Tobacco production: from forbidden to conditional

The new decree on Cigarettes says that the Prime Minister approves the production of new brands of Cigarettes in Vietnam and only the...

Vietnam Net Bridge – Tobacco, an industry which is not encouraged but brings about high profits, is forecast to have a new face thanks to a newly issued decree of the government.

 

Vietnam considers the cigarette industry a state monopoly area. The prevailing point of view in managing this industry has been that the Vietnamese government will have a monopoly over the tobacco industry, covering distribution, production and import; the state will control the distribution and consumption of Cigarettes in the market and tightly manage the wholesale and retail of tobacco products, while not building new or expanding cigarette factories; no More new projects with foreign partners in cigarette production, except for export purpose; no More foreign cigarette brands in Vietnam.

 

When Vietnam became a member of the World Trade Organization (WTO), with the principle of non discrimination, Vietnam issued a new decree, adding tobacco onto the list of businesses with conditions.

 

According to Vu Xuan Dung, Deputy Head of the Consumer Industry and Food Agency under the Ministry of Industry and Trade, the old viewpoint on cigarette production and distribution in Vietnam is no longer suitable to WTO rules and Vietnam’s commitments to the world.

 

It is a remarkable difference from ‘forbidden’ to ‘conditional’ but it doesn’t mean that foreign cigarette brands will flood the Vietnamese market in the future.

 

The new decree on Cigarettes dated July 18, 2007 says that the Prime Minister approves the production of new brands of Cigarettes in Vietnam and only the Vietnam National Tobacco Corporation (Vinataba) is permitted to import Cigarettes into Vietnam.

 

Only state-owned enterprises and joint ventures with foreign partners, of which the state holds the majority of the stakes and which have been licensed for the business, are allowed to manufacture tobacco products.

 

According to the Vietnam Tobacco Association, this industry pays up to VND6 trillion ($375 million) of taxes each year so it is really a lucrative industry.

 

It is unsurprising that foreign investors want to enter this market and expand production while local producers want to maintain an advantageous policy for them.

 

Some foreign companies are producing Cigarettes in Vietnam in cooperation with Vinataba, including British American Tobacco (BAT), Philips Morris and Japan Tobacco (JT). Though they are only allowed to join hands with local producers, those companies are earning huge profit from the Vietnamese market. Their products, 555, Marlboro, Dunhill and Mild Seven accounted for one-third of the volume of cigarette sold in Vietnam last year and More than one-third of revenue since their brands are priced at Medium and luxurious levels.

 

That’s why foreign companies still want to enter Vietnam and the tobacco story was put on the negotiation table of WTO.

 

Last year, two new cigarette brands, Pall Mall and Viceroy, were launched onto the market by BTA and Vinataba under an agreement with the government. This event stirRed some discontent among other foreign cigarette producers, but in fact, BTA had to accept certain conditions.

 

According to the latest news from the Ministry of Industry and Trade, at least two other new brands of cigarette of JTI will appear in Vietnam in the near future, also in the form of Pall Mall and Viceroy. The ministry’s viewpoint is that permitting the production of new cigarette brands is better than direct import.

 

In 2006, the luxury tax rate on Cigarettes rose from 45% to 55%. The total sales of Cigarettes fell by 11.4% in the year. In the future, when foreign Cigarettes are imported, new competition may come and make product prices decrease and improve sales.


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