How Big Tobacco Tried to Woo Hugo Chavez

Big Tobacco Attempted To Woo El Senor Anti-Imperialista. 
They Didn't Get Very Far.

by Simone Baribeau

A decade ago, the eyes of the world were on Venezuela, as one-time coup
leader Hugo Chavez, calling for a Bolivarian revolution, surged ahead
in the polls on a platform of social inclusion. And it didn't take long
for an unlikely courter to come a-calling: US tobacco giant Philip
Morris was knocking on Chavez's door, even before his inauguration.

A giant US corporation wooing arguably the Western Hemisphere's most
anti-corporate-America president perhaps seems like an exercise in
futility today, but this was back during Chavez's honeymoon period with
the West: Before the International Monetary Fund supported the
ephemeral 2002 coup against Chavez, announcing it stood "ready to
assist the new administration in whatever manner they find suitable."
Before US Secretary of State Condoleezza Rice proclaimed that Chavez
was "really, really destroying his own country." Before Chavez stood in
front of the UN General Assembly, crossed himself for protection
against George Bush and claimed the US president smelled of sulfur.

Back in 1999, the new Venezuelan administration wasn't viewed as
unfriendly, only unknown. And the US tobacco industry had plenty to
gain from friendly relations: the country, along with a bevy of others,
was suing the industry for tobacco-related healthcare expenses, and
stood to lose should Venezuela ramp up its cigarette taxes, heighten
its anti-smuggling efforts or spearhead public health campaigns.

And so the tobacco industry suggested three talking points, according
to documents recently uncovered in the Philip Morris Tobacco archive.
They would argue that the lawsuit was not winnable; that dropping the
lawsuit would separate the Chavez administration from the corrupt
governments of the past; and that it would encourage foreign investment
in the country.

Lawyers of Philip Morris first approached the Chavez administration
soon after the election. At the time, they had been lead to believe
that the lame-duck Caldera administration would allow the incoming
administration to decide whether or not to file a health care cost
recovery suit on behalf of the country. Instead, the Caldera
administration filed the suit three days before leaving office, but
apparently left the new government no documents related to the case, or
at least not any government officials would acknowledge. "We were
informed that the outgoing Attorney General, Mr. Nepomuceno Garrido,
had left absolutely no files or information regarding his relationship
with the [tobacco company's lawyers] or the filing of the lawsuit,"
said a 2000 Philip Morris backgrounder on Venezuela. "Similar inquiries
were made with respect to the President's Office and the Ministry of
Health yet no files on the tobacco industry lawsuit could be found."

Philip Morris stepped up its efforts to convince Venezuela to drop the
suit. The company maintained a "steady dialogue" with the Chavez's
Attorney General's Office and kept it "apprised of significant
developments in the foreign sovereign health care cost litigation filed
by other Latin American governments." It also seems to have been
working behind the scenes with Congressional offices: an unsigned
letter released during discovery in another trial appears to be from a
Congressional delegate to Venezuela. The letter focuses on two of the
three talking points in Philip Morris's backgrounder: the suit, the
letter said, has no legal basis, and would only serve to discourage
foreign investment. "Singling out the US industry in this lawsuit
reveals a number of contradictions that will not go unnoticed by US
public opinion," the letter adds, noting that Venezuela receives excise
taxes from the tobacco company and that the lawsuit, filed in a US
court, ignores the impact of the local tobacco industry.

It's not clear which Congressional office was responsible for the
letter, or if it was ultimately sent. But the letter mentions that the
signatory had been part of a December 1999 US Congressional delegation.
Nexis contains no news reports for a December delegation, but a January
delegation consisted of only four members: Bill Delahunt (D-MA), Mark
Souder (R-IN), Sam Farr (D-CA) and former Representative Cass Ballenger
(R-NC).

"It would make sense for it to come from the office from North
Carolina," said Ballenger, reached at his home. "But I'm 81 years old,
I don't remember."

Representative Delahunt and Souder's offices did not return calls for
comment. Tom Mentzer, spokesperson for Farr, said the letter did not
originate in the Congressman's office.

In any case, the Chavez administration was apparently unimpressed by
the threats of losing foreign investment or US public esteem. The suit
moved forward.

At the time, the suit was only one of a number brought by foreign
countries, following on the heals of state-level litigation. Venezuela,
like various US states, alleged that "Big Tobacco" had conspired to
deceive the government about tobacco's health risks, and altered
cigarettes to make them more dangerous than they would otherwise be.
"While Venezuela and its various agencies and institutions are
struggling to pay for the health care costs of tobacco, BIG TOBACCO
continues to reap millions of dollars in profits from the sale of
cigarettes and other products in Venezuela," says the 1999 complaint.
"Venezuela has expended hundreds of millions, if not billions, of
dollars in caring for its residents." The complaint, brought against
Philip Morris, RJR, and British American Tobacco, among others,
requested "compensatory damages, costs, and other such relief as the
court deems appropriate" but did not specify an amount. The
compensatory damages included both health care expenses and lost
productivity due to tobacco related diseases.

