they are very eager not only to create a smoke-free workplace but also to help workers stop smoking. Many factories asked medical doctors and the medical community to organize some action to help people to stop smoking, or to at least stop smoking during work time.
Anyway, protection of non-smokers is a quite important part of our legislation. I wouldn't say that it works 100 percent, but I think attitudes are changing.
However, in the last month, a group called "Defending Smokers," with the help of the tobacco industry, I think, started arguing that smokers in Poland are now discriminated against. If the smokers are feeling a little uncomfortable -- as the vast majority of the non-smoking population has long felt in Poland -- this seems a symbol that times are changing.
MM: Is that group a genuine citizen group or is it backed by the tobacco companies?
Zatonski: I really don't know. They usually say that they have nothing to do with the tobacco industry, but they are publishing large advertisements in the biggest Polish newspaper, which costs huge amounts of money. Our anti-tobacco lobby movement was never able to use this technique. They don't have problems with money -- the money's coming from somewhere. From where the money is coming, I don't know, but they must be quite rich, and I don't believe that the civil society movement is so rich that it is paying for this advertising.
In recent weeks, we were having quite a big battle over health warnings, and this group was publishing advertisements in the biggest Polish newspaper to pressure members of parliament. Fortunately, they were not taken too seriously. We were able to stop the tobacco company effort to diminish the size of health warnings -- required by law since May -- on cigarette packages in Poland.
MM: Does Poland have any restrictions on advertising?
Zatonski: We have some. There is a ban on advertising in all electronic media, television and radio. And the new regulations require any advertising in Poland, including billboard and newspaper advertising, to have a big health warning covering at least 20 percent of the surface and located on the top of billboards or the top of posters.
Nowadays in all streets in Poland, all tobacco advertisements must be adorned with this big health warning. This is another way to try to stigmatize tobacco products. We think this may be especially important for children and young adults in Poland. The tobacco industry is not very happy with this.
Also in our legislation, we have measures to protect children. We have banned vending machines in Poland; we have banned selling tobacco to children under 18; and a few other things.
MM: Do other countries in Central and Eastern Europe have similarly strong tobacco control measures?
Zatonski: Such comprehensive legislation exists only in a few Eastern European countries. In the vast majority of Eastern European countries, there is some legislation or regulation. But Poland is probably the most comprehensive. Some regulations in Poland are quite similar to the regulations proposed in the U.S. settlement, and some are more progressive than those in many Western European countries.
Multinational Monitor: How did the foreign tobacco companies get into Thailand?
Dr. Hatai Chitanondh: Before 1990, Thailand had a government tobacco monopoly and a closed market. Cigarette imports were banned, with some exceptions.
In 1989, we had a fight with the Office of the U.S. Trade Representative (USTR). That was the beginning of the Section 301 dispute between Thailand and the United States. Section 301 of the U.S. trade bill says that if any country has a policy of preventing U.S. goods entering into that country, the United States would retaliate against that country by several means. For example, they can raise the tax of various imports of that country into the United States.
In the two or three years before the Thai-U.S. dispute, the United States forced open cigarette markets in Japan, Taiwan and South Korea using 301. Those countries yielded to U.S. pressure within a few months. But Thailand was totally different.
Before the United States used 301 against Thailand, I got some inside information that the minister of finance was preparing a list of foreign cigarettes to be brought into the country. I was then the deputy permanent secretary of the ministry of public health. I called a press conference and disclosed on March 13, 1989 that foreign cigarettes were going to come into the country. I was not afraid of the cigarettes themselves -- the product -- but I was afraid of the sophisticated marketing techniques of the foreign companies, which I feared would cause an increase in cigarette consumption in Thailand.
The health sector, the medical association, and almost all of the public joined in opposing the entrance of foreign cigarettes.
The U.S. Cigarette Exporter Association (U.S. CEA) at first thought it would be easy to come into Thailand. But with the explosion of opposition, they realized that it would not be possible to come in. So they submitted a petition to the USTR on April 10.
