The paper highlights an interesting fact that some might find paradoxical: that after the cigarette market was opened in Taiwan, smuggling skyrocketed. Further, the smuggled brand quickly became the most popular brand on the Taiwan market.
As most foreigners with any experience of Taiwan are aware, Taiwan's government operates a cigarette manufacturing concern, the Taiwan Tobacco and Wine Monopoly Bureau. Prior to 1987 it was the sole provider of cigarettes to the Taiwan market. Foreign cigarettes were imported but under very high tariffs, discouraging consumption, and encouraging smuggling. In 1986, according to Wen et al., 9% of all smuggled cigarettes, some 4,800 cases, were intercepted by the police.
In 1987 cigarette firms in the United States, not satisfied with killing their own people, decided it would be a good idea to force open the Taiwan market using the so-called "Super 301" club. This market opening, which saw a tenfold increase in the number of legal imports, also drove a similar gigantic increase in smuggling, which in some years exceeded the number of legally imported cigarettes. The bulk of smuggled cigarettes were Japanese, products of Japan Tobacco International (JTI), up to 90% in some years.
Moreover, not only were smuggled cigarettes plentiful, they also commanded a premium. Because they were not held up at customs to pay tariffs, smokers believed that smuggled cigarettes were fresher. With the massive smuggling by JTI, its brand Mild Seven quickly became the most popular brand among young smokers, as smoking rates rose. This increase in smoking occurred during the same period that betel nut use was on the rise; the two have a powerful synergistic effect on health. Another paper by Wen's group found that in the group of males aged 30-49 in Taiwan, 1 in 3 both smoked and chewed betel nut in 2001; more than 90% of those who chew betel nut in the 20-65 age group also smoke. In yet another paper, Wen et al pointed out that since the Monopoly Bureau lacked the technology to produce low-tar cigarettes, foreign companies marketing "light" cigarettes attracted new smokers. Ironically, in yet another perverse effect of the anti-smoking campaign, light cigarettes got a boost from being perceived as healthier.
What is the connection to betel nut? In the late 1980s betel nut stands were spreading, and cigarette marketers quickly grasped the importance of the small stands as a marketing channel. Foreign cigarette marketers, including smugglers, approached the owners of the stands and a natural synergy was discovered. They rapidly became the main venue for smuggled cigarettes. Since the cigarette market was ten times larger than the betel nut market, it is fair to ask whether betel nut stands would ever have become so common without cigarette smuggling.
The government fought back by attempting to intercept smuggled cigarettes, but it never had any serious impact. Worse still, the government auctioned off seized cigarettes, meaning that the products were simply put back on the market -- essentially, providing free marketing for Japanese cigarette companies. US companies vociferously protested this policy, and in the end the Taiwan government took to destroying contraband cigarettes.
At about the same time other Asian countries also saw their markets forced open, but only Taiwan saw such large rises in foreign cigarette consumption. This was driven largely by smuggling.
Wen et al obtained documents from foreign cigarette companies, for whom smuggling was an important business strategy (US cigarette consumption in Taiwan was about 1/6 smuggled). Some of the companies set up business units specifically aimed at smuggling cigarettes into Taiwan. Under the terms of the market opening, Japanese firms were basically excluded because of Taiwan's unfavorable trade balance with that nation. European firms were welcome, however. JTI, nothing daunted, opened a factory in Switzerland (later Manchester as well) with the sole purpose of providing cover for its smuggled cigarettes. JTI's competitors claimed in their internal documents that it smuggled in 10-20 times its legal quota of cigarettes. Since importing from Europe was costly, it is clear that all of the smuggled cigarettes, or about 80% of the Mild Seven brand sold in Taiwan, had to be brought in from Japan. It is important to note that the smuggling was a perverse result of the fact that the "liberalization" excluded Japan; once Japanese smokes were legalized in 1995, JTI shifted away from smuggled products.
The effects of all this smuggling lingered on, Wen et al. point out. As late as 2002 half of all imported cigarettes sold to the young were smuggled. In many countries liberalization was followed by smuggling; yet Taiwan outdid them all. Not only was this massive smuggling unique, it occurred despite the fact that Taiwan's cigarette prices were among the lowest in the world!
The 10–22% of the proportion of smuggling on the entire cigarette market witnessed in Taiwan in the 1990s were two to three times higher than the 6–8.5% estimated smuggling rate worldwide by Merriman et al. This massive smuggling occurred despite the fact that cigarette prices in Taiwan have been rated as one of the lowest in the world, particularly taking into account the cost of living. This apparent paradox is supportive of the belief that an increase in cigarette prices or the amount of tax is not necessarily a major factor in its relationship with the extent of smuggling. Many countries with higher-priced cigarettes saw very little smuggling, while some lower-priced countries had more smuggling. The transparency of the governmental policy, or the lack thereof, and the commitment to cracking down on smuggling have been more important in determining the extent of smuggling.
No discussion of Taiwan's health situation is complete without mentioning our exclusion from WHO. During this period the WHO was running "Project Crocodile," an anti-cigarette smuggling program involving 16 nations in East Asian. But not, however, The Beautiful Island. Just another example of how exclusion from WHO hurts the people of Taiwan.
Sadly, as Wen et al point out in another paper, foreign cigarette companies appeared to target the young. The preference for imports among the young shot up from 2% to 77% within 15 years of the market opening, showing a 16% rise in the first four years. Fortunately youth cigarette use has declined since the 1990s, pacing a general decline in adult smoking in Taiwan.