US embassy cable - 04CARACAS3125

UNCLAS  CARACAS 003125 
 
SIPDIS 
 
 
STATE FOR WHA/AND 
STATE PASS USTR FOR BHARMON 
NSC FOR CBARTON 
COMMERCE FOR ITA/MAC/WH/OLA-SOUTHERN DIVISION-MARIA CAMERON 
TREASURY FOR OASIA-GIANLUCA SIGNORELLI 
HQ USSOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KIPR, PGOV, VE 
SUBJECT: TOBACCO FIRMS COMPLAIN OF CIGARETTE SMUGGLING FROM 
COLOMBIA 
 
 
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Summary 
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1. (SBU) SUMMARY On October 1, Economic and Commercial 
Counselors met with representatives of Philip Morris and 
British-American Tobacco, the two largest cigarette companies 
in Venezuela, who raised the impact of contraband cigarettes 
in the domestic Venezuelan market. The particular focus was 
on the "Universal" brand of cigarettes that is being produced 
in Colombia exclusively for the contraband market in 
Venezuela. Universal has been so successful that it now 
accounts for 8 percent of Venezuelan domestic cigarette sales 
and counterfeit versions of Universal itself are now on the 
market. The Venezuelan tobacco companies report that despite 
the volume of illicit cigarette trade between Colombia and 
Venezuela, authorities in neither country have taken concrete 
steps toward interdiction. END SUMMARY 
 
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The Contraband Cigarette Issue 
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2. (SBU) Economic and Commercial Counselors met on October 1 
with Daniel Montealegre, Director of Government Affairs and 
Pedro Sosa, Legal Counsel for Tabacalera Nacional, the local 
subsidiary of Philip Morris;  Gerardo Anselmi, Director of 
Institutional Relations for Bigott, the local subsidiary of 
British-American Tobacco, and Carmen Martinez, Executive 
Director of the Colombian-Venezuelan Chamber of Commerce. 
The tobacco companies requested the meeting in order to 
discuss what they see as an increasing threat to legitimate 
tobacco companies in Venezuela from contraband products. 
According to the industry, 17 percent of the Venezuelan 
cigarette market is made up of contraband product. The 
remainder of the market is dominated by Bigott (representing 
the Belmont, Consul, Lucky Strike, and Kent brands) with a 69 
percent market share and Tabacalera Nacional (Marlboro) with 
14% 
 
3. (SBU)  The companies, primary concern was about the 
"Universal" brand of cigarettes.  This brand, they advised, 
is produced by Protabaco, one of the largest Colombia tobacco 
companies.  There is no legitimate market for Universal 
cigarettes in Venezuela, and the Universal trademark in 
Venezuela is not owned by Protabaco. According to the 
industry, the Universal cigarettes that find their way the 
Venezuelan market are supposedly exported to the free trade 
zone in Curacao and are either imported into Venezuela from 
there or never go to Curacao and are smuggled across the 
Colombian-Venezuelan frontier.  Bigott and Tabacalera 
Nacional claim that there is clear evidence that the 
Universal product is intended for the Venezuelan market in 
the fact that the Venezuelan health warning is printed on the 
packages and the cigarettes are 50mm in length, which is a 
peculiarity of only the Venezuelan and Japanese markets.  As 
a point of reference, the contraband product sells for 
approximately 800Bs.(US$.42) versus 2000Bs. (US$1.04) for 
legitimate products, with the difference largely arising from 
the fact that no taxes are reflected in the price of 
Universal. 
 
4. (SBU) The industry representatives stated that contraband 
cigarettes have been a problem in Venezuela for some time and 
the quantity of contraband on the market has increased over 
the last seven years.  At the apex in 1999, contraband 
cigarettes represented 25 percent of domestic sales, but 
subsequent exchange controls served to undermine smugglers as 
their ability to obtain the necessary hard currency for 
imports was significantly diminished. However, they have seen 
an upswing in contraband as foreign exchange has become more 
freely available. 
 
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Government Inaction Continues on Both Sides of the Border 
--------------------------------------------- ------------- 
 
5. (SBU) Queried as to the status of enforcement efforts, the 
 
 
industry representatives said that Colombian authorities have 
thus far been uncooperative with the requests for assistance 
from the Venezuelan tobacco sector, no doubt due in part to 
the fact that Protabaco holds a 40% market share in Colombia. 
 Similarly, they stated that the Venezuelan authorities do 
not appear to be particularly interested in pursuing 
interdiction despite the fact that 53% of the price of 
legitimate cigarettes is tax revenue. 
 
 
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Comment 
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6. (SBU) Cross-border smuggling is nothing new, of course. 
That a major Colombian company would consider itself free to 
create an entire contraband brand is a new wrinkle and would 
indicate that Venezuela,s customs authority, either through 
indifference, lack of resources, or corruption is making 
little effort to stop the illegal trade from going forward. 
Earlier in the Chavez administration, the GOV had given some 
priority to stopping illegal imports from competing with 
national industry.  (The main area of focus was the garment 
industry, where it imposed detailed country-of-origin 
labeling requirements).  However, interest in this issue has 
faded, especially as the GOV has become ever more solicitous 
of the burgeoning sector of informal vendors, who form the 
principal distribution channel for smuggled goods (including 
Universal cigarettes).  When the Venezuelan consumer goes 
down to the street market to pick up a pirated music or 
computer CD, or a knock-off designer shirt, he can also pick 
up some untaxed Colombian smokes and is likely to be able to 
do so for the foreseeable future. 
Brownfield 
 
 
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      2004CARACA03125 - UNCLASSIFIED