GAO IZcp0r-t to Congressional Requesters

Ik(‘(!I1113(~r 1992 INTERNATIONAL TRADE Advertising and Promoting U.S. Cigarettes in Selected Asian Countries

148468

united states General Accounting Offlce GAO Washin@n, D.C. 20548

General Government Division

B-236306 December341992 CongressionalRequesters

This report responds to requestsreceived from the membersof the SenateCommittee on Labor and Human Resourcesand from individual membersof the House of Representativeslisted at the end of this letter. As agreed,we have reviewed issuesassociated with the advertisementand promotion of U.S. cigarettes in Japan, Taiwan, South Korea, Thailand, Hong Kong, Malaysia,and Indonesia. This report provides information on (1) the continuation of the conflicting U.S. government policies of pursuing antismoking initiatives domestically while assisting U.S. cigarette companiesin selling their products abroad, and U.S. government regulation of cigarette exports compared with exports of other potentially harmful products or substances;(2) the restrictions on cigarette advertising and promotion imposed in the reviewed countries, and any alleged violations by U.S. cigarette companiesas reported by the foreign governments;and (3) the advertising and promotional practices of U.S. cigarette companiesin these countries. As you requested,we plan no further distribution of this report until 2 days after its issue date, unless you publicly announceits contents. At that time, we will send copies to the Secretaries of the Departments of State, Health and Human Services,Commerce, and Agriculture; the U.S. Trade Representative;and consular officials from the governmentsof Japan, Taiwan, South Korea, Thailand, Hong Kong, Malaysia,and Indonesia. Copies will also be made available to other interested parties on request.

Pleasecontact me on (202) 276412 if you or your staff have any questions concerning this report. The major contributors to this report are listed in appendix IV.

Allan I. Mendelowitz, Director International Trade and Finance Issues B-236806 List of Requesters The Honorable Edward M. Kennedy,Chairman The HonorableJeff Bingaman,Member The Honorable Howard M. Metzenbaum,Member The Honorable Paul Simon,Member The Honorable Paul D. Wellstone,Member Committee on Labor and Human Resources United StatesSenate The Honorable ChesterG. Atkins The Honorable Michael Andrews The HonorableJim Bates The Honorable Barbara Boxer The Honorable Richard Durbin The Honorable Lane Evans The Honorable Harris Fawell The HonorableJames Hansen The HonorableJohn LaFalce The Honorable SanderLevin The Honorable Mel Levine The Honorable Ed Markey The HonorableJim McDermott The Honorable Bruce Morrison The Honorable Norman Shumway The Honorable Pete Stark The Honorable Mike Synar The Honorable Peter Visclosky The Honorable Ted Weiss(deceased) The Honorable Bob Whittaker House of Representatives

Page 2 GAlWGGD93-33 Intwnational Trade ~Executive Summary

In recent years, cigarette advertising and promotional activities have Purpose become increasingly controversial in the United States and abroad. In numerous countries, cigarettes may be advertised in the broadcast and print media, outside on billboards and posters, and in retail outlets. Cigarettes are frequently promoted through cigarette companies’ sponsorship of cultural or sporting activities. However, health proponents view these activities as contrary to efforts by governments and international health organizationsto decreasecigarette consumption becauseof the adversehealth consequencesassociated with smoking. Based on requestsby the Chairman and 4 other members of the Senate Committee on Labor and Human Resourcesand by 20 members of the House of Representatives,GAO agreed to (1) elaborate on the continuation of the conflicting US. government policies of pursuing antismoking initiatives domestically while assisting U.S. cigarette companiesin selling their products abroad, and compare U.S. government regulation of cigarette exports with exports of other potentially harmful products or substances;(2) summarizethe cigarette advertising and promotional restrictions in Japan, Taiwan, South Korea, Thailand, Hong Kong, Malaysia,and Indonesia and describe any alleged violations of the restrictions by U.S. cigarette companiesas reported by the foreign governments;and (3) review certain advertising and promotional practices of U.S. cigarette companiesin the six reviewed Asian countries that allow these activities (Thailand has banned all cigarette advertising and promotional activities) and attempt to determine whether the companies specifically target children and nonsmokers. GAO previously reported on the first issue in Trade and Health Issues:Dichotomy Between U.S. Tobacco Export Policy and Antismoking Initiatives (GAO/NSIAD-W)-100, May 16, 1990).

With the assistanceof the Office of the U.S. Trade Representative,U.S. Background cigarette companiesbeginning in 1986gained accessto the previously closed Asian cigarette markets of Japan, South Korea, Taiwan, and Thailand. The major U.S.-basedcigarette exporting companies are Philip Morris International Incorporated; R.J. Reynolds Tobacco International, Incorporated; and Brown & Williamson Tobacco Corporation. Together, these three companiesaccount for about 99 percent of cigarette exports from the United States.With reductions in trade barriers, the U.S. cigarette companieshave extended their advertising and promotional campaignsto

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Japan,Taiwan, and South Korea.They also advertiseand promote their products in Hong Kong, Malaysia,and Indonesia--countries that have permitted the sale of U.S.-brandcigarettes for severalyears. The cigarette companiesargue that advertisingis a legitimate tool for increasingconsumer awareness of their products and increasingmarket share by encouragingbrand switching by current smokers.Critics argue, however, that the cigarette companiesalso advertiseand promote their products to attract nonsmokers,such as children, and to discourage people from stopping smoking.

Results in Brief The dichotomy betweenU.S. trade goals and health policy objectivesthat GAO reported in its May 1990review continuesto exist. The Departmentof Health and Human Servicesstill saysthat its mandatedoes not extend to international affairs and thus does not include cigarette trade issues despite its many international activities advocatingsmoking cessation. However,based on an invitation from the U.S.Trade Representative,the Departmentof Health and Human Servicesdid participate in a September1992 round of cigarette trade talks with Taiwan. The Office of the U.S.Trade Representativetold GAO that from its perspectivethe Departmentis free to participate in any trade negotiationsin which it may have an interest, including those dealingwith tobacco products.

U.S. cigarettesare generallyexempt from major federal laws and regulations controlling the export of potentially harmful products or substances. Cigaretteadvertising and promotional activities in the sevenAsian countries GAOreviewed are restricted through various laws, regulations, ordinances,and self-regulatorycodes that apply to both domestic and a foreign cigarette companiesmarketing their products in these countries. The Taiwan and South Koreangovernments informed GAOthat U.S. cigarette companieshave violated certain of their restrictions. The Thai governmentsaid that U.S. cigarette companiescontinue to violate the country’s completeban on cigarette advertisingand promotional sponsorships.Hong Kong provided GAOwith pictorial examplesof advertisementsthat it allegestarget nonsmokersand children. Malaysia did not provide information on this issue.The governmentsof Japanand Indonesiatold GAOthat they do not have records of any violations of their cigarette advertisingrestrictions.

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, ” ,’ Executive Summary

GAO'S examinationof US. cigarette companyadvertising materials for the reviewed countries indicated that cigarette brands were frequently associatedwith American or western culture, relaxation and leisure, or fashionablelifestyles. These brand imageswere substantiallyconsistent from country to country. The vast majority of promotional activities sponsoredby the U.S.cigarette companiescould be classifiedas sporting eventsor musicalconcerts. More brands were associatedwith sporting activities than musicalconcerts or other entertainment.

However,based on the limited material availablefor GAO'S review, GAO was unable to determinewhether U.S.cigarette companiesintended to target or to appealspecifically to children or nonsmokersthrough their advertisingand promotional campaigns.

GAO’sAnalysis

Conflicting U.S. Health and The Departmentof Health and HumanServices told GAO that, until Trade Policies recently, it has not becomeinvolved in issuesdealing with U.S.cigarette exports becauseit continuesto perceiveits jurisdiction to be domestic policy and not trade policy. Consistentwith its policy, the Departmentof Health and HumanServices did not participate in the 1989-90U.S. cigarette trade talks with Thailand.However, basedon an invitation from the U.S.Trade Representative,the Director of the Health and Human ServicesDepartment ’sOffice on Smokingand Health was a memberof the U.S.delegation in a September1992 round of cigarette trade talks with Taiwan, His role was to contribute to the discussionsfro m a health and scientific perspective,according to the Office of the U.S.Trade Representative.In a letter to the Secretaryof Health and Human Services, l the U.S.Trade Representativesaid that she looks forward to the continued work of this representativewith her staff “. . . on the health aspectsof this and other trade policy issues.” The Departmentof Health and HumanServices has provided assistanceto Asian antismokinggroups and has staunchly supported the antismoking programsof international health organizations.

U.S.exports of certain potentially harmful products and substancesare subject to various federal laws and regulations.However, U.S. cigarette exports are specifically exempt from many of these controls and

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consequentlyare not subject to any special federal regulation such as including health warnings on the cigarette packages.

Alleged U.S. Violations of GAO reviewedthe cigarette advertisingand promotional restrictions Asian Cigarette Advertising imposedby each of the sevenAsian countries and requestedthe foreign Restrictions governmentsto report any violations of these codes.Three of these countries-Taiwan, South Korea, and Thailand-reported alleged violations: Taiwan said U.S.cigarette brand posters were placed in areas where they are prohibited (e.g., on outside walls and on street vendors’ kiosks); South Korea said the U.S.cigarette companiesconducted promotional activities at locations far from licensedretail outlets and supplied cigarettesto nonlicensedretail outlets (e.g.,bars and discotheques);and Thailand said the U.S.cigarette companiesplaced cigarette logos or symbolson TV programsand on nontobaccoproducts such as clothing items, activities prohibited by the government.The countries did not report the extent of the violations or provide GAO with evidenceof US. cigarette companyinvolvement in the allegedinfractions. GAO did not independentlyverify whether these allegationsare valid.

The Japanesegovernment infor med GAO that there have been no reported infractions by the US. cigarette companies.The Malaysiangovernment did not give GAO information on whether U.S.cigarette companieshad violated its advertisingrestrictions. The governmentof Hong Kong provided GAO with pictorial examplesof U.S.brand cigarette advertisements,which it allegestarget nonsmokersand children. (Theseadvertisements are substantiallythe sameas those provided to GAO by the U.S.cigarette companiesand are included in GAO'S analysis.)Finally, the governmentof Indonesiatold GAO that its cigarette advertisingrestrictions are minimal and not aggressivelyenforced. The Indonesiangovernment could not provide any records of allegedinfractions. &

Advertising and GAO examinedU.S. cigarette advertisingand promotional expenditure data Promotional Practices of that were provided by the three maor U.S.cigarette companiesdoing U.S. Cigarette Companies businessin the sevenAsian countries. Crosscountry comparisonsof the expendituresindicate that in 1990,in aggregate,the three U.S.cigarette companiesspent in Japanmore than two-thirds of their combined advertisingand promotional budgetsallocated for the countries GAO reviewed.After Japan,in descendingorder of expenditures,were Hong Kong, Malaysia,South Korea,Taiwan, and Indonesia.

Page6 GALXGGD-9358IntemationalTradc Also in 1990these companies spent more money on TV advertising in Japan,Hong Kong,and Malaysiathan on any other advertising category. (Hong Kong bannedTV advertisingin December1990.) In South Korea, Taiwan, and Indonesiathe companiesspent more money on point-of-sale advertising (Le., advertisingat the retail outlet) than on any other type.

GAO reviewed 1990U.S. cigarette brand advertising materials (primarily magazineadvertisements and video tapes of television commercials)for the six reviewed Asian countries where cigarette advertisingwas allowed. The name-brandadvertising campaigns were substantially consistentfrom country to country, with most important differences appearingto be adaptationsto local advertisingrestrictions. As for promotional sponsorshipsby the U.S. cigarette companiesin the six reviewed countries allowing cigarette promotions, most of them could be categorizedas either sporting activities or musical events.In each of these countries more money was spent on sponsoringsporting events,such as auto races and tennis tournaments,than cultural events-either musical events,such asjazz, pop, and rock concerts, or any other activities (e.g., art exhibits).

GAO could not determinewhether specific population segments,such as children or nonsmokers,were being targeted by US. cigarette companies. Cigaretteadvertising and promotional activities cannot be isolated as specific factors or major factors encouragingthe initiation of smoking.

Recommendations This report does not contain any recommendations.

GAO discussedthe results of this review with cognizantofficials from the Agency Comments Departmentof Health and Human Services,the Office of the U.S.Trade Representative,and the U.S. cigarette industry. The officials did not dispute GAO'S findings. The Departmentof Health and Human Servicesand the US. Trade Representativeclarified and updated certain information provided to GAO earlier and explainedthe basis for recent U.S. cigarette trade talks with Taiwan. The Departmentalso discussedits role in these negotiations.U.S. cigarette industry officials told GAO that this report should highlight the benefits derived by the U.S. economyfrom tobacco and tobacco product exports. They said, in general,that allegedinfractions of cigarette advertisingrestrictions by U.S. cigarette companies,reported

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to GAO by the Asian governments,are unsubstantiatedand are not the result of actions taken by the U.S.cigarette companies.

Page 8 GAfNGGD-93-38 Interuational Trade Page 9 GAIXGGD-93-38 Intmnationd Trade Contents

Executive Summary 3 Chapter 1 14 Background 14 Introduction Recent Developmentsin U.S. Cigarette Trade With Thailand and 16 Taiwan Conflicting U.S. Government Policies 18 U.S. Antismoking Laws 18 Objectives,Scope, and Methodology 19 Chapter 2 23 HHS’ Position in Recent Cigarette Trade Talks 24 U.S. Government Role CorrespondenceFrom Foreign Health Officials Opposing U.S. 27 in Cigarette Export Tobacco Trade Actions HHS Feels That USTRHas Toned Down AggressiveTobacco 28 Issues Export Stance HHS AssistanceProvided to Asian Antismoldng Groups 28 HHS Support for International Health OrganizationAntismoking 29 Programs HHS ProvidesAssistance to Countries Wishing to Establish 30 Tobacco Control Programs Future HHS Role in International Antismoking Efforts 30 U.S. Cigarette Exports Treated Differently From Other 31 Potentially Harmful Exports I Chapter 3 33 Japan Cigarette Advertising Taiwan ii and Promotional South Korea 38 Thailand 41 a Restrictions in Hong Kong 43 Selected Asian Malaysia 44 Countries Indonesia 46 Allegations That U.S. Cigarette CompaniesAllowed Use of Their 48 Trademarks on Nontobacco Products

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Chapter 4 60 Advertising and PromotingU.S. Cigarettesin Six Asian Countries 61 U.S. Cigarette Why U.S. CigaretteCompanies Say They Advertise in Asia 62 Advertising and Control of U.S.Cigarette Advertising and Promotional Campaigns 62 1990Market Sharesfor U.S.Cigarette Brands in Six Asian 63 Promotional Countries Campaignsin Advertising and Promotional Expenditure Patternsby Major 64 SelectedAsian U.S.-BasedCigarette Companies Sponsorshipof Athletic and Cultural Activities by U.S.-Based 62 Countries CigaretteCompanies CigaretteAdvertising and Promotional Expendituresby Certain 66 GovernmentControlledTobacco Monopolies in Asia Nature of U.S. CigaretteAdvertising Campaignsin Reviewed 67 Asian Countries Analysis of U.S. CigaretteAdvertisements in ReviewedAsian 68 Countries Appendixes Appendix I: Federal RegulationOver Potentially Harmful 72 Substancesand Products Appendix II: U.S. CigaretteCompany Actions and Other 76 Responsesto Alleged Trademark Infringement in SelectedAsian Countries Appendix III: Major U.S. CigaretteBrand Magazine 80 Advertisementsand TV Commercialsin Six Asian Countries in 1990 Appendix N: Major Contributors to This Report 83 Tables Table 4.1:Types of Promotional Sponsorshipsby U.S. Cigarette 66 Companiesin Six Asian Countries, 1990 Table 4.2:Types of Promotional Sponsorshipsby U.S. Cigarette 66 b Companiesin Six Asian Countriesby Major CigaretteBrands, 1990

Figures Figure 4.1:Market Sharesfor US. CigaretteBrands in Six Asian 64 Countries, 1990 Figure 4.2:Ranges of Expenditureson Advertising by U.S. 66 CigaretteCompanies in Six Asian Countries, 1990 Figure 4.3:Relative Percentagesof AggregateAdvertising 67 Expendituresby U.S. CigaretteCompanies in Six Asian Countries, 1990

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Figure 4.4: RelativePercentages of AggregatePromotional 68 Expendituresby U.S.Cigarette Companies in Six Asian Countries, 1990. Figure 4.6: RelativePercentages of U.S.Cigarette Company 69 Advertising and PromotionalExpenditures in Japan, 1987and 1990 Figure 4.6: RelativePercentages of U.S.Cigarette Company 60 Advertising and PromotionalExpenditures in Taiwan, 1987and 1990 Figure 4.7: RelativePercentages of U.S.Cigarette Company 61 Advertising and PromotionalExpenditures in South Korea, 1989 and 1990 Figure 4.8:Aggregate U.S. Cigarette Company Advertising 63 Relativeto PromotionalExpenditures for Six Asian Countries, 1990

Abbreviations

AID Agencyfor International Development CPSC ConsumerProduct SafetyCommission EPA EnvironmentalProtection Agency FDA Food and Drug Administration GAO GeneralAccounting Office GATT GeneralAgreement on Tariffs and Trade HHS Departmentof Health and HumanServices USCEA U.S.Cigarette Export Association USTR U.S.Trade Representative WHO World Health Organization YSL YvesSaint Laurent

Page 12 GKXGGD-83-38 International Trade Page 13 GAWGGD-93-38 Intem8tionaI Trade Chapter 1 Introduction

In recent years,cigarette advertisingand promotional activities have Background becomeincreasingly controversial in the United Statesand abroad.’ Health proponentsview theseactivities as contrary to efforts by governments, international health organizations,and health advocacygroups to decrease cigarette consumptionbecause of the adversehealth consequences associatedwith smoking. Cigarettecompanies argue that advertisingis a legitimate tool for making their products known and increasingmarket share by encouragingbrand switching by current smokers.Health proponents counter, however,that the cigarette companiesalso advertise and promote their products to attract nonsmokers,such as children, and to discouragesmoking cessation. The major U.S.-basedcigarette exporting companiesare Philip Morris, R.J. Reynolds,and Brown & Williamson.Together, these three companies account for about QQpercent of cigarette exports from the United States. Also, about 99 percent of U.S.-brandcigarettes marketed in Hong Kong, Malaysia,and Indonesia,whether imported from the United Statesor produced locally by affiliates of the U.S.-basedcompanies, are Philip Morris, R.J.Reynolds, or Brown & Williamson brands.To enhancetheir competitive position abroad,these three companiesformed and are the sole membersof the U.S.Cigarette Export Association (USCEA).~ As we reported in May 1990,aU.S. trade policy for tobacco and tobacco products is the sameas that for any other legal product that is traded between countries.A US. exporter of such legal products, including tobacco, faced with unfair foreign trade barriers, can petition the U.S. Trade Representative(USTR), under Section 301 of the Trade Act of 1974, as amended,4for assistancein removing those barriers. Also, under the direction of the President,USTR can self-initiate Section 301trade actions. There have been four Section301 trade casesdealing with cigarettes.USTR self-initiated cigarette trade actions under Section301 againstJapan in I,

‘For example, in 1999the Canadian government passed the Tobacco Products Control Act, which prohibited the advertising of tobacco products. The act is currently being challenged in court.

qhe U.S. Cigarette Export Association was formed in 1981by PhiIip Morris, Inc., R.J. Reynolds Tobacco Company, and Brown % WiBiamson Tobacco Corporation. The assodation was formed under provisions of the Webb-PomereneAct of 1919,which permits U.S. companies to form associations to compete more etfectively in foreign markets, The act provides quahfied exemptions from prosecution under U.S. antitrust laws for associations formed for the purpose of, and actually engaging in, export trade when these assodations do not interfere with domestic commerce.

