World no.2 will become world no.1

28 January 2017:

The world’s second largest transnational tobacco company, British American Tobacco PLC (BAT), is set to become the world No. 1 after it agreed to buy out Reynolds American Inc. BAT already owns 42% of Reynolds and it will pay almost US$50 billion to fully acquire it.

This acquisition will make BAT bigger and more successful with profits from both high income and developing countries. According to a Wall Street Journal report, the deal will give Reynolds, based in North Carolina, access to faster-growing emerging markets in South America, the Middle East, Africa and Asia. BAT has a strong presence in Asia.

Transnational tobacco companies are consolidating and become fewer and bigger. They are becoming wealthier and more powerful. What does BAT’s acquisition mean for us in the ASEAN region?

In the ASEAN region, BAT has sizeable cigarette market share in Malaysia (62%), Cambodia (30%), Vietnam (27%) and Myanmar (22%). In Vietnam, BAT produces its brands through a joint venture.

BAT uses its position, as a foreign investor, to influence policy makers and push back tobacco control measures. For example when BAT decided to stop manufacturing cigarettes in Malaysia – because it is cheaper for it to import from the Philippines – it blamed Malaysia’s tax increases and tobacco control as its reasons. However, BAT international expansion shows it is really minting money and it has huge funds – larger than health budgets of ASEAN countries – to acquire RJ Reynolds.

Indonesia is notorious for its lax tobacco control measures. It remains the only country in Asia where tobacco advertising is still not banned yet. BAT fights tobacco advertising ban in Indonesia by claiming it abides by its stale, ineffective marketing code which enables it to continue advertising. BAT’s brands are frequently advertised on national television and are visible in public places which helps the company recruit new smokers among the young.

BAT acquired Bentoel Group (Indonesia’s fourth largest tobacco company) in 2010 and now hasabout 8% market share in Indonesia, but in a country of over 60 million adult smokers and 16 million unlawful teenage smokers, this amounts to substantial profits for the company.

Indonesia’s cigarettes are among the cheapest in the ASEAN region. The Association of White Cigarettes Producers (GAPRINDO), of whom BAT is a member, is a vocal opponent of tobacco control measures. GAPRINDO fights BAT’s battles rather vocally especially tax increases. While all consumer products include a 10% Value Added Tax (VAT) on their price, cigarettes have been enjoying a discount for many years. They were paying only 8.4% tax until recently when their VAT was increased slightly to 9.1%. Though tobacco companies still pay lower VAT than other industries GAPRINDO still protested against this increase.

The only way to counter the tobacco industry’s tactics is to ensure the WHO FCTC is implemented in a comprehensive manner. The various FCTC guidelines provide clear actions points for governments. Article 5.3 on protecting health policies from the influence of the industry is especially important as it clearly states no incentives should be given to the industry.

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