The USTR accepted the petition and initiated an investigation on May 25, 1989. It had a timetable of one year for the investigation. During that time, we campaigned and got support from all around the world: from the Asia-Pacific Association for the Control of Tobacco, from the World Health Organization and from our friends in the health sector in the United States -- for example, the American Lung Association, the American Heart Association, American Public Health Association, and so on.
With all of the world support, the USTR decided it could not win bilateral negotiations -- the United States is a big country and if it forced a small country like Thailand to open its market to tobacco, it would lose prestige. So they sent the case to GATT in October of that year.
MM: How was the GATT case resolved?
Chitanondh: The GATT case is a landmark case. The GATT ruled that Thailand could not keep its market closed. But it also ruled that Thailand could take measures to limit the health consequences of the introduction of foreign cigarettes. Acceptable measures included: number one, a total ban on advertising; number two, a tax on tobacco products which can be set at any level, as long as it is applied equally to domestic and foreign cigarettes; number three, controlled distribution of cigarettes (for example, a prohibition on sales to people who are under the age of 18); and number four, a requirement that cigarette ingredients be disclosed.
So it seems that the United States won the case, because Thailand had to open the market to foreign cigarettes. But in reality, Thailand won the health aspects of the case.
After that case, the United States would no longer dare to use Section 301 to pressure other countries over cigarettes. They planned to use this to pressure China to open the cigarette market. Imagine! China has 300 million smokers -- the number of smokers in China is bigger than the whole U.S. population. The USTR planned to use this pressure upon China but they decided not to do it because of the Thailand case. So they had to use a 301 case upon all products, not particularly cigarettes, to pressure China after that.
MM: Which foreign companies have entered the Thai market after that case?
Chitanondh: Philip Morris, BAT (British American Tobacco); R.J. Reynolds; Japan Tobacco; Brown & Williamson; and Rothman.
MM: What kind of marketing techniques have they introduced, given the sorts of marketing restrictions Thailand has imposed?
Chitanondh: After we opened the market to the foreign cigarettes, we passed two tobacco control laws. They are very strong laws. The first law is the Non-Smokers Health Protection Act. It prohibits smoking in public places.
The second law is the Tobacco Product Control Act. It bans sale of tobacco products to people under 18. It places a total ban on advertising, in all media, with two exceptions: foreign printed materials that are imported, and live telecasts. It prohibits several kinds of promotion. For example, free sampling is not allowed, exchanges are not allowed and there is a ban on advertising of non-tobacco products that have cigarette logos on them. There must be disclosure of the ingredients of each cigarette brand. And there are 10 different, strong health warnings, each occupying 25 percent of cigarette packages, printed in black and white.
So the foreign cigarettes cannot advertise or promote their products. That's why the market share of foreign cigarettes has been less than 3 percent every year since the opening of the market.
It has been more than five years now that the foreign cigarettes got into the Thai market. In their documents, the foreign companies predicted that in the first year they would have about 15 percent market share and that in the second year they would reach 25 percent. But it has been almost five years now and they cannot reach more than 3 percent.
But they have been trying to circumvent our laws by many means.
MM: How have they been trying to circumvent the laws?
Chitanondh: First, they give out objects such as ashtrays and wall clocks with cigarette logos to retail establishments and restaurants. The restaurants put the ashtrays, for example, on their tables. But according to our law, that is advertising and thus illegal. Our law says that advertising means any act that enables people to see, hear or know about a product for commercial purposes. So I had to give a press interview with a picture showing what the companies had been doing, and warning restaurant owners that they could be arrested for illegally advertising cigarettes and liable for large fines -- about 6,000 U.S. dollars for each offense.
After the press interview, the restaurants and retailers removed the wall clocks and ashtrays. I have to do this all the time. Coverage in the media is very effective.