%sde and Health Issues: Dichotomy Between U.S. Tobacco Export Policy and Antismoking Initiatives (?iSIAD-W-190, May 16,199O).

‘A Section 301 action provides the mechanism for a U.S. exporter to enlist USTR to negotiate for the removal of unfair foreign trade barrien.

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.,, ‘,. ,.) ,.yA “-, ,I, , ‘. : _, CIlapter 1 Introductloo

1986and Taiwan in 1986,and USCEApetitioned U~TRfor initiation of such Section301 actions againstSouth Korea in 1988and Thailand in 1989. The markets in all four of these countries had been substantiallyclosed to cigarette imports by government-controlledtobacco monopolies,which largely preventedthe import of foreign cigarettes.6To maintain their monopolies,these governments had imposedimport barriers that included high tariffs, discriminatory taxes,and discriminatory marketing and distribution restrictions, according to USTFLLargely as a result of the Section301 actions, the U.S.government signed trade agreementswith Japanand Taiwan in 1986,South Korea in 1988,and Thailand in 1990 allowing U.S.cigarette companiesmarket accessto those countries. U.S.-brandcigarettes have been marketed,advertised, and promoted in Hong Kong,Malaysia, and Indonesiafor severalyears. The cigarettesare either imported from the United Statesor produced locally by manufacturersafilliated with USCEAmember companies through licensing or other businessarrange ments.W ith reductions in trade barriers, USCEA membercompanies have extendedtheir advertisingand promotional campaignsto Japan,Taiwan, and South Korea. (Thailand prohibits all cigarette advertisingand promotional activities.) Other foreign-based cigarette companies,indigenous domestic cigarette companies,and govemmentrcontrolledtobacco monopoliesalso advertiseand promote their own cigarettebrands in these countries.

RecentDevelop ments in U.S.C igaretteT rade With Thailandand PIhiWi3Xl

Thailand On April 10,1989,USCEA filed a petition with USTR allegingthat the Thai governmentwas engagingin practices that were unreasonableor I discriminatedagainst the import of U.S.cigarettes. The petition requested the removal of all restrictions on the importation and sale of cigarettes;the removal of discriminatory cigarette import duties and taxes; and the right to distribute, advertise,and promote cigarettesin Thailand. USTR initiated an investigationon May 26,1989.Consultations with the Thai government

%ese monopolies had controlled the manufacture, and to varying degrees the supplyand distribution, of cigarettes in Japan, South Korea, Taiwan, end Thailand.

Page 16 GACWGGD-93-38International Trade chapter 1 Introdn~on

were begun on July 31,1989,and a public hearing was held in Washington, D.C.,on September19,1989. At this hearing health emergedas an issuein the case,with the appearanceof witnesseswho representedU.S. and Thai health advocacygroups. On December22,1989, USTR submitted the import prohibition and discriminatory taxation issuesto a GeneralAgreement on Tariffs and Trade (GATT) panel for formal dispute resolution.6Consultations were held with the Thais in Genevain February 1990.On September2 1,1990,a GATT panel concludedthat Thailand’simport restrictions on cigaretteswere contrary to provisionsof the GATT agreement.The panel recommended that Thailand bring its cigarette import restrictions into conformity with its obligations under GATT. Through an exchangeof letters with USTR in November1990, the Thai governmentagreed to take measuresto allow foreign cigarettesto be sold in Thailand on the basis of nondiscrimination, national treatment,7and normal commercialpractices and considerations.

The Thai governmentbelieves that it has fully implementedthe GATT ruling as well as the cigarettetrade agreementwith the United States.A Thai embassyofficial told us that Thailand’spolicy in referenceto cigarette trade remainsthe samedespite recent political changesin Thailand.

Taiwan openedits market to U.S.cigarettes based on a December12,1986, trade agreementnegotiated with LJSTR. In July 1991,through an exchange of letters, USTR and Taiwan authorities agreed,among other things, on requirementsfor rotating health warning labels with different caution statementsto be placed on packs of cigarettessold in Taiwan. In December1991, Taiwan ’sDepartment of Health proposed a “Law Governingthe Prevention& Control of DamageFrom TobaccoUse ” (TobaccoHazards Control Act) with the stipulated purpose of preventing and controlling damagefro m tobacco products and protecting the public’s health. Amongthe draft law’s provisions are a ban on the sale of tobacco products from automaticvending machines,a prohibition on the sale of chewing tobacco and snuff, a requirementfor maximumtar and nicotine content to be prescribedby governmentauthorities, and requirementsthat tobacco product containershave health warning labels in Chineseand doA’IT is a multilatersl treaty subscribed to by more than 100 governments, which together account for more than four-fifths of world trade. Its basic aim is to liberalize world trade in order to contribute to world economic growth and development.

‘In this context ‘national tseatment” means that imported U.S. cigarettes will be treated the same as those marketed by the Thailand Tobacco Monopoly (i.e., the same marketing restrictions that apply to imported cigarettes will apply to those produced and sold in Thailand by the tobacco monopoly).

Page 16 GAWGGD-93-38 International Trade Chapter I Illtroductlon

reveal nicotine and tar content. In addition, the proposed law bans the advertisingof tobacco products and prohibits certain promotional practices regardingtobacco products.

In January,April, and September1992, a U.S.delegation, led by usm, held trade talks with Taiwan to clarify certain provisions of this proposedlaw, to negotiatefor the adjustmentof certain tariffs applied to imported U.S. cigarettes,and to requestTaiwan authorities to discontinuethe practice of reselling confiscatedcontraband cigarettes(these cigarettesallegedly competeunfairly for market sharewith legally imported U.S.cigarettes). IJ~TRand Departmentof Health and Human Services(HHS) officials told us that the Director of HHS' Office on Smokingand Health was a participating memberof the U.S.delegation during the Septemberround of negotiations (his role is discussedin chap. 2, p. 26). In a September18,1992, press releaseissued by the American Institute in Taiwan at the completion of the last round of cigarette trade talks, the USTR'S chief negotiator was quoted as sayingthat the latest proposal from Taiwan’sdelegation was not sufficient to reach an agreementon the key issues.He identified these issuesas the promulgation of effective antismokingpublic health measures;the interdiction, confiscation,and destruction of contraband cigarettes;and the low tax levels currently applied to domesticcigarettes in Taiwan.

The U.S.position in referenceto the provisions of the proposed Tobacco HazardsControl Act that would ban cigarette advertisingwas also addressedin the September18 press release.The press releasestates that “[T]he United Statesfully supports legitimate initiatives to safeguardthe health of the people on Taiwan. It is the policy of the United Statesto discouragesmoking at home and abroad.” However,the press releasegoes on to say that the 1986cigarette trade agreementwith Taiwan granted U.S. cigarette companiesthe right to advertiseand that the proposed termination of “this principal elementof the 1986agreement will unilaterally violate this understanding.”According to the press release, “[Ulnder international trade law and practice this abrogation of the agreementrequires a rebalancingof the rights and benefits which were granted to the United Statesin the original agreement.”Nevertheless, the USTR'S chief negotiator for the September1992 round of trade talks told us that the U.S.delegation did not challengethe right of Taiwan to prohibit cigarette advertisingand promotional activities.

USTR officials informed us that no agreementwas reachedand that dates for the next round of trade talks have not yet been determined.

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: ,..l’ ., Chapter 1 Introduction

For almost 3 decadesHHS, and its predecessor,the Departmentof Health, Conflicting U.S. Education,and Welfare,has determinedthat cigarette smokingis Government Policies hazardousto health and has pursued a domesticpolicy of discouraging smoking.It has also supported international antismokingefforts. On the other hand, the governmentis committed to help U.S.exporters overcome foreign market barriers to the export of legal products. Thus USTRhas continued to provide assistanceto U.S.cigarette companieswishing to market their products abroad. Moreover,U.S. tobacco exports are assisted by foreign market developmentprogra msthat are federally funded. In our May 1990report, we suggestedthat Congressconsider the following three alternativesin order to reconcile this conflicting policy:

l If Congressbelieves that trade concernsshould predominate,then it may chooseto do nothing to alter the current trade policy process.The U.S. governmentcan simultaneouslycontinue to actively help U.S.cigarette exporters overcomeforeign trade barriers while promoting awareness (domesticallyand internationally) of the dangersof smokingand further restricting the circumstancesin which smokingmay take place.

l If Congressbelieves that health considerationsshould have primacy, Congressmay chooseto grant HHSthe responsibility to decidewhether to pursue trade initiatives involving products with substantialadverse health consequences. . Alternatively, rather than having one policy dominate,Congress may specifically require that health matters be included in the interagency trade policy processso that health issuesreceive some consideration on a case-bycasebasis. Such a changewould require HHSto participate in the decision-makingprocess regarding trade policy. Thesealternatives re main under consideration.Congressional hearings

have been held, and related legislation has been proposed.As mentioned l earlier in this chapter and detailed in chapter 2, pp. 26-27,the Director of HHS’ Office on Smokingand Health has participated in recent usm-led trade negotiationswith Taiwan over certain contestedprovisions of Taiwan’sproposed Tobacco Hazards Control Act and other cigarette trade issues.

Respondingto growing health concernsover smoking,Congress has U.S.Antis moking passeda number of laws that have restricted the marketing and use of Laws ” tobacco products. In 1966Congress enacted the CigaretteAct, which required all cigarettepackages to include a health caution statement.This

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7. ‘. __ . . l’, , ;‘,,,,,I ’ .,._r::,* Chaptar 1 Introdactlon

statement was later strengthenedby the 1970Cigarette Labeling Act to read: “Warning:The SurgeonGeneral Has DeterminedThat Cigarette. Smoking Is DangerousTo Your Health.” In January 1971Congress banned all cigarette advertising on television and radio. In 1982Congress increased the excise tax on cigarette products for the first time in over 30 years.Two years later Congressenacted the ComprehensiveSmoking Education Act, which required stronger health warning labels, created a statutory mandatefor a federal office on smoking and health, and required HHSto be informed of all chemicalsand other ingredients addedto cigarettesduring the manufacturing process.In 1987Congress banned all smoking aboard commercial aircraft on flights of 2 hours or less. And in 1989Congress extended the ban on smoking aboard commercial aircraft to include all domestic flights, except those to Alaska and Hawaii, regardlessof the length of the flight.

Basedon requestsby the Chairman and 4 other members of the Senate Objectives, Scope, Committee on Labor and Human Resourcesand by 20 members of the and Methodology House of Representatives,we agreedto (1) elaborate on the continuation of the conflicting U.S. governmentpolicies of pursuing antismoking initiatives domestically while assistingU.S. cigarette companiesin selling their products abroad,and compare U.S. governmentregulation of cigarette exports with exports of other potentially harmful products or substances;(2) summarizethe cigarette advertising and promotional restrictions in Japan,Taiwan, South Korea, Thailand, Hong Kong, Malaysia,and Indonesiaand describe any violations by U.S. cigarette companiesas reported by the foreign governments;and (3) review certain advertising and promotional practices of the US. cigarette companiesin the six reviewed Asian countries that allow cigarettes to be advertisedand a promoted (Thailand has bannedall cigarette advertising and promotional activities) and attempt to determine whether the companiesspecificdlly target children and nonsmokers. Our requestersalso asked us to compare the extent and sophistication of cigarette advertising in Japan,Taiwan, and South Korea before the removal of trade barriers to the import of US. cigarettes to the situation that developedafter these markets were opened.We were unable to gather sufficient information on cigarette advertising practices in these countries prior to market openingto addressthis issue.

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To elaborateon the continuation of the conflicting domestic and international policies of the U.S.government in referenceto cigarette marketing,we interviewed officials and obtained information from senior HHS and USTR officials, including the HHS Assistant Secretariesfor Health and Legislation,and the USTR'S AssociateGeneral Counsel and the Director of SoutheastAsian Affairs. We also interviewed and obtained information from former SurgeonGeneral C. Everett Koop and from the Director of HHS' Office on Smokingand Health. To compareU.S. regulation of cigarette exports with other potentially harmful products and substances,we identified and analyzedthe applicablefederal statutes and controls.

To summarizethe cigarette advertisingand promotional restrictions and report on allegedinfractions by U.S. cigarette companies,we obtained information from the governmentsof the sevenAsian countries through their embassiesin Washingtonand from USCEA.Some of the foreign governmentsprovided us with their cigarette advertising and promotional codesand reported on any allegedviolations. USCEAprovided us with copies of the applicablelegal and self-regulatorycodes for each of the reviewed countries, and member companiesreported on the actions they have taken to counteract the “unauthorizeduse ” of their trademarkson nontobaccoproducts such as items of clothing.

To examine the advertisingand promotional practices of the U.S.cigarette companiesin the reviewedAsian countries, we obtained 1990expenditure data and advertisingmaterials from USCEA,and gatheredother related materials and information from the foreign governmentsand antismoking proponents. USCEAprovided us with the actual promotional and advertising expendituresby the three member companiescombined, but requestedus a not to disseminatethe information publicly. USCEAtold us that the data consist of confidential commercialinformation that member companiesdo not want disclosedfor competitive reasons.We agreedto this request.We did not verify these data. However, USCEAallowed us to use this information for various cross-countrycomparisons that are presentedin chapter 4. USCEAmembers also provided us with lists and brief descriptions of promotional activities that they sponsoredin 1990.

Most of the cigarette advertisingmaterials that we used for our analysis (primarily magazineadvertisements and video tapes of TV commercials) were provided by USCEIAmember companiesbecause the other sources (foreign governmentsand health and antismokingproponents) gaveus

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, ,” _. Clupter 1 IntmlucUou

only very limited materials.The U.S.cigarette companiestold us that the advertisingmaterials that they provided fairly representedtheir advertisingcampaigns in the reviewed countries.Although we did not attempt independentlyto confirm this assertion,the limited materialsthat we did receivefro m the other sourceswere substantivelythe sameas or similar to those provided by the U.S.companies. We gatheredinfor mation to addressthese issuesfro m sourcesin the United Statesand in the selectedAsian countries without traveling abroad. We interviewed and requestedinfor mation from leadingAsian and U.S. antismokingadvocates and advocacygroups, including representatives from the Asian PacificAssociation for the Control of Tobacco.W ith assistanceprovided by the Departmentof State,we obtained information from the governmentsof Japan,South Korea,Taiwan, Thailand,Hong Kong, Indonesia,and Malaysia.USCEA; Philip Morris International Incorporated; R.J.Reynolds Tobacco International, Incorporated; and Brown & WilliamsonTobacco Corporation also provided us with a great deal of information. We did not verify the information provided to us, including the countries’ explanation of their laws and regulationsor their contentions that the U.S.cigarette companiesviolated or circumventedthe laws or regulations. We interviewed prominent academicianswho have done researchon the relationship between cigarette advertisingand smoking.We also interviewed officials from HHS, USTR, and the FederalTrade Commission. We conductedresearch at the Library of Congress,the Smithsonian Institution, and other foundations that maintain someli mited collections of cigaretteadvertising materials. We also interviewed the Presidentof the Advertising Council in New York and obtained information from the World Health Organization(~110).

We did our review from January 1991through May 1992in accordance with generallyaccepted government auditing standards. At your request,we did not obtain written agencyor U.S.cigarette industry commentson a draft of this report, but we did discussthe results of our review in conferencesheld with officials from HHS, USTR, and USCEA. HHS and USTR officials did not dispute our findings. At our request,HHS and USTRofficials clarified and updated information they had provided earlier and explainedthe basisfor HHS' participation in the most recent round of cigarette trade talks with Taiwan. USTR clarified the U.S.negotiating position and discussedthe inconclusiveoutcome of the Taiwan trade

Page 21 GMYGGD-93-38 InternatIonal Trade Cbq3ter 1 Introduction

talks. Officials from both U~TRand HHS discussedthe role played by the HHS delegatein the negotiations.USTR also told us that it doesnot have any new tobacco product trade actions on its agenda,but does not preclude taking such actions in the future. Although USCEAdid not dispute our findings, USCEAofficials felt that our report should have emphasizedthe benefits to the U.S.economy attributable to the export of tobacco and tobacco products. They said that these benefits include a positive contribution to the U.S.trade balance,an increasein tax revenue,and a growth in opportunities for employment. Moreover,USCEA officials assertedthat, with the exception of Japan, cigarettesare one of the least advertisedproducts in the reviewedAsian countries and that we should stressthis aspectin our report. We explained to USCEAthat the objectivesof our review did not include an analysisof the impact of cigarette exports on the US. economyor a comparisonof cigarette advertisingexpenditures to advertisingexpenditures on other products. We askedUSCEA officials to commenton allegedinfractions of cigarette advertisingand promotional restrictions reported to us by some of the Asian governments.In general,US~EA attributed these allegationsto a vested interest on the part of the foreign government-controlledtobacco monopoliesto discredit their U.S.competitors in order to maintain market share and profitability. USXAofficials contendedthat many of the alleged infractions are unsubstantiatedand that IJSCEAmember companies were unaware of them. They told us that there is no proof that the aheged infractions are the result of any actions taken by the U.S.cigarette companies.

Page 22 GMNGGD-93-38 InternatIonal Trade 1 U.S. Government Role in Cigarette Export Issues

U.S. trade policy for tobacco products has not changedsince we issued our May 1990report. usrn officials told us that as long as cigarettes remain a legal commodity in the United States and abroad, there is no legal basis to deny cigarette manufacturers assistancein gaining market access.Thus, when U~TRdetermines that unfalr foreign trade barriers, such as import restrictions and discriminatory practices, hinder the import and marketing of U.S. cigarettes abroad, it negotiates for their removal. HHSmaintains the position that its jurisdiction lies in the domestic realm and does not extend to trade policy. Becauseof this view, HHShas not become involved in tobacco-relatedtrade issuesuntil recently. For example, it did not participate in USTR-ledcigarette trade negotiations with Thailand that concluded in a November 1990market accessagreement. USTR officials assert that HHShad been invited to be present at those negotiations but declined. However, based on an invitation from the U.S. Trade Representative,HHS did participate in recent U.S. cigarette trade talks with Taiwan dealing, in part, with certain contested provisions of a proposed Taiwan law to control tobacco use. Moreover, HHSofficials told us that they discusstobacco control issueswith the White House at health policy meetings.

