Tobacco Asia

Volume 20, Number 5

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14 tobaccoasia FRONT PAGE NEWS 卷首新闻 US Partial Win Against FDA Labeling Tobacco companies won a small victory this August against the Food and Drug Administration (FDA) in a lawsuit challenging FDA's authority to require pre-clearance for tobacco products with changed labels or quantities. Part of FDA's directive stating tobacco companies may need the agency's clearance to market products with significant labeling modifications, such as a change in color or logo was vacated by US District Judge Amit Mehta in Washington, DC. However, Mehta said that FDA could require clearance for marketing a tobacco product with a different quantity, such as an increase in the number of ciga- rettes per pack. Judge Mehta's ruling came in a lawsuit filed last year by subsidiaries of Imperial Brands, Reynolds American Inc., and Altria Group over FDA guidelines clarifying what changes to a tobacco product require regulatory approval under the 2009 Tobacco Control Act, which gave FDA authority to regulate tobacco products. While not binding, the guidance does indicate what FDA considers to be a "new tobacco product" that require companies to seek approval or face potential enforcement action. The guidelines in the FDA directive included saying significant modifications to a product's label that make it distinct from the original version, or changes to the quantity sold in each package, could require authorization. In the lawsuit, tobacco companies argued that FDA's interpretation was not what Congress intended in the Tobacco Control Act, while FDA said its guidance was supported by federal law. Mehta ruled that Congress could have explicitly stated that a labeling modification triggered a regulatory approval require- ment, but did not. "The court must presume that that omission was purpose- ful," he wrote. On the other hand, he also wrote that changing the quantity of tobacco products "necessarily entails a change in the amount of constituent ingredients and additives," and does represent a modification to the product. Altria's Brian May said the company was pleased with the decision on labeling changes, calling it the "principle focus of our lawsuit", and that the company was still considering whether to appeal the quantity-change decision. Imperial's US subsidiary, ITG Brands, said the company agreed with the court's analysis on the labeling issue. Representatives for Reynolds and FDA declined to comment. KENYA New Rules Will Not Hit Sales Industry observers have said that the new, tough regulations on the manufac- ture, buying, and selling of cigarettes that came into force this September are not expected to have major impact on the earnings of tobacco companies in the medium term. Michael Chege, an economist at the University of Nairobi said studies in European nations where regulators have already implemented similar stringent rules had shown tobacco firms' profits were not significantly adversely affected. It was, however, "Higher taxation instead, which drives up pricing and impacts consumer's ability to purchase the cigarettes, is what impacts on usage" and that "the graphic imagery on packing for instance has proved not to be a deterrent." Losing a High Court battle in March against regulations that, for instance, call for standardized packaging displaying graphic health warnings on cigarette packs saw the Kenyan tobacco industry suffering a setback. The regulations also require wholesalers and traders to put up prominent signage warning of the dangers of tobacco use at points of sale. The High Court declared the regula- tions valid in a victory by anti-tobacco use campaigners and the Health ministry. John Kirimi, an investment analyst at Sterling Capital, said the tough rules do not sound the death knell for tobacco firms. "I do not expect the regulations to affect the earnings of the cigarette makers in the short term because there is a ready pool of consumers already addicted to the product. In the long run, however, there is certainly bound to be an impact on earnings as new users reduce," he said. The Kenyan Health ministry released a public notice in late August saying all Kenyans and tobacco firms are bound by the new rules and those flouting them would be sanctioned. In the notice, Cabinet secretary, Cleopa Mailu, said, "The Ministry of Health has released the digital device containing the first batch of pictorial health warnings that will run from September 26 to December 31, 2016. The second batch of pictorial health warnings that will run from January 1 and to December 31, 2017 will be dispatched to you shortly." According to market research by Euromonitor International, the manufac- ture and distribution of tobacco products in Kenya is monopolistic in nature, with British American Tobacco Kenya Ltd. controlling the market at 77% retail volume share of cigarettes, as of 2015. Mastermind Tobacco (Kenya) Ltd takes second position with a retail share of 18%. BAT posted a Sh2.15 billion profit after tax in the six months ended June 30 compared to Sh1.94 billion a year ago. KOREA KT&G's Growing Presence KT&G's figures for 2015 has shown that the company is now the world's fifth largest tobacco manufacturer, having sold 46.5 billion cigarettes overseas, for the first time exceeding the 40.6 billion sold domestically. Company officials have credited the super-slim and low-tar product, Esse, for this growth. KT&G's leadership position in the Middle East and Central Asia, both markets where multiple global tobacco producers faced setbacks, paved the way for KT&G to increase their overseas marketing efforts. In 2008 the company expanded its manufacturing line in Iran and Russia. It then acquired the sixth- largest tobacco producer in Indonesia in 2011. Now, the company has expanded its markets to the US, Africa, Latin America, and the Asia-Pacific region,

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