The companies have also sponsored cultural events. First, Philip Morris sponsored a Tony Bennett concert. But they could not show their logos at the place where the show was held. Later, Philip Morris sponsored the Philip Morris ASEAN Art Award, a series of art contests in each of the ASEAN countries -- Thailand, Malaysia, Singapore, Indonesia, Philippines, Brunei and now Vietnam.
I came out and opposed the Tony Bennett concert and the Asian Arts award. They are still undertaking these sponsorships, and we are still opposing it, but it has been difficult to explain to the public that cultural sponsorship is a marketing technique. It's not a philanthropy, or giving back to the society; the tobacco companies are trying to create positive associations between the good things and smoking.
There has not been sports sponsorship in Thailand because the companies cannot show cigarette logos.
In 1993, they had a car rally called the 555 Subaru Rally. (555 is the name of a cigarette brand.) They had the 555 on their cars, on their clothes, on their instruments, and they were seen in the news. That was illegal, so I gave a press interview press saying it was illegal, but the government authority didn't do anything about it. After the 1993 rally, I wrote to the main sponsor, Singha Beer, explaining that it was illegal. Since then, they have had the race every year but they don't use the 555 logos; instead they put on dash, dash, dash.
They have also tried to circumvent the advertising law. We have three cable television systems in Thailand. They show tapes of various sports that are sponsored by tobacco, where cigarette logos are displayed. Government authorities have not taken any action.
At the beginning of this year, an importer of "tobacco diversification"products took out two-full-page, color advertisements in magazines, advertising Camel Trophy clothing. That was illegal, according to our law. You cannot advertise any products that have cigarette logos on them. In this case, the Tobacco Consumption Control Office already complained to the police. I don't know how the case has been handled. We are afraid that the justice system might not be responsive. In developing countries, the bureaucratic systems are sometimes highly corrupt; they get money under the table and they don't do anything.
Lately, the cigarette importers have also tried to advertise by what we call point-of-sale promotion. They don't show cigarette logos -- they know that's impossible. So they just put up a color picture above the cigarette section in the retail shops. For example, they put up a picture with the words, "Get Lucky." People will know that is for Lucky Strike. Or they put up a color picture of the Marlboro cowboy, without a logo, and people know that that is for Marlboro. In this case, I am trying to collect all the pictures and I'll give a press interview. Because although they don't show cigarette logos, it is advertising according to our law, and it is illegal.
The latest thing about marketing, the thing about which I am most afraid, is low prices. Marlboro cigarettes here are manufactured in and imported from Malaysia. When they arrive in Thailand, the C.I.F. price is only 20 U.S. cents -- 20 cents! Imagine! It is probably the cheapest in the world. Even though we have quite high taxes -- the import tax is 30 percent of the C.I.F. price and then they have to pay the excise tax which is 68 percent of the retail price and a 7 percent value added tax -- the retail price stays very low. Marlboro retails for about one U.S. dollar. This is probably the cheapest in the world.
I think this is dumping. Right now, they only have 3 percent market share. They don't make money at the moment, but their goal right now is to get more people addicted. If cigarettes are cheap, people smoke more.
MM: Are the companies lobbying to have the regulations repealed or rolled back?
Chitanondh: They would love to, but they cannot do it.
At one time they tried. About three or four years ago, a former public health minister tried quietly to reduce the size of the health warning on the cigarette packages. But I found out about it so we were able to publicize it in the newspaper, and he didn't dare to do it.
MM: What has the U.S. embassy been trying to do, after the 301 case, to change regulations?
Chitanondh: About four years ago, when I was still at the Ministry of Health, we asked the Ministry of Finance, which supervised the Thailand tobacco monopoly, to ban all chewing tobacco because it was dangerous to our people, especially children. Thailand had not historically had chewing tobacco; it was brought in in a very small amount because there were foreign tourists coming into Thailand and some asked to buy it in shops.
