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Cablegate: Tobacco Firms Complain of Cigarette Smuggling From

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS CARACAS 003125

SIPDIS


STATE FOR WHA/AND
STATE PASS USTR FOR BHARMON
NSC FOR CBARTON
COMMERCE FOR ITA/MAC/WH/OLA-SOUTHERN DIVISION-MARIA CAMERON
TREASURY FOR OASIA-GIANLUCA SIGNORELLI
HQ USSOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: ECON ETRD KIPR PGOV VE
SUBJECT: TOBACCO FIRMS COMPLAIN OF CIGARETTE SMUGGLING FROM
COLOMBIA


--------
Summary
--------

1. (SBU) SUMMARY On October 1, Economic and Commercial
Counselors met with representatives of Philip Morris and
British-American Tobacco, the two largest cigarette companies
in Venezuela, who raised the impact of contraband cigarettes
in the domestic Venezuelan market. The particular focus was
on the "Universal" brand of cigarettes that is being produced
in Colombia exclusively for the contraband market in
Venezuela. Universal has been so successful that it now
accounts for 8 percent of Venezuelan domestic cigarette sales
and counterfeit versions of Universal itself are now on the
market. The Venezuelan tobacco companies report that despite
the volume of illicit cigarette trade between Colombia and
Venezuela, authorities in neither country have taken concrete
steps toward interdiction. END SUMMARY

-------------------------------
The Contraband Cigarette Issue
-------------------------------

2. (SBU) Economic and Commercial Counselors met on October 1
with Daniel Montealegre, Director of Government Affairs and
Pedro Sosa, Legal Counsel for Tabacalera Nacional, the local
subsidiary of Philip Morris; Gerardo Anselmi, Director of
Institutional Relations for Bigott, the local subsidiary of
British-American Tobacco, and Carmen Martinez, Executive
Director of the Colombian-Venezuelan Chamber of Commerce.
The tobacco companies requested the meeting in order to
discuss what they see as an increasing threat to legitimate
tobacco companies in Venezuela from contraband products.
According to the industry, 17 percent of the Venezuelan
cigarette market is made up of contraband product. The
remainder of the market is dominated by Bigott (representing
the Belmont, Consul, Lucky Strike, and Kent brands) with a 69
percent market share and Tabacalera Nacional (Marlboro) with
14%

3. (SBU) The companies, primary concern was about the
"Universal" brand of cigarettes. This brand, they advised,
is produced by Protabaco, one of the largest Colombia tobacco
companies. There is no legitimate market for Universal
cigarettes in Venezuela, and the Universal trademark in
Venezuela is not owned by Protabaco. According to the
industry, the Universal cigarettes that find their way the
Venezuelan market are supposedly exported to the free trade
zone in Curacao and are either imported into Venezuela from
there or never go to Curacao and are smuggled across the
Colombian-Venezuelan frontier. Bigott and Tabacalera
Nacional claim that there is clear evidence that the
Universal product is intended for the Venezuelan market in
the fact that the Venezuelan health warning is printed on the
packages and the cigarettes are 50mm in length, which is a
peculiarity of only the Venezuelan and Japanese markets. As
a point of reference, the contraband product sells for
approximately 800Bs.(US$.42) versus 2000Bs. (US$1.04) for
legitimate products, with the difference largely arising from
the fact that no taxes are reflected in the price of
Universal.

4. (SBU) The industry representatives stated that contraband
cigarettes have been a problem in Venezuela for some time and
the quantity of contraband on the market has increased over
the last seven years. At the apex in 1999, contraband
cigarettes represented 25 percent of domestic sales, but
subsequent exchange controls served to undermine smugglers as
their ability to obtain the necessary hard currency for
imports was significantly diminished. However, they have seen
an upswing in contraband as foreign exchange has become more
freely available.

--------------------------------------------- -------------
Government Inaction Continues on Both Sides of the Border
--------------------------------------------- -------------

5. (SBU) Queried as to the status of enforcement efforts, the


industry representatives said that Colombian authorities have
thus far been uncooperative with the requests for assistance
from the Venezuelan tobacco sector, no doubt due in part to
the fact that Protabaco holds a 40% market share in Colombia.
Similarly, they stated that the Venezuelan authorities do
not appear to be particularly interested in pursuing
interdiction despite the fact that 53% of the price of
legitimate cigarettes is tax revenue.


--------
Comment
--------

6. (SBU) Cross-border smuggling is nothing new, of course.
That a major Colombian company would consider itself free to
create an entire contraband brand is a new wrinkle and would
indicate that Venezuela,s customs authority, either through
indifference, lack of resources, or corruption is making
little effort to stop the illegal trade from going forward.
Earlier in the Chavez administration, the GOV had given some
priority to stopping illegal imports from competing with
national industry. (The main area of focus was the garment
industry, where it imposed detailed country-of-origin
labeling requirements). However, interest in this issue has
faded, especially as the GOV has become ever more solicitous
of the burgeoning sector of informal vendors, who form the
principal distribution channel for smuggled goods (including
Universal cigarettes). When the Venezuelan consumer goes
down to the street market to pick up a pirated music or
computer CD, or a knock-off designer shirt, he can also pick
up some untaxed Colombian smokes and is likely to be able to
do so for the foreseeable future.
Brownfield


NNNN
2004CARACA03125 - UNCLASSIFIED

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