South Korea: Foreign Cigarette Firms Unhappy with KT&G''s Monopoly of Military Supply

Source from:  Korea Times (kr) 04/28/2015

Foreign cigarette makers have expressed their discontent over the latest decision by the Ministry of National Defense to make only KT&G products available for the nation's armed forces.

Korea's largest tobacco firm has been the sole cigarette supplier for the military over the past 10 years they say, arguing that this monopoly should raise questions over the defense ministry's selection process in restricting soldiers' rights to choose.

On April 17, the ministry said four cigarette brands all manufactured by KT&G will be sold at post exchanges (PX), a military version of a convenience store inside the base, over the next year.

For the next 12 months, KT&G is expected to earn at least 80 billion won ($73 million) from selling its four cigarette brands.

None of the three major foreign tobacco firms ― Philip Morris International Korea, British American Tobacco Korea and Japan Tobacco International Korea ― are allowed to sell their products to soldiers on base.

In 2007, the defense ministry allowed foreign firms to bid to supply the PX stores. According to a Hankook Research survey conducted in 2014, the preference for foreign tobacco brands was highest among people aged between 19 and 29. Nearly 64 percent of that age group preferred to smoke non-Korea brands, substantially higher than the overall rate of 40 percent, the survey found.

Despite these preferences, foreign cigarette brands have never made it to the PX, according to an official at one of the three international tobacco firms, who say KT&G's monopoly has been hurting soldiers' rights to choose.

"If the ministry really seeks to broaden the choice for soldiers, it must make a variety of products available for them," the official said. "The military should revamp its selection process if it wants to organize a bid in a more transparent and fair manner."

He raised the question over the fairness of the military's tobacco supply selection process, citing the Fair Trade Commission's recent finding that KT&G offered undue benefits such as cash subsidies to retailers at highway service areas in return for selling only its products. The company was fined 2.5 billion won.

"Many CEOs of foreign companies operating in Korea and other business people have expressed frustration with the defense ministry's decision, saying that it disregarded the rights and interests of consumers, who are in this case soldiers," the official said. "Everybody knows it is not good for one company to dominate the market. The military buying only KT&G products is certainly such a case." Enditem