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The invisible hand: how British American Tobacco precluded competition in Uzbekistan

Abstract

Background: Tobacco industry documents provide a unique opportunity to explore the role transnational corporations (TNCs) played in shaping the poor outcomes of privatisation in the former Soviet Union (FSU). This paper examines British American Tobacco’s (BAT’s) business conduct in Uzbekistan where large-scale smuggling of BAT’s cigarettes, BAT’s reversal of tobacco control legislation and its human rights abuses of tobacco farmers have been documented previously. This paper focuses, instead, on BAT’s attitude to competition, compares BAT’s conduct with international standards and assesses its influence on the privatisation process.

Methods: Analysis of BAT documents released through litigation.

Results: BAT secured sole negotiator status precluding the Uzbekistan government from initiating discussions with other parties. Recognising that a competitive tender would greatly increase the cost of investment, BAT went to great lengths to avoid one, ultimately securing President Karimov’s support and negotiating a monopoly position in a closed deal. It simultaneously secured exclusion from the monopolies committee, ensuring freedom to set prices, on the basis of a spurious argument that competition would exist from imports.

Other anticompetitive moves comprised including all three plants in the deal despite intending to close down two, exclusive dealing and implementing measures designed to prevent market entry by competitors. BAT also secured a large number of exemptions and privileges that further reduced the government’s revenue both on a one-off and ongoing basis.

Conclusions: BAT’s corporate misbehaviour included a wide number of anticompetitive practices, contravened Organisation of Economic Cooperation and Development’s and BAT’s own business standards on competition and restricted revenue arising from privatisation. This suggests that TNCs have contributed to the failure of privatisation in the FSU. Conducting open tenders and using enforceable codes to regulate corporate conduct would help deal with some of the problems identified.

  • BAT, British American Tobacco; CEC, Chief Executive’s Committee
  • FSU, former Soviet Union
  • GKI, Uzbek State Privatisation Agency
  • JV, joint venture
  • OECD, Organisation of Economic Cooperation and Development
  • PMI, Philip Morris International
  • SFP, Samarkand fermentation plant
  • TNC, transnational corporation
  • TTC, Transnational tobacco company
  • TTF, Tashkent Tobacco Factory
  • UFP, Urgut fermentation plant; UPP, Uzpisheprom
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