The minister of finance agreed with us and banned imports of smokeless tobacco. At that time, the U.S. embassy tried to intervene. But the ban was GATT legal because it applied equally to domestic Thai production. The U.S. embassy tried to intervene but we didn't care.
Another issue is the disclosure of the cigarette ingredients, which is mandated in Article 11 of the Tobacco Product Control Act. This bill was enacted in 1992, five years ago, but the details of this Article 11 must be announced by the ministry of regulation later.
Five years after passing the law, we have not been able to issue the regulations because the cigarette importers have been opposing it all along, helped by three embassies -- the United States, Great Britain and Japan. The embassies argue that ingredients are a trade secret and protected under the World Trade Organization. We argue that it's not a violation of trade secrets according to the World Trade Organization because we don't reveal the ingredients to the public, and the GATT ruling established our right to protect the health of our people. If we find that any cigarette brand has too high a content of some dangerous chemicals, we can tell the producer of that brand to reduce the level of that particular chemical, for example.
Until recently, they have successfully helped the cigarette companies resist the regulation.
MM: Were the regulations finally adopted?
Chitanondh: Yes, it will be published in the Royal Gazette soon, and 180 days after that it will become effective. There are only three places in the world where this kind of regulation is law. One is Canada, the second is Massachusetts and the third is Thailand.
Multinational Monitor: What is the profile of the tobacco industry in Canada?
Eric LeGresley: The Canadian tobacco industry is dominated by three companies. The leading one, with about two thirds of the market, is Imperial Tobacco. It is controlled by British-American Tobacco, so it is a sister company of Brown and Williamson in the United States. It has the two dominant brands, and it has been gaining market share at the expense of the other two major companies in leaps and bounds over the last decade.
The number two company is Rothman's, Benson and Hedges, with about 20 percent market share. It is owned by Philip Morris and Rothman's International, with Philip Morris having a minority position of about 40 percent.
The third company is RJR-Macdonald with about 12 percent of the market. RJR-Macdonald is a 100 percent subsidiary of RJR in the United States. It has been losing market share very dramatically. I would say its continued existence is threatened in Canada over the next 10 years.
MM: So the industry is totally dominated by foreign interests?
LeGresley: Those three companies have 99 percent of the Canadian market. While the ownership is dominantly foreign -- two of those companies do trade on the Canadian stock market, but they are relatively small percentages of the company's overall stock -- almost all of the cigarettes smoked in Canada are produced in Canada, using Canadian tobacco leaf.
MM: What is the smoking rate in Canada compared to the United States?
LeGresley: That is a difficult question to answer right now. Historically, going back to the 1950s, it had been about 10 percent higher, and it was consistently so, despite the standard of living being slightly lower in Canada than the United States. This continued until the 1980s, when we had very significant tax increases. Our reduction in smoking rate and per capita consumption outstripped those in the United States by a fair bit, resulting in our smoking rates being about 10 percent lower than those in the United States.
Then, in the mid-1990s, we've had a partial reversal of that. We are seeing smoking rates climb back up again. Now they are fairly comparable to those in the United States. We are looking at something in the high twenties, perhaps thirty or so.
MM: The tax increases in the 1980s were part of a package of other anti-smoking initiatives?
LeGresley: They were. And it was demonstrated that a comprehensive set of policies, that included price as an essential part of the package, was necessary.
Our health warnings first went from nonexistent to those broadly paralleling those in the United States, with very weak warnings on the sides of packages and cumbersome wording. By the very late 1980s, the warning was moved onto the bottom front of the package in contrasting colors, and eventually to the top of the package in black and white. Those are along the lines, but larger and better, than the warnings proposed in the United States out of the present settlement discussions.
On the advertising front, the industry was adept at avoiding an impact. On January 1, 1989, what was intended to be a complete ban on overt tobacco ads entered into force. However, on December 28, 1988, the tobacco companies incorporated a large number of shell companies for sports and arts cultural promotion. The shell companies happened to have the same names as the major brands. So the Player's signs -- the leading brand in Canada -- came down and the Player's Ltd. signs went up. So in reality, we continued to have advertising through sponsorships.
