Supplementary memorandum submitted by
Imperial Tobacco Group PLC
CHINESE STATE TOBACCO MONOPOLY ADMINISTRATION/
TOBACCO COALITION—ANTI-COUNTERFEIT CO-OPERATION: BACKGROUND
The Chinese State Tobacco Monopoly Association
(STMA) and the Tobacco Coalition of Imperial Tobacco, Philip Morris,
British American Tobacco and Japan Tobacco have a formal memorandum
of understanding to combat the counterfeiting of tobacco products
in China.
There is a joint strategy of targeting illicit
factories, packing houses, printers, transit warehouses and containers
in transit and the Tobacco Coalition employs a wide variety of
agencies in China to support the activities of the Chinese Authorities.
The Tobacco Coalition meets formally with the
STMA about four times a year. Through the STMA and provincial
Tobacco Monopoly Associations (TMAs), the Tobacco Coalition has
developed solid relationships with other key anti-counterfeiting
agencies in China including the Ministry of Public Security (MPS),
the General Customs Administration (GCA), the People's High Court
(PHC) and the People's High Procurate (PHP). Consequently, the
Tobacco Coalition is able to mount sophisticated joint surveillance
operations with the Authorities. Imperial Tobacco has also developed
a project with the Hong Kong police using the local money laundering
regulations, with a view to taking criminal action against major
traders in counterfeit product who use Hong Kong as a financial
base.
The vast majority of counterfeit production
in China is directed at local Chinese brands but it is estimated
that about 2,500 containers of the Coalition's brands are produced
each year (between 20 to 25 billion cigarettes). Some of the counterfeiters
are small family/village groups, who produce about 20% of the
counterfeit cigarettes and handrolling tobacco. The remaining
20% of the counterfeiters are organised criminal syndicates, who
produce 80% of the counterfeit product.
In the year ended September 2004, Imperial Tobacco
was directly involved in achieving the following results:
— Thirty-one counterfeit factory closures.
— Eleven warehouse raids.
— Twenty printer/packing house closures.
— Forty-five containers of counterfeit
cigarettes seized.
— Total seizures of 473 million "British"
cigarettes. This is comparable with the total volume of large
seizures of Imperial Tobacco cigarettes notified to the Company
by HM Customs and Excise in the same period.
The cost to Imperial Tobacco of mounting the
above series of anti-illicit trade operations in the year ended
September 2004 was £1.2 million. This produced a potential
profit benefit for Imperial Tobacco in the UK market of £11
million and a revenue benefit to the UK Exchequer of £85
million.
Overall, Tobacco Coalition operations in recent
years closed 177 factories, 49 printers, 45 packing houses and
seized 94 in-transit loads. It can be assumed that at some point
in the past or future, those destroyed production facilities would
have been making UK brands.
Currently, operations are getting more difficult
and protracted as the counterfeiters increasingly adopt anti-surveillance
methods, with some factories concealed underground. They also
appear to be shifting some operations from Fujian province, opposite
Taiwan, and Guangdong Province, around Hong Kong, to the Shanghai
region where liaison is less effective. Activity in the less regulated
areas of Northern Vietnam and North Korea, which are not part
of the Coalition agreement, is also increasing.
The STMA takes the anti-counterfeiting issue
extremely seriously—as their brands are counterfeited significantly
more than international brands in China. Their efforts against
the production, distribution and sale of counterfeit cigarettes
include 50,000 full time STMA officers engaged in anti-counterfeit
work, a combined central budget of US$75 million dollars (US$50
million from Ministry of Finance and US$25 million from the Chinese
National Tobacco Corporation (CNTC)) in addition to provincial
TMA budgets of up to US$17 million per province.
February 2005
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