JTI ceasing cigarette manufacturing in Malaysia – but not exiting

12 May 2017:

A few days ago, Japan Tobacco International (JTI) announced it is closing its cigarette manufacturing factory in Malaysia at the end of the year. This does not mean JTI, which has about 22% market share is ceasing its operations in Malaysia, nor is it exiting. It just means it will be importing its cigarettes made more cheaply from elsewhere into the country.

The big three transnational tobacco companies – PMI, BAT, JTI – had cigarette factories in Malaysia. PMI announced ceasing its manufacturing operations in 2012, followed by BAT in 2016, and now JTI.  However all three companies are still present in Malaysia and sell their cigarettes.

The main reason JTI gave for its decision was the “extremely challenging” operating environment in Malaysia. These include steep tax increases for tobacco and “unfavourable” free trade agreement regime in Malaysia, which does not enable it to benefit from the opportunities provided by other existing free trade mechanisms. Apparently this adds to its cost of cigarette production.

It is good news that cost of cigarette production is increasing in Malaysia, which means the country is not providing (or removing) incentives to the tobacco industry. The JTI factory in Malaysia is manufacturing cigarettes also for export and considered it the regional “manufacturing hub for Asia”.

Elsewhere in the ASEAN region, JTI has started business operations in Myanmar (Myanmar Japan Tobacco Company Limited) where the cost of production is much lower. Myanmar currently has a total of more than 6 million smokers. Cigarette sales in Myanmar in 2010 were about 13 billion sticks. However the sales projection in 2018 indicates it is set to double to 25 billion sticks. Myanmar’s projection is the highest increase compared to all other ASEAN countries. The most popular pack of cigarettes cost only US$0.57.

Japan Tobacco’s operating profit for 2016 is about US$5 billion, with 11.3% profit growth. It profits are many times higher than the tobacco control budget of ASEAN countries’ combined.

Although smoking kills more than 6 million people worldwide and about 500,000 in the ASEAN, JTI is going all out to counter “risks” to its business. JTI considers substantial tax increases as being “disruptive” to its business. JT plans to tackle this risk by “Engaging with governments, regulatory bodies and law enforcement agencies to eradicate illicit trade.” In other words, JTI will contravene Article 5.3.

JTI also identifies “tightening up of tobacco regulations” as another business risk. It plans to counter that through “constructive dialogues with governments and regulators for a reasonable and balanced approach”, again contravening Article 5.3.

It is clear governments need to introduce measures that define how they relate with the tobacco industry to protect their tobacco control policies from being railroaded and undermined.

The Philippines Civil Service Commission for example relates with the tobacco industry only toregulate, supervise or control it; not to dialogue with it or receive its input.