Cigarette Imports Split S. Koreans

Koreans, a people with a history of more than 5,000 years, have a long memory--even when it comes to cigarettes.

In the days after World War II and well into the 1950s, cigarettes dispensed by American GIs served as a currency for goods and services, many of them illicit, in an economy suppressed during 35 years of Japanese colonialism and prostrated by the 1950-53 Korean War.

Humiliating memories of those days linger.

Chung Kwang Mo, president of the Korean Consumers Union, can remember even further back. She recalled that Koreans launched a movement in 1905 to boycott Japanese-made cigarettes and donate the money saved to repay Korea’s foreign debts to Japan in an ultimately futile attempt to avoid Japanese control.

“Now, again, we have a huge foreign debt,” Chung noted. “Why should we import such an item?”

When the South Korean government and its monopoly office announced in July that it was opening the cigarette market to foreign brands, a storm of protest erupted.

Chung’s Consumers Union launched a campaign urging Korean smokers to boycott foreign cigarettes--a move that primarily affects American brands. The YMCA issued the same appeal. The Korea Cigarette Retailers Assn. urged its members to refuse to handle foreign brands, even though the profit on each pack will be three times as much as on domestic brands. The nation’s 100,000 households of tobacco-leaf growers, representing 500,000 people, besieged members of the National Assembly with protests.

Even nightclubs posted signs at their doors reading: “We will not sell foreign cigarettes.”

As the government’s Office of Monopoly put it in a memorandum, “the boycott movement was very severe.”

Stiff Levy Assessed

It’s all a tempest in a teapot, however. The government’s opening of the market will limit foreign brands to a minuscule 1% of total sales. The price for foreign cigarettes, after a 100% tariff and other taxes are assessed, was fixed at 1,400 won ($1.61) a pack, compared to 500 won (57 cents) for most Korean brands.

Only 500 of the 130,000 tobacco shops in South Korea were authorized to handle foreign cigarettes. All of them are located in big cities and tourist areas, at locations, such as hotels, where foreigners, rather than average Koreans, are apt to see them. Only 100 cigarette vending machines exist in the whole country, and none of them will be stocked with foreign cigarettes.

The government also announced that it was suspending enforcement of a law that has been on the books for decades making the smoking of foreign cigarettes a crime punishable by a fine of 50,000 won ($57.47).

Under the new rules, American manufacturers hope to sell about $15 million worth of cigarettes a year, but it has been estimated that in a completely open market, their potential sales could be as much as $450 million.

Even a 1% share, however, was more than had been sought by the Reagan Administration. In pressing the South Korean government to eliminate other import impediments, U.S. officials had not asked for any concession on cigarette imports.

One U.S. diplomat, who asked not to be identified by name, attributed the opening to the successful lobbying of Korean officials by Michael K. Deaver, former deputy chief of staff to President Reagan, on behalf of Philip Morris, and by former Secretary of State Alexander Haig, on behalf of R. J. Reynolds. Pressure from politicians, Sen. Mitch McConnell (R-Ky.), in particular, also put the issue on a political, if not diplomatic, front burner.

In addition to historical emotions here, the changes have stirred alarm about the future of South Korean tobacco farmers.

Korean growers produce a quality tobacco crop, nearly 40% of which is exported. This year, South Korea will export about 28,900 metric tons of leaf, with a value of $91 million, compared to imports (used in blending) of only 1,000 metric tons, valued at $5 million. In leaf-tobacco trade between the United States and South Korea, this country ships to the United States 3.6 times the amount that it imports.

Fear of Imports

So much leaf is grown, however, that the monopoly office finds itself with a 30-month supply stored in its warehouses, Park Yeong Jeong, director of the Office of Monopoly’s business bureau, said. The office is required by law to buy all of the leaf that cannot be exported, he explained. The market-opening to foreign cigarettes, he said, has induced the government to order leaf growers to cut production next year by about 1%, or 780 tons.

“The figure 1% isn’t much, but most of the farmers fear that imports will rise in the future,” he said.

With a decades-old black market in U.S. cigarettes supplied through military PXs still in operation, it had been expected that the legalization of foreign cigarettes would trigger a sales boom, even at prices nearly three times those of local brands. So far, however, that has not happened.

Park said he expected that American manufacturers would have trouble claiming even 1% of the market next year. “Most Koreans are very sensitive about buying foreign cigarettes at this time,” he said.

However, Park said the monopoly office will import the equivalent of 1% of the market, regardless of sales, to uphold the government’s promise. “We have already ordered 6 million packs for the remainder of this year and will import 40 million packs next year,” he said.

This year, a total of about 3.88 billion packs will be sold in South Korea, about the same as last year, Park said. Profits, which go to the treasury, are expected to amount to nearly $1.4 billion this year, or 8% of all government revenue, he added.

Although growth has slowed in recent years, South Korea represents one of the few markets in the world in which cigarette consumption is not falling. Sales amount to $1.7 billion a year, and in terms of number of cigarettes consumed, it is the world’s 13th-largest market.