HHSfeels that USTRhas tempered its aggressivetobacco export stance based on tobacco-relatedhealth discussionsthat it has held with USTR.

HHS provides information to Asian antismoking groups and financial and technical support for international antitobacco-related health programs. For example, HHSsupports the antismoking initiatives and projects of multinational health organizationssuch as the World Health Organization and the Pan American Health Organization.Although HHScontinues to focus its efforts on domestic U.S. antismoking programs, it says that it is willing to provide assistanceto foreign governmentswishing to develop their own antismoklng programs.According to the Assistant Secretaryfor Health, “If health officials of a foreign country came to the HHSto demonstrate that they want to put a vigorous antismoking effort in place, HHSwould work with these countries to develop their smoking control programs.” HHSdoes not have funds specifically targeted for international applications, but is attempting to get more involved in the international health arena. Health assistanceprovided by HHS to developing countries may include support for tobacco control programs.

Page 23 GMMGGD-93-38 International Trade

, ’ Chapter 2 U.S. Government Role in Cigarette Export Iaeuer

From a legal perspective,U.S. cigarette exports are treated differently from other exports. U.S.cigarettes are generallyexempt from major federal laws regulatingthe export of potentially harmful products or substances.

According to the AssistantSecretary for Health, HHSmaintains the position HHS’ Position in that its jurisdiction does not extend to trade policy-it doesnot have a Recent Cigarette foreign affairs mandate.Its clear responsibility lies in the domesticreal m, Trade Talks not the international one, the official said. Consistentwith thii position, HHSdid not participate in the 1989-90 USTR-ledcigarette trade negotiations with Thailand;however, an HHSrepresentative actively participated as a memberof the U.S.delegation in a September1992 round of cigarette trade talks with Taiwan.

The USTR'SAssociate General Counsel told us that HHSis aware that like any federal agency,it can participate in trade negotiationsin which it may have an interest. Although agenciesmay not be formally invited to participate, notification of forthcoming negotiationsis published in the Federal Register.According to this official, agencies,such as HHS,can define their own role in the negotiationsbased on their particular concerns,expertise, and resources.For example,the Federal Drug Administration hasparticipated in trade negotiationsdealing with issues related to pharmaceuticals.Moreover, several federal agencies,including the Departmentsof State,Energy, and Commerce;the International Trade Commission;and the EnvironmentalProtection Agency,have representativesassigned to USTRwho can participate in trade negotiations that concern them.

HHSofficials maintain that they have continuous discussionswith the White Houseon matters of health policy, including tobacco control, although they have not aggressivelyand openly opposedUSTR in the White Houseand at other high levels of the government.The officials told us that HHShas not waveredin its position that tobacco posesa health hazardand that HHShas been a strong opponent of tobacco use. The AssistantSecretary for Health told us that it is HHSposition’ that if foreign governmentsare fighting againsttobacco use and cigarette advertisingat home and applying certain standardsto their domestically produced tobacco products, then they can apply the samestandards to imported U.S.cigarettes and other tobacco products.

Page 24 GAO/GGD-93-33 International Trade U.S. Government Bole in Ctpuetts Export Inu4H

Thailand The USTRGeneral’S Counsel invited HHSto participate in the 1989-90 Section301 cigarette trade negotiationswith Thailand,but HHSdeclined, accordingto the USTRAssociate’S General Counsel. She did not provide us with any documentaryevidence of an invitation. Shesaid that although U~TRviewed the cigarette trade negotiationswith Thailand as dealing primarily with trade issues,there were health concerns.Therefore USTR was not opposedto participation from nus. In fact, according to the usTR’s AssociateGeneral Counsel, USTR did not object to the participation of Thai health officials in the negotiatingsessions. (Specific issuesrelated to the Thailand cigarette trade caseare discussedin chap. 1, pp. 15-16). The U.S.Assistant Secretary for Health told us that he was unaware of the invitation to participate in the Thailand cigarette trade negotiations. However,he said that upon requestHHS does provide LJ~TRwith technical assistancein certain trade cases,

Taiwan In September1992, based on an invitation from the U.S.Trade Representative,the Director of HHS' Office on Smokingand Health participated in USTR-ledtrade talks with Taiwan over contestedprovisions of a proposedTaiwan law to control tobacco use and other cigarette trade issues.(Specific issues related to Taiwan’sproposed law and U.S.trade talks with Taiwan are discussedin chap. 1, pp. 1617).

In a June 30,1992,letter to the U.S.Trade Representative,the Secretaryof Health and Human Servicesdiscusses HHS position’ in referenceto the Taiwan cigarette trade case.In the letter, the HHSSecretary says that consistentwith WHOresolutions, HHS continues to encourageother countries, including Taiwan, to adopt measuresto reduce tobacco use. He statesthat when tobacco and trade issuesarise, HHSdefers to USTR. 4 However,the Secretaryalso saysthat when a country, such as Taiwan, is implementingpublic health measuresto control smoking (as specifiedin Taiwan’sproposed Tobacco HazardsControl Act) that apply equallyto domesticand foreign products, this implementationshould satisfy the USTR goal of ensuringnational treatment or a level playing field for imported U.S.cigarettes. Attached to the HHSSecretary ’sJune 30 letter to the U.S.Trade Representativeis information compiled by HI& Office on Smokingand Health from scientific literature dealing with the effects on cigarette smokingof someof the key “interventions.” Theseinterventions include a ban on cigarette advertisingand the required use of health warnings on

Page 25 GAO/GGD-93-38 International Trade Chapter 2 U.S. Government Role in Cigarem Export IMU~S

cigarette packages.(These require mentsare both stated in the provisions of Taiwan’sproposed Tobacco Hazards Control Act.) The Secretary concludesthe letter by offering to provide additional scientific information to assistthe U.S.Trade Representativewith the Taiwan cigarette trade talks and with “future casesinvolving tobacco-relatedissues. ” In a July 22,1992,letter of responseto the HHSSecretary, the U.S.Trade Representativeagrees that “there is an important health issuesurrounding cigarettes.”She goes on to say that “[O]ur (U.S.) trade policy fully recognizesthe right of each country to imposerestrictions on the sale and use of all cigarettesto meet health-policygoals, including banning of cigarette advertising,as long as its laws and practices permit American businessesto competeon a completelyequal basiswith local and other foreign producers.”The U.S.Trade Representativeconcludes her letter by sayingthat she appreciatesthe offer of additional information and would welcome the involvementof a representativefro m Husto participate u. . . in strategyplanning and negotiatingwith Taiwan and other countries on the issueof U.S.cigarette exports.”

Basedon this invitation, the HHS Secretarydesignated the Director of HHS’ Office on Smokingand Health to represent the Departmentin the Septemberl&17,1992, cigarette trade talks with Taiwan. The Director of the Office on Smokingand Health informed us that he participated in the trade talks as a full memberof the U.S.delegation and that a significant proportion of the talks dealt with health issues.He said that someof the health-relatedissues discussed during the negotiating sessionsincluded the impact of an advertisingban and increasedtaxes on cigarette consumption.He also feels that having a health official on the U.S. delegationmade a difference-health issuesbecame important. (HHS and USTR officials informed us that the Taiwan delegationincluded two membersfro m the Ministry of Health who actively contributed to the l negotiationsfro m a health perspective.)

The USTR'S chief negotiator for the Taiwan cigarette trade talks emphasized that USTR recognizesthat there are health concernsand acknowledgesthe legitimate right of Taiwan to pursue issuesof health and safety-usrn is not challengingthese rights. He told us that the role of the HHS representativewas to assistwith the health and scientific aspectsof the negotiationsand that the representativewas free to raise any issueshe wished during the trade talks. In fact, the USTR official said that the HHS representativespoke often and madeimportant contributions on scientific and health-relatedmatters.

Page 26 GAWGGD93-38 Intmnational Trade CImpter 8 U.S. Government Bole ia Cigarette Export IUU08

The usm official went on to say that when formulating the USTRproposals to Taiwan to resolvethe trade dispute, USTRhas attempted to satisfy the health concernsof the HHSrepresentative. He said that all of the USTR proposalsto Taiwan are in line with the concernsexpressed by the HHS representative.In a September23,1992, letter to the HHSSecretary, the US. Trade Representativeexpressed her appreciation for the participation of the HHSrepresentative in the negotiations.She said that he madea significant contribution in terms of providing scientific health information and analysisand “. . . permitting a fuller discussionand more complete perspectiveof the health aspectsof this trade issuewith Taiwan.” She concludedby sayingthat she looks forward to the continued work of the HHSrepresentative with her staff “. . . on the health aspectsof this and other trade policy issues.”

HHSofficials informed us that over the years a number of foreign health CorrespondenceF ’rom officials have expressedconcerns to HHSabout the USTRtobacco-related’S Foreign Health trade activities. The foreign officials have also requestedthe support of Officials Opposing HHSor the Presidentto prevent tobacco exports to their respective countries. The AssistantSecretary for Health told us that these U.S.Tobacco Trade communicationsare forwarded to USTR.HHS provided us with examplesof Actions letters from foreign health officials and antismokinggroups to the Secretaryof HHSand the Presidentopposing U.S. cigarette trade actions againstThailand and Taiwan. One letter requestedHI% assistance to y. . . stop the tobacco baron’swar againstThailand. ”Another requested the HHSSecretary to assistwith Thai efforts to persuadeUSTR that the cigarette trade issue‘ . . . is indeed a health issue.”Still another letter asked the HHSSecretary to assistin gainingU.S. cigarette companycompliance with Taiwan’snew requirementfor the rotation of different health warning labels on cigarettepacks. Finally, in a letter to the U.S.President, the Presidentof an Asian tobacco control group called for the United Statesto “. . . adopt a new tobacco policy to prevent the expansionof tobacco marketing; assurethat people, regardlessof their country of origin, are adequatelywarned of the dangers of tobacco use;and encouragethe worldwide adoption of measuresthat will curb tobacco consumption.”

Page 27 GALXGGD-93-38 Intmnatlonal Trade CIupter 2 U.S. Government Role in Cigarette Export Iuuea

In June 1990the AssistantSecretary for Health and the Director for the HHS Feels That USTR Centersfor DiseaseControl met with the U.S.Trade Representative. Has Toned Down According to the AssistantHealth Secretary,they discussedtobacco health AggressiveTobacco issuesas well as the level playing field concept as it relates to cigarettes.’ The AssistantHealth Secretarysaid that he told the U.S.Trade Export Stance Representativethat allegedU.S. cigarette companyviolations of Thai cigarette marketingrestrictions went beyond the USTR’S desire for “a level playing field.” He said that there were no disagreementsat the meeting, particularly in referenceto the lethal effect of tobacco. The Assistant Secretarysaid that he was trying to clarify HHS'position for USTR.The U.S. Trade Representativesaid that she would look more closely at trade-relatedissues that went beyond a level playing field. The AssistantSecretary for Health feels that, basedon discussions between USTRand HHSofficials about the health hazards of tobacco, USTR haa temperedits aggressivenessin supporting tobacco exports. He said that for manyyears HHSofficials have spoken out about the health implications of tobacco trade. For example,in 1987the SurgeonGeneral referred to tobacco exports as “exporting disease,disability, and death.” HHSofficials say they have told USTRofficials that tobacco is “bad” for Americansand everyoneelse in the world-that we should not be “ugly Americans”and assistU.S. cigarette companiesin their attemptsto gain foreign market access.However, according to the Assistant Secretaryfor Health, HHSin concert with USTRmaintains that a “level playing field” should exist when U.S.cigarettes are marketed abroad.

A high-levelofficial from HHS'Centers for DiseaseControl told us that HHS Assistance voluntary antismokinggroups in Asia have been put on the HHSmailing list. Provided to Asian They now receivethe SurgeonGeneral ’sreports and other major HHS b Antismoking Groups publications. Shestated that HHShas not refused to participate in any Asian antismokingor tobacco control programswhen solicited, although it has not gotten manyrequests. For example,HHS recently conducted a lday seminarfor representativesfro m Thailand who were interested in tobacco control efforts in the United States.The seminarpertained solely to tobacco use and health and to how the United Statesand Thailand are addressingrelated issues.

‘By “level playing field,” the Assistant Secretary meant that U.S. cigarette companies should conform to the advertising and labeling restrictions of the host country and that ail tobacco companies should be subject to the same requirements.

Page 28 GAWGGD-93-38 Intemational Trade Chapter 2 U.S. Government Role In Cigarette Export IwneB

The AssistantSecretary for Health told us that HHS provides financial and HHS Support for technical support for international antitobacco-relatedhealth programs, InternationaI Health such as those establishedby WHOand the PanAmerican Health Organization Organization.He said that HHS has staunchlysupported WHO’proposedS antismokingresolutions and steadfastlyupheld WHOresolutions Antismoking advocatingcessation of smoking.For example,at the May 1989World Programs Health Assembly,the AssistantSecretary for Health suggestedthat WHO sponsor an international meetingof governmentrepresentatives fro m the health, agriculture, and labor sectors.The goal was to recommend alternative crops to tobacco and alternative livelihoods for those employedin the tobacco industry.

We askedWHO officials to provide us with the amount or proportion of WHO Tobaccoor Health Programfunds that was provided by the U.S. government.The officials were unable to determinethe US. contribution, but did give us the following information: WHO’actualS expenditureson tobacco or health programsfor 1988-89were $1,041,654(U.S.). Actual expendituresincreased to $2702,080(U.S.) for 1990-91(an increaseof 159.4percent). WHO has budgeted$2,386,500 (U.S.) for these programsfor 1992-93(a decreaseof 11.7percent from 1990-91).

Someadditional actions taken by HHS to support international health programsopposing tobacco use include the following:

. The HHS AssistantSecretary for Health delivered a speechat the Seventh World Conferenceon Tobaccoand Health held in Perth, Australia.,in April 1990,in which he condemnedthe transnational cigarette companies for their marketing activities. . The Secretaryof HHS and the AssistantSecretary for Health, as the U.S.

representativesto WHO, have participated in developingWHO action plans l againsttobacco use.In 1988,1989,and 1990,the World Health Assembly adopted resolutionsto promote global action againsttobacco. . The HHS Centersfor DiseaseControl is a memberof the WHO Technical Advisory Group on Tobaccoor Health, and also participates on ad hoc WHOexpert advisorypanels. In this capacity,the Centersfor Disease Control has assistedWHO in developingstandardized, worldwide tobacco use surveillancesystems; calculating smoking-attributablemortality, especiallyin developingcountries; and identifying public health interventions againsttobacco use. . HHS and the Pan AmericanHealth Organizationcollaborated on a special report-Smoking and Health in the Americas.The recently releasedreport focuseson issuesdealing with tobacco use in the Americas,including the

Page 29 GAOIGGD-93-38 International Trade U.S. Government Role ln Clgatette Export IUUW

extent of use,tobacco-related mortality, and tobacco control policies and programs.

Even though HHS doesnot have a written policy to help Asian countries HHS Provides developantis moklngcampaigns, the AssistantHealth S&retary said that Assistanceto HHS willingly provides technical assistanceto countries on how to Countries Wishing to implementtobacco control and smoking cessationprogra ms.HHS' AssistantSecretaIy for Legislationtold us that both the Secretaryof HHS Establish Tobacco and the AssistantSecretary for Health have madeit clear that if a foreign Control Programs country wants to implementan antismokingprogra m, HHS will assist. However,the HHS officials said that it is up to the foreign country to make that determinationand take the initiative. HHS has participated in regional and country-specificevents at the requestof the host countries throughout the world. For example,it has held consultationsin China regarding strategiesto reduce tobacco use and has set up specialseminars in Latin America focusing on the extent of tobacco use and its health impact.

HHS officials told us that although HHS international travel to assistother countries with their tobacco control programsis limited, HHS widely disseminatesits tobacco-relatedscientific reports and publications throughout the world. The officials said that HHSreceives numerous requestsfro m other countries for information about tobacco use and health as well as public health strategiesto reduce tobacco consumption.

HHS officials likewise informed us that representativesfro m many countries visit HHS to discusstobacco and health issuesand to “learn from the U.S.’experience. ”For example,the officials said that visitors have comefro m such diversecountries as Thailand,China, Japan, Hong Kong, Australia, New Zealand,Canada, the United Kingdom,NoNvay, France,

Mexico, and Estonia. l

The AssistantSecretary for Health told us that the HHS budget for Future HHS Role in international health ls minimal.Total HHS expendituresrelated to International international antismokingefforts are not available.However, the Office on Antismoking Efforts Smokingand Health, under HHS' Centersfor DiseaseControl, is the focal point for all HHS activities related to smokingand health. The Office coordinatesHHS smokingprevention education and researchefforts both domesticallyand internationally. Its fiscal year 1992budget increasedto $7.3m illion from $3.3m illion in 1991.This was the first significant budget increasesince 1984.The Office has requestedthat the budget be increased

Page30 GMYGGD-93-38 InternationalTrade -- Chapter 2 U.S. Government Bole in Cigarette Export IeBlles

to $10.3million for fiscal year 1993.The 1992increase is for expanded efforts to reduce the health and economic burden of smoking among minorities, women, children, adolescents,and blue-collar workers. The 1993increase will allow the Centersfor DiseaseControl to further expand smoking information campaignsfocused on minorities, pregnant women, and adolescents.The budget increasesdo not appear to be related to any expandedefforts in the international realm.

According to the Assistant Secretaryfor Health, HHS has not received many requestsfrom foreign governmentsto assistwith health-relatedtobacco programs-they usually go to the Agency for International Development (AID). He told us that HHS is working to beef up its ability to get more involved in the international health arena in general.HHS does not have funds specifically appropriated for international applications. Its efforts in this area are largely supported by AID funds. HHS is exploring ways to support expandedinternational health activities. Activities that are designedto assist developingcountries build their health infrastructure will not be specifically targeted to smoking control programs,but could include them. The official went on to say that in fiscal year 1992,the Public Health Service,through the National Cancer Institute, awarded $260,000to WHOto enhanceits “tobacco or health” activities, enabling WHOto hire staff to promote antltobacco programs.

