Japan Tobacco, EU Settle Cigarette Dispute

Source from:  journalnow.com BLOOMBERG NEWS Saturday, December 15, 2007 12/17/2007

Company will pay EU $400 million, help fight smuggling, counterfeits TOKYO, Japan. Japan Tobacco Inc., the nation's biggest cigarette company, will pay $400 million to the European Union over 15 years as part of an agreement to fight smuggling and counterfeiting, and avoid lawsuits about illicit trade. "Any future lawsuits against JTI for civil claims arising out of alleged past conduct related to illicit trade activity are excluded by the agreement," the company said yesterday. In 2004 Altria Group Inc. agreed to pay about $1.25 billion over 12 years to settle EU charges that the company aided cigarette smuggling. At the time, EU Budget Commissioner Michaele Schreyer said that the Altria agreement was a "template" for other tobacco companies with which the EU had similar disputes, including Japan Tobacco. About 320 billion cigarettes, or 6 percent of the total market, are sold illegally each year, according to British American Tobacco PLC, Europe's largest publicly traded cigarette-maker. That's more than the combined output of BAT rivals Imperial Tobacco Group PLC and Altadis SA. Smuggled and counterfeit cigarettes cost the tobacco industry more than 2 billion pounds ($4 billion) a year, the maker of Lucky Strike cigarettes said in April. The European Commission said that yesterday's agreement is the result of more than two years of negotiations. The European Union loses 600 million euros ($868 million) in tax revenue a year because of counterfeit cigarettes, the commission estimated. Most counterfeit cigarettes come from China. Russia and Ukraine are other sources, as well as illegal factories within the European Union, the commission said. The main sources of genuine cigarettes that are smuggled are Russia, Ukraine, Moldova and Belarus, it added. The commission said that it's "always prepared" to discuss similar agreements with other cigarette-makers. Japan Tobacco will mark cases - and eventually cartons - of cigarettes in a way that will allow government officials to easily obtain key information about them, the company said in the statement. The cigarette-maker will expand its internal compliance and help with investigations of reported breaches, it said. Japan Tobacco said it will gradually apply the agreement to Gallaher Group PLC, the U.K. maker of Silk Cut cigarettes, which it acquired in April. Last year, almost 5 billion contraband cigarettes were seized in the 27-nation EU, Japan Tobacco said in the statement. Europe as a whole accounts for 75 percent of the world's seized cigarettes, the company said, citing World Customs Organization estimates. Japan Tobacco's brands include Winston, Camel and Benson & Hedges. The company, which is 50 percent government-owned, is the biggest publicly traded cigarette-maker after Altria and BAT. Enditem