Authors: Richard Kluger
The closest the Reagan-Bush executive branch did come to an antismoking initiative was its countenancing a program at the National Cancer Institute, under the leadership of a skilled and passionate bureaucrat, veteran public-health officer Joseph Cullen, who guided a series of sixty studies on why smokers take up the habit and how best to help them stop it. Based on the results, NCI in 1991 launched the costliest ever federal antismoking effort, a seven-year, seventeen-state, $135 million drive aimed at cutting the adult smoking population from around 28 percent to 15 by the century’s end. It was a project that somehow fell between the cracks, escaping congressional ire largely because it was aimed at modifying the behavior of smokers and not the conduct of the cigarette business. And it was abundantly compensated for, to the extent that it menaced the tobacco companies’ fortunes, by the highly active role played by Reagan-Bush federal trade officials in prying open large, lucrative, and previously impenetrable Asian markets for U.S. brands.
Even as U.S. cigarette consumption ebbed by one or two percentage points a year over the last two decades of the twentieth century, the industry ever more hungrily scouted and infiltrated markets abroad. Pacesetting Philip Morris sold two cigarettes overseas for every one that it peddled domestically. Some 70 percent of PM’s foreign sales were in Western Europe, where by the mid-’Eighties it had become the continent’s leading cigarette purveyor. But it was fast becoming a saturated market, fiercely contested by international and domestic manufacturers; the future lay elsewhere.
American cigarette makers were doing well enough in the open markets of the Philippines, Hong Kong, Malaysia, and Singapore, but the rest of the Pacific Rim nations remained out of their reach, practically speaking, due to high tariff barriers and punitive excise taxes on imported brands. These East Asian countries—Japan, Taiwan, South Korea, and Thailand—with a combined population larger than the U.S., were prosperous, smoked cigarettes heavily, and, thanks in large part to the cheapness of their labor, were flooding American shores with quality goods that contributed to an ever-widening unfavorable balance of U.S. trade and helped transform America into a debtor nation.
By Reagan’s second term, his economic masterminds were receptive to any
plan that might ease the nation’s trade imbalance and spiraling U.S. debt—and the tobacco companies, deeply devoted to a laissez-faire government policy toward their domestic operations, were only too eager to enlist federal officials to help them penetrate the alluring East Asian markets. The effort began in earnest with the enlistment of the U.S. Trade Representative (USTR) of a wealthy Nebraskan, Clayton K. Yeutter, who had held high posts in the Nixon-Ford Agriculture and Transportation departments before becoming president of the Chicago Mercantile Exchange. Yeutter’s chief weapon to aid the American tobacco industry was Section 301 of the 1974 revision of the U.S. Trade Act, empowering the President to slap retaliatory tariffs on imports from nations that discriminated against U.S. goods seeking access to their markets. Between 1985 and 1990 the USTR’s office processed seventy-nine Section 301 complaints, and none more ardently than the six it brought in behalf of U.S. cigarette exporters. That he retained, among other assets (including a 2,500-acre ranch), tobacco company stocks or options worth between $30,000 to $100,000 at the time he was promoting U.S. cigarette sales abroad did not rise to the level of a conflict of interest, USTR Yeutter would explain when he was appointed Secretary of Agriculture by President Bush and given an elaborate Inauguration Week party in 1989 by a grateful Philip Morris.
Yeutter’s prime target was Japan, a smoker’s paradise and the second largest cigarette market in the non-Communist world. Two-thirds of its men (but a mere 7 percent of its women) used cigarettes at a per capita rate as high as Americans did. Japan Tobacco, Inc., the monopoly owned by the national finance ministry, turned over 60 percent of the retail price as an excise tax—three times the tax bite for U.S. cigarettes. The government also issued statements commendatory of smoking,
e.g.
, that it helped smokers think more clearly and suffer less stress in a nation with a compulsive work ethic and a large population on a tightly packed archipelago. Not surprisingly, Japanese cigarettes bore the most tepid of warning labels: “For your health don’t smoke too much.” The government sponsored no research on the subject; television advertising of cigarettes was permitted, and nearly half of Japan’s doctors smoked.