There is some evidence that Venezuelan cigarettes were even more
dangerous than their US counterparts. Between October 1960 and January
1961 Philip Morris's Research and Development Department carried out a
series of five tests comparing Venezuelan and US cigarettes.
Participants found the Venezuelan cigarettes to be "more irritating"
than domestic cigarettes, according to an internal report. Philip
Morris subsequently halted the tests, saying in a report that, although
"all panel smoking was carried out under extremely low illumination so
panelists would not be able to see the printed 'Venezuela' on the
Venezuela cigarettes," the company could not be sure that the
participants were unable to see the markings in the dark.

The suit jumped between state and federal court before finally landing
in Florida's Third District Court of Appeals. The court curtly
dismissed the suit-ultimately no foreign country successfully sued the
US tobacco companies-on the grounds that Venezuela didn't have a right
to sue on behalf of its citizens. "Simply, the government of Venezuela
does not have a direct independent cause of action against the tobacco
companies to recover for smoking-related medical expenses incurred by
its citizens," decided the court. "We add parenthetically, that is
inappropriate for Venezuela to attempt to turn Miami-Dade County into
the 'courthouse for the world.'"

Reached for comment, Joel S. Perwin, Venezuela's appellate lawyer
called the court's "courthouse for the world" comment "gratuitous,"
since the case was dismissed for other reasons.  

But losing a lawsuit in US courts wasn't enough to convince the Chavez
administration to steer clear of the US tobacco industry. For the
tobacco industry, the worst was yet to come: in recent years, Venezuela
has raised cigarette taxes, cracked down on tax evasion and broadened
public health campaigns.

Venezuela's government has long had an interest in regulating tobacco.
Though the lawsuit alleges that the government would have done more to
prevent tobacco usage had it known of the dangers of tobacco, the
country was far from passive in its regulation of cigarettes. Taxes
were 43 percent of a cigarette's retail price in Venezuela in 1999,
according to the World Bank. In 1990, the country prohibited sales of
cigarettes to minors. And cigarette advertising has been banned from
radio and television since the early 1980s. The country's policies
appear to have been effective: in 1999 Venezuela was home to 5 percent
of Latin America's population, but only consumed 2 percent of its
cigarettes, according to the World Bank.

In 2003 and 2004, the Chavez administration took the previous
administration's already relatively stringent anti-smoking efforts a
step further, announcing policies to ramp up Venezuela's tax collection
efforts. Among other moves Seniat, the country's tax collection agency,
declared a "zero evasion" policy. Though the broad based tax collection
crackdown did not exclusively target the cigarette industry-among other
groups IBM and Coca-Cola's Venezuela branches and were temporarily
closed-tobacco companies didn't escape Venezuela's new adherence to tax
law. Eudomar Tovar, Venezuela's Vice Minister of Finance, singled the
tobacco industry out for criticism, saying that tax evasion robbed
government coffers of almost $72 million annually. And last September,
Al Padrn, president of the sub-commission against customs fraud's
cigarette and tobacco sector, announced that it had snuffed out a
significant portion of the tax evasion, cutting the number of smuggled
cigarettes by more than half.  

More recently, Venezuela took a direct swipe at the tobacco industry's
pocket book. In October, the country raised the excise tax on
cigarettes from 50 to 70 percent, and mandated that all cigarettes sold
in Venezuela-eventually including those in free-trade zones-be subject
to the tax. The government estimates that the new tax will result in
additional revenues of about $180 million. In 1999, the World Bank
estimated Venezuela collected about $300 million annual cigarette tax.

In addition to increased taxes, the Chavez administration has also
pursued a three-pronged strategy to decrease smoking in the country,
providing more public education, increasing public access to smoking
cessation programs, and limiting the areas in which Venezuelans can
smoke.

In March 2005, cigarette packages in Venezuela became more graphic.
Though cigarette packages had had warnings since 1978, the entire front
of a package now consists of a picture representing the effects of
smoking, such as rotting teeth or a foot with a toe tag and one of ten
warnings, including "smoking causes impotence in men" and "smoking
causes bad breath, loss of molars, and mouth cancer." One of the sides
of the box also contains health warnings.

Venezuela has also begun providing free medical care for people trying
to quit smoking. Last August, the Health Ministry announced it had
started 43 clinics to help people stop smoking and had trained more
than 420 doctors who specialize in smoking cessation techniques.
Venezuelans can participate in these programs free of charge. Earlier
this year, the Ministry announced that the government paid almost $2800
per participant. "We're providing treatment, completely free, to people
who have voluntarily decided to quit their addiction, including giving
out patches, gum, and other things that allow them to get better,"
announced then-Health Minister Erick Rodrguez.

And the country has made it harder to light up. Earlier this year, the
Health Ministry announced a ban on smoking in restaurants.  

But despite the Chavez administration's interest in tobacco industry,
the industry has won at least one recent battle. Last May, Health
Minister Rodrguez was widely quoted as saying Venezuela was preparing
to ban domestic production of tobacco, leaving smokers to consume the
more expensive, foreign cigarettes. The next day he appeared on state
television, saying his words had been taken out of context and that the
government was planning no such ban. Three days later Chavez announced
Rodrguez resigned, citing personal reasons.

Despite the set-back, the tobacco industry's biggest obstacle to
maintaining its position in the Venezuelan market may be Chavez
himself. The cult of personality is-publicly at least-anti-smoking.
"Occasionally I smoke a cigarette, but I'll never do it in public
because it's a bad example," he told The Associated Press in an October
interview. "It's very sporadic."

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