MM: What is the current status of the tax?
LeGresley: We have seen not only the effect of tax increases, but tax cuts as well. Following 1992 and 1993, when significant smuggling was occurring, the Canadian government rolled back taxes very dramatically, cutting the prices effectively in half. A carton of 200 cigarettes in February 1994, dropped from about C$50 to about C$25 in most of Canada. It has now crept up to about C$30, as there have been subsequent increases.
Since then, we have had an upturn in smoking, particularly amongst youth, the most price sensitive group.
We have continued to have the health warnings, the advertising restrictions and public education, showing that the dominant factor in lowering smoking rates was price.
MM: So Canada cut its taxes because of smuggling?
LeGresley: While Canada had increased cigarette prices dramatically, taxes in New York, bordering Ontario and Quebec, were significant lower.
Canadians smoke Canadian-made cigarettes. Because they are 100 percent Virginia leaf cigarettes, they taste different. U.S. cigarettes are primarily a Virginia and Burley mix. Just as Canadians don't smoke American cigarettes, Americans don't smoke Canadian cigarettes. There always has been a small market in the United States for Canadian cigarettes, principally I would imagine, for Canadians vacationing in Florida or elsewhere. Those exports had been stagnant for over a decade. The exports to the United States started going up in the early 1990s; by 1993, they were up about 2,000 percent over their historic levels.
Canadian tobacco companies would ship product into upstate New York, where it would be held in distribution centers for a very short period of time, and the cigarettes were funnelled back into Canada.
While no one has been able to point to the Canadian companies and say they were smuggling the cigarettes back across the border, the reality is they were exporting massive quantities of cigarettes to non-existent markets, thereby creating the opportunity for smugglers to bring the cigarettes back into Canada. And they did so knowing they were fueling the smuggling.
The way it played out was quite interesting. The first response to seeing Canadian cigarettes going to the United States and then coming back across the border would not be to cut the taxes in your own country. The government would take a revenue hit. You could predict the results on the smoking rate. The Canadian government's first bid was to implement export taxes on Canadian tobacco products in an attempt to remove the smugglers' margin.
In response, the Canadian tobacco companies threatened to pick up and leave and move their production to Puerto Rico. They had some factories there anyway. Some did start to make cigarettes for the Canadian market in Puerto Rico. They blackmailed the Canadian government.
The government caved in, and very quickly rescinded the export tax. Instead it reduced the excise taxes. The price of cigarettes in Canada went down, rather than the price of exported products going up.
MM: Is Canada now imposing new regulations?
LeGresley: Yes. In a complicated 5-to-4 decision in September 1995, the Supreme Court held central elements of Canada's tobacco control legislation unconstitutional.
The Canadian constitution, on freedom of expression, is fairly similar to free speech under the American Bill of Rights. The restriction on advertising was conceded by the government to be a breach of the tobacco companies' freedom of expression under the Canadian Charter of Rights and Freedoms. The only issue being litigated was whether that limitation was "justifiable" or not. Section One of the Canadian Charter says, "The rights set out herein are subject to such reasonable limits prescribed by law as can be demonstrably justifiable in a free and democratic society." On two issues, the health warnings required on packaging and the complete ad ban, the legislation fell.
That left a large vacuum. In response, new legislation was passed through the House of Commons and received royal assent in late April of this year.
The new legislation is much broader than the legislation it is effectively replacing, but it doesn't go as far on many of the specific elements.
It does do many of the things -- it sets out the authority for many of the sorts of things -- that you are now starting to see transpire in the United States; for example, just as the FDA is asserting authority over the content and manufacture of the product, Canada has set up the legal framework to do likewise. For the next 10 years, we are going to be talking not so much about cigarette advertising, as about design.
