Taiwan Tobacco and Wine monopoly

Taiwan's tobacco monopoly loses its key props.(Taiwan Tobacco and Liquor Corp.).Keith Bradsher.


The future has rarely been so cloudy for Taiwan's sprawling century-old tobacco and alcohol monopoly, which the government has begun converting into a publicly traded company competing in a free market.
The loss of generous tax breaks for the enterprise, which on July 1 was reorganized from a government agency into a state-owned company, the Taiwan Tobacco and Liquor Corporation, threatens to sharply reduce its sales, both directly and through contributing to an overall reduction in smoking in Taiwan.
Also, the company may be forced to rename its 53-year-old flagship cigarette brand, Long Life, which commands more than 40 percent of the market, because of a proposed law forbidding any marketing claim or suggestion that cigarettes are clean, safe or healthy.
Privatization of the monopoly and withdrawal of privileged tax treatment were steps Taiwan promised to take when it was negotiating its entry last November into the World Trade Organization. Now that it is organized as a corporation, Taiwan Tobacco and Liquor will be publicly floated in stages, beginning with an initial public offering in 2005.
In the meantime, fierce competition is already beginning. On the alcohol side, a number of local companies are setting up breweries and distilleries. But the big changes are in cigarettes, in a country where half the men smoke (but only one in 20 women do).
Though Taiwan Tobacco has been the sole domestic manufacturer, it has competed with imported brands since 1987, when the government took away its monopoly of the retail distribution of tobacco and liquor products. But the imports were much more expensive, in large part because they were subject to high taxes while the state monopoly was not.
To the delight of antismoking activists, the government chose to level the playing field by ending Taiwan Tobacco's tax exemption, not lowering the taxes. It also added a 15-cents-a-pack ''health tax'' to all cigarettes, domestic and foreign, earlier this year. As a result, smoking is suddenly much more expensive here, and consumption is expected to decline.
The antismoking crusaders are delighted, too, at the regulatory threat to the brand name of one of Taiwan Tobacco and Liquor's best-selling products. ''In the past, there had been strong criticism of the government that it carried on antismoking campaigns while selling cigarettes at the same time, just like a soccer player being a referee at the same time,'' said Judy Lin, the chief of tobacco control at the John Tung Foundation, a nonprofit group in Taiwan that has led the fight against smoking here.
Ms. Lin said that the Long Life brand name implied that the cigarettes could prolong life, or at the least were less dangerous than other cigarettes.
While the ''no health claims'' bill before the Taiwan legislature does not single out Long Life, it nonetheless alarms Taiwan Tobacco and Liquor, which is determined to preserve the name. ''The brand name is an asset,'' said Chan Shih-chu, the company's director of tobacco products. ''Changing the name would have a substantial effect on our business.''
The monopoly bureau chose Long Life as an auspicious name when the cigarette was first introduced in 1959, and never intended to suggest any health benefit, Mr. Chan said. ''No smoker will buy the cigarettes because they believe it will bring long life,'' he said. He acknowledged that cigarette smoking could impair health.
The tax changes have pushed up the retail cost of a 20-cigarette pack of Long Lifes by 32 percent in a matter of months, making a pack cost $1 to $1.20 -- still cheap by American standards, but quite a lot in Taiwan, where economic output per person is about $13,000 a year, one-third of that in the United States.
Mr. Chan said Long Life sales plunged this year, though he would not give figures. He said the company hoped that some of the drop-off reflected consumers' having bought in bulk just before the widely publicized tax increases, and that sales would climb again when smokers' hoards were exhausted.
But Chen Tze-shu, owner of a small grocery store in Taipei, said that Long Life cigarettes had another problem: ''Nowadays, none of the young people smoke Long Life -- it's the middle-aged and older men.''
Taiwan Tobacco and Liquor's sales slowly eroded in the 1990's after it lost its retail distribution monopoly. But with annual sales of more than $2 billion, it remains one of Taiwan's largest companies.
The company's share of the domestic cigarette market fell from 80 percent 10 years ago to about half now, Mr. Chan said. But it has held on to most of the domestic market for alcoholic beverages, mainly because of Taiwan Beer, a popular, high-quality brew belied by its generic name and bland label.
The former monopoly, whose huge mansion headquarters are across the street from the presidential compound in Taipei, has played an outsize role in Taiwan history. After Japan took the island from China in a war in 1894, it set up the monopoly bureau as a government agency with the exclusive right to a range of goods from cigarettes and beer to salt and camphor. Steep mark-ups on the products were used to defray the cost of Japan's colonial administration of Taiwan.
The monopoly bureau's marketing of opium in Taiwan at a time when the drug was illegal both in mainland China and in Japan was especially controversial. International pressure on Tokyo brought opium sales to an end in the 1930's.
When Japan's World War II surrender returned the island to China, some Taiwan entrepreneurs began selling cigarettes and other monopoly products in defiance of the monopoly bureau, which was seen as a colonial vestige. But the Nationalist government under Chiang Kai-shek, pressed hard by the Communists in the Chinese civil war and looking to Taiwan as a possible refuge, responded with tightened control.
On Feb. 27, 1947, an agent of the monopoly bureau beat up a woman selling cigarettes on the street in Taipei. Local residents staged a large protest the next day, and were machine-gunned by Nationalist troops.
The incident touched off rioting across Taiwan that was bloodily suppressed with the loss of as many as 20,000 lives, mainly among Taiwan's social and intellectual elite, engendering decades of hostility between Nationalists from the mainland and many local Taiwanese.