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Vietnam: smuggling adds value
  1. Luk Joossens
  1. Consultant to European Cancer Leagues & International Union against Cancer, Brussels, Belgium; joossens{at}

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    Internal British American Tobacco (BAT) documents1 have been explicit about the knowledge of cigarette smuggling into Vietnam. In one document, Vietnam Status Report (12 May 1995), it was stated: “Cigarette imports were banned 6 years ago. Smuggled sales into Vietnam are currently estimated at approximately 7 bn [billion] p.a. although prior to a crackdown in 1990 (when all smuggling was virtually eliminated for 18 months) it was in the region of 12–17 bn p.a.”2

    The same document also stated: “SE [State Express] 555 is the major smuggled brand and there is no doubt it has a tremendous image and sales potential in the country. BAT has resisted agreeing to manufacture 555 in Vietnam due both to concerns about the ability to sell the brand as a locally manufactured product and to the possible impact of a licence outside Vietnam. However, Vinataba [the Vietnamese State monopoly] sees a licence of 555 as an attractive opportunity for the JV [joint venture], and believes that BAT’s opposition to a licence is simply to ‘protect the smuggling’ trade.”2

    A series of company papers showed that BAT pursued a twin track strategy to maximise its earnings from Vietnam. One track was to negotiate with the Vietnamese government and Vinataba to produce international brand cigarettes locally.3 The other track was smuggling. Documents describe in a detailed way the smuggling route for 555: cigarettes were produced in the UK, shipped to Singapore, sold to importers and traders in Cambodia, and then transported illegally across the border.4 Both tracks went ahead. A licensing agreement to produce BAT brands locally was reached in 1994. By the end of that year, BAT State Express 555 was launched in Ho Chi Minh City as “Made in Vietnam”, retailing at 10 000 Dong, cheaper than the price of smuggled 555, 11 000 Dong.5 BAT was controlling both the price of locally produced 555 and of the smuggled 555, and decided that the local 555 should be less expensive “as an opportunity to establish itself”. BAT was clearly proud of 555’s position as a “luxury” brand, and wanted Vietnamese people to perceive it as a status symbol. In 1998, Fred Combe, general manager of BAT in Vietnam, told the trade journal Tobacco Reporter, “In Vietnam, smoking State Express 555 means that you’ve made it”.6

    During a visit to Hanoi in March this year to attend a regional workshop on tobacco tax policy in Southeast Asia, I could see that smuggling of SE 555 is still going on. I asked the price of the local and the smuggled 555 at 10 street sellers in Hanoi. The average price for the “Made in Vietnam” 555 was 16 000 Dong, whereas the smuggled ones were 28 000 Dong (US$1 = 15 300 Dong). A Vietnamese researcher observed that smuggled imports of 555 and Marlboro fetch higher prices because consumers consider them to be of higher quality, or “more refined”.7 My own mini survey confirmed this: street sellers explained that the “Vietnamese” 555 was “no good” and that smuggled 555 were much better, as they came from Singapore. The front and the back of both packs look similar, but there are notable differences on the sides. The local 555 have a tax banderol, a health warning in Vietnamese, a marking “Made in Vietnam”, a label “Exceptional tobacco for superior smoothness”, a bar code, and a number. The smuggled 555 were made in the UK, had English language European Union health warnings, a bar code and number, and, showing they were intended for duty-free sale in Singapore, specified on the side that Singapore duty had not been paid.

    The case of SE 555 smuggling raises several questions. Cigarette packs have specific codes that allow tobacco companies to track where their products are sold, so BAT should have known that SE 555 has continued to be sold illegally in Vietnam. The packs indicate that the cigarettes were sold to Singapore traders—so why has BAT not stopped supplying these traders? The fact that the cigarettes were marked for sale in duty-free outlets in Singapore, but ended up in the illegal market in Vietnam, illustrates how duty-free outlets are facilitating smuggling, and reinforces the need for a ban on all duty-free tobacco sales.

    There is continued wide scale smuggling of tobacco products worldwide. It is happening with the clear knowledge of major cigarette companies, and is aiding international organised crime. Given this situation, why have governments not moved faster to require anti-smuggling measures such as the mandatory use of tracking and tracing technology on all cigarette packs?

    The industry has always claimed that smuggling is the result of taxes being too high. This is not the case with SE555 in Vietnam: the price of the smuggled 555, considered to be of higher quality, is higher than the same brand manufactured in Vietnam. As there has been an import ban of cigarettes in Vietnam since 1990, the only way to sell SE 555 cigarettes “Made in England” in Vietnam is through smuggling. A policy revealed in the internal BAT documents seems to continue today.

    Embedded Image

    Packs of locally produced and smuggled State Express 555 cigarettes in Vietnam, showing little difference between the front of the packs, but notable differences between the sides.