WTO FREE TRADE RULES PUSH UP TOBACCO CONSUMPTION

The liberalisation of tobacco-related trade, mandated by agreements reached during the Uruguay Round of GATT, has contributed to global increases in cigarette smoking and other tobacco use, particularly in low-income and middle-income countries, says a new World Bank/WHO report.

by Someshwar Singh

Geneva, 8 Aug 2000 -- The liberalisation of tobacco-related trade, mandated by agreements reached during the Uruguay Round of GATT, has contributed to global increases in cigarette smoking and other tobacco use, particularly in low-income and middle-income countries, says a new World Bank/WHO report released Tuesday.

The report “Tobacco control in developing countries,” timed for release at an international conference on tobacco in Chicago, is a sequel to a report brought out last year by the World Bank - “Curbing the Epidemic: Governments and the Economics of Tobacco Control.” That earlier report outlined ‘effective policy  interventions to reduce smoking in developing  countries.’

Interestingly, both the reports give more or less the same prescription - that demand management holds the key to tobacco control and that raising taxes to reduce consumption holds the greatest promise.

Yet, the new  512-page joint report of the World Bank and the World Health Organization (WHO) brings out clearly - in evaluating the supply-side economics of tobacco control - that international trade rules at the World Trade Organization were used without pity to force open cigarette markets in the developing world.

That led to dramatic increases in tobacco use in the developing world and may possibly lead to millions of tobacco-related deaths.

In reality, what the GATT/WTO rules did in expanding the markets for tobacco products through its dictum of free trade—achieved through flooding of the developing-country markets by once-expensive but now ‘cheap’ foreign-made cigarettes—is that it boosted the demand and supply of tobacco products worldwide. And the new report confirms this.  But both the earlier World Bank report and the new Bank/WHO one really make no recommendations with regards to containing or even reversing the damaging role that the GATT/WTO has played in expanding the tobacco trade and thereby leading to increased consumption and resultant tobacco-related deaths.

“Ultimately, the most effective supply-side policy may be to focus on reducing the demand for tobacco, and to allow supply to respond to slow changes in demand,” says the new report. The agreements reached during the Uruguay Round of GATT appear to have had a dramatic impact on global trade in tobacco and tobacco products.

“Controlling the rapid globalisation of the tobacco epidemic is an extraordinary public health challenge,” says the report. “The recent liberalisation of the tobacco-related trade through bilateral, regional, and international trade agreements has significantly reduced tariff and non-tariff trade barriers. The elimination or reduction of these barriers has almost certainly increased competition in tobacco-product markets leading to reductions in the relative prices of these products and increases in their advertising and promotion.”

A growing body of empirical research clearly indicates that the liberalisation of tobacco-related trade has contributed to global increases in cigarette smoking and other tobacco use, particularly in low-income and middle-income countries, the report affirms. “In the absence of strong tobacco-control activities, the long-term consequences of this will be a significant increase in the burden of death and disease caused by tobacco.”

The WTO multilateral agreements significantly expanded global trade in tobacco  products by mandating sizable reductions in tariff and non-tariff barriers to trade in tobacco products. For example, notes the report, GATT 1994 calls upon the European Union to reduce its tariff on cigars by 50%, on cigarettes and other manufactured tobacco products by 36%, and on unmanufactured tobacco by 20%.

Similarly, it calls upon the United States to eliminate its tariff on cigar wrappers and reduce its tariff on cigar filler and binder tobacco, cigars and most cigarettes by 55%, on tobacco stems and refuse by 20% and on other manufactured and smoking tobacco by 15%.

“From 1994 through 1997, there was a 12.5% increase in unmanufactured tobacco exports globally, after a decade of virtually no growth,” the report observes. “Similarly, cigarette exports, which had been relatively stable over the period from 1975 through 1985, began rising at an increasing rate in the mid-1980s, and have accelerated since GATT 1994, with global cigarette exports rising by 42% from 1993 to 1996.  The increased trade in tobacco products is likely to have contributed to the 5% growth in global cigarette consumption during this same period.”

