Did Tobacco Firms Fix Prices?

Senior executives of the world's two biggest tobacco companies secretly conspired to fix cigarette prices and divide markets in several Latin American countries, according to a newspaper report.

Citing internal documents that surfaced in a lawsuit against the industry by the state of Washington, the Los Angeles Times reported Thursday that Philip Morris and British American Tobacco [BATCo] set prices and allocated market shares in Argentina, Venezuela, Costa Rica, and other nations.

They relied on "verbal agreements" because "there can be nothing in writing in Argentina on the subject," according to a 1989 memo by a BATCo director.

In Costa Rica, the companies agreed on the amount of television advertising each could purchase and on the incentives they could offer retailers to promote their brands, according to a February 1992 letter from the head of BATCo's Costa Rican subsidiary.

A 1992 BATCo memo said that the companies had a pricing agreement in Venezuela, but when a price war broke out between their Venezuelan affiliates, the companies began smuggling cigarettes into the country through Aruba and Colombia to avoid paying taxes, the newspaper reported.

Philip Morris International spokeswoman Elizabeth Cho said the companies did nothing wrong.

"Since we must comply with local laws and regulations in every country in which we do business, we expect that there has been no improper conduct in the countries that you have referenced," she told the Times.

But Jon Ferguson, senior counsel with the Washington state Attorney General's office, said the anti-competitive deals reveal that "the two world-dominant companies...very carefully rigged the entire Latin American market."

The activities would be illegal in the United States, but the legal ramifications are less clear in the countries where they allegedly occurred, the Times said.

Ferguson said a preliminary investigation by his office found that price fixing was banned under Argentina's laws during the time of the alleged agreement, and that Panama and Costa Rica had antitrust provisions in their constitutions.

Lawyers and spokesman for BATCo and its U.S. affiliate, Brown & Williamson Tobacco Corp., declined to comment on the documents, except to say they are irrelevant to issues in the Washington case.