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

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.

By Simone Baribeau
Short URL

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, Alí Padrón, 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 Rodríguez.

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 Rodríguez 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 Rodríguez 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."