U.S. cigarette exports are generally exempt from major federal controls U.S.’Cigarette Exports and regulations governing the export of potentially harmful products or Treated Differently substances. From Other As mentioned in chapter 1, pp. 1819, the sale and advertising of cigarettes Potentially Harmful are subject to two principal forms of federal regulation, both related to the Exports adversehealth risks associatedwith smoking. First, it is unlawful for 6 companiesto sell or advertiseany cigarettes within the United States unless the packageand advertising contain certain warnings concerning the adversehealth effects of smoking. Second,it is unlawful to advertise cigarettes on television and radio. However, packagesof cigarettesthat are manufactured or packagedfor export from the United Statesare generally exempt from these requirements.Consequently, tobacco companiesare not subject to any special federal laws or regulations regarding the packaging or advertising of their exported cigarette products, such as including the health hazard warnings on the packages.

Page 31 GMYGGD-9338 International Trade Chapter 2 U.S. Government IMe la Cigarette Export Iuuea

On the other hand, certain other products that present health hazardsand that are intended for export are subject to various federal controls and regulation. Tobaccoproducts are specifically exempt from most of thii regulation. For example,the FederalHazardous Substances Act, which requirespersons who plan to export so-calledm isbrandedor banned hazardoussubstances to file a statementwith the ConsumerProduct Safety Commission,specifically exempts tobacco and tobacco products. (Seeapp. I for a summaryof federal controls imposedon hazardous, chemical,and controlled substances;and food and drugs.) A WTRofficial told us that a specialnegotiator from the Environmental Protection Agencyhas been temporarily assignedto assistUSTR with trade casesinvolving the export of goodsthat are banned in the United States. The official stated that to date she was not aware of any Section301 trade casesinvolving products prohibited from the domesticU.S. market. She said that USTR has recently establisheda unit dealingwith environmental concerns.

Page 32 GNXGGD93-38 International Trade Cigarette Advertising and Promotional Restrictions in Selected Asian Countries

Through a variety of laws, regulations, and ordinances,Japan, Taiwan, South Korea, Thailand, Hong Kong, Malaysia,and Indonesia restrict cigarette advertising and promotional activities to differing degrees. Enforcement of these restrictions varies from country to country, as do foreign government allegations of violations of the restrictions by U.S. companies.The Japanesegovernment told us that the U.S. cigarette companieshave not violated Japan’sadvertising and promotional restrictions, while the governmentsof Taiwan, South Korea, and Thailand reported that certain restrictions have been violated. The Indonesian government informed us that it does not have any records of violations of its cigarette advertising restrictions by U.S. or foreign cigarette manufacturers, but that its cigarette advertising restrictions are not aggressivelyenforced. In its limited response,the government of Hong Kong provided pictorial examplesof 1990U.S.-brand cigarette advertisements,which it allegestarget nonsmokers and children. Malaysia did not addressthis issue. The alleged infractions described later in this chapter were reported to us by the governments of Taiwan, South Korea, and Thailand. We did not independently verify these allegations. USCEAofficials told us that the governments of Taiwan, South Korea, and Thailand have a vested interest in maintaining the market sharesand profitability of their government-controlled tobacco monopolies. Thus, UscsAcontends that these governmentshave other motives in alleging violations of their cigarette advertising and promotional restrictions. By claiming U.S.violations, the governmentshave an opportunity to discredit their competitors-the U.S. cigarette companies-according to USCELL In several of these countries, voluntary self-regulatory associationshave been formed to overseecigarette marketing activities through the development and implementation of ethical codes. These codes attempt to establish uniform advertising and promotional standards. Many of these self-regulatory codes contain mechaniims for monitoring compliance and imposing sanctions for noncompliance. We were unable to gather information on the nature or extent of any self-regulatory code infractions or the degree of enforcement. The self-regulatory associationsestablished in Japan and South Korea are comprised of USCEXmember companies, other foreign cigarette companies,and the government-controlled tobacco monopolies. In Hong Kong, which does not have a tobacco monopoly, a self-regulatory cigarette industry association has been formed by the USCEX companiesand other foreign and domestic cigarette companies doing businessin Hong Kong.

Page 33 GAWGGD-93-38 International Trade Chapter 3 Cigarette Advertbing and Promotional ResMctlo~ in Selected Asian Countrhi

USCEAinfor med us that its members,in conjunction with other foreign cigarette companies,have recently implementedtwo voluntary self-regulatorycodes in Taiwan for marketing cigarettesand for sponsoringcultural eventsand sporting activities. The Taiwan government is not a signatory to these codesbut does have observerstatus with the group monitoring implementationof the codes.In Indonesiaa self-regulatorycode was developedby the Associationof Indonesian AdvertisingAgencies and was signed by various Indonesianmedia associations.Malaysia has a self-regulatoryassociation, known as the “AdvertisingStandards Authority, ” that is comprisedof those involved in advertising(i.e., advertisers,advertising agencies, and the media).The authority administersthe MalaysianCode of Advertising Practices-a self-regulatorycode of ethics dealingwith all advertisedproducts, including cigarettes.Thailand has banned cigarette advertisingand promotional activities of all kinds and does not have a self-regulatory associationfor the cigarette industry. For purposesof this report, we have defined “indirect” cigarette advertisingas the appearanceof U.S.cigarette companyor cigarette brand trademarks,logos, or symbolson nontobaccoproducts, such as items of clothing, school notebooks, and pencil boxes.Antismoking proponents have accusedthe US. cigarette companiesof allowing their trademarks and symbolsassociated with their brands to appear on these nontobacco products in order to promote cigarettesto children. The U.S.cigarette companiesview these practicesas trademark infringement and have provided us with evidenceof actions they have taken in the reviewed countries to control these “unauthorized”practices.

Cigaretteadvertising and promotional activities in Japan are regulatedin Japan accordancewith various ordinances,regulations, and the tobacco a industry’s own self-regulatorycodes. The self-regulatorycodes were composedand adaptedby the TobaccoInstitute of Japan,a voluntary self-regulatoryassociation comprised of the Japantobacco monopoly and the foreign cigarette companiesdoing businessin Japan.This association attempts to overseecigarette marketing activities by promoting complianceby memberswith establishedcigarette marketing guidelines, codes,and regulations.

On October 3, 1986,Japan signed a cigarette trade agreementwith the United Statesthat included the elimination of the Japanesecigarette tariff and excisetax paymentprocedures and distribution practices that

Page 34 GAWGGD-93-38 International Trade Chapter a Cigaretta Advertising and Promotional aesmcuolMi ill selected A6lan Counme~

discriminatedagainst imported U.S.cigarettes. Japanese government officials told us that cigarette-relatedadvertising and promotional activities were not on the agendain the trade negotiationsthat resulted in the 1986trade agreement.Moreover, the laws and regulationsgoverning the cigaretteindustry were not changedas a result of the agreement. According to Japanesegovernment officials, a law promulgatedin 1900 and amendedin 1947forbids personsunder 20 years of age from smoking. In addition, the 1984Tobacco Enterprise Law requiresa health warning statementon manufacturedtobacco products. This samelaw also requires manufactured-tobaccoadvertisers to “. . give due considerationto the prevention of smokingby minors. . .” and to the relation between manufactured-tobaccoconsumption and health. A 1989M inistry of Financeordinance specifies the wording for the health caution statement. The Japanesegovernment told us that there are 110commercial TV stations, one national public TV station, and one University of the Air TV station in Japan.According to the Japanesegovernment, the public broadcastingstation doesnot permit any advertising,whether related to cigarettesor not. All of the commercialTV stations allow cigarette advertising.The governmentdid not provide us with cigarette advertising information in referenceto the University of the Air station and said that it does not have accessto information about the many cable TV stations in Japan. In 1990M inistry of Financeguidelines for producing tobacco product advertisementsbecame effective. The goal was to ensure that considerationis given to the prevention of smokingby minors and to the relationship between tobacco consumptionand health. The guidelinesalso attempted to decreaseany “excessive”broadcast advertising.

JapaneseGovernment Says The Japanesegovernment told us that there have been no allegationsthat U.S.C igarette Companies U.S.cigarette companieshave violated any of the advertisingand Hav#Not Violated promotional restrictions. They said that the applicable ordinances, regulations,and self-regulatorycodes are functioning as intended. An Advbtising and independentagent has been selectedby the Tobacco Institute of Japanto Prorhotional Restrictions monitor cigarette advertisementson television.The Japanesegovernment informed us that it has no records of past violations of TV advertising restrictions.

Page 36 GMVGGD-9338 Intematlonal Trade Chapter 3 Clgaretta Advertiaiag and Promotional Re&a4ctlona in Selected hian Countie~s

The Japanesegovernment also said that there are no particular restrictions imposed on the use of cigarette company trademarks, logos, and symbols on nontobaccoproducts.

Taiwan regulatesthe advertisementand promotion of imported cigarettes Taiwan through provisions of the cigarette trade agreementsigned with the United Stateson December12,1986, and through the generalapplication rules for imports of foreign cigarettes,wine, and beer implemented in January 1987. In addition, USCEAofficials told us that USCEAmember companiesand two other foreign cigarette companieshave implemented a voluntary self-regulatory code for marketing cigarettesin Taiwan. Furthermore, the 1989Teenagers Welfare’ Law prohibits the sale of cigarettesto persons younger than 18years old. Finally, in December 1991,Taiwan proposed a law that would prohibit all cigarette advertising activity by the tobacco monopoly and foreign cigarette companiesand also ban certain promotional practices. This draft law was discussedin chapter 1, pp. 16-17. On December12,1986, Taiwan and the United Statessigned a cigarette trade agreementproviding U.S. cigarette companieswith nondiscriminatory accessto the Taiwan cigarette market. The agreement contains many provisions relating to cigarette advertising and promotional activities, including the following:

. Cigarettesampling is restricted to distribution of individual cigarettes.

l Point-of-salepromotions are permitted at wholesale, distribution, and retail establishments. . Taiwan may not impose financial limits on the above activities.

l A specified health warning must appear on each pack of cigarettes. a The 1986agreement permits cigarettesto be advertised in magazines,but does not indicate the type of magazinesor the targeted readers.Taiwan authorities told us that they indicated their concern with thii omission and its impact on national health before the cigarette trade agreementwas signed.To rectify the situation, the authorities drafted regulations that would further restrict cigarette advertising and promotional activities. For example,the regulations would only allow placement of cigarette advertisementsin magazinesthat are not aimed at women or youths.

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Taiwan’s generalapplication rules for the importation of foreign cigarettes,wine, and beer include the following marketing restrictions on imported cigarettes: 9 Cigarettesamples are limited to stick-by-stick distribution.

l Cigarettepromotional activities are limited to displays,signs, posters, sample or gift distribution, and leaflet distribution. A USCEAofficial told us that two voluntary self-regulatory codeshave recently been implemented in Taiwan for marketing cigarettesand for sponsoringcigarette brands. The codeswere developedby the USCEA member companiesand the two other foreign companiesthat import cigarettes into Taiwan-the British American Tobacco Companyand Rothman.Taiwan ’s government-controlledtobacco monopoly is not a signatory to the agreementbut, according to USCEAofficials, is free to monitor implementation of the codes.Both codes attempt to establish uniform advertising and promotional standards.USCEA officials told us that, as in other markets, policing of the code is done by the industry itself. They said that any concerns about marketing activities are almost always raised by the competing companies.Complaints by the public at large, usc~~contends, are virtually nonexistent. The marketing code states that advertising should be directed towards existing adult smokers and be only intended to affect brand changeor brand loyalty. Cigaretteadvertising and salespromotions should not be directed intentionally towards those under 18years of age.

The Taiwan Tobacco and Wine Monopoly Bureau said that before implementation of the U.S.-Taiwancigarette trade agreement,and consistent with national health policy, it did not advertise or promote cigarettes.Its only activity along these lines was announcingnew products b and placing billboards in the bureau’sbranch offices and in cigarette distribution centers.The bureau also says that after the agreementwas implemented,in order to prevent an increasein smoking, it restricted its advertising activities even further by removing some billboards and only retaining some posters.

Taivbn Authorities Say The 1986Cigarette Trade Agreementrestricts pointrof-sale cigarette U.S.~ C igarette Companies promotional activities to licensed wholesale,distribution, and retail Violated Advertking establishments.Taiwan authorities told us that the term “retailer” in the Restrictions agreementand in the Taiwan Tobacco and Wine Monopoly Bureau

Page 37 GAIXGGD-93-38 Intmnatlonal Trade Chapter 3 Cigarette Adverthdng and Pron~otlonal RestrlcUono in Selected Aalan Countries

regulationsrefers only to retailers with a permit registeringthe m as profit-seekingenterprises. The authorities did not report the proportion of retailers who have these permits. The Taiwan authorities said that U.S. cigarette companieshad deliberatelydistorted the interpretation of the term “retailer” to refer to all retailers selling their cigarettes.They said that this interpretation causeda “flooding” of the market with unauthorized cigarette salesand also led to the massivedisplay of cigarette posters in prohibited placessuch as unregisteredshops, on outside walls, and on street vendors’ kiosks.The Taiwan authorities said that many of the posters advertisedMarlboro and Kent brand cigarettes.The authorities did not tell us what action was taken to resolvethis dispute. USCEAtold us that this allegedviolation was basedon a difference of opinion on what constitutes licensedas opposedto unlicensedretailers and is being handled in the framework of trade negotiations.

The 1986cigarette trade agreementdoes not restrict the use of “gifts” to promote cigarettesor the incorporation of cigarette companytrade marks or brand logos on the “gifts.” Taiwan authorities informed us that they have found cigarettelighters, T-shirts,hats, bath towels, and travel bags with U.S.cigarette companytrade marksand logos. If the gifts were distributed in the authorizedlocations, the official said that it would be difficult to prove violation of the advertisingregulations. Therefore, no action has been taken. However, the authorities assertedthat if these activities were conductedoutside the allowed locations, action would be taken. The authorities told us that they did find a violation in 1990in which a watch advertisementincorporated a Marlboro “Formula I” race car in its theme.They did not indicate whether they had taken any action.

The United Statessigned a Record of Understandingwith South Korea on South Korea May 27,1988,providing open, nondiscriminatoryaccess to the Korean b cigarette market. As we reported in May 1990,South Korea regulatesthe advertisingand promotional practices of cigarette companiesmore heavily than does either Japan or Taiwan.The U.S.Record of Understandingwith South Korea contains the most specific and comprehensiveprovisions on cigarette advertisingand promotional activities, including prohibitions againsttargeting women and children in cigarette advertisementsand promotions. The agreementalso requireshealth warnings on cigarette packs and in cigarette advertisementsin magazines.Before the Recordof Understandingwas signed,cigarette advertisingand promotional activities, with someexceptions (e.g., ads in printed media expressedin

Page 38 GANGGD-93-38 International Trade Chapter 3 Cigarette AdverthAng and Promotional Restrictlone in Selected Asian Countries

foreign languages),had been prohibited through the TobaccoMonopoly Law that becameeffective on April 1,1987.

The South Koreangovernment told us that before April 1987cigarettes were not advertisedor promoted in South Korea and thus there was no need for restrictions on cigarette advertisingand promotional activities. The TobaccoMonopoly Law gavethe governmentthe authority to restrict cigarette advertisingand to require health warning labels to be placed on cigarette packs. Someof the provisions of the law included a prohibition of cigarette advertisingon TV and radio, in the printed media (except foreign languagemedia), on busesand trains, and on outdoor placards and posters. The South Koreangovernment said that in accordancewith current law, magazinesthat are primarily read by women or young people do not accept cigarette advertising.M inors under 20 years of age are prohibited from smokingby the provisions of the Minor Protection laws. The South Koreangovernment infor med us that the current cigarette advertisingand promotional restrictions are partly imposedby law and partly basedon the cigarette industry’s self-regulatorycodes. The governmenttold us that the December1988 Tobacco BusinessAct (effective January 1,1989),which was enactedafter the Record of Understanding(effective July 1, 1988),generally allows cigarette advertisingand promotional activities at retail outlets; to a limited extent in certain magazines;and by sponsoringsocial, cultural, musical,athletic, or other events.The law also requiresall cigarette packs and advertising materialsto include health warnings. Also, accordingto the TobaccoBusiness Act, the cigarette advertisements can only inform smokersabout the brand names,kinds, and characteristicsof cigarettes:They cannot directly or indirectly suggestor induce nonsmokersto smoke.Moreover, they cannot contradict the spirit of the health warning, and “they shall not harm public order or morals.”

Self-RegulatoryCode for On January 12,1991,Korea Tobacco Association members Brown & Marketing Cigarettesin Williamson(Korea) Ltd.; the Korea Tobaccoand GinsengCorporation; South Korea Philip Morris Korea,Inc.; and R.J.Reynolds (Korea) Ltd. signeda voluntary (self-regulatory)code for marketing cigarettesin South Korea. The code was formulated in consonancewith the provisions of the Tobacco BusinessAct and its enforcementdecree and the provisions of

Page 39 GtKVGGD-93-38 International Trade Clupter 3 CQmette Advartld~~~ and Promotional RasMcUonr In Selected Adan Count&~

the U.S.-KoreaRecord of Understanding.Its stated purpose is to establish uniform standardsfor self-regulationand cooperation amongthe members of the Korea TobaccoAssociation with respect to the advertisingand promotion of cigaretteswithin South Korea.Although the code contains a mechanismfor ascertainingcompliance and requiresimmediate corrective action by violators, it doesnot provide for the imposition of any sanctions.

South Korean Government The South Koreangovernment infor med us that there are no applicable SaysU .S. Cigarette legal codesor other restrictions that clearly limit the use of cigarette CompaniesViolate companytrade markson nontobaccoproducts; however, accordingto the South Koreangovernment, their use on products, such as clothing items, “Implicit” Advertising children’sschool notebooks,and kites, would be contrary to the spirit of Restrictions the TobaccoBusiness Law. The governmentcited certain casesin which it claimsthat U.S.cigarette companiesviolated “implicit” advertising restrictions, but it did not provide us with sufficient information to determinethe extent of the allegedinfractions. It attributed such violations, in part, to “excessivecompetition amongthe three big U.S. cigarette companies.”Some examples cited by the South Korean governmentinclude the following:

l The cigarette companiescircumvented legal requirementsby conducting promotional activities (e.g., distributing cigarette samples)at locations far from licensedretail outlets and by supplying cigarettesto locations other than licensedretail outlets, such as bars and discotheques;

l The companiescircumvented the intent of the TV advertisingban by sponsoringevents that are televisedand placing advertisingmaterials in plain view of the TV cameras; . The companies“ induced smoking” by giving consumersgifts that exceededthe value limits imposedby the Korean Fair Trade Act.’ For example,Philip Morris gavedesk diaries (valued at 3,600won) to b consumerswho bought Marlboro cigarettes,which cost 8,000won. RJ. Reynoldsgave “ lwurious” cigarette lighters (valued at 2,400won) to those who purchasedMore (brand) cigarettes,which cost 1,000won. The Korean governmenttold us that these activities were “punished” by the Koreanauthorities. The specific punishmentswere not designated. The South Koreangovernment told us that it did not pursue in court the previously mentionedviolations, but “requested”that the cigarette companiesrefrain from conducting the activities.

