Philippines: BAT Version of Fair Trade

Source from:  Malaya  04/28/2014

With the full support of Finance Secretary Cesar Purisima, the premium category of cigarettes which paid the highest excise tax was deleted in the present excise tax law.
 
Imported cigarettes are now classified in the high category with local cigarettes. They pay the same tax.

In the old law, downgrading was not allowed. The idea then was to give more room for local cigarettes including the Marlboro brands made by a foreign company in Tanauan City to grow.
 
The benefit comes from the use of more local leaf. And thousands of otherwise idle people getting jobs. In fact, Philip Morris has a plan to have its own tobacco farm probably seeing that a day would come when Filipino tobacco farmers will not have enough leaf to supply expanding need in spite of the government campaigns to cut the smoking habit.
 
Locally grown leaf is also exported.
 
Lumping together local and foreign cigarettes for tax purposes sits well with the objectives of the World Trade Organization to globalize trade and haul down protection especially tariffs. Raising internal taxes was not in the minds of the authors of WTO. But a law was passed reducing the excise tax on imported cigarettes and raising the rate on local cigarettes by hundreds of percent so that in the end they pay the same tax. Maybe the purpose of a unitary rate between imported and locally make smoke is to encourage, in fact force,   local cigarette makers to improve efficiency.
 
Would Philip Morris be the biggest cigarette maker in the world if it were not efficient? British American Tobacco which promised to set up a $200 million cigarette plant in the Philippines and initially buy three million kilos of local leaf did not make good its word. It is efficient in Malaysia and therefore does not use locally grown tobacco.
 
BAT finds being downgraded to the "high" category from "premium" good enough on an opportunity to try and dominate the market held by PMFTC. The reduction of tax liability by 12 percent from P28.30 to the pack was a good incentive. Punishing local makers, notably Philip Morris with a higher rate was most welcomed by BAT. It succeeded in convincing Congress of the necessity of a unitary rate.
 
The rate is unitary. The price is not. Lucky Strike brand sells at slightly more than P40 per pack while the Marlboro brands of PMFTC sell at an average of P60.
 
Yet, BAT does not supply the market with enough volume. As far as we know its major outlets are the 7-Eleven chain and the bigger chain of Puregold, owned by Lucio Co.
 
The Philippine government represented by Purisima has not found the wisdom of determining whether   BAT which manufactures Lucky Strike and other brands in Malaysia is selling its products at prices below the rates in the home market.
 
If it does, it may be held liable for violating the anti-dumping law.
 
Now, BAT is joining the "clamor" for the immediate enactment of a law on Fair Trade and Competition. We have not heard of such a bill. We have not heard of any clamor.
 
We know there is a law against unfair competition. By pushing for the passage of that bill, BAT is practically admitting that it is in the practice of unfair competition.
 
BAT wants to have its cake and eat it, too. It has a very strong desire to take over the demand for cigarettes made by PMFTC.
 
The indication of this desire is the sale of BAT brands at prices lower than PMFTC.
 
It is probably selling at a loss. That may well be the reason   it does not want to fill the rising demand for the cheaper Lucky Strike. Maybe it has something up in its sleeve in pushing for the passage of a law on Fair Trade and Competition.
 
My guess is BAT may have a desire to have its brands classified under the low category as the brands of Mighty Corp. that increased sales from the insignificant five percent to the present 30 percent in a spite of a higher excise tax. Mighty's story is different from BAT. Mighty has a large capacity and is in fact expanding but is claimed to declare only 40 percent of production to the BIR for tax purposes.
 
If BAT's wishes or dreams come true, it would succeed in killing Mighty and PMFTC. It may well be the cigarette king in the Philippines although it does not have a cigarette plant. This seems to be the company's idea of fair trade and competition.
 
The benefit that the Philippines gets is the payment of the excise tax of P25 per pack. It generates very little employment limited to people working in the distribution channel. The country pays huge amounts of foreign exchange for the cigarettes brought in by BAT from Malaysia.
 
Isn't that enough advantage over the local cigarette makers? But it wants more.
 
There is nothing fair in a law that lumps together the excise tax of imported and competitor in the world cigarette market.
 
That tax schedule is very much like imposing the same rate on the high class cars of Toyota and top line of BMW.
 
Cigarettes and liquor are sin products. Cigarette becomes a bigger sin since its products such as BAT are given undue advantage. In the first place, as repeatedly explained here, BAT does buy one kilo of local leaf.
 
Given what it wants in the enactment of the Fair Trade and Competition bill. BAT may well be promoting poverty among the tobacco farmers. On the other hand, the country will be subsidizing foreign leaf. Enditem