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| KT&G's lil hybrid 2.0 tobacco heating device / Courtesy of KT&G |
By Nam Hyun-woo
KT&G is maintaining its silence on e-cigarette and e-liquid companies' battle against the Ministry of Food and Drug Safety, showing a stark contrast to their efforts to convince the regulator that e-cigarettes are less harmful than burning tobacco.
Industry officials claimed KT&G is refraining from joining the e-cigarette companies' crusade, despite its sizable share in the domestic heated tobacco market and its status as the largest tobacco company in the country, because the company is wary of publicly challenging the government.
Such criticism came amid growing opposition from tobacco and e-cigarette companies in Korea against the country's strengthening of regulations on e-cigarettes and other related devices.
During an online press conference on July 7, Philip Morris Korea (PMK) Managing Director Paik Young-jay said "the ministry's 2018 analysis on heat-not-burn e-cigarette products is fueling greater confusion among consumers" and the government is underscoring an "ideological approach" by only regulating e-cigarettes.
In 2018, the ministry revealed its analysis on heated tobacco products and claimed those products contain greater amounts of tar than conventional cigarettes. Also, the ministry said it is difficult to say heated tobacco products are less harmful than conventional cigarettes.
As the ministry refused PMK's request to reveal detailed data supporting the analysis, the tobacco company filed a complaint with the Seoul Administrative Court against the ministry in October 2018 and the court in May this year partially favored PMK.
During the conference, Paik said creating an environment that encourages smokers to choose "a better option" cannot be accomplished with the efforts of "PMK alone," and the government needs to present "a differentiated regulation based on science, and fact-based constructive discussion is necessary across society."
The tobacco company's move is in line with the country's strengthening regulations and taxation on heated tobacco products.
The heated tobacco market opened in Korea in 2017, when PMK introduced the IQOS heating device and HEETS tobacco sticks, but the products faced a tax hike just six months after their launch. Currently, the government is attempting to ban e-cigarette companies from issuing discount coupons on heating devices by revising the National Health Promotion Act.
Along with heated tobacco, the government is attempting to impose heavier duties on vaping devices using e-liquid, a move that is also facing a strong opposition from vaping device companies and retailers, mostly small enterprises. Major tobacco companies are also paying attention to this, because a tax hike on e-liquids will likely result in an additional tax hike on heated tobacco products too.
Due to this, BAT is carrying out a large-scale clinical study on the harmfulness of e-cigarettes and its Korean unit, BAT Korea, plans to reveal that in Korea given the country's importance as a major e-cigarette market.
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| KT&G CEO Baek Bok-in, left, and Philip Morris International CEO Andre Calantzopoulos pose after signing a partnership agreement on heated tobacco products at the Four Seasons hotel in Seoul, Jan. 29. Courtesy of KT&G |
KT&G missing
While e-cigarette companies are showcasing an industry-wise move, KT&G is not participating at all in this debate, despite its market share in the domestic heated tobacco product market.
According to KT&G, the domestic market share of its lil heating devices in the first quarter of this year stood at 31.5 percent. Based on this, industry officials assume PMK's IQOS devices account for approximately 60 percent of the domestic tobacco heating device market and BAT Korea's glo series took 10 percent.
On the other hand, KT&G's market share in the conventional tobacco market here stands at 64 percent, consolidating its position as the largest tobacco company operating in Korea.
Despite its sizable market share and influence, the company has not been speaking out against the government's move.
When the ministry revealed the analysis in 2018, KT&G said it "fully understands the purpose of the government's analysis on the harmfulness of heated tobacco products" and "heated tobacco products can also be categorized as conventional cigarettes."
The company has maintained this stance since then, refraining from making arguments on the harmfulness of e-cigarettes.
KT&G was privatized in 2002, but state-run institutions remain as major stakeholders in the company.
The state-owned Industrial Bank of Korea is the third-largest stakeholder with 7.51 percent. Its largest stakeholder is the National Pension Service with 12.13 percent.
Though the company has been delivering its opinion on the government's tobacco policies, it has been taking a less aggressive stance when it comes to publicly opposing the policies.
Earlier this year, KT&G was mired in allegations that it committed accounting fraud in acquiring Indonesia's sixth-largest tobacco maker Trisakti in 2011. The company was cleared of risks on facing punishment as the country's Securities & Futures Commission (SFC) on Wednesday made a decision that the act was "unintentional."
Following the SFC's decision, KT&G's share price spiked 3.72 percent on Thursday, as investors interpreted this that the company was cleared of major risk.
KT&G said its stance on understanding the purpose of the government's analysis on the harmfulness of heated tobacco products has not been changed.
"Our basic stance is that e-cigarette products are still categorized as tobacco," KT&G said in a statement. "With no international rule on how to recognize e-cigarettes, raising an individual argument will only cause exhausting debate. When the government sets the policy direction on e-cigarette products, KT&G plans to abide by it."
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