Glenn Frankel reports on how leading UScigarette companies used trade laws to prise open a lucrative new market
ON THE STREETS of Manila, “jump boys” as young as 10 hop in and out of traffic selling Marlboros and Lucky Strikes to passing motorists.
In the coffee shops of Seoul, young Koreans light up foreign brands that a decade ago were illegal to possess.
Downtown Kiev has become the Ukrainian version of Marlboro Country, with the gray socialist cityscape punctuated with colourful billboards of cowboy sunsets and chiselled faces.
And in Beijing, the United States’s biggest tobacco companies are competing for the right to launch co-operative projects with the state-run tobacco monopoly in hopes of capturing a share of the biggest potential market in the world.
In the US, cigarette consumption has undergone a 15-year decline. Thanks to foreign sales, however, the companies are making larger profits than ever before.
But the industry did not launch its campaign for new overseas markets alone. The Reagan and Bush administrations used their economic and political clout to pry open markets in Japan, South Korea, Taiwan, Thailand and China for US cigarettes.
To this day, many US officials see cigarette exports as strictly an issue of free trade and economic fairness, while tobacco industry critics and public health advocates consider it a moral question.
Even the Clinton administration finds itself torn: it is the most vocally anti-smoking administration in US history, yet it has been in the uncomfortable role of challenging or delaying some anti-smoking efforts overseas.
At the same time, fledgling anti-smoking movements are rising up with support from US activists, passing restrictions that in some cases are tougher than those in the US.
International epidemiologist Richard Peto of Oxford University estimates that smoking is responsible for three million deaths per year worldwide; he projects that 30 years from now the number will have reached 10-million, most of them in developing nations. In China alone, Peto says 50-million people who are currently 18 or younger eventually will die from smoking- related diseases.
Asia is where tobacco’s search for new horizons began and where the industry came to rely most on Washington’s help. US officials in effect became the industry’s lawyers, agents and collaborators. Prominent politicians such as Robert Dole, Dan Quayle and Al Gore played a role.
“No matter how this process spins itself out,” George Griffin, commercial counsellor at the US Embassy in Seoul, told the public affairs manager of Philip Morris Asia in January 1986, “I want to emphasise that the embassy and the various US government agencies in Washington will keep the interests of Philip Morris and the other US cigarette manufacturers in the forefront of our daily concerns.”
US officials not only insisted that Asian countries allow US companies to sell cigarettes, but also demanded that the companies be allowed to advertise, hold giveaway promotions and sponsor concerts and sports events. They regularly consulted with company representatives and relied on the industry’s arguments and research. And they ignored the protests of public health officials in the United States and Asia. This was, they insisted, solely an issue of free trade.
But then-vice-president Quayle suggested another motive when he told a North Carolina farming audience in 1990 that the government was seeking to help the tobacco industry compensate for shrinking markets at home. “We ought to think about the exports,” he said. “We ought to think about opening up markets, breaking down the barriers.”
A handful of US health officials vigorously opposed the government’s campaign, but were stymied or ignored. “I feel the most shameful thing this country did was to export disease, disability and death by selling our cigarettes to the world,” said former surgeon general C. Everett Koop.
Clayton Yeutter, high-octane Nebraska Republican with serious political aspirations, came to the Office of the US Trade Representative (USTR) in 1985 with a mission: to put a dent in the record US trade deficit by forcing foreign countries to lower their barriers against US products.
He took office when Washington was on the verge of declaring a trade war against some of its staunchest allies in the Far East. Asian tigers such as Japan, South Korea, Taiwan and Thailand were running up huge trade surpluses with the US on goods ranging from T-shirts to computer chips to luxury sedans. The US annual trade deficit in 1984 totalled a record $123-billion.
Yeutter knew that USTR had a powerful weapon in its arsenal. Section 301 of the 1974 Trade Act empowered USTR to launch a full- scale investigation of unfair trading practices and required that Washington invoke retaliatory sanctions within a year if a targetted government did not agree to change its ways. Yeutter persuaded the administration to allow him to use Section 30l aggressively.