But instead of suggesting any solutions to such systemic problems to public health caused by WTO rules which clearly favoured corporate wealth, the report highlights raising taxes to reduce demand. “On average, a price rise of 10% on a pack of cigarettes would be expected to reduce demand for cigarettes by about 4% in high-income countries and by about 8% in low and middle-income countries, where lower incomes tend to make people more responsive to price changes.”

The report argues that an increase in the real price of cigarettes by 10% worldwide would cause 40 million smokers alive in 1995 to quit, and prevent a minimum of 10 million tobacco-related deaths.

Describing tobacco as “the great epidemic of the 21^st century,” the report says it could kill up to a billion people during the coming century if no ‘control policies’ are put in place.

Current tobacco-related mortality is about four million deaths per year, with half of these deaths in low- and middle-income countries, says the report. But the majority of the smokers (70%) today live in low- and middle-income countries, where consumption has risen over the last two decades, it adds.

But a comparison of the per capita cigarette consumption shows a rather slow inter-temporal change. For instance, while the per capita cigarette consumption in the developed countries was about 2700 in 1970-72, it was about 800 in the developing countries. In 1980-82, their respective figures were 3000 and 1300. But in 1990-92, the developed world consumption was down to 2600 while that of developing world went up to about 1900.

According to the latest WHO Bulletin, which has tobacco as its special theme, four cigarette manufacturers dominate about three-quarters of the global market: Philip Morris, British American Tobacco (BAT) and Japan Tobacco are transnational companies; the China National Tobacco Corporation is a monopoly, producing about 30% of the world’s cigarettes, but mainly supplying its domestic market. China is, however, preparing to become a major exporter of tobacco.

The future of the world’s tobacco industry lies in the world’s developing countries, the Bulletin observes. For instance, between 1986 and 1996, cigarette exports from the United States grew by 260 percent!

“Philip Morris now makes more profit selling cigarettes abroad than in the United States,” according to the Bulletin. “BAT sells about 70% of its cigarettes in Africa, Asia, Latin America, and Eastern Europe. A BAT booklet notes, ‘The 1990s have seen new opportunities for the Group, especially in Central and Eastern Europe and in the Far East, with the opening up of markets previously closed to Western tobacco manufacturers.’”

BAT has acquired factories in Hungary (1992), Ukraine (1993), the Russian Federation (1994), Poland (1995), and the Czech republic (1995).

The Bulletin notes that when questioned about the ethics of targeting the world’s poor, a manager at Rothman’s Export Ltd (now a part of BAT) replied: “It would be stupid to ignore a growing market. I can’t answer the moral dilemma. We are in the business of pleasing our shareholders.”

Historically, the United States has regarded low-income countries as a valuable export market and has assisted in opening these markets for American cigarettes, according to the WHO Bulletin.

“This assistance took the form of coercion in the 1980s when the threat of trade sanctions was used to pry open markets in Taiwan Province of China, Japan, Republic of Korea, and Thailand. From 1975 to 1985 the tobacco companies based in the United States pressured Japan and other countries in the Western Pacific Region to remove trade barriers to foreign cigarette imports, but with only modest success.”

In 1986 the United States government took up this matter at the behest of the tobacco industry, the Bulletin notes. “It threatened retaliatory tariffs against Japanese exports of textiles and automobile parts unless the cigarette manufacturers in the United States were allowed greater access to Japan’s markets. To protect its exports, the Japanese government capitulated and removed the tariffs and other restrictions on foreign cigarettes.”

In one year, the United States government achieved what the industry had not been able to do in ten years.

Within a month of Japan’s decision, both the Republic of Korea and Thailand opened their markets to tobacco from the United States.

