Marlboro to get a little lighter

The EU and the maker of Marlboro cigarettes were today close to a $1bn (€833m) deal to end years of legal wrangling by cracking down together on smuggling and fakes that are costing both sides enormous sums.

Under the draft agreement, Philip Morris International would make payments over 12 years totalling about $1bn (€833m) – the biggest sum the EU has ever extracted from a single company.

In return, “all disputes” would be resolved between the company, part of the US tobacco and food giant Altria Group, and the European Commission, which has filed two lawsuits in recent years against Philip Morris and was contemplating a third.

The latest, filed in New York in 2001, accused US tobacco giants of complicity in cigarette smuggling by intentionally oversupplying neighbouring countries. Such smuggling is estimated to cost European governments €831.2m annually in lost taxes.

Analysts said the deal would most likely be a good one for Philip Morris if it stems the tide of fake Marlboros into the high-margin European market, which the company says costs it €83.1m each year.

EU Budget Commissioner Michaele Schreyer said the 10 EU governments that joined the Commission’s legal action are now reviewing the draft.

“We are waiting on the approval of the member states,” Schreyer said. “We hope that we can sign the agreement very soon.”

Both sides stressed the prospective payments were not penalties but a commitment to work together.

“What it really represents is moving from conflict to very firm and strong cooperation,” White said.

Philip Morris International – which markets Philip Morris brands outside the United States – said it is concerned about cheap imitations made in China, South America and eastern Europe, particularly its most popular, Marlboro.

The May 1 addition of eight eastern European countries into the EU adds another dimension to the problem, given that their cigarette taxes are generally much lower than in western Europe.

Smugglers could get truckloads of authentic Marlboros in an eastern EU member like Latvia, where excise taxes are only 10%, and make money by selling them illegally in countries like Britain, where the taxes run to 211%.

Philip Morris also said it would pay for the installation of equipment in customs offices to detect fakes.

Schreyer declined to say whether negotiations were underway with other companies.