The US tobacco industry had been trying for years to get a foothold in these promising new Asian markets. In 1981 the big three – Philip Morris, RJ Reynolds Tobacco Company and Brown & Williamson – had formed a trade group called the US Cigarette Export Association to pursue industry-wide policy on the issue. But the companies had felt frustrated during the first term of the Reagan administration.
Japan, the West’s second largest market for cigarettes, remained virtually closed to US brands because of high tariffs and discriminatory distribution. South Korean law effectively made it a crime to buy or sell a pack of foreign cigarettes. And Taiwan and Thailand remained tightly shut.
All except Taiwan were signatories to the General Agreement on Tariffs and Trade (Gatt), and Taipei hoped to join soon. Yet each appeared to violate free-trade principles.
When Yeutter and his staff looked at the cigarette business in these countries, they saw hypocrisy. Each Asian government sought to justify its ban on imported cigarettes in the name of public health, yet each had its own state-controlled tobacco monopoly.
But the very flaws of the state-run monopolies were exactly what a doctor might have ordered: their high price and poor quality had helped limit smoking mostly to older men who had the money and taste for tar-heavy local brands. The monopolies seldom advertised and did not target the untapped markets of women and young people. Per-capita sales remained low in every country except Japan.
Companies have produced studies showing that cigarettes were the US’s most successful manufactured export in terms of the net balance of trade. They estimated that cigarette exports – largely to Western Europe and Latin America – accounted for 250 000 full-time jobs in the US and contributed more than $4-billion to the positive side of the trade ledger.
Jesse Helms, who at the time chaired the Senate Agriculture Committee, wrote to Japanese Prime Minister Yasuhiro Nakasone congratulating him on his election victory and pointing out that US cigarettes accounted for less than 2% of the Japanese market.
“Your friends in Congress will have a better chance to stem the tide of anti-Japanese trade sentiment if and when they can cite tangible examples of your doors being opened to US products,” Helms wrote.
In subsequent trade talks, Japanese negotiators hung tough through 14 sessions. Finally, a year after the 301 complaint was filed, the Japanese capitulated, signing an agreement allowing in US-made cigarettes.
Today, imported brands control 21% of the Japanese market and earn more than $7- billion in annual sales. Female smoking is at an all-time high, according to Japan Tobacco’s surveys.
The next target was South Korea, which had a $1,7-billion domestic tobacco market. The US tobacco industry filed a 301 complaint against Seoul in January 1988. USTR initiated an investigation a month later.
SouthKorea’s state cigarette monopoly had done little advertising over the years, and a few months before the 301 case, the Seoul government had formally outlawed cigarette ads. But the US insisted on defining “fair access” as including the right to advertise.
In May 1988 Seoul formally agreed to open its doors to US brands. Cigarettes quickly became one of the most heavily advertised products in South Korea; from no advertising in 1986, US tobacco companies spent $25- million in 1988. Within a year, US companies had captured 6% of the market.
On the heels of the Japanese agreement, Taiwan had agreed in October 1985 to liberalise barriers to wine, beer and cigarettes. But a year passed and the market remained effectively closed. Reagan then ordered Yeutter to propose “proportional countermeasures”, while US officials threatened to oppose Taiwan’s application for membership in Gatt. Six weeks after Reagan’s order, Taiwan folded.
Following the agreement, consumption of imported cigarettes in Taiwan soared. According to one industry trade journal, foreign brands went from 1% of annual cigarette sales to more than 20% in less than two years, while state manufactured brands declined accordingly.
The 301 cases were a boon to the industry. The Boston-based National Bureau of Economic Research estimated that sales of US cigarettes were 600% higher in the targetted countries in 1991 than they would have been without US intervention.
In 1990, after he became secretary of agriculture, Yeutter said: “I just saw the figures on tobacco exports here a few days ago and, my, have they turned out to be a marvellous success story.” – The Washington Post