Philippines: Japan Tobacco International buys Philippines No.2 company

4 August 2017:

In July, press reports announced Japan Tobacco International (JTI) Philippines is set to take over assets of Mighty Corp. in the Philippines for P45 billion (about US$900 million). Mighty Corp is the second largest tobacco company in the Philippines and has been under investigations for tax evasion by the Philippine authorities with three cases pending before the Department of Justice.

This takeover of Mighty Corp will catapult JTI, which currently has about 3% market share in the Philippines, into the second largest tobacco company (about 23%) in the country.

What this means for the Philippines

With this takeover, just two transnational tobacco companies (PMI and JTI) will now control 94% of the cigarette market share of the Philippines. This elevates these two foreign tobacco companies into a position to use trade arguments such as “investment friendly environment” and “easier regulatory framework” to block and push back regulations on tobacco. The Philippines can borrow some lessons from Malaysia.

The Malaysian cigarette market is similar in that top 3 transnational tobacco companies, (BAT, JTI and PMI) own 98% of the cigarette market share. These three companies routinely use trade and investor rights arguments to fight or complain about tobacco control measures, especially tax increase, pictorial health warnings (PHW), plain packaging and pack display bans.

For example, they claimed enlarged PHW and plain packaging of tobacco are a violation of the TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).

Last year, when the Malaysian Ministry of Health announced plans for plain packaging, the intellectual property lawyer for JTI Malaysia, used a regional NGO he heads, and wrote to the Health Minister opposing plain packaging claiming it is a major curtailment of intellectual property rights. This lawyer also used the media to fight the plain packaging proposal. The Ministry of Health has since gone silent on the issue.

In March this year (27-29 March), the US-ASEAN Business Council conducted a trade mission to Malaysia where they met with top leadership in the government. PMI is the Vice Chair of the ‘Custom & Trade Facilitation’ division of the US-ABC. Previously, PMI has reported they meet with the Minister of Finance every year via the American Chamber of Commerce to provide input on taxation issues.

Also in March, the Ministry of Health announced they will introduce substantial tax increase on tobacco in 2017 because anti-smoking campaigns have so far failed to discourage smokers. By April, the Second Finance Minister stated, “At the moment, the government has no intention of increasing the cigarette tax.”

The Philippines has made good progress in tobacco control measures especially in tax reform. The Philippines must move forward by further strengthening tobacco control measures and ensue these efforts are not frustrated or undermined by foreign tobacco investors.

What JTI’s acquisition means for ASEAN region

With the recent acquisition, JTI has bolstered its position in the ASEAN region. JTI will now have a strong presence in the Philippines which may become its regional hub, since it shut down its factory in Malaysia. JTI is already exporting cigarettes from the Philippines to its ASEAN neighbours. JTI also has significant cigarette market share in Singapore and Malaysia.

It is important to note the Japanese government owns 33% of Japan Tobacco which means the Japanese government is an active participant of JTI’s expansion of its tobacco business in the ASEAN region and elsewhere.

JTI is known to use the Japanese Embassy to open doors to high level government officials and participate in promoting the tobacco business. The Japanese Ambassador to Malawi for example visited the tobacco auction floors in July this year. Last year, theJapanese Ambassador to Ethiopia attended the signing ceremony when JTI acquired 40% of the Ethiopian National Tobacco Enterprise.

In 2014, Parties to the WHO FCTC adopted a decision at COP6 to protect their foreign missions from the influence of the tobacco industry under Article 5.3. Japan, as a Party to the FCTC, must implement Article 5.3 and subsequent decisions of the COP, and not use its embassies overseas to promote the tobacco business.

Bottom line, whether the cigarettes are sold by transnational companies, local companies or state owned enterprise, tobacco still kills. Hence governments must act without compromise to do their utmost to enact the strongest tobacco control measures and protect public health.