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Korea: Seoul Backs Down on Proposed Cigarette Tariff

by Renee KimBloomberg News
June 14th, 2001

SEOUL -- South Korea backed down from plans to impose an immediate 40 percent tax on imported cigarettes, opting to introduce the tariff in 10 percent increments over four years, starting in July, to avoid potential trade conflicts.

The tax will rise by 10 percent a year until it reaches 40 percent in July 2004, the Ministry of Finance and Economy said in a statement. This will allow foreign companies two-to-three years to set up factories for local cigarette production and ease the burden on Korean consumers, according to the ministry.

''We will also avoid potential trade conflicts, following complaints from overseas cigarette makers,'' said Jung Jae Ho, a ministry official.

South Korea, the world's eighth-largest tobacco market, plans to open its cigarette industry to foreign competition next month. Companies such as Philip Morris, Inc., the largest cigarette maker, had complained the tariff, aimed at encouraging them to open local plants, was set too high.

An official at Japan Tobacco Inc., the third-biggest maker, said the decision will give it time to consider options, including building a local factory to skirt the tariff. Korea is the second- largest market for Japan Tobacco's flagship Mild Seven brand.

Other options include consigning production to state-run Korea Tobacco & Ginseng Corp., or continuing shipments from Japan, said Toru Saito, general manager in the Japanese company's tobacco planning division. ''Acting too hastily can put us at a disadvantage,'' he said.

Korea Tobacco & Ginseng, which operates seven factories, has held the monopoly on production in South Korea and accounts for nine of every 10 cigarettes sold in the country.

Stakes for the tobacco companies are high. South Korea has one of the highest concentrations of teenage smokers in Asia and the biggest proportion of male smokers in the world, according to the Organization for Economic Cooperation and Development.

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