Addicted to Profit: Big Tobacco's Expanding Global Reach

By Ross Hammond

Executive Summary

The number of people worldwide who die each year from tobacco-related disease will rise from the current 3.5 million to 10 million by the year 2025. A majority of these deaths will occur in the Third World and Eastern Europe. Given current trends, more than 100 million people will die from tobacco-related illness over the next 30 years, exceeding the toll from AIDS, tuberculosis, automobile accidents, maternal mortality, homicide and suicide combined.

The United States is home to two of the world's three largest multinational cigarette companies, and is the world's largest exporter of cigarettes. In recent years, Philip Morris, RJ Reynolds and British American Tobacco (BAT) have registered double-digit growth in international cigarette sales, with Philip Morris and RJ Reynolds now selling more cigarettes abroad than they do in the United States.

Philip Morris already makes more profit selling cigarettes abroad than in the United States, and RJ Reynolds and Brown & Williamson (BAT's U.S. subsidiary) will soon do the same. More and more of these cigarettes are being manufactured overseas, the result of two decades of heavy spending on advertising, buying newly privatized cigarette companies, setting up joint ventures and building distribution and sales networks. In 1997, for example, only 18 percent of the cigarettes RJ Reynolds sold overseas were made in the United States.

A number of factors have driven this overseas expansion, including: the opening up of formerly socialist economies; cheaper labor and transport costs; the attempt by these companies to shield an increasing proportion of their assets from lawsuits in developed countries; and the desire to locate cigarette manufacturing plants closer to sources of tobacco leaf, an increasing proportion of which is being purchased overseas.

This overseas expansion has transformed the tobacco industry around the globe. Currently, Philip Morris, RJ Reynolds and BAT each own or lease plants in at least 50 different countries spanning all corners of the globe.

Wherever U.S. cigarettes go, smoking rates rise. Smoking rates in Japan, South Korea, Thailand and Taiwan rose 10 percent higher than they would have following the massive inflow of American cigarettes after the U.S. Trade Representative forced these countries to open their markets to U.S. tobacco exports.

Multinational cigarette companies are among the world's largest advertisers. As more and more countries adopt restrictions on direct cigarette advertising, these companies have devised new and creative ways to skirt these bans. By sponsoring sporting events and teams, rock concerts and discos, these companies get exposure without violating bans against direct advertisement. The companies also put their logos on clothing lines, racing boats, backpacks, coffee and even travel agencies. They also distribute free samples and promotional items on college campuses, shopping malls and other places where young people gather.

The cigarette companies spend millions of dollars on lobbying activities to avoid incurring the legal, political, regulatory and cultural problems they face in the United States. Using their significant economic and political clout they influence legislation, fight advertising restrictions, try to downplay the health effects of smoking and corrupt the political process.

Historically, the cigarette companies have been able to rely on the full support of the U.S. government to help them sell cigarettes around the world. This support reached its apex in the 1980s when the U.S. Trade Representative, working hand-in-glove with the tobacco companies, used the threat of sanctions to pry open key markets in Japan, South Korea, Taiwan and Thailand. Although the U.S. Congress has taken some steps to end these abuses, the cigarette companies are finding new ways to pry open foreign markets, again under the guise of "free-trade." They have sought to condition China's entry into the World Trade Organization on the opening up of its cigarette market, and are lobbying for passage of the Multilateral Agreement on Investments which would give them expanded powers to challenge countries' tobacco control measures.

Each year about a third of all cigarettes entering into international commerce are illegally smuggled, escaping taxes and import restrictions. There is widespread belief among analysts, and some substantial evidence from court cases in Canada and Hong Kong, that the tobacco companies facilitate and benefit from this smuggling. Smuggling encourages people to smoke, especially youth, by making cheap cigarettes available and helps to develop brand loyalty among customers in countries where trade barriers will soon be lifted.

During the recent U.S. Congressional debate on tobacco legislation, the cigarette companies often invoked the plight of the American tobacco farmer to argue against increased taxes and other tobacco control measures. However these companies have been using use more and more foreign-grown tobacco in both their U.S. and foreign factories. Most of what they purchase overseas comes from three large U.S.-based corporations that dominate the global trade in tobacco leaf -- Universal Corporation, Dimon Incorporated and Standard Commercial Corporation -- which have begun to play a major role in financing overseas tobacco


Case studies of China, Mexico, Vietnam, Russia, Senegal and South Africa follow the main report.

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