The Canadian government has set it up now where they can move by way of regulation -- a much simpler, depoliticized process as compared to legislation.
The legislation also does something very fundamental. It moves from a restrictive to a permissive framework. The former legislation's framework essentially was, "You can do anything you want with the manufacture and sale of your cigarettes except those things we say you cannot do." The new legislation says, "You can't manufacture or sell your cigarettes except in accordance with this legislation and regulations pursuant thereto," and then sets out what you may do. This greatly reduces the industry's ability to cunningly avoid the intent of the law.
MM: Why is Canada able to muster the political will for tobacco control which is absent in the United States??
LeGresley: That again is not an easy question, but there are some factors which one can point to. First, the Canadian tobacco industry, both the farming and manufacture, are located in tight little areas. It is only in the southernmost region where Canada can grow tobacco. And tobacco manufacturing is almost all centered in Montreal. Although its economy is depressed, tobacco is a subsidiary issue in Montreal. So tobacco's direct electoral impact is limited.
The second difference would relate to the system of government. We are a parliamentary democracy, not a congressional system. With a majority government, you have the advantage that if a decision is taken, the government can translate that into legislation that can be passed.
That doesn't answer why a government which can get legislation through ultimately chooses to do so. I would attribute that to the force of a few personalities. Occasionally, you get an individual in the right place, and they get the ear of the appropriate person, or they are the responsible minister and they take it upon themselves to run with the issue. Twice we've had very talented, committed health ministers who've been able to push the agenda forward. We've also had a few people in the NGO sector who have been dogged in their determination.
Finally, Canadian history is sufficiently different from American history such that intervention by government into areas of social and economic policy, especially on the taxation front, is much more broadly accepted.
MM: What are the prospects for litigation in Canada directed against the tobacco industry similar to what has occurred in the United States?
LeGresley: British Columbia has introduced legislation similar to Florida's to facilitate tort actions against the industry. Other provinces over the past few years have been thinking about this. If efforts to recover medical costs make sense in the United States, they make much more sense in Canada, where you have a 100 percent publicly funded medical system.
However, legislation rather than litigation is more often seen as the vehicle for resolving our disputes. Overall, I think that we are more likely to see a legislated approach to cost recovery. There are a range of options available, such as tax options or licensing fees, where the fee could be set equal to the health care cost associated with tobacco consumption, and allocated on a market share basis.
Canadian provinces and the federal government have been running very significant deficits with punishingly high levels of debt over the past few decades in order to accommodate the public's desire for a broad range of social welfare policies. There have been very significant cutbacks in basic services already, and there is fatigue on the cutback side. New sources of revenue have to be found. With tobacco companies making returns on invested capital of about 100 percent --
MM: Annually?
LeGresley: Annually, yes. And when governments are running very significant deficits, and being forced to close hospitals, the tobacco companies make a very desirable target. They must come under the gaze of people in the finance department quite a bit.
Litigation which could lead to the sort of proposed settlement in the United States does not play particularly well in Canada because many of the elements that are included in that deal were legislated here unilaterally. There was no need to acquire political acquiescence on the part of the tobacco industry in order to achieve some of these things. They were achieved in the standard debate we have over public policy making.
MM: Is there room in Canada for private suits?
LeGresley: There is room for it, and class actions are now accepted in Canada. For a long time they were not. But for all of the common law provinces, and I am not speaking for Quebec right now, you have a disincentive to bringing private litigation against the tobacco industry. If you sue and lose in Canada you have to pick up the legal costs of the other side. So it is an expensive proposition, made more unlikely by the fact that Canadian juries tend not to award the astronomical sums that American juries sometimes do.
It is tough for the individual to mortgage their house and take the $100,000 or so that they can raise and put it into litigating against the industry. The industry will come in with their armada of lawyers and motion you to death. The likelihood of success is relatively low, and if you do lose, you end up picking up the costs of the tobacco industry. So things are pretty much stacked against the individual litigant in Canada.