‘The Korean government did not report the dates of the alleged violations. Therefore, because of fluctuating exchange rates, we were unable to convert Korean won to their U.S. dollar equivalents.

Page 40 GNXGGD9338 International Trade Chapter 3 C&met&~ Advertidng and Promotional Beotrktlom in &sleeted A&n Count&r

The South Koreangovernment also said that U.S.cigarette companies have ‘unreasonably”demanded that cigarette advertisingand promotional restrictions be reduced.For example,the Korean Fair Trade Act limits the period of time allowed for conducting promotional activities and the value of the items given away during the promotions.Although these limits are placed on all promoted products, the U.S.cigarette companieshave requestedthe relaxation or removal of this limitation for cigarettes.USCEA contendsthat this requestis merely part of an ongoing dialoguewith the South Koreangovernment in the context of trade negotiations.

Another casedealt with a dispute over the definition of “youth” for cigarette advertisingand promotional purposes.The South Korean governmentsaid that this dispute had been the greatest obstaclein the developmentof the “voluntary” self-regulatorycode for cigarette marketing.WCEA likewise told us that this “dispute” was simply part of the normal dialogueduring trade negotiations.The self-regulatorycode was signedin 1991and statesthat no person under the age of 26 shall be depicted in cigarette advertisements.However, in referenceto promotional activities, a specific age for “targeting” is not designated(Le., the code statesthat salespro motions shall be directed at existing “adult” smokers).

Despitethese difficulties, the Koreangovernment believes that now that the self-regulatorycode has been signed,any cigarette marketingproble ms will be resolvedby code signatorieswithout undesirableconflict.

In April 1988the Thai governmentordered its tobacco monopoly to Thailand discontinuecigarette advertisingand promotional activities. The Thai governmentsaid that despitethis order foreign cigarette companieshad continued to advertise,and so, in February 1989the governmenttotally banned cigarette advertising.Under the concept of national treatment, the November1990 U.S.-Thailand cigarette trade agreementdid not interfere with Thailand’scontinuing right to ban cigarette advertisingand promotional activities. The agreementspecifically stated that “advertising as well as salespro motional activities must conform to Thai laws, regulationsand practices.” Thailand does not have a cigarette industry self-regulatoryassociation or self-regulatorycode. The Thai governmenttold us that the cigarette advertisingban includes the we of indirect advertising-that is, restrictions on the use of cigarette companytrade marks,logos, and symbolson nontobaccoproducts or

Page 41 GAWGGD-9338 International Trade Chapter 3 Cigarette Advertising and Promotional Restictiona in &elected Asian Countries

merchandise-if it can be proven that the intended use of such products is for commercialpurposes. According to Thailand’sConsumer ’sProtection Act of 1979,the term “advertising”means any act that enablespeople to see or learn about the advertisedite ms for “commercialpurposes. ”

The Thai governmentinfor med us that despite the November 1990 cigarette trade agreement,U.S. cigarette companiescontinued to indirectly advertisetheir cigarette brands by attempting to sponsor sporting events,by placing cigarette logos or symbolson TV programs, and by using logos or symbolson nontobaccoproducts such as clothing items. The Thai governmentdid not provide us with evidenceof direct involvementby the U.S.cigarette companiesin any of the alleged violations listed in the text that follows. The Thai governmentinfor med us that there has been no direct US. cigarette advertisingin Thailand since November 1990. According to the Thai government,the following infractions occurred:

l On January20, 1991,unidentified foreign cigarette companiesoffered to sponsor the Thai Olympic Committeeby providing financial support. On February 10,based on opposition from the Minister of Public Health and antismokinggroups, the Olympic Committeedecided not to accept the offer. . A leadingactor wore a Marlboro cap in a popular TV series,“ Wanalee.” . In the current popular drama,“ Su-sariKon Pen” actors wore “Lucky Strike” T-shirts and rode “Lucky Strike” motorcycles.

The Thai governmentdid not provide evidenceof U.S.cigarette company involvementin the infractions listed above.A USCEAofficial said that the U.S.cigarette companiesdo not produce these sorts of “props” and did not hire actors to appearon these showswith these “props.” He said that these b allegationswere unsubstantiated.

According to the Thai government,the following infractions occurred at the Bira International Motor Speedwayin Pattaya:

. A billboard that read “TeamLucky Strike Suzuki”was erected at the speedway. 6 Clothing and motorcycleswith the phrase “TeamLucky Strike Suzuki” were found at the speedway. l The Yamahamotorcycle racing team wore clothing and sunglasseswith the Marlboro logo at the speedway.

Page 42 GALUGGD-93-38 lntmnational Trade Chapter 8 Clgwetta Advertlring and Promotional Beetrlctlonr ln Selected Man CountAe#

The Thai governmentsaid that the Suzukiand Yamahamanufacturers were warned by the Secretaryof the National Committeefor the Control of TobaccoUse to stop these practices.If they did not comply, legal action would be taken againstSuzuki and Yamahaand againstthe Bira International Motor Speedway,according to governmentofficials. The Thai governmentdid not tell us whether it had also issuedwarnings to the U.S.cigarette companies,nor did it provide evidenceof involvementby the U.S.cigarette companiesin the allegedviolations. USCEAofficials said that they are not aware of these allegedinfractions and that there is nothing to indicate that theseviolations are the result of actions by the U.S.cigarette companies.Moreover, USCEA told us that the Thai governmenthas not pursued any of these cases,they have not ‘beenraised to a “seriouslevel, ” and they were unsubstantiated.

The Hong Kong governmentdid not respond to our specific questions,but Hong Kong did provide somepictorial examplesof U.S.-brandcigarette advertisementsthat it allegestarget nonsmokersand children and that appearedin Hong Kong newspapersand magazinesin 1990.The ads were substantiallythe sameas those we obtained from the USCEAand are included in our analysisthat is presentedin chapter 4. The Hong Kong cigarette marketing restrictions summarized in the following text were provided by USCEA.

Effective December1,1990, the Hong Kong BroadcastingAuthority banned cigarette advertisingfro m television and radio via the Television Advertising StandardsCode of PracticeII. Thesestandards also forbid children and adolescentsfro m participating in the presentation of advertisementsfor liquor or for tobacco-relatedproducts. We reviewed videos of TV advertisementsaired in 1990before the ban. a

Cigaretteadvertising in other media is restricted by a seriesof public health smokingordinances, regulations, orders, and standards.For example,the Smoking(Public Health) Ordinancerequires cigarette advertisementsthat appearin publications to carry a prescribed health warning and a tar content designation.Cigarette advertisementsproduced for display purposesmust also contain the prescribed health warning. The CinemaAdvertising Standardsinclude a clausethat statesthat cigarette advertisingshould not seek to encouragenonsmokers to smoke and should only seekto persuadeexisting smokersto changetheir brands or

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‘,I Chapter 3 Cigarette Advertialng and Promotloaal Reetrlctlone in Belected Adan Conntrler

not to do so. It goeson to say that cigarette advertisingshould avoid any attempt to persuadesmokers not to give up smoking. As for other restrictions, the cigarette industry self-regulatory association-the Tobacco Institute of Hong Kong,Li mited-has instituted codesfor cigarettemarketing and cigarette brand sponsorships.The marketing code specificallystates that cigarette advertisingis not to be directed towards increasingthe number of smokersor increasingthe consumptionrates of existing adult smokers.Advertising should be directed towards existing adult smokersand be intended to effect a changeof brand. The code further saysthat cigarette advertisingis not to be directed intentionally towards those under 18years of age. The code regardingpro motional sponsorshipsby the cigarette companies states that advertisingand promotional materials exclusivelydesigned for sponsorshipswill be limited to cigarette companynames, brand names, trade marks, insignia,and information concerningthe sponsoring companyand details of its sponsorship.These materials cannot specifically advertisecigarettes or their properties.

The promotional sponsorshipcode only allows signs erected to advertise sponsoredactivities or eventsto depict cigarette products by company, insignia, or cigarette brand and requiresre moval of the signsas soon as practicable after the end of the event. It limits the content and positioning of cigarette brand advertisementsin relation to advertisementsfor cigarette company-sponsoredevents when they both appear in the same publication. Also, the code forbids cigarette brands (e.g., Winston) from sponsoringactivities, events,or programswhere the audienceis expected to be predominantlyunder the age of 18years. The code does not specifically prohibit the cigarette companies(e.g., Philip Morris) from sponsoringevents for audiencesunder the age of 18. a

The Malaysiangovernment responded only to selectedquestions in our Malaysia information request.The governmentdid not provide information on any allegedviolations of its cigarette advertisingand promotional restrictions. The Ministry of Health said that it has been concernedwith the problem of smoking for a number of years. Officials said that as tobacco production, importation, and consumptionhave increased,the health hazards associatedwith smoking,such as lung cancersand cardiovasculardisease, have also predictably risen. Over the years,the governmenthas advocated antismokingcampaigns and activities in order to prevent nonsmokers

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!‘. ’ , Chapter 3 Cigarette Mvertlelng and Promotional RemtrlcUono ln Selected Aalan Countrlem

from becomingsmokers, to protect nonsmokersfro m tobacco smokeand its hazards,and to encouragesmokers to stop smoking.Malaysian officials did not addressthe question of whether U.S.cigarette companieshave abided by the exlstlng advertisingrestrictions. The Health Ministry said that certain measureshave been taken to curtail smokingand its effects on the Malaysianpopulation. Thesemeasures include

. the restriction of smokingin cinemasin manyjurisdictions; . the restriction of smokingon public transportation vehicles throughout Malaysia; . the distribution of information to mothers on the dangersof passive smoking through lectures,pamphlets, and posters; . the prevention of tobacco use amongyouth through antismoking campaignsorganized by the Ministry of Health; nongovernmentagencies, such as the MalaysianMedical Association and consumerassociations; and schools; . the prohibition through administrativedirectives of smoking in schools; . the banning of smokingand cigarette marketing activities in all hospitals, medical institutions, health centers,and Ministry of Health offices; . the prohibition of tobaccoproduct advertisingon TV and radio; and . the placementof prominent health warning labels on cigarette packs. The tobacco industry in Malaysiahas not developedself-regulatory codes. However,a coalition of Malaysianadvertisers known as the “Advertising StandardsAuthority ” (comprisedof representativesfro m the Malaysian NewspaperPublishers ’Association, the Associationof Accredited AdvertisingAgents Malaysia, and the MalaysianAdvertisers ’Association) has establishedand administersthe “MalaysianCode of Advertising Practice.”This self-regulatorycode of ethics governsthe advertisingof all products, including cigarettes.It establishescertain standardsof conformancethat forbid cigarette advertisingfro m encouragingyoung people to smoke;prohibits ads that include personal testimonialsor recommendationsby well-known persons;and prohibits advertisements from appearingin publications targeted at young people.

A separate“ AdvertisingCode for Televisionand Radio” is administeredby the MalaysianM inistry of Information. It allows nontobacco products bearing cigarettebrand namesto be advertisedon TV and radio within certain guidelines.For example,it bans commercialsthat depict

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I Chapter 3 Cigarette Adverthing and PromotIonal Bemtzictlonr in Selected Asian Countrlee

undesirablewestern lifestyles or foreign cultures, and it prohibits the use of pictures of cigarettesor cigarettepacks in the commercials. The CensorshipBoard of Malaysiahas issued“ Guidelinesto the Advertising of All Formsof TobaccoProducts. ” Theseguidelines li mit cigarette advertisementsto a description of taste or fragrance,tobacco blend or production technique,physical qualities,effectiveness of filter, and price. Someof the other provisions include a prohibition of “disco” or “throbbing” music that has no relevanceto the tobacco product and a prohibition on cigarette advertisementsin sponsoredevents that display cigarettes,packs, cartons, or cigarette slogans.

Cigaretteadvertising in Indonesiais restricted by the 1981“ Code of Ethics Indonesia and Code of Practicesof Advertising in Indonesia.”This self-regulatory code was pioneeredby the Associationof IndonesianAdvert&&g Agencies and was signedby various Indonesianmedia associations.The code states that cigarette advertisementsshould not (1) influence or encouragethe public to begin smoking;(2) suggestthat smokingis natural; (3) suggest that smokingis conduciveto health or free from health hazards;and (4) target children below the age of 16 or pregnantwomen, or portray them in any such advertisement. There is no minimumlegal age for the purchaseand smokingof cigarettes in Indonesia.

Officials at the Indonesiangovernment ’sDepartment of Information told us that direct cigaretteadvertising on television is prohibited, but televised cigarette advertisementsconsisting only of brand nameswith no additional information are permitted. Thus, the Indonesiangovernment told us that U.S.cigarette brands are sometimesadvertised by a incorporating the brand namesin the titles of television programs,such as “Marlboro Country Sounds”and “Marlboro Sports.”As a result of the direct TV advertisingban, the governmentsaid that most tobacco manufacturersare involved in “sponsorshipactivities. ” According to the Indonesiangovernment, the opportunity to sponsor major national and international sports eventsthat are usually televisedallows exposure before millions of viewers.

The officials said that all radio stations, movie theaters, and print media (with the exception of one leading Indonesiannewspaper) accept cigarette advertising.This advertisingincludes women ’smagazines but, according

Page 46 GAWGGD-93-38 International Trade Chapter 3 Cigarette AdvertlAng and Promotional Remtrietionm in Selected Asian Countries

to the government,cigarette companiesseldom advertise in publications targeted towards women. According to the IndonesianDepartment of Information, advertisingon Indonesiantelevision (apparently only showing brand names)was reintroduced in mid-1989with the emergenceof private TV stations. According to Indonesiangovernment esti mates,probably less than 2 percent of total television advertisingti me has been allocated to cigarette advertising.There are four privately owned stations and one government-ownedstation in Indonesia.Three of the privately owned stations accept cigarette advertisementsthat show only the brand names. The fourth station is a privately owned educationalstation that does not allow cigarette advertisingin any form. According to the Indonesian government,the cigarette companiespri marily advertise on those TV stations that attract male audiences,such as “Formula I” racing, or the slightly younger audiences‘ captivated” by popular music. The government-ownedstation does not accept any advertising. The Ministry of Information, through the Director Generalof Radio, Television,and Films,monitors cigarette advertisingon television.The Indonesiangovernment states that so far, no companiesseem to have violated restrictions on TV cigarette advertising. The Indonesiangovernment told us that there are no restrictions on outdoor cigarette advertisingand, thus, outdoor media,such as billboards, posters,and bus panels,are the major advertisingmodes used by cigarette advertisers.Cigarettes are also promoted through the distribution of free samplesthroughout Indonesia;Marlboro9 are particularly successful. The Indonesiangovernment said that cigarette companiesheavily sponsor their products through rock concertsand other music shows,athletic 4 events,bazaars, and seminars.Although U.S.market share in Indonesia was less than 1 percent in 1990,U.S. cigarette companieshave sponsored someactivities. For example,in 1990,Philip Morris sponsoredthe Marlboro IndonesianMasters tennis tournament and the Marlboro World of Sportsspectacular (an exhibition of replicas of racing cars and a Grand Prix motorcycle),while Brown & Williamsonsponsored the Lucky Strike Automotive Time-QuizRallies.

According to the Indonesiangovernment, the cigarette advertisingand promotional restrictions, which are very minimal, are not aggressively enforced. There are no penaltiesfor infractions, only a requestfro m either

Page 47 GKVGGD-9338 International Trade Chapter 8 Cigarette Advertidng and Promotional Remtrlctione in Selected Asian Countries

the governmentor the Code of Ethics Board to have an advertisement revisedto conform to the Code of Ethics. In one examplerecounted by the government,an Indonesianadvertising association protested an alleged infraction of the advertisingcode by an unidentified cigarette company. The companyintroduced a cigarette brand targeted to the “younger generation”that included the word “teenager”in the brand nameand used teenagersin its advertisingcampaign. The brand was withdrawn from the market. The governmentdid not state whether the cigarette companywas American.

IndonesianGovernment To the “best of its knowledge”the governmentof Indonesiadoes not have Has No Recordsof any records of allegedviolations of cigarette advertisingand promotional Advertising Restriction restrictions by U.S.or other foreign cigarette manufacturers.In reference to indirect advertising,the Indonesiangovernment told us that there do Violations not appearto be any restrictions on the use of cigarette company trademarks,logos, and symbolson nontobacco products or merchandise. Also, there do not appearto be any indications that cigarette manufacturershave used this form of advertisingin Indonesia.

In these six Asian countries, there were many reported instancesin which Allegations That U.S. products were being sold using well-known trademarks of U.S.tobacco Cigarette Companies companies(i.e., indirect advertising).Some individuals and organizations Allowed Use of Their have accusedthe tobacco companiesof allowing or consentingto this type of promotional activity as a meansof promoting the sale of cigarettesto Trddemarks on children and thereby circumventingforeign advertisingrestrictions. Nontobacco Products USCEAprovided us with documentsand other materialsto support its position that membertobacco companieshave not actively promoted or consentedto others’ use of the tobacco companies’well-known A trademarkson goodsintended for children’s use. USCEAtold us that the tobacco companiestake aggressiveaction to stop unauthorizeduses of their trademarkson collateral goods. USCEAprovided us with illustrative casesto support this view. We reviewed these casesbut we did not verify either their accuracyor whether they truly reflect the nature of the companiesviews’ regardingapparent trademark infringements.Almost all of these casesinvolved a tobacco company’ssending a “ceaseand desist letter” to the infringing company. For example,in one case,R.J. Reynolds discovered the use of a mark substantiallysimilar to its mark, “Winston,” in connection with the sale of

Page 48 GAO/GGD93-38 International Trade Chaptar 8 CIgmkte Adve~ and Promotional RestHctIo~ ln Selected Aah Countries

packagesof candy cigarettesin Hong Kong. RJ. Reynoldssent letters to the stores involved, as well as to manufacturers,demanding that the infringing parties ceasesuch use of the “Winston” mark. Virtually all of these casesnever resulted in litigation, with most companiescomplying with the cigarette companies’letten. (Seeapp. II for additional examples of U.S. cigarette company actions taken againstalleged trademark infringement.)

