Vietnam: smuggling adds value.

Internal British American Tobacco (BAT) documents 1 have been explicit about the knowledge of cigarette smuggling into Vietnam. In one document , Vietnam Status Report (12 May 1995), it was stated: " Cigarette imports were banned 6 years ago. Smuggled sales into Vietnam are currently estimated at approximately 7 bn [bil-lion] p.a. although prior to a crack-down in 1990 (when all smuggling was virtually eliminated for 18 months) it was in the region of 12–17 bn p.a. " 2 The same document also stated: " SE [State Express] 555 is the major smuggled brand and there is no doubt it has a tremendous image and sales potential in the country. BAT has resisted agreeing to manufacture 555 in Vietnam due both to concerns about the ability to sell the brand as a locally manufactured product and to the possible impact of a licence outside Vietnam. However, Vinataba [the Viet-namese State monopoly] sees a licence of 555 as an attractive opportunity for the JV [joint venture], and believes that BAT's opposition to a licence is simply to 'protect the smuggling' trade. " 2 A series of company papers showed that BAT pursued a twin track strategy to maximise its earnings from Viet-nam. One track was to negotiate with the Vietnamese government and Vina-taba to produce international brand cigarettes locally. 3 The other track was smuggling. Documents describe in a detailed way the smuggling route for 555: cigarettes were produced in the UK, shipped to Singapore, sold to importers and traders in Cambodia, and then transported illegally across the border. 4 Both tracks went ahead. A licensing agreement to produce BAT brands locally was reached in 1994. By the end of that year, BAT State Express 555 was launched in Ho Chi Minh City as " Made in Vietnam " , retailing at 10 000 Dong, cheaper than the price of smuggled 555, 11 000 Dong. 5 BAT was controlling both the price of locally produced 555 and of the smuggled 555, and decided that the local 555 should be less expensive " as an opportunity to establish itself ". BAT was clearly proud of 555's position as a " luxury " brand, and wanted Vietnam-ese people to perceive it as a status symbol. In 1998, Fred Combe, general manager of BAT in Vietnam, told the trade journal Tobacco Reporter, " In Viet-nam, smoking State Express 555 means that you've made it …