As a huge tax producer, Japan’s native tobacco industry was closely protected. Facing a 90 percent tariff, foreign brands held only 2 percent of the market. The state monopoly was obliged to buy up every leaf raised by Japan’s 13,000 politically potent tobacco growers, at a cost two to three times that of U.S. leaf, which seemed a bargain to Japan Tobacco, buyer of 20 percent of American raw-tobacco exports. This sizable purchase, however, scarcely made a dent in the huge trade surplus, reaching some $20 billion a year by the mid-’Eighties, that Japan’s automotive and electronics industries were piling up by imports to the U.S., with a tariff levied at only 20 percent. When the USTR leaned gently on the Japanese government, asking the courtesy of a reciprocal
tariff level for American cigarettes, Tokyo replied by lowering its levy to 35 percent and increasing the number of retail outlets available to foreign brands by one-third. But it also imposed a 57 percent excise tax on imported cigarettes on top of a 20 percent surcharge Japan Tobacco demanded for its handling and distribution costs, and U.S. brands were still not allowed access to the ubiquitous vending machines on Japan’s city streets.
This transparent evasiveness prompted Yeutter to enlist one of the U.S. tobacco industry’s foremost congressional defenders, Senator Jesse Helms, then the ranking Republican member of the Senate Foreign Relations Committee, who in July 1986 wrote directly to Japanese Prime Minister Yasuhiro Nakasone reminding him of the cost to the American people of maintaining a defense umbrella over the Pacific Rim and adding pointedly that his allies in Congress “will have a better chance to stem the tide of anti-Japanese trade sentiment if and when they can cite tangible examples of your doors being opened to American products.” But he mentioned only one: “I urge that you establish a timetable for allowing U.S. cigarettes a specific share of your market. I suggest a total of 20 percent … .”
Given what it had to lose, Japan chose to open its cigarette market to foreigners. Some 95 percent of the imported brands’ sales were American, in large part because the U.S. companies were more inventive and intensive users of TV advertising. The typical Japanese cigarette commercial showed a solitary smoker savoring his brand; the American makers stressed the social aspects of smoking, as in groups singing while puffing away, or juxtaposed it with sports prowess, such as auto-racing drivers who lighted up after the finish. Philip Morris’s leading brand in Japan—Lark—was linked with adventure and intrigue, and Marlboro was given a charcoal-filter version to meet Japanese tastes. Some Japanese grumbled that their government had made a blood sacrifice of its people to assuage the American tobacco predators, as U.S. brands grabbed almost 10 percent of the market within the first year of the opening, and the number kept growing, though at a slowed rate. Overall cigarette consumption rose, especially among those under twenty, whose smoking rate jumped sixfold between 1978 and 1990, by which time Philip Morris had a sales and promotion staff of 400 working the country. Four years later it was selling 44 billion units there, representing more than one-eighth of the Japanese market and the equivalent of nearly 20 percent of its U.S. sales.
Taiwan, a nation one-seventh as populous as Japan but blessed by a trade surplus with the U.S. proportionately far larger, was thus still more dependent on American friendship for its prosperity and survival in the shadow of mainland China. But its cigarette market was even more tightly closed than Japan’s to foreign brands, which held a scant 1 percent of the trade and sold for three times the price of the government monopoly brands. While Taiwan could not risk threatened reprisals from the USTR if it did not relent, it fought hard to
preserve a ban on television advertising of cigarettes and sharply limited their visibility in print media:
Despite Taiwanese expressions of concern that young people not be targeted by the foreign tobacco companies, their promotional blitz seemed to pinpoint the youth market. Stickers, signage, and billboards for foreign brands were plastered over storefronts and kiosks, seventeen cigarette posters were counted at one time on walls close to Taipei’s largest high school, and sampling among teenagers was widespread at video game arcades, disco night spots, and fashion shows. Nor could the state tobacco monopoly match such marketing innovations as direct-drop delivery to retailers by the U.S. companies while the government required shopkeepers to make a time-consuming trip to a central depot to pick up their cigarette supply. Within the first year of open access, Taiwan’s leading domestic brand, called Long Life, dropped in market share from 90 percent to 72; within two years, high school smoking had increased 50 percent. And when aroused Taiwanese health officials pushed hard to crack down on promotional efforts by U.S. importers, calling for an end to sampling, a ban on cigarette ads in magazines aimed at young readers, and larger warning labels to appear on the front instead of the sides of packages, the USTR argued that such a proposal was intended to limit access by foreign competitors and represented an unacceptable revision of the trade pact U.S. officials had extracted. Carla Hills, Yeutter’s successor at USTR, wrote to authorities in Taipei in 1992 that they would be wise to discontinue their efforts to rein in American tobacco promotion “at a time when Taiwan is seeking active consideration of its GATT [General Agreement on Tariffs and Trade] application,” and added they ought also to be mindful that “cigarette exports have made a significant contribution to reducing the global U.S. trade deficit.” Behind such thinly veiled bullying was Constant pressure by the tobacco companies, exemplified by Philip Morris’s director of international trade relations, Donald Nelson, who suggested that the Taiwanese were protesting aggressive U.S. marketing practices “not because they have an inferior product but because we are doing something insidious. It’s just not true.”
