WTO Rule A Boost for PHL Tobacco Farmers

Source from:  Business Mirror 06/27/2011

With the ban imposed by the local governments of Manila and Makati on smoking in public places, the logical consequence of this is the decline in the demand for tobacco products. Government estimates, however, show that there will be no reduction in the demand for tobacco products such as cigarettes this year. Estimates by the National Tobacco Administration (NTA) show that tobacco farmers from major tobacco-producing provinces are expected to rake in more than P5 billion this year. This year tobacco production is expected to go up by 4.3 percent to 77 kilograms, from 73.77 million kilos. Last year's production was valued at P4.85 billion. Hectarage planted to tobacco is expected to increase by 12.1 percent to 37,000 hectares. "More farmers planted tobacco because of good income. Also, local government units [LGUs] are keen and interested to take part in production," NTA Administrator Edgardo D. Zaragoza said. LGUs in tobacco-producing provinces have incentives to encourage the planting of tobacco in their locales. For one, laws such as Republic Acts (RA) 7171 and 8240 mandate the provision of support for the tobacco industry. RA 8240 authorized the setting aside of 15 percent of excise tax on tobacco products to be allocated and divided among provinces producing Burley and native tobacco. Also, 15 percent of excise taxes imposed on Virginia type of cigarettes will be allocated to provinces producing the tobacco grade. The agency said around 45 percent of local tobacco production is bought by cigarette manufacturers and is processed for the export market. Among the major buyers of locally produced tobacco leaves are Philip Morris Fortune Tobacco Inc. (PMFTC) and La Suerte. The government projected that tobacco production will increase steadily in the next three to five years. Zaragoza said tobacco farming is an attractive venture for farmers, and that it will not go away anytime soon as there is no viable alternative for it. Thailand loses at WTO NTA said it expects more farmers to go into tobacco farming after the World Trade Organization (WTO) ruled in favor of PMFTC over cigarette taxes and duties imposed by Thailand. On June 17 the appellate body of the WTO upheld a November report by the Dispute Settlement Body, which indicated that Thailand acted inconsistently with its WTO obligations and acted counter to provisions of the General Agreement on Tariffs and Trade (GATT). "With the WTO decision, there is a good possibility that PMFTC will increase its tobacco buying from farmers," said Zaragoza. The ruling, he noted, removed a stumbling block for PMFTC to be able to ship out more cigarettes to Thailand. This, then, will result in more purchases of tobacco from farmers. The Philippine government filed the case on behalf of PMFTC against the Thai government. This is because only governments are allowed to file a case at the WTO on behalf of companies operating within their borders. PMFTC charged that Thailand was biased against imported cigarette brands, particularly in terms of customs valuation practices, health tax, value-added tax, import guarantees, retail licensing requirements and excise tax imposed on cigarette importers. The company decided to seek the assistance of the Philippines after efforts to seek a bilateral resolution to the issue failed. In 2008 Manila requested the WTO panel to examine the customs, fiscal and health measures that Bangkok imposes on imported cigarettes. Last November the panel issued a decision saying that Thailand had acted inconsistently with its obligations under WTO. More exports PMFTC operates two plants in the Philippines and it ships out cigarettes to its sister company in Thailand. The company has contract-growing arrangements with tobacco farmers in major tobacco-producing areas in the Philippines. These arrangements have allowed the company to source tobacco leaves that meet its specifications. In 2010 the company disclosed that it was able to ship out 7.2 billion sticks to Thailand, up by almost 13 percent from 6.2 billion sticks in 2009. PMFTC exports cigarettes under the L&M and Marlboro brands. Zaragoza also said the WTO ruling has also made it more competitive for other cigarette manufacturers to set its sights on the Thailand market. "But as to whether it will translate into actual sales is another story," he said. The country exports tobacco leaves to the United States, Belgium, South Africa, Korea and Malaysia, and manufactured cigarettes to Thailand, Korea, Singapore, Malaysia and Vietnam. The country also imports high-grade tobacco from Turkey, China, Pakistan, India and the United States, and manufactured cigarettes from France, Singapore, Hong Kong, Vietnam and China. The country imports tobacco leaves for blending with locally produced leaves. The Philippines produces three types of tobacco leaves-Virginia, Burley and the native variant. From January to April this year, the Philippines imported 19.85 million kilos, valued at $54.24 million. Cigarette imports reached more than 600,000 kilos, valued at $4.86 million. Enditem