To achieve all this, observes the new World Bank/WHO report, the United States used the “Section 301” of its Trade Act of 1974, which permitted investigation of foreign-country practices that limited entry of American goods and services, even if those practices did not necessarily violate the GATT, and authorise trade sanctions in case bilateral negotiations could not remove the roadblock. Section 301 was made stronger in 1988 and it became known as “Super 301.”

Section 301 has been described as the most important ‘crowbar’ used by American trade negotiators to enhance their leverage and persuade an otherwise recalcitrant trading partner to agree to open up its markets.  The crowbar has been exerted with dramatic effect to open up Asian markets to American cigarettes. When Thailand resisted, the United States took the matter to GATT, which ruled that Thailand must open its markets to American cigarettes.

According to the report, a study of the impact of Section 301 agreements on four affected economies - Japan, Taiwan, South Korea and Thailand - found that the market share of US cigarettes in these four rose sharply after their tobacco markets were opened. The US market shares were 600% higher, on average, in 1991, than they would have been had these markets remained closed.

More importantly, the authors of the study found that the per capita cigarette consumption had gone up, on average, by 10% in the four countries because of the bilateral agreements. Earlier, the state-run monopolies controlled over 90% of the markets and foreign cigarettes were prohibitively expensive. Another contributing factor in addition to price was the increased cigarette advertising and promotion that occurred. To stand up to competition, local producers had to advertise too.

Although there has been a notable shift in tobacco trade policy under the Clinton Administration, the World Bank/WHO report says the US government still supports the efforts of the American tobacco industry to export tobacco products in numerous ways. In general, tobacco products that are sold domestically or exported from the United States are specifically exempted from federal laws and regulations applicable to harmful products, including the Federal Hazardous Substances Act, the Toxic Substances Control Act, and the Controlled Substances Act.

Furthermore, although federal regulations require that all cigarette packaging and advertising in the United States contain health warning labels and prohibit television and radio advertising, such regulations do not apply to tobacco exports.

The American tobacco companies have used questionable methods to increase their influence overseas - bribing officials in many instances, according to the WHO Bulletin.

More recently, Philip Morris was involved in a major campaign finance scandal involving the Civic Democratic Alliance, the largest political party in the Czech Republic. in 1998, Philip Morris and two Czech companies allegedly funnelled donations to the Alliance through a fictitious company. The environment minister was forced to offer his resignation when the scandal broke.

The full extent of corruption will probably never be known, says the Bulletin. The general excuse used by corporate entities is that they adapt to local ethical standards when bribing officials. In reality, they help to undermine the stability of political institutions and the economy in pursuit of their self-interest.

Tobacco is grown in more than 100 countries, including about 80 developing countries. Given its hardiness, tobacco grows well in a variety of climates and topographies. The largest producer of tobacco is China, which has been increasing its share of production rapidly.

The United States is the second largest producer, but its share is currently falling. India and Brazil follow the United States, and they have also been increasing their share of global production. These four countries account for about two-thirds of production world-wide. The top 20 countries, with their diverse mix of income levels, account for approximately 90% of production.

Many of the tobacco growing countries export a large share of their production. Zimbabwe, Italy and Kyrgystan export around three-quarters or more of their produce. Other countries with high export shares are Brazil, Turkey, Malawi, Greece, Argentina and Spain.  Of the top 20 producing countries, only Zimbabwe and Malawi do not have a significant cigarette manufacturing industry. There is considerable ‘cross hauling’ in Spain, where exports and imports are both large. Japan is the largest net importer.

In recent decades, the growth in world tobacco production has come primarily from low-income and middle-income countries. Between 1975 and 1998, production in developed countries fell by 31%, while production in developing countries rose by 128%.

The new World Bank/WHO report observes that the increasing transnationalisation of the tobacco epidemic restricts the capacity of nations to regulate tobacco effectively through unilateral action. Yet, that is precisely what it highlights as its recommendation to developing countries that they should raise taxes to reduce consumption.-SUNS4725

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