Smoke gets in BAT’s eyes

PETALING JAYA: British American Tobacco (Malaysia) Bhd (BAT), is still in the dark on the details of the government's plan to carve-out the tobacco sector from the Trans-Pacific Partnership Agreement (TPPA).

BAT corporate and legal affairs director Christine Lee Oi Kuan said tobacco companies are unsure as to whether the government was just asking that the investor-state dispute settlement (ISDS) clause be taken out, or if it wanted a complete exclusion of tobacco products from the trade pact.

BAT manufactures Dunhill, Pall Mall and Kent brands.

Lee said tobacco companies including BAT, JT International Bhd and Philip Morris (Malaysia) Sdn Bhd are still trying to get the the government's stand on the tobacco control issue from the Ministry of International Trade and Industry (Miti).

"From what we read, media reports (suggest that) the government's stand is very strong as it has decided to exclude tobacco products from the TPPA," Lee told a press conference after BAT's 53rd AGM here yesterday.

"But when we attended the engagement sessions with Miti, it looks as if the government is saying that this is just an exclusion of the investor dispute resolution clause from the TPPA," she continued.

"We are unclear about what the government is doing. Is this a case of complete exclusion? We really don't know," she said.

Lee explained that in the case of complete exclusion of tobacco products from TPPA, tobacco players will not enjoy any preferential treatment within the TPP countries.

While in the case of excluding ISDS clause from the trade pact, despite being able to enjoy preferential treatment, tobacco players will lose their right to initiate dispute settlement proceedings against a foreign government, in the event of any change of law or government policy that could unreasonably impact their business.

As an example she cited Philip Morris (Hong Kong)'s legal action against the Australian government for implementing plain packaging law, by using the bilateral trade agreement between the two countries.

"The ISDS clause is important for any product. Why should investors not be allowed to protect their interest anymore? Why should the company not be entitled to take action against the countries that are part of the trade agreement?" Lee asked.

She went on to say that the government has never consulted BAT on the tobacco matters before.

"Whether or not we are invited, the best we can do is write-in to ask for clarity, but we have yet to get any response on government's position" she said.

Lee emphasised that from the industry's standpoint, tobacco products are a legal product, and thus should not in any way be discriminated in the TPP discussions.

BAT managing director Stefano Clini concurred by saying, "this is a matter of principle".

"(Our industry) is legal and we just want to be treated as such. Nothing more, nothing less," he said.

"Is there a material impact to BAT's financial performance? No. But is this (exclusion) the right thing to do? The answer is still no," he added.

Worth noting is that International Trade and Industry Minister Datuk Seri Mustapa Mohamed yesterday said, Malaysia was not able to secure support for its plan to exclude tobacco from any of the other countries involved in the TPP negotiations.

On BAT's operations Clini said it expects a challenging outlook for 2014, as any potential increase in excise duties would raise concerns on illicit and duty-unpaid cigarette business.

BAT's operating expenses were lower by 8% in 2013, due to lower group recharges, non-recurring costs, lower incentives and favourable exchange differences.

Clini said the group had to close down its last tobacco leaf operations in Kota Bharu, Kelantan, given the impact of low demand due to uncompetitive leaf prices and low yields.

Following higher cigarette prices, Clini also expects the trend of continued consumer migration towards the value-for-money (VFM) segment from the premium cigarette segment.

The premium cigarette segment accounts for more than 70% of BAT's revenue.