Page 49 GUDIGGD-93-38 International Trade U.S. Cigarette Advertising and Promotional Campaigns in Selected Asian Countries

In this chapter we discussthe advertising and promotional practices of the major US. cigarette companiesmarketing their products in Japan, Taiwan, South Korea, Hong Kong, Malaysia,and Indonesia. We addressthe following topics: (1) why U.S. cigarette companiessay they advertise in Asia; (2) who retains control of U.S. cigarette brand advertising and promotional campaigns;(3) how large the 1990market shares for U.S. cigarette brands were; (4) what the U.S. cigarette company advertising and promotional expenditure patterns were; (6) what the sponsorship of athletic and cultural activities by U.S. cigarette companieswas; (6) how much the cigarette advertising and promotional expenditures by certain government-controlledtobacco monopolies in Asia amounted to; (7) what the nature of the U.S. cigarette advertising campaignswas; and (8) what our analysis of the US. cigarette advertisementsfound. Philip Morris, R.J. Reynolds,and Brown &Williamson advertise and promote U.S.-brandcigarettes in Japan, Taiwan, South Korea, Hong Kong, Malaysia,and Indonesia-the six reviewed countries that allow these activities. The cigarette companiessay that they advertise and promote their products to compete for market share, while critics argue that these activities also encouragesmoking initiation and maintenance.Depending on local restrictions, which differ from country to country, and their advertising strategies,U.S. cigarette companies,as well as their foreign competitors, may advertise their products on television and radio, in newspapersand magazines,outside on posters and signs, and through the distribution of free samples.Also, based on their marketing strategies and local restrictions, U.S. cigarette companiesmay sponsor sporting events and cultural activities. The U.S. cigarette companiesgenerally control the advertising campaignsfor their brands in all six of these countries. In 1990,with the exception of Hong Kong, U.S. cigarette brands did not have dominant market sharesin any of the reviewed countries. Japan a alone accounted for more than two-thirds of the combined advertising and promotional expenditures by Philip Morris, R.J. Reynolds,and Brown & Williamson in these countries. Ranked in descendingorder of expenditures after Japan were Hong Kong, Malaysia,South Korea, Taiwan, and Indonesia. In all six of the countries, the U.S. cigarette companies spent more money on advertising their brands than on providing promotional sponsorships.And in the category of promotional sponsorship, more money was spent on sponsoring sporting activities than on cultural events.Television advertising (where allowed) and point-of-sale advertising were generally major advertising expenditure categories.

Page 60 GMYGGD-93-38 Intmnalional Trade Chapter 4 U.S. Clgamtts Advertiaing and Promotional Campaigns in Selected Asian Countries

As we reported in chapter 1, the cigarette markets of Japan,Taiwan, South Korea,and Thailand were substantiallyclosed to foreign cigarettesuntil USTR negotiatedcigarette trade agreementswith each of these countries. Taiwan authorities reported that their tobacco monopoly advertisingand promotional expenditureswere less than $100,000(U.S.) per year before the U.S.cigarette companiesgained market accesslate in 1986and that the expenditureshad remainedunchanged through 1990.The South Koreangovernment reported that its tobacco monopoly advertisingand promotional expendituresincreased fro m about $426,000(U.S.)-the year before market opening-to about $3,148,000(U.S.) in 1990.The Japanese governmentdid not provide us with expenditure data. Thailand prohibits cigarette advertisingand promotional activities. U.S.cigarette brands have been availablein Hong Kong,Malaysia, and Indonesiafor severalyears. Theselast three countries do not have government-controlledtobacco monopolies. Our analysisof U.S.cigarette companyadvertising materials for the reviewedAsian countries indicated that the cigarette brands were frequently associatedwith recurring imagesor themessuch as American or western culture, relaxation and leisure, and fashionablelifestyles. The name-brandadvertising campaigns were substantially consistentfro m country to country, with most important differences appearingto be adaptationsto local advertisingrestrictions.

The US. cigarette companiestold us that they do not target their marketing campaignsat youth, but rather to men and women who already smoke.Based on the limited advertisingmaterial and related information availablefor our review, we were unable to determinewhether the U.S. cigarette companieswere targeting certain population groups,such as children or nonsmokers,with their advertisingand promotional campaigns in the reviewedAsian countries. a

Basedon the terms of the cigarette trade agreements,local marketing Advertising and restrictions, and industry self-regulatorycodes, Philip Morris, R.J. Promoting U.S. Reynolds,and Brown & Williamsonhave establishedadvertising and Cigbettes in Six promotional campaignsin the newly opened cigarette markets of Japan, Taiwan, and South Korea.They have also continued to advertiseand As&n Countries promote their cigarette brands in Hong Kong, Indonesia,and Malaysia-countries that have permitted the sale of U.S.-brandcigarettes for severalyears.

Page 61 GAQ/GGD-93-38 International Trade Chapter 4 U.S. Cigarette Advertising and Promotional Campaigns in Selected Asian cOuntie~~

Dependingon local restrictions, U.S.cigarette brands may be advertised on television or radio; in newspapersand magazines;outside on posters and signs on billboards, taxis, trams, and trains; or at the point of sale (in retail outlets). Whereper mitted, free samplesof U.S.cigarettes may be distributed to consumers.The U.S.cigarette companiesmay also sponsor sporting eventsand cultural activities-most frequently musicalconcerts. The sporting activities cover a variety of events,fro m auto and motorcycle races to soccer and tennis tournaments.The sponsoredmusical events are frequentlyjazz, pop, and rock concerts.

The cigarette companiesargue that the function of cigarette advertising Why U.S. Cigarette and promotional activities, whether domesticor international, is to allow CompaniesSay They various cigarette brands to competefor a share of the existing market. Advertise in Asia However,health proponentsstate that these activities also encouragethe initiation and continuation of cigarette smoking. USCEAasserts that advertisingis a critical competitive tool in consumer products businesses.The associationtold us that advertisingis by far the most effective meansto communicatewith consumers.uscm contends that while advertisingis useful for all consumerproducts, it is particularly essentialfor American cigarette companiesin Japan,Taiwan, South Korea, Malaysia,and Indonesia.According to USCEA,these countries had government-controlledcigarette monopoliesor “. . . other entrenched non-Americancompanies against which the newly-arrivedU.S. companies must compete.”LJSCEA infor med us that the smokersin those countries were not familiar with American cigarette brands and in somecases did not even know that they were available.

USCEAofficials told us that while in 1990most of the U.S.-brandcigarettes Control of U.S. sold in Japan,Taiwan, South Korea,and Hong Kongwere imported from 8 Cigarette Advertising the United States,U.S.-brand cigarettes sold in Indonesiaand Malaysia and Promotional were usually produced by local affiliates of the U.S.-basedcigarette companiesunder licensing or other businessarrange ments.According to Campaigns their individual marketing strategiesand in conjunction with local cigarette advertisingand promotional restrictions, the three U.S.cigarette companiesindividually determinethe amount and mix of their media advertisementand promotional expenditures.

USCEXofficials told us that the major U.S.cigarette-exporting companies generallycontrol the advertisingand promotional campaignsfor their

Page 52 GAOIGGD-93-38 International Trade

‘. .: ,. * _, 1 ..,‘.. pt.’ ,I, ‘: .if’ chqter 4 U.S. Cigwatta AdvertJhg and PromotIonal Camp&pm In Belectad Aalan Countries

brands marketed in the six reviewedAsian countries that allow these marketing activities (i.e., Japan,South Korea,Taiwan, Hong Kong, Malaysia,and Indonesia).Most of the U.S.-brandcigarettes legally sold in Japan,South Korea,Taiwan, and, to a great extent, Hong Kong, are imported from the United Statesand are not manufacturedlocally. On the other hand, U.S.-brandcigarettes marketed in Indonesiaand Malaysiaare usually produced by local affiliates of Philip Morris and R.J.Reynolds through licensingand other businessarrange ments.All Brown & Williamsonbrand cigarettesmarketed in Indonesiaand Malaysia, however, are imported from the United States.A Brown & Williamson executiveemphasized that while in certain casespro motional campaigns for Brown & Williamsoncigarettes may be developedlocally, they conform to the worldwide brand strategy that is establishedby Brown & Williamsonfor each of its licensedbrands. An R.J.Reynolds official told us that in Hong Kong and Malaysiathe local R.J.Reynolds subsidiaries control the advertisingand promotional campaignsfor R.J.Reynolds ’cigarette brands. Sometimes,these campaignsmay be basedon R.J.Reynolds ’U.S. campaigns that have been adaptedfor Asia.At other times, the campaignsare specifically developed for the Asian market.

With the exception of Hong Kong, U.S.cigarette brands do not have 1990Ma rket Shares dominant market sharesin the reviewed Asian countries. USCEAofficials for U.S. Cigarette told us that the only function of their advertisingand promotional Brands in Six Asian campaignsis to retain existing market share and to acquire new market share by convincingconsumers of other brands to switch to their brands. Countries As portrayed in figure 4.1, U.S.cigarette brands had the following market sharesfor 1990:Hong Kong (74 percent), Malaysia(26 percent), Japan (16 percent), Taiwan (9 percent), South Korea (2 percent), and Indonesia (0.9 percent). Until November1990, Thailand ’smonopoly-controlled market was closedto salesof U.S.and other foreign cigarettes.These figures do indicate that U.S.cigarette brands have acquired at least some market share in the previously closedcigarette markets of Japan,Taiwan, and South Korea.

Page 63 GAOIGGD-93-38 International Trade Chqter 4 U.6, Ci@rette Adve~ and Promotiolul Campaigna in Bslected Ada Coantriea

Figure 4.1: Market Sham for U.S. CIgarotto Brand, In SIX Asian Markst ahan (In powmt) CountrIm, 1000 76 70 66 60 66 60 46 40 36 30

Source: USCEA.

We examinedcigarette advertisingand promotional expenditure data Advertising and provided by USCEAfor the six reviewedAsian countries that allow such Prcjmotional activities. We did not verify these data. USCEArequested us not to reveal Expenditure Patterns the actual expenditurespublicly becausethey consist of confldentlal commercialinfor mation. We agreedto this request,but USCEAallowed us by Major U.S.-Based to use the expenditure data to make certain cross-countrycomparisons in 8 Cigarette Companies terms of percentages.Based on our analysis,we are able to report that in all six of the countries during 1990,Philip Morris, R.J.Reynolds, and Brown & Williamsonspent far more money on advertisingcigarettes than on providing promotional sponsorships.In Japan,Hong Kong, and Malaysia,the three U.S.cigarette companiesspent more money on TV advertisingthan on any other type of advertisingor promotional activity (Hong Kong banned cigarette advertisingon TV in December1990). In South Korea,Taiwan, and Indonesia,these three companiesspent more money on point-of-saleadvertising than on any other type. In each of the

Page 54 GAWGGD-93-38 International Trade Chapter 4 U.S. Cl@rebk, Adve~ and Promotioarl Camp&pa In Seletct8d Adan tiuntisr

six countries,the U.S.cigarette companiesspent more money sponsoring the promotion of sporting activities than cultural Gents. In 1990Japan alone accountedfor more than two-thirds of the total advertisingand promotional expendituresreported by USCEAmember companiesfor the reviewedAsian countries. In aggregate,advertising expendituresfar outweighedpro motional expendituresin all six countries. After Japan,in descendingorder of total advertisingand promotional expenditures,were Hong Kong,Malaysia, South Korea,Taiwan, and Indonesia.When considering advertising expenditures separately, the sameorder holds true. However, the order changeswhen we only focus on promotional expenditures.In this case,in descendingorder, Japan is followed by Malaysia,Hong Kong, South Korea, Indonesia,and Taiwan.

Figure 4.2 expressesU.S. cigarette companyadvertising in terms of percentageexpenditure ranges for various types of advertising.For example,in 1990for five of the six reviewed countries, the U.S.cigarette companiesspent more than 20 percent of their advertisingfunds on point-of-saleadvertising. In Japan,Taiwan, South Korea,and Indonesia, the three U.S.cigarette companies,in aggregate,spent from 6 to 20 percent of their advertisingexpenditures in each country on magazine advertising.

Page 66 GA(xGGD-954?8 Intemational Trade Chapter 4 U.S. Cigarette Advertising and Promotional Campaigns in Selected Ash Countries

Figure 4.2: Rangso of Expenditures on Advertlalng by U.S. Cigarette Companies In Six A&n Countries, / Countrler 1990

Advottlslng Expenditures Television Radio 0 0 0 0 0 0 Newspapers o o o H A n Magazines n n n 0 0 w Outside n 0 0 A n A Point of sale A A A A I A Free samples n 0 0 0 0 0 All other’ 0 0 0 0 n n

Legend A > 20% n >5%r20% 0 55%

Note: Advertising expenditures vary considerably from country to country.

“This category includes cinema advertising; consumer promotion items, such as lighters and key chains; costs related to the use of local media; and charges related to currency exchanges.

Source: USCEA.

Figure 4.3 shows that in 1990,72percent of advertisingfunds that U.S. cigarette companiesbudgeted for the six reviewed countries were spent in Japan.The percentagesfor the other five countries ranged from 1 percent in Indonesiato 11percent in Hong Kong. Figure 4.4 shows that when we comparedexpenditures for promotional sponsorshipsby the U.S.cigarette companiesin the six countries,Japan alone accountedfor 45 percent of

Page 66 GAO/GGD-93-38 International Trade Chapter 4 U.S. Clg~rette Advertlnhqj and Promotional Campaign8 in Selected Aalan Coantriea

the money.However, Malaysia, Hong Kong, and South Korea also accountedfor modestproportions of the total. Expenditure patterns by country are discussedin the following sections.Our computationsare basedon the expendituredata provided by USCEA.

Figure 4.3: Relative Percentaaes of Aigregate Advertlring Expenditures Hong Kong by U.S. CIgarotto Companler In Six Aalan Countrler, 1990 6% Malaysia 6% South Korea 5% Taiwan 1% Indonesia

Japan

Note: Depending on advertising strategies and local restrictions, U.S. cigarette brands may be advertised on television or radio; in newspapers and magazines; outside on posters and signs; at retail outlets; or through consumer sampling.

Source: USCEA.

Page 67 GAWGGD-93-88 Intematlonal Trade U.S. Cigwetts Advert&iqf and ProwUonal Chmpaignr in Selected Adan Countriar

Flgun 4.4: Rolativo Percontmga~ of Aggregate PromotIonal Expandlturea by U.S. Clgmrotto Companlu In Six Aohn Countrko, 1990.

5% Taiwan

Japan

Note: Depending on advertising strategies and local restrictions, U.S. cigarette brands may be promoted through the sponsorship of sporting events, such as auto races and tennis tournaments, or through the sponsorship of cultural activities, such as jazz, pop, and rock concerts.

Source: USCEA.

Japan From 1987through 1990,combined advertising and promotional expendituresin Japanby the three U.S.cigarette companiesincreased by 99.6percent. Figure 4.6 shows that the relative percentageof expenditures allocated to promotional sponsorshipsincreased fro m 3.6 percent in 1987 to 4.1 percent in 1990.In 1990,the largest advertisingexpenditures were for TV, followed by point-of-saleadvertising. Less significant sums,in descendingorder, were spent on outside advertising,free samples, magazines,newspapers, and radio.

Page 68 GMNGGD-9338 International Trade U.S. Clgaretts AdvertlAng and Promotiolul Camp&or In Selected hi811 Cf~untrier

Flgun 4.6: Rolatlvo Porcentagoe of U.S. Clgarotte Company Advortirlng Rdalivoporoonl . and Promotlonal Expendlturoo In 100 Japan, 1987 and 1990 90 80 70 60 50 40 so 20

10

0

1087 1990

I Promotionalsponsorships 111 Advertising

Note: 1987 was the first full year of advertising and promotional activities by U.S. cigarette companies in Japan. Source: USCEA.

Combinedcigarette advertisingand promotional expendituresin Taiwan by the three U.S.cigarette companiesincreased by 43.8percent from 1987 through the end of 1990.’Figure 4.6 shows that the relative percentageof 0 expendituresallocated to promotional sponsorshipsincreased fro m 3.2 percent in 1987to 7.2percent in 1990.In Taiwan, point-of-sale advertisingconstituted the largest single advertisingexpenditure category by the major U.S.cigarette companies.Magazine advertising accounted for most of the remainingexpenditures. A small percentageof the aggregate advertisingand promotional funds was spent on free sampledistribution and less than 1 percent on other types of advertising.

‘However, from 1938to 1990we note that the advertising and promotional expenditures actually decreased by 14.2percent.

Page 69 GAIXGGD-93-38 Intematlonal Trade Cll8ptm 4 U.S. Cigarette Advertblng and Promotional Camp8ignm la Selected Adan Count&e

Figure 4.6: Relatlva Percentages of U.S. Clgaretto Company Advertlrlng Relrtlvr percent and Promotional ExDendlture8 In 1Oil.-- Taiwan, 1987 and 1iQ0 90

so

70

60

50

40

30

20

10

0

1007 1990

I Promotional sponsorships Adverlising

Note: 1987 was the first full year of adveltising and promotional activities by US. cigarette companies in Taiwan.

Source: USCEA.

South Korea From 1989through 1990,aggregate advertising and promotional expendituresby the three US. cigarette companiesdecreased by 1.3 percent in South Korea.Figure 4.7 shows that the relative percentageof expendituresallocated to promotional sponsorshipsincreased fro m 3.7 percent in 1989to 13.7percent in 1990.By far the largest expenditure categorywas point-of-saleadvertising, followed in descendingorder by magazineadvertising and free sampledistribution.

Page 60 GAtXGGD-9338 Intemalional Trade Chapter 4 U.S. Cfgarette Advertblng and Promotional Campaign0 In Selected Asian Countries

Figure 4.7: Relative Percentages of U.S. Cigarette Company Advertising Rolatlw percent and Promotional Expenditure8 In 1M South Korea, 1989 and 1990

El Promotionalsponsorships Advertising

Note: 1989 was the first full year of advertising and promotional activities by U.S. cigarette companies in South Korea. Source: USCEA

Hong Kong In 1990,91.6percent of aggregateU.S. cigarette advertising and promotional expendituresby the three U.S. cigarette companiesin Hong Kong was for advertising,while the remaining 8.4 percent was for sponsoringpromotional activities. In 1990,before the ban on broadcast media cigarette advertising becameeffective on December 1 of that year, TV representedthe largest expenditure category. It was closely followed by outside advertising and then point-of-saleadvertising. After these modes came,in descendingorder, newspaperand magazineadvertising. Cigaretteadvertising on radio (before the December 1990ban) and free samplesrepresented relatively insignificant expendituresby the U.S. companies.

Page 81 GMWGGD-33-38 International Trade Chapter 4 U.S. Cigarette Advertldng and Promotional Campaigna in Belected Aei8n Coantriea

Malaysia In 1990,83.2percent of aggregateadvertising and promotional expendituresby Philip Morris, R.J.Reynolds, and Brown 8t Williamsonin Malaysiawas for advertising;,the remaining 16.8percent was for sponsoringpro motional activities. The largest advertisingexpenditure categorywas TV, followed by advertisingin newspapers.In descending order of expenditures,less significant categoriesincluded point-of&e advertising,outside advertising,and free sampledistribution. Expenditureson magazineand radio advertisingwere relatively insignlflcant.

