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December 20th, 2016:

Largest public pension system to sell all tobacco stocks

The nation’s largest public pension system is giving up tobacco.

The California Public Employees’ Retirement System decided Monday to sell its last $550 million worth of tobacco-related investments nearly two decades after trading away the bulk of them.

In a 9-3 vote, the CalPERS investment committee disregarded the advice from its own financial advisers who recommended reversing a sell-off of tobacco stock that was approved in 2000, which has cost the system more than $3 billion in lost earnings.

At that time, CalPERS divested tobacco holdings managed by its in-house advisers, but it allowed outside managers to retain the investments they controlled.

Public health organizations overwhelmingly opposed a reinvestment, saying it would send the message that California supports a product that causes cancer and raises health care costs.

“We’ve made a lot of progress in de-normalizing tobacco, to get people to think that tobacco is not OK,” said Jim Knox, vice president of the American Cancer Society’s advocacy arm. “To have the largest pension program in the world to suddenly get back into tobacco in a big way sends the wrong message.”

Hiking tobacco excise alone won’t reduce smoking: Finance Ministry

The Finance Ministry doubts that the increase in tobacco excise can reduce the prevalence of smoking in the country, arguing that the regulation needs to be combined with non-fiscal policy to make it more effective.

Suahasil Nazara, the ministry’s fiscal policy office (BKF) head, said besides gradually increasing excise tax, educating people about the negative impact of smoking and preventing youths from purchasing tobacco products also were equally important.

“I don’t believe that increasing excise tax will reduce the prevalence of smoking. We need to use a combination of fiscal and non-fiscal policies,” he said in a discussion on cigarettes at Hotel Borobudur in Central Jakarta.

In eight years, the number of tobacco factories had gone down from 4,669 in 2007 to 714 in 2015, which reflected the recent decline in cigarette production. The fact implied that production had decreased in line with market forces, he said.

The government’s argument was slammed by Hasbullah Thabrany, a professor of public health at the University of Indonesia’s School of Public Health, who said the reason behind the declining number of tobacco companies was because many small companies—mostly hand-rolled cigarettes—were unable to compete with big firms.

The Finance Ministry announced in October that it had issued a regulation to increase excise taxes by an average of 10.54 percent next year for several types of cigarettes. The price increase was lower than the target set by the government this year of 11.33 percent. (win/evi)

KT&G cigarettes smuggled into S. America, messing up local market

By Lee Hyo-sik

Billions of KT&G Esse and Pine cigarette brands have been smuggled into Chile, Guatemala and other South American nations this year, distorting the region’s tobacco market, according to industry officials there Tuesday.

The officials told The Korea Times that made-in-Korea goods account for more than 50 percent of the contraband cigarettes in some countries. They urged Korea’s largest tobacco company, headed by CEO Baek Bok-in, to take steps to prevent its products from being smuggled and sold on the black market in South America.

They say the increasing volume of illegally traded KT&G products has tarnished Korea’s image at a time when more and more Latin American consumers buy made-in-Korea vehicles, electronics and other consumer goods, as hallyu, the Korean cultural wave, sweeps the region.

An executive at one multinational tobacco firm operating in Chile said as much as 25 percent of the nation’s cigarettes sales were made on the black market, adding that the ratio has been increasing since Chile raised a tobacco sales tax in 2010.

“The majority of the falsified cigarettes were manufactured in Korea and India, most of which were smuggled from Bolivia,” said the executive, who declined to be named. “Contraband cigarettes are much cheaper because they are not taxed. The size of Chile’s cigarette black market has been expanding rapidly. It is estimated that KT&G’s Pine and Esse brands account for more than 50 percent of the black market cigarettes.”

The Korean cigarette maker supplies Esse and Pine to three importers in Bolivia: ZABIM SRL, ZAIRE and BBS SRL. However, substantial amounts of cigarettes brought into Bolivia through a Chilean port have been smuggled back into Chile.

KT&G produces Esse brand cigarettes for export at its main Shintanjin plant, South Chungcheong Province, and its plant in Yeongju, North Gyeongsang Province, makes Pine brand cigarettes for overseas markets.

“100 percent of Korean products seized in Chile have the Bolivian stamp. In a bid to curb the influx of KT&G cigarettes into the nation’s black market, tobacco companies here filed a complaint with the Korean Embassy in Chile. But nothing has been done,” the executive told The Korea Times. “We believe that KT&G is well aware of this situation, but it hasn’t done anything either. This has seriously damaged Korea’s image in the country.”

In November alone, the Chilean government seized 4.2 million KT&G brand cigarettes.

Guatemala has also been struggling to deal with the soaring volume of KT&G contraband. Pine Change and Esse Change brands, initially shipped to neighboring Belize, are smuggled into Guatemala, distorting its tobacco market.

“Guatemala is another country hit by the influx of smuggled KT&G cigarettes. Despite several initiatives by the authorities there to stop the problem, KT&G brands continue to enter the market, accounting for over 45 percent of the total contraband in Guatemala City and its adjacent areas,” the executive said. “The Guatemalan government has so far seized over 32 million cigarettes, 25 percent of which are KT&G brands.”

Tarnishing Korea’s image

The increasing volume of illicitly traded KT&G cigarettes has adversely affected Korea’s image abroad, according to an official at one of the foreign cigarette makers in Korea, who said the nation’s largest tobacco firm should ensure its products are sold abroad legally.

“KT&G has turned a blind eye to what happens to its products after selling them. But it shouldn’t,” the official said. “The company must make sure that its cigarettes are distributed and sold legally in foreign markets. Otherwise, this would cause further damage to its corporate brand and adversely affect Korea’s image.”

In response, KT&G officials said they are unaware of the large-scale smuggling of its cigarettes in South America, arguing the products are shipped to legitimate buyers through legal channels.

“We place an official stamp issued by the Bolivian government on all our products exported to that country,” a KT&G spokesman said. “As far as we know, our cigarettes have always been exported legitimately. But there is no way for us to know how the products are distributed and sold afterward.”

In 2015, the company sold 46.5 billion cigarettes in more than 50 foreign countries, compared to its domestic sales of 40.6 billion.

The Middle East accounted for 48.8 percent of KT&G’s overseas sales, followed by Latin America and Europe with 14.2 percent, and Central Asia with 11.5 percent. The Esse brand cigarettes were the most popular, accounting for 55.5 percent of the firm’s total sales abroad, followed by Pine with 29.2 percent and Time at 5.3 percent.

When the tax stamp covers the health warning label: conflicting ‘best practices’ for tobacco control policy

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