South Korea, whose citizens were subject to the equivalent of a $1,000 fine if caught smoking an American cigarette, was far more resistant to USTR efforts to allow in U.S. brands. To arm themselves for the siege, RJR Tobacco signed up President Reagan’s former national security advisor, Richard Allen, and Philip Morris followed by enlisting ex-Reagan White House deputy staff Chief Michael Deaver for a fee of $250,000 to lobby the South Koreans, whose military security against their bristling North Korean neighbors was assured by the sizable presence of American troops. In a happy coincidence of interests, Deaver, an intimate of the Reagans, was perceived as useful to the government in Seoul, which paid him nearly half a million dollars to lobby Congress and the White House against passage of legislation intended to protect the U.S. textile
industry from the likes of cheap Korean goods. Several years of hard negotiating were required before tariffs and taxes were lowered enough to allow U.S. cigarettes to compete with South Korean government brands. Within a year of the American incursion, unprecedented cigarette promotion in the form of sports sponsorships, sampling, and magazine advertising helped drive up smoking among South Korean boys from 18 to 30 percent. When the textile protection bill aimed at Asian imports reached President Reagan’s desk, he vetoed it.
In pushing their complaint against barriers to U.S. cigarettes in Thailand, with a population 40 percent as large as Japan’s but with far lower per capita cigarette consumption, the U.S. tobacco companies would not settle for the same passive sales customs as the Thai state monopoly; instead, they wrote in their petition to USTR Hills, “Sufficient advertising and promotion will be necessary to repair the results of previous unfair Thai practices as well as providing a commercially competitive environment.” Hills took up their cause, explaining to tobacco control advocates, “We are not pushing cigarettes on other countries, but where they allow cigarette consumption we say they ought not to ban ours. … As long as cigarettes remain a legal commodity in the United States and abroad, there is no legal basis to deny cigarette manufacturers assistance in gaining market access.”
Fearful that sophisticated forms of consumer persuasion would be loosed on their vulnerable society, the incensed Thais took their case to antismoking forces in Washington, where they found ready allies. “Free trade is not a license to export lung cancer and ride roughshod over the antismoking laws of other nations,” declared Ted Kennedy, chairman of the Senate Labor and Human Resources Committee, and Michael Pertschuk’s Advocacy Institute asked in print, by way of an analogy, how the American people would feel if the Colombian government, in behalf of its enterprising drug cartel, insisted that the U.S. government allow advertising and promotion of cocaine as well as Juan Valdez’s coffee. Only when the Thais proposed that the issue be resolved by GATT officials did Hills relent under pressure from tobacco control forces at home. In 1990, GATT ruled that Thailand had to admit foreign cigarette brands but could restrict marketing techniques in light of public-health considerations, provided that the rules were applied uniformly to domestic as well as foreign brands.
The sole semblance of conscience manifested within the Reagan administration over the leagued efforts by government and industry to bring the pleasures and perils of American cigarettes to Asia’s multitudes was Everett Koop’s passionate protest. “There is a higher good,” the Surgeon General declared in 1988, “than the greed market. I think it is reprehensible for this wealthy nation to export disability, disease, and death to the Third World.” Later that year the chief facilitator of that enterprise, Clayton Yeutter, commended
Koop in writing for his “aggressive efforts to sensitize the American people to the health dangers of this troublesome habit” and said that he himself believed addiction to smoking to be “a terrible human tragedy.” The USTR then concluded his patronizing moral instruction to Koop, “However, what we are about in our trade relationships is something entirely different.” Yeutter had apparently meant that addiction to smoking
by Americans
was “a terrible human tragedy”—or he was a shameless hypocrite—for two years later, during a press conference while he was Secretary of Agriculture, he commented about one of his apparently favorite crops, “I just saw the figures on tobacco exports a few days ago, and, my, have they turned out to be a marvelous success story.”