Indonesia In Indonesiain 1990cigarette advertisingexpenditures accounted for 76.3percent of aggregatecigarette advertisingand promotional expendituresby the three US. cigarette companies.The remaining 24.7percent was for sponsoringpro motional activities. The major expenditure categorywas point-of-saleadvertising, followed by outside advertising.In descendingorder of expenditures,other important media categoriesincluded TV, newspaper,and magazineadvertising. Relatively less significant sumswere spent on free samplesand radio advertising.

We examinedlists and brief descriptionsof 1990pro motional activities Sponsorship of sponsoredby Philip Morris, R.J.Reynolds, and Brown & Williamson2in the Athletic and Cultural six reviewedAsian countries that allow cigarette promotional activities. Activities by The vast majority of these activities can be classifiedas sporting activities or cultural events(pri marily musicalconcerts). Figure 4.8 shows that in U.S.-BasedC igarette aggregatefor the six countries, the U.S.cigarette companiesspent far Cohpanies more money advertisingtheir cigarette brands than sponsoring promotional activities. Figure 4.8 further shows that almost 76 percent of the promotional expenditureswere for sporting activities as opposedto cultural events. b

lBrown B Williamson provided us with a list of ita ‘mdo?’ cigarette promotionsl activities in the selected Asian countries. It did not provide us with the criteria used to select these activities.

Page 62 GNXGGD-93-38 IntemaUonal Trade Cllqt4w4 U.S. Cigaretta Advem and Promotional Camp4ignr in Select4nl A&a Countri~

Figure 4.8: Aggregate U.S. Cigarette Company Advertking Relatlvs to Promotlonal ExpendRunt for Six Aelan Countries, 1990 Advwtlolng and Promotional rponsorehlps promotbnal expendlturer

0.4% Promotional sponsorships Cultural events

m Advertising A Sporting activities

Source: USCEA.

In each of the six countries, although the percentagesvary, more money was spent promoting cigarettesthrough sporting activities than musical and other events.The sporting eventsran the gamut from auto and motorcycle racesto soccer and tennis tournaments.For example,Brown 8~Williamson sponsored Team Lucky Strike Suzuki at three motorbike races in Japan,while Philip Morris sponsoredthe Hong Kong Marlboro Cup soccer tournament. The musical events sponsoredby the companies were generallyjazz, pop, and rock concerts. For instance,Philip Morris sponsoredtwo jazz concerts in Taiwan by the Parliament Superband, while R.J.Reynolds sponsored the “YvesSaint Laurent [cigarette brand] Paul Anka Concert” in South Korea. To a much lesserdegree, the U.S. cigarette companiesalso sponsoredother types of events,such as an exhibition of motorcyclesin Taiwan, a horse-of-the-yearcontest and an art exhibit in Hong Kong, and a TV gameshow in Malaysia.

Page 63 GMVGGD-93-38 International Trade Chapter 4 U.8, Ci#arette Advertihg and Promotional Campalgnr in Selected Aalan ChnMes

The cigarette companiesdid not provide us with sufficient information to determine whether sporting activities were sponsoredmore or less frequently than musical concerts. However, we can say that on an aggregatebasis for the reviewed Asian countries, basedon a review of the provided information, more U.S. cigarette brands were associatedwith the sponsorship of sporting activities than with musical concerts and other entertainment. IJSCEAofficials informed us that sponsorshipby member companiesof sporting eventsis extensive.The President of USCEAsaid that sports sponsorshipis done as a business-relatedactivity in sports such as tennis and auto racing. LJSCEZAofficials said that their member companies do not participate in collegiate advertising. Tables 4.1 and 4.2 show the types of promotional activities sponsoredby Philip Morris, R.J. Reynolds,and Brown & Williamson in the six Asian countries in 1990.Table 4.1 portrays the information by country and cigarette company,while table 4.2 shows the major U.S. cigarette brands marketed in one or more of the six countries and the types of promotional sponsorshipsassociated with each brand. Table 4.1 shows that the three U.S. cigarette companieswere more often associatedwith the sponsorship of sporting activities than cultural events.In Japan, Taiwan, Malaysia,and Indonesia,two of the three companies(not always the same two) did not sponsor cultural events.Table 4.1 also shows that Brown & Williamson did not sponsor any “major” cigarette promotional activities in Taiwan and South Korea, and RJ. Reynoldsdid not sponsor any of these activities in Indonesia.

Page 64 GAWGGD-9338 International Trade

.I.. . ‘,. I U.S. Cigarette Advertising and Promotional Campaigns in Selected Asian Count&13

Table 4.1: Types of Promotional . Sponsorrhlps by U.S. Cigarette U.S. cuiturd events Companler In Six Asien Countries, cigarette Sportlng Musical Other 1990 County company activities concerts entertainment@ Japan PM X X . RJR X . . B&W X . . Taiwan PM . X X RJR X . . B&Wb . . . South Korea PM X X . RJR X X . B&Wb . . . Hong Kong PM X X X RJR X X . B&W X . . Malaysia PM X . . RJR X X X B&W X . . Indonesia PM X . X RJFP . . . B&W X . . Legend PM = Philip Morris RJR = R.J. Reynolds B&W = Brown &Williamson X = Activity conducted l = No activity

“This category includes events such as Philip Morris’ sponsorship through its Marlboro brand of a motorcycle exhibition in Taiwan and of an exhibition of work by local artists in Hong Kong. Another example is R.J. Reynolds’ sponsorship through its “More” brand of a TV game show in a Malaysia.

bThis company did not sponsor any activities in this country.

Sources: Philip Morris International Inc.; R.J. Reynolds Tobacco International, Inc.; and Brown 8 Williamson Tobacco Corp.

Table 4.2 shows that most of the U.S.cigarette brands in the six countries are not associatedwith the sponsorshipof both sporting and cultural events-the Salem,Yves Saint Laurent (YSL), and Marlboro brands are the exceptions.Table 4.2 also shows that Brown & Williamsonbrands were only associatedwith the promotion of sporting activities (see footnote 2).

Page 66 GAIUGGD-93-38 International Trade

‘?.., CJuptar 4 U.8. Cigarette AdvertMng and Promotional Campalgu in Belectf9d hian Charlea

Table 4.2: Typeo of Promotional Sporworohlpo by U.S. Cigarette U.S. Cultural events Compankr In SIX Asian Countrkw by cigarette Sporting Mueical Other Major CIgarotto Brando, 1990 Company brand actlvltier concert8 entettalnmen~ Philip Morris Marlboro X . X Philip Morris (Super Lights) b X . Lark X . . Merit X . . Parliament . X . R.J. Reynolds Camel X . . Salem X X . Yves Saint Laurent X X . More . . X Brown & Williamson Lucky Strike X . . Viceroy X . . Kent X . l Legend X = Activity conducted l = No activity

‘This category includes events such as Philip Morris’ sponsorship through its Marlboro brand of a motorcycleexhibition in Taiwanand of an exhibitionof work by local artists in Hong Kong. Another example is R.J. Reynolds’ sponsorship through its “More” brand of a TV game show in Malaysia.

Sources: Philip Morris International Inc.; R.J. Reynolds Tobacco International, Inc.; and Brown & Williamson Tobacco Corp.

Cigaretteadvertising and promotional activities in the reviewedAsian Cigarette Advertising countries are not unique to the three U.S.-basedcigarette companies.The and Promotional government-controlledtobacco monopolies,indigenous cigarette Expenditures by manufacturers,and other foreign cigarette companiesalso advertiseand promote their cigarette brands in these countries.As we reported in Certain Government- chapter 1, government-controlledtobacco monopoliesin Japan,Taiwan, Controlled T’obacco South Korea, and Thailand substantiallyprohibited the sale of foreign Monopolies in Asia cigarettes.8USTR negotiated trade agreementswith each of these countries

8U.S.-brandcigarettes have been marketed in Hong Kong, Malaysia, and Indonesia for several years.

Page 66 GAO/GGD-93-38 International Trade U.S. Ctgwetta Advertldng and Promotional Caln~ ln Balected hian Cantim

to gain market accessfor U.S.-producedcigarettes. We askedthe governmentsof Japan,South Korea,and Taiwan to provide us with cigarette advertisingand promotional expendituresby their tobacco monopoliesfor the year prior to market opening and for 1990.(Thailand bans cigaretteadvertising and promotional activities.) They respondedas follows:

l The Japanesegovernment said that it will not disclosethis information becauseit is “classifiedas industrial secrets.” . Taiwan authorities told us that their tobacco monopoly advertisingand promotional expenditureswere less than $100,000(U.S.) per year before the December1986 U.S.-Taiwan cigarette trade agreementwas implementedand have not changedsince market “liberalization.” 0 The South Koreangovernment infor med us that its government-controlled monopoly spent about $426,000(U.S.) on advertisingand promoting its domesticallyproduced cigarettesin 1987-the year before the market opened.In 1988monopoly expendituresincreased to $1,043,000(U.S.) (the U.S.-SouthKorean trade agreementre moving cigarette trade barriers was signed in May 1988).During 1989,the first full year of trade agreement implementation,the Koreantobacco monopoly spent $3,006,000(U.S.) advertisingand promoting its cigarettes(a 188-percentincrease fro m lQ88).In 1990expenditures increased to $3,148,000(U.S.). This figure representsa 641-percentincrease fro m 1987-the year before the market opened.

According to USCEA,U.S. cigarette advertisingcampaigns can be Na@reof US, categorizedinto three groups-thematic, local brand, and tactical Cigarette Advertising campaigns.Thematic campaigns may be transnational in scope and focus Campaignsin on recurring imagessuch as American culture, relaxation and leisure, or fashionablelifestyles. Local brand campaignsare developedand tailored b ReviewedAsian for the country in which the brand is marketed.Tactical campaignsare Countries time specific and are developedfor special eventssuch as the Chinese New Year.The goalsof other cigarette advertisingcampaigns are to introduce brands into a new market or to publicize new prices. USCEA officials informed us that when advertisingtheir international brands (e.g., Marlboros and Salems),Philip Morris, RJ. Reynolds,and Brown & Williamsongenerally use consistentper-brand advertisingthe mesin all of the reviewedAsian countries (e.g., Philip Morris’ Marlboro brand is almost alwaysadvertised with a western American cowboy image).USCEA officials told us, however, that local market adaptationsare madeto account for cultural differencesand variations in the advertisingcodes and restrictions

Page 67 GMVGGD-93-88 Intematlonal Trade

7’ : .’ 1, , ,’ j .I U.S. Cigaretta hhwrtieing and PromotionaI C*mpnigne in Selected A&n Count&a

in each country. Thus, USCEAofficials cautioned that although their crosscountry, per-brandadvertising campaigns may resembleeach other, it would be inaccurateto say’that they are identical. Another factor precludesviewing certain per-brand USCEAcompany cigarette advertisingcampaigns as international in theme or scope.Certain brands of cigarettes,such as Lark and Kent, are produced under licenseby Philip Morris and Brown i&W illiamson,respectively, for the export market, while these samebrands are produced by different U.S.-based cigarette companiesfor domesticU.S. consumption. The advertising campaignsused by Philip Morris and Brown & Williamsonfor these brands overseasare separatefro m those used for the corresponding brands by the domesticU.S. producers in the United States.Thus, the overseasadvertising campaigns for given brands may use different themes and images. The three U.S.cigarette companiesmay also market cigarette brands that are only sold in one country. The advertisingcampaigns for these brands may be tailored to the local markets. For instance,Brown & Williamson’s Hilton cigarettesare marketed exclusivelyin Hong Kong.

USCEAofficials said that the initial cigarette ad campaignsby member companiesin the newly opened cigarette markets of Japan,Taiwan, and South Korea generallyfocused on product recognition-simply making the consumeraware of the U.S.cigarette brands and their availability on the local market. We observedthat these ads frequently only featured pictures of cigarette packs.The officials said that this practice was an attempt to show the newly openedmarkets what the U.S.-brandcigarette packages look like and to exposethe people to the U.S.brands. For example,when U.S.cigarette companiesgained access to the Japanesemarket, an R.J. Reynoldsmagazine advertisement pictured severalof its brands that were 8 newly availablein Japan,including mild, light, menthol, and filtered cigarettes.

To help determinethe nature of the U.S.-basedcigarette company Analysis of U.S. advertisingcampaigns in the reviewedAsian countries, we systematically Cigarette examinedU.S. cigarette advertisingmaterials (pri marily magazineads and Advertisements in TV commercials)provided by Philip Morris, R.J.Reynolds, and Brown & Williamson,and the more limited materialssubmitted by the foreign ReviewedAsian governmentsand health or antismokingproponents. For the most part, the Countries materialssubmitted by all of these sourceswere substantivelythe same.

Page 68 GMMGGD-93-38 International Trade U,B. Clgmetta AdvertLing and Promotlonal C8mp8lgno In Selected Asian Countries

None of the abovesources provided us with either the frequencyof appearanceor the context in which the advertisementsappeared. We do not know, for example,whether any particular advertisementwas used in publications specificallytargeted to any group with commoninterests. Therefore it was not possibleto associateor identify the advertisement with any particular group or individual characteristics. Most of the Asian advertisingmaterials we examinedfro m the U.S. cigarette companiesadvertising’ campaigns were for the major U.S. name-brandcigarettes that are marketed in many countries.However, we also examineda limited number of country-specificadvertisements and advertisementsdesigned for special events.The U.S.cigarette companies advertisedtheir products in a variety of ways, as follows: . Philip Morris’ Virginia Slimsbrand advertisementsand TV commercials often appearedto contrast what is portrayed as the old-fashioned,less exciting, and more restrictive women’slifestyles (pictured in black and white) with today’sspirited and liberated lifestyles (in vibrant colors). For example,a number of the TV commercialsand magazineads depicted women in modern, eye-catching,colorful fashionsactively enjoying themselves,theatrically superimposedover what is pictured as the dull fashionsand drab scenesof years gone by. l R.J.Reynolds ’Salem brand advertisementsand TV commercialsfeatured couplesstrolling, frolicking, or sitting in mountain meadows,or viewing scenicpanoramas of forests or snow-cappedmountains. . Brown & Williamson’sKent brand TV commercialsand advertisements frequently depicted groups or couplesenjoying themselvesin lwurious settingswhile smoking,often at what appearsto be tropical seaside resorts. For example,the TV commercialsthat we reviewed portrayed groups socializingon yachts and rafts, playing golf, riding in motorboats, sailing, drinking, chatting at tables,waterskiing, and sailing. 8

(Seeapp. III for descriptionsof the other major U.S.-cigarettebrand advertisementsin the six Asian countries.)

USCEXofficials told us that membercompanies do not use celebrity testimonialsor endorsementsfor their cigarette brands marketed in the six Asian countries we reviewed.They may, however, useAmerican entertainers,such as movie stars, in cigarette advertisementsto project a “madein USA”the me (i.e., to show that it is a U.S.product). For example, JamesCoburn, PierceBrosnan, and Robert Wagnerstarred in a seriesof

Page 89 GAIXGGD-93-38 International Trade Cb4pt.m 4 U.S. Clgw&&~ Advertining and Promotional Campdgne in SehcW Adaa Cmntrk

TV commercials(adventure vignettes) for Philip Morris’ Lark brand cigarettesin Japan. USCEAofficials said that member companiesdo not direct their marketing campaignsat youth. Their position is that cigarette advertising is designed to appealto both men and women who already smoke. They said that there is no worldwide marketing code that defines the demarcation betweenyouth and adults. This ageis usually establishedby regulatory codes on a country-by-countrybasis. However, USCEAinformed us that it is generally industry policy not to appealto anyonewho is under 18years of age.In fact, the President of WCEAasserted that member companiesdo not use models in their overseasadvertisements who are under 26 or even look under that age.

Basedon the limited advertising materials and related information available for our review, we were unable to determine whether specific population segments,such as children or nonsmokers,in the reviewed Asian countries were being targeted by the US. cigarette companies.For example,evidence suggesting intent to target children would be the appearanceof cigarette advertisementson children’s television shows or in children’s magazines.Insufficient information was available for us to make such a determination. In fact, the advertising restrictions in the reviewed countries (including industry self-regulatory codes) usually restrict or prohibit such advertising. Finally, cigarette advertising and promotional activities cannot be isolated as specific factors or major factors encouragingthe initiation of smoking. Severalscientific studies have suggestedthat many other variables, such as peer pressureand parental smoking, may also influence an individual’s decision to smoke.

Page 70 GMVGGD-93-38 Intematlonal Trade

,‘: ., Page 71 GMYGGD83-3g Intematlond ‘Ihde AppendixI I/ Federal Regulation Over Potentially Harmful ’ Substancesand Products

US. cigarette exports are generally exempt from major federal controls and regulationsgoverning the export of potentially harmful products or substances.On the other hand, certain other products that present health hazardsand that are intended for export are subject to various federal controls and regulations.The following is a summary of federal regulationsover potentially harmful substancesand products:

1. Hazardous substauces:1 Hazardoussubstances are subject to regulation under the FederalHazardous Substances Act (16 U.S.C.1261). Personswho plan to export a so-calledmisbranded or bannedhazardous substance2must file a statementwith the ConsumerProduct Safety Commission(cpsc) 30 daysbefore the export of the substance,notifying cpscof such exportation (15 U.S.C.1273(d)). The failure to notify CPSGis considereda prohibited act under section 1263and is subject to applicable penalties. The exporter’s statementmust specify the anticipated date of shipment, the country and port of destination,and the quantity that will be exported, together with other information that CPSCmay require. Upon receiving an exporter’s statement,CPX is required to promptly notify the foreign country concernedand inform that country of the reasonwhy the substanceis consideredmisbranded or bannedin the United States.

2. Chemical substances:3 Potentially harmful chemical substancesare also subject to federal regulation and control under the Toxic Substances Control Act (15 U.S.C.2601). Chemical substances that are intended for export are generallyexempt from the requirementsof that act, unlessthe Environmental Protection Agency (EPA) has found that the substances present an unreasonablerisk of injury to health or the environmentwithin the United States(15 USC. 2611). &

‘These substances include anything that is toxic, corrosive, an irritant, or is flammable or combustible, if such substance may cause substantial personal ir\iury or illness from a normal handling or use (15 USC. 1261(f)). Tobacco and tobacco products are speci&ally exempted from this definition u~f3wm). 2Briefly, a misbranded hazardous substance is one that does not have a label prominently warning of the particular health hazard. A banned hazardous substance is one that presents such a particular health hazard that it cannot be sold despite an appropriate warning.

%ese substances are those chemicals and other mixtures that present an unreasonable risk of iqhuy to health or the environment. Tobacco and tobacco products are specifically exempted from the definition of chemical substances (16 U.S.C. 2602(2)(B)).

Page 72 GACVGGD-93-38 Intematlonal Trade Appendix I Federal Eegulation Over Potentially Ham&l Sube~tancesand Producta

In certain instances,a person must notify EPA before chemicalsubstances are exported (e.g.,when EPAhas taken someaction regardingsuch substances).In thesesituations, EPAis required to provide certain information to the foreign country concerned.

