Collaborations with China National Tobacco Corporation belie PMI & BAT’s smoke-free agendas

29 July 2021

Source: Business Matters

Philip Morris International (PMI) and British American Tobacco (BAT) have been busy diversifying their businesses, investing in new products to prove they are moving beyond cigarettes.

After PMI signed off the controversial £1 billion acquisition of the UK asthma drug maker Vectura Group in mid-July, PMI’s CEO André Calantzopoulos hit out at critics by stating the corporation has the “ability and the technology” to help the UK to become smoke-free in a decade.

The Vectura purchase came just weeks after the publication of a BAT-sponsored study of the British tobacco giant’s new heated tobacco products, which found smokers who made the switch were less exposed to harmful toxins. BAT has even copyrighted their claim to be “building A Better Tomorrow™”.

Both transnational tobacco companies (TTCs) have caught on to the same idea, calling for a “smoke-free” revolution while offering alternative nicotine products supposedly meant to help smokers kick the habit. This shift offers the companies new avenues for profit: PMI made 25% of their annual sales – the equivalent of $28 billion (£20.3 billion) – from their smoke-free IQOS devices, which have helped them outperform their rivals.

But if Big Tobacco is pushing smoke-free alternatives in the West, TTCs like PMI and BAT are a long way from renouncing traditional cigarettes. As tobacco control advocates such as Matt Myers of the Campaign for Tobacco-Free Kids maintain, these firms’ “actions are inconsistent with the rhetoric” given they are still marketing cigarettes in middle- and low-income countries–home to approximately 80% of the world’s smokers. PMI and BAT are even partnering with emerging competitors, namely Beijing’s state-controlled China National Tobacco Corporation (CNTC), to boost tobacco sales in lucrative overseas markets.

CNTC: the biggest tobacco company in the world

The China National Tobacco Corporation holds nearly half of the world’s market share for cigarettes, producing the equivalent of over 300 cigarettes for every human being on earth in 2019. The company’s sales also equate to more than the combined output of five Big Tobacco corporations. Yet, so far, the CNTC has garnered far less media attention than its Western counterparts due to their focus on Chinese smokers – 98% of whom buy its cigarettes.

Since 2015, however, CNTC has been targeting consumers further afield, both as part of Beijing’s Belt and Road Initiative and to make up for falling numbers of smokers in China. A wide-scale investigation by the Organized Crime and Corruption Reporting Project (OCCRP) has revealed that, on top of a slow-growing legitimate market abroad, the firm is also carving out secret inroads overseas, with CNTC flooding global markets with ‘illicit whites’ – the technical term for untaxed, smuggled cigarettes – in order to attract new customers.

Crates of undeclared, untaxed China Tobacco cigarettes have cropped up from Brazil to the Philippines, as well on European shores. The OCCRP found that CNTC’s European factory in Romania makes and distributes bootleg cigarettes across EU countries as a cheaper alternative to duty-paid smokes. In 2016, for example, Italian police intercepted a shipment of 17 tons of illicit cigarettes in Salerno which was traced to the CNTC factory in Bucharest, though the nature of these black market deals makes it almost impossible to estimate the true extent of CNTC’s involvement in illicit trade.

Burden of blame also lies on Big Tobacco

Rather than trying to stem CNTC’s encroachment on the global market or oppose their circumventing of global tobacco control measures, Big Tobacco has instead cultivated a close working relationship with them. BAT has partnered with CNTC since the 1990s; in 2013, BAT and CNTC established the Hong-Kong-based joint venture CTBAT, through which Britain’s flagship tobacco company produces and sells their ‘State Express 555’ brand in China.

PMI has enjoyed the largest foreign print in China’s tobacco market since it began producing its Marlboro brand there in collaboration with the CNTC in 1994, even sponsoring the Chinese national football league. But their cooperation has deepened in the years since PMI and its Chinese counterpart agreed to a joint venture named China Tobacco Philip Morris International, a company which has been placing Chinese national brands in Europe and Latin America since 2008.

The cooperation between companies comes as little surprise to public health campaigners, given the two TTCs have previously been caught feeding the black market in tobacco to capture new market share and circumvent rising taxes on cigarettes to target younger or less affluent consumers. In 2004, the European Commission reached an agreement with PMI in which the company agreed to pay $1.25 billion (£674 million at the time) to settle lawsuits over allegations PMI deliberately oversupplied EU member states in order to feed the contraband market. In the years since, the firm has allegedly replicated the same practice in emerging markets such as Pakistan.

BAT, for its part, stands accused of exploiting instability and governmental breakdowns in conflict zones such as Mali and Somalia in order to make new inroads for its products.

Accountability will not be easy

If Western and Chinese tobacco giants are drawing from the same playbook, it is likely because they are faced with the same rules, namely those spelled out by the WHO’s Framework Convention on Tobacco Control (FCTC). The Chinese state’s management of CNTC is in direct contradiction with the FCTC, which China has signed, but the commitments outlined in the agreement will not have their desired impact until Beijing ratifies the convention and implements its provisions – especially those governing an independent track and trace system to stop the illicit tobacco trade.

As public health experts Jennifer Fang, Kelley Lee, and Nidhi Sejpal write, given “CNTC increasingly mimics the globalization strategies of TTCs, there is a need to now include China, along with other emerging TTCs, into global tobacco control efforts.” That makes it even more urgent that British and European regulators take a firm stand against CNTC’s misbehaviour, much as they continue to do in relation to the Chinese company’s Western partners and competitors – smoke-free revolution or not.