07 April 2004

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Maltese cigarette market intentionally oversupplied by Big Tobacco

By David Lindsay

A European Commission lawsuit instituted against tobacco giants Philip Morris International and RJ Reynolds has alleged that the multinationals have been in the habit of shipping suspiciously large quantities of cigarettes to Malta, Cyprus and Gibraltar with the knowledge that any excess stock would eventually be smuggled into the EU.
The accusation is revealed in the EU’s appeal to a New York court decision, reached in January, to throw out the EU’s case against the tobacco companies for alleged collusion with black market traders smuggling cigarettes into the EU, effectively avoiding billions of euros in EU customs duties. The case formed part of the EU’s efforts, beginning in 2000, to battle the smuggling of cigarettes into the 15-member block.

The suit was initially filed in 2001 and accused the US tobacco giants of complicity in cigarette smuggling by intentionally oversupplying countries neighbouring the EU. The EU is appealing the decision.
Just last month Britain decided not to take action against British American Tobacco over similar allegations that the company was orchestrating a massive cigarette smuggling operation, following an extensive operation by the British Department of Trade and Industry that failed to uncover enough evidence to allow for criminal prosecution.
On Monday it was revealed that Philip Morris International, best known for its Marlboro brand name, is close to sealing a USD1 billion deal, to be paid out over 12 years, with the European Union in a move to end the bitter row and to halt the lawsuits instituted against it by the EU.
In return for the agreement, "all disputes" would be resolved between the company, which is part of the US tobacco and food giant Altria Group, and the European Commission, which has filed two lawsuits in recent years against Philip Morris and was contemplating a third.
The development is being hailed as a major victory against the interests of ‘Big Tobacco’ and, if concluded, would represent the single largest pay out the EU has extracted from any single company.
Philip Morris, on its part, has vehemently denied any involvement in smuggling, and the EU confirmed Monday that talks with the tobacco giant were, indeed, underway and that the payment would go toward the EU anti-smuggling efforts.
Asked if the EU has entered into similar negotiations with RJ Reynolds and Japan Tobacco, EU Budget Commissioner Michaele Schreyer said Monday, “All I want to say now is that first of all we have negotiated this agreement with Philip Morris. We are waiting for the approval of the member states and we hope that we can sign the agreement very soon.”
The terms of the draft deal, which involves co-operation between the firm and EU law enforcement agencies, has been sent to the 15 current EU member states for final approval.
The smuggling the tobacco companies are accused of, however, goes over and above the oversupplying of countries lying on the fringe of the EU’s borders.
It has long been suspected that tobacco manufacturers have facilitated the release of cigarettes to smuggling operations as a way of undermining government attempts to both collect revenue and reduce smoking through increased taxes.
But with Malta and nine other countries about to join the EU on 1 May, Phillip Morris and other tobacco manufacturers are concerned that a tide of fake cigarettes will flood the high-value European market. Fakes already cost tobacco companies each year more than the Philip Morris pledge of USD1 billion.
The revelation comes hot on the heels of Monday’s contraband seizure at the Freeport, in which 27 million counterfeit cigarettes were seized.


Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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