3. Controlled substances:* Controlled substancesare subject to federal regulation under the Controlled SubstancesAct (21 U.S.C.801). The act establishescertain requirementsfor the export of controlled substances, dependingon which schedule(I, II, III, IV, or V) the substancefalls under (2 1 U.S.C.963).6 In the caseof nonnarcotic controlled substancesin scheduleI or II, for example,the act statesthat it is unlawful for a person to export such substancesunless the following factors are present:

(1) The substancesare exported to a country that has instituted and maintainsa systemthat the Attorney Generaldeems adequate for the control of imports of such substances. (2) The controlled substancesare consignedto a holder of permits or licensesthat may be required under the laws of the country of import. (3) The Attorney Generalis given substantialevidence that (a) the controlled substancesare to be applied exclusivelyto medical,scientific, or other legitimateuses within the country to which they will be exported; (b) the substanceswill not be exported from such a country; and (c) the controlled substancesare actually neededfor medical,scientific, or other legitimate useswithin the country; and (4) A permit to export the controlled substancehas been issuedby the Attorney Generalin eachinstance.

‘These substances are those drugs and other substances whose improper use or abuse may have a substantial and detrimental effect on one’s health. These subtances are.defined and regulated in detail in 21 U.S.C. 812 according to set schedules. Tobacco is spedflcally excluded from the definition of “controlled substance” (21 USC. 802(Q).

The cdteria for each schedule are set forth In 21 U.S.C. 812. Schedule I consists of those drugs or other substances that (I) have a high potential for abuse, (2) have no currently accepted medical use in treatment in the United States, and (3) have no accepted safety standard for use under medical supervision.

Page 73 GACYGGD-9338 International Trade Appendix I Federal Begnlation Over Potenthlly Hannfi~I Substancea and Products

4. Food and drugs? The manufactureand sale of food and drugs are regulatedunder the Federal Food, Drug and CosmeticAct (21 U.S.C.301), as amended.This act provides for the exportation of food and drugs so long as any such product’ (1) accordswith the specificationsof the foreign purchaser, (2) is not in conflict with the laws of the country to which it is intended for export, (3) is labeled on the outside of the shipping packagethat it is intended for export, and (4) is not sold or offered for sale in the United States. The act also establishesdetailed requirementsfor the export of certain unapprovedfood and drug products.

@‘Tobaccoand tobacco products are not specifically exempted fi-om this act. The Food and Drug Administration (FDA), however, has consistently maintained that tobacco products generally are not sub&% to the Federal Food, Drug and Cosmetic Act because such products are not considered drugs wlthln the meaning of that act. See Action on Smoking and Health v. Harris, 656 F.2d 236 (DC. Cir. 1930).On the other hand, FDA does assert ju&dicUon over tobacco products if a vendor makes health clatms regarding the use of such products. In this situation, FDA would consider the tobacco product to be a drug because it would be intended to affect the structure or function of the body of man (21 U.&C. 321(g)(l)). Several health organizations have recently Bled petitions with FDA requesting that cigarettea be claarrieedas drugs under that a& FDA is now reviewing these petitions.

‘21 USC. 381.

Page 74 GALYGGD-93-38 International Trade AppendixII , U.S.C igarette Company Actions and Other Responsesto Alleged Trademark Infringement in SelectedAs iavl Countries

The U.S.Cigarette Export Association (USCEA)informed us that each of its Policies and membercompanies has adoptedindividual policies or practices to stop Procedures the unauthorizeduse of its trademarks on counterfeit and collateral goods.’ Although the policies and practices may vary slightly, USCEAsummarized them as follows: If someoneuses a tobacco trademark (either an exact copy or a close simulation) without authorization,whether the trademark be a word, device,or design,under circumstancesin which the word, device,or designused can be recognizedas the tobacco trademark, the USCEA memberdoes the following: (1)If the goodson which the use is made are intended principally for those under the age of 18,such informal and formal legal actions are taken as may be appropriate to bring the use to a halt or to convince the USCEA memberthat additional activity will not produce further positive results. Importantly, cost is not a determining or principal factor in the decision of whether to take action, or when to ceaseadditional activity, or what action to take. (2)If the goodson which the use is made are not intended principally for those under 18,the USCEAmember performs an analysisto determinethe extent to which the we damagesits businessand assetsin the country involved and to balancethat damageagainst the likelihood of being able to stop the offending activity and the costs of achievingthe result.

USCEAstated that the principal reasonswhy its member firms adopted thesepolicies and practices were because (1) smoking is an adult practice and the firms disapproveof the use of their trademarkson goodsthat may promote smoking by minors and

(2) using unauthorizedtrademarks may result in dilution and/or loss of a firm’s trademark rights if the firm does not take appropriate action to stop the unauthorizeduse.

StandardProcedure USCEAalso describedthe standardprocedure when a member company receivesinformation regardinga potential trademark infringement. If a product is purchasedin a retail store, the retailer would be contacted to

‘The term “cohteral goods” refers to those productsthat are not directly competing with the sale of tobacco producta but that use the latter’s trademarks ss a marketing tool.

Page 76 GMXGGD-93-38 International Trade

,. Appendlr II U.S. Cigarette Company Actlone and Other Responses to Alleged Trsdemark InfHngement in Select5d A&n Countrlea

inform him or her of the infringement, demandthat product salesstop, and insist on disclosureof the producer or source of the product. If the retailer cooperatesin disclosingthe source of supply, legal action is taken directly againstthat source to stop the infringing activity. If the goodsare uncoveredthrough a street vendor or vagabondmerchant, investigatorsare often retained to find the source of production. USCEA pointed out that finding the source, especiallyin the Asian markets,is one of the most difficult aspectsof enforcing trademark rights in these situations.

USCEAtold us that in carrying out the previously describedpolicies, USCEA Actions and Other companiestake aggressiveaction to stop unauthorizeduses of their Responsesto trademarkson collateral goods,in general,and on ail goods that may be Trademark purchasedby or for children, in particular. In support of this statement, USCFXsaid that USCEAcompanies esti matethe number of legal actions they Infringements initiated internationally approximates642 casessince January 1, 1987.2In the Asian countries included in our review, LJSCEAstated that tobacco firms have initiated 207proceedings since January 1, 1987.3

Difficulties in Enforcing USCEXdescribed some of the difficulties that the tobacco companieshave TrademarkR ights faced in enforcing their trademark right in Asian countries. USCEAindicated that most of theseproble msste m from the varying types of trademark protections that are availablein foreign countries. USCEAtold us that the Asian countries under review apply a narrow interpretation of trademark infringement. According to USCEA,a trade mark is not infringed in the Asian countries unlessthe owner has a registration for a trademark covering the infringing l goods.For example,in Taiwan a trademark owner may enforce its rights againstan infringer only if the trademark is used without authorization with the samegoods or goods of the sameclass. If a tobacco companyhas registeredits trademark in only one classof products (cigarette products), the companycannot enforce its rights againstanother companythat is using the sametrade mark for products of another class(candy products).

2USCEXdefined a “legal action” as action based on legal rights to stop unauthorized use, including a cease and desist letter, a civil law suit for trademark infringement or unfair competition, a court action for seizure of goods, or a criminsl proceeding.

3USCEAincluded Singapore in this total.

Page 76 GNXGGD93-38 International Trade Appendix II U.8. Cigarette Company Action and Other Responses to Alleged Trsdemsrk Infhlngement in Sekted A&n Ckwntriea

USCEAsaid that even though a tobacco companymay not have registered its trademark,in many instancestobacco companiesstill object to the unauthorizeduse of their trademarks.A companymay send a letter to the infringer objecting to the use of its trademark and demandingthat the other partystop. Illustrative Cases USCEAprovided us with illustrative cases,as well as other documentsand materials,as a meansof illustrating how tobacco companiesresponded to unauthorizeduses of their trademarks.We reviewed these casesbut we did not verify either whether they are accurate or whether they truly reflect the nature of the views of the USCEAmember companies regarding apparent trademark infringements.Almost all of these casesinvolved sendinga “ceaseand desist letter” to the infringing company.According to USCEA,virtually all of these casesnever resulted in litigation, with most companiescomplying with the tobacco companies’letters. We briefly describesome of these caseson a country-by-countrybasis. Although these casesshow that the tobacco companieshave taken some action in certain cases,we are not in a position to agreeor disagreewith the USCEAviews.’S That is, we cannot say whether the tobacco companies were aggressiveor indifferent in respondingto apparent trademark infringements. HongKong LJSCEAsaid that Hong Kong has the largest number of infringing articles and the highestvolume of legal actions by tobacco companiesto enjoin such infringements.

Case I: R.J. Reynolds discoveredthe use of a mark substantiallysimilar to its mark, “Winston,”in connectionwith the sale of packagesof candy cigarettesin Hong Kong. Reynoldssent letters to the stores involved, as well as to the manufacturers,demanding that the infringing parties stop using the “Winston” mark. The manufacturersagreed to discontinue production of the candy cigarettes.USCEA provided other similar cases involving the use of this mark.

Case II: Philip Morris objected to the use of its “Marlboro” trademark on toy cars that were sold by a major chain store. Philip Morris’ representativecontacted the owner of the store, who in turn disclosedthe manufacturerthat had sold the toy cars and madea commitmentnot to purchaseany such cars in the future. The representativethen sent a warning letter to the manufacturer,who subsequentlycomplied with the letter.

Page 77 GMYGGD-93-38 International Trade Appendix II U.S. Cigsrette Compsny Actlons and Other Beaponaer to Alleged Trademark lnfrlngement in Selected hian Ceuntriw

Taiwan UFXEAdescribed Taiwan as a major source of collateral goods infringements.

Caee I: B.J. Reynolds tried to prevent a candy manufacturerfro m producing candy cigaretteswith packagingbearing the trademarks “Winston” and “CamelLights. ” Reynolds’legal counsel in Taiwan was doubtful that Reynoldscould successfullymaintain legal action because its trademark registration of Winston and Camelapplied only to tobacco products and not candy products. Reynolds’subsequent application for trademark protection for candy products was denied.

Case II: Brown fk Williamson sought to prevent a companyfro m using the “Kent” trademark on flashlight keychainproducts. Brown 8~ Williamsonsent a warning letter urging the companyto ceaseand desist from using any identical or similar trademarks.In response,the company said that it had used the trademark in its customers’product catalog only for referencebut had never actually sold any flashlights bearing the trademark.

Thailand USCEAsaid that Thailandwas relatively inactive until about 1988because the tobacco companieshad no saleswithin the country. Therefore, unauthorizedusers had little profit incentive to infringe the tobacco trademarks.

Case I: R.J. Reynolds attempted to stop a companyfro m using the “Camel”trade mark on children’sshorts and shirts. In responseto a request from Reynolds’attorney in Thailand that the companystop manufacturing clothes with thls trademark, the companywithdrew the products from the market.

Case II: Philip Morrla apparentlypro mpted a police raid on several l clothing factories and retail outlets to find clothing infringementsagainst its “Marlboro” trademark.While the raid did not uncover any infringementsof the “Marlboro” trademark, the police found other brand-namecounterfeit products. Japan USCEAidentified Japanas another country that requiresregistration for substantiallythe identical mark for substantiallythe identical goodsbefore a trademark owner can obtain relief. USCEAsaid, however, that Japanis not a problem country with respect to collateral goods infringements.USCEA did not provide an examplecase.

Page 73 GAWGGD-93-38 InternatIonal Trade Appendix II U.S. Cigarette Company Actions and Other Besponner to Alleged Trdemsrk Infbgement in Selected hian Chu~Mea

South Korea USCEAstated that the tobacco companieshave not encounteredmany instancesof collateral goodsinfringe mentsin South Korea.USCEA provided one example.

Case: Philip Morris discoveredthe use of a designmark on a facial tissue packagein Seoulthat was similar to the “Marlboro” trademark. In responseto a warning letter to the infringer, the Korean companysent a written oath pledgingto stop selling tissuesbearing the designmark. Indonesia USCEAtold us that it found few collateral goods infringementsin Indonesia but that many trademark registrations exist for the trademarksof U.S. tobacco companies.According to USCEA,the Indonesiangovernment issues trademark registrationswithout searchingfor prior registrations for the samemarks, relying on third parties to bring actions to cancel registrationsin violation of their rights. US. tobacco companieshave severalpending cancellationactions againstidentical tobacco marks for numerouscollateral goods.USCEA provided one example.

Case: Philip Morris filed a petition with the Indonesiangovernment in 1990to cancela trademark registration that had been issuedfor the use of the “Marlboro” mark. This action is still pending. Malaysia USCEAstated that Malaysiais relatively inactive in collateral goods infringementsof tobacco trademarks.

Page 79 GIYXGGD-93-38 IntemaUonaI Trade AppendixIII Major U.S. Cigarette Brand Magazine j Advertisements and TV Commercials in Six Asian Countries in 1990

In this appendixwe are providing descriptions of a sample of magazine advertisementsand TV commercialsfor the major U.S. cigarette brands marketed in Japan,Taiwan, ’South Korea, Hong Kong, Malaysia,and Indonesiain 1990.Not all of the brands discussedare advertisedor marketed in all six of the countries. For example,while R.J.Reynolds ’ Salembrand is sold in all six countries, Brown & Williamson’sViceroys are sold only in Japanand Hong Kong.

In general,the cigarette brand imagesportrayed in the advertisementsare fairly consistentin all of the reviewedAsian countries in which the particular brand is advertised.For instance,most of the Parliamentads we examinedwere part of the “American Blue” campaignand depicted people in formal dressagainst a silhouetted U.S.city skyline. Winstons were frequently associatedwith imagesof America. They featured pictures of U.S.landmarks, such as the Statue of Liberty and Mount Rushmore. Descriptions of the Virginia Slims, Salem,and Kent brand ads are included in chapter 4.

Philip Morris Marlboro Marlboro cigaretteswere advertisedusing a western American cowboy image.The scenestook place outdoors, and the characterswere always men attired in cowboy clothing. The backgroundsoften included rough geologicalfeatures like canyons,spires, mountains,and bluffs. Someof the activities portrayed in the ads included chasing,roping, and herding horses. Parliament Most of the Parliamentcigarette advertisementsand TV commercialswe examinedwere part of the Parliament “American Blue” campaign. L Formally dressedpeople were shown riding in horse-drawncarriages, dancing in ballrooms, and dining in restaurantswith beautiful urban vistas. Also depicted in both the advertisementsand TV commercialswere aerial nighttime views of major U.S. cities that featured the contrast of lights on land or bridges to the darknessof the water.

Lark TV commercialsfor Lark cigaretteswere a series of adventurevignettes featuring celebrities such as JamesCoburn, Pierce Brosnan,and Robert Wagner.The vignettesportrayed characterswho beat the odds in dangerousscenarios. In each of the commercials,the scene“ freezes,”and the celebrity holds up a pack of Lark cigarettesand says “SpeakLark. ”

Page 80 GAQIGGD-93-38 international Trade Appfmdlx III Mqlor U.S. Cigarette Brand Magazine Advertbementa and TV Chmmerclab in Six Asian Countries in 1990

Philip Morris (brand) Philip Morris-brandcigarettes were advertisedthrough a series of surreal “out of this world” vignettesand still pictures extracted from video-taped commercials.The materialscontained the slogan “flavor out of this world.” Abstract machinesand deviceswere featured in a low-gravity environment.

R.J. Reynolds Camel “Camel”advertisements and TV commercialsappeared to portray solitary adventures.For example,in one commercial,a man flew alone out into the country to go camping,while in another commercial,a man was shown white-water canoeingby himself near a waterfall.

Viceroy An overriding theme in the Viceroy advertisingcampaign appeared to be urban living. Viceroy advertisementsand TV commercialsportrayed urban scenes,including city skylines,sleek modern sports cars, cellular phones, traffic police, and subways.Viceroy also advertisedwith cartoon collages of urban scenes.Many of the Viceroy commercialsdepicted humorous urban street scenes.

Winston Winston cigaretteswere frequently advertisedwith imagesof America, such as pictures of the Statueof Liberty, Mount Rushmore,the famous “Hollywood” hillside sign, and NiagaraFalls.

Yves Saint Laurent (YSL) The YSL advertisingmaterials we examinedoften associatedthe cigarettes with famous French clothing designerYves Saint Laurent. TV commercials and magazineads claimedthat YSL was the “first luxury classcigarette created by YvesSaint Laurent.” YSL cigarette packs carried the inscription “the taste of luxury,” or “Luxury 100’s.”They sometimescarried the line “a celebration of style and taste.” They were called “the worlds most prestigious cigarette.”

Brown & Williamson Bar&y Barclay advertisementsand commercialsseemed to portray an upscale lifestyle. The charactersappeared in luxuriously appointed homes,were well dressed,drove expensivecars, dined in upscalerestaurants, used cellular phones,and were depicted around sailing yachts.

Page 81 GALXGGD-93-38 International Trade AppendixIII Mdor U.S. C&awtte Brand Ibiagwhe Advertisementi and TV Chnmerdala in SIX Aalan countia in 1990

Capri Caprl cigarettesmagazine advertisements showed small packs of two Capri cigarettevarieties in the foreground and a female model attired in a white, or white-and-blue,outfit in the background.The cigarette packs carried the inscription “Superslims-Made in USA.” The ads appearedin Japanesemagazines, such as “The Television” and “Friday.” Finesse Finessecigarette advertisementsmerely carried an abstract logo associatedwith the brand, and in certain casesthe English languagetext: “The Style That Shows” and “Elegant Taste-Finesse Style.” Finesse carries the inscription “Superslims”on the pack.

Kool Kool cigaretteswere marketed in Hong Kong and Japan.The advertisementsin Japanfeatured a woman, or a man and a woman, wading in blue-greenwater. In Hong Kong,the advertisementssimply containedvariations of the Kool logo. Lucky Strike Lucky Strike cigaretteswere frequently advertisedas “an American original” and carried this slogan on the pack. Lucky Strike had a seriesof advertisementsand TV commercialsfeaturing a leather-jacketed motorcyclist on the open road traveling through the countryside. In one TV commercial,the cyclist rode past foliage and hills, acrossa stream, and along a beach.

Page 82 GMVGGD-93-38 International Trade Appendix IV 1Ma jor Contributors to This Report

Phillip J. Thomas,Assistant Director General Government Michael G. Kassack,Project Manager Division, Washington, SusanS. Westin, Senior Economist D.C. Rona H. Mendelsohn,Reports Analyst StanleyJ. Kostyla, Senior Social ScienceAnalyst National Security and Patrice L. Gordon, Evaluator International Affairs Beryle Randall,Evaluator Division, Washington, D.C. Offke of the General RaymondJ. Wyrsch,Senior Attorney Counsel

(48a671) Page t&3 GAL)/GGD-93-38 IntmnationaI Trade

I ,: ” -. . 6’ , ‘i

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