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TA 1510 Confidential. Brussels, 22th November I979. MINUTES OF THE MEETING OF THE WORKING GROUP OF THE E.E.C. TOBACCO MANUFACTURERS' ASSOCIATIONS, HELO IN LUXEMBURG ON 4th and 5th OCTOBER 1979. Present : Belgium-Luxemburg : MM. P. CATTELAIN R. FRANCK R. DEJONGHE 0. VUIJLSTEKE Denmark : MM. N. TORRING G. JENSEN England : Sir Ja<nes WILSON Mr. H.B. GRICE Ireland : MM. J. LEPERE R. BYERS Netherlands : Mr. R. TOET Dr. M. JONGSi lA MM. Th. van BERKUM H. van der WAERDEN MM. Ph. NOORDWAL W. KLIJN Germany : MM. H. KONIG E. BRUCKNER Mr. L. GABRIEL Mr. W. KRUME Invited as observer : Mrs. H. BOURGOIS (A.F.C.C.). ./..

i1 2./ The Chairman, Mr. P. CATTELAIN and Mr. R. FRANCK welcomed the delegates and expressed the hope the Meeting would be most useful, and they wculd enjoy their short stay in Luxemburg. The Chairman highly appreciated the attendance of Mrs. 80URGOIS as an observer f or the A.F.C.C.; a good cooperation between the Working Group and the Association is indeed a prerequisite f or an eff icient action on E.E.C. level. AGENDA. Item I. Minutes of the Meeting held in Munich on 29th-30th March 1979. Delete : page 3 lines 24 and 25. Item II. Smoking and Health. 1. Domestic situations. - Bel ium : two draf t regulations are still under examination. The first one concerns the labelling of tobacco products, the warning, the list of authorized substances (additives), the indication of nicotine and condensate yields, the prohibition of sales of cigarettes exceeding a maximum nicotine and condensate content. The second one concerns advertising, and urges more particularly a ban of any poster-advertisements outdoor. A very strong reaction against these draft regulations is developed now by industry, the growers, and all people interested in advertising, under its different aspects. Fedetab tries of course to prevent such regulations, or at least to soften them There is a serious hope that the Minister of Health will finally take into ac- count the objections, or some of them, raised by dirf erent parties. The main objections can be summarized as follo ws : 2501015084 - no maximum of nicotine and condensate content can be accepted - the draf ted "passive smoking" warning must be deleted. A short health warning such as "abus dangereux" is acceptable - A ban on outdoor poster-advertising is unacceptable. ./. .

3./ Answering a question if automatic vending machines will be prohibited in the future, Fedetab says that this kind of promotion and advertising could be prohibited, except f or machines placed inside points of sale of tobacco pro- ducts. This possible prohibition has to be considered as a part of a general action for youth protection. It is not intended that cigars and smoking tobacco packages should carry condensate and nicotine yields. It should be pointed out, nevertheless, that the Draft prescribes even for these products the health warning and a general mention (not marked in figures) that "smoke contains tar, nicotine and carbon monoxide". Ireland : A new tobacco produ cts regulation based upon the Act of 1978, and covering such items as advertising, sponsorship and sales promotion, is immi- nent. There is a good hope that the final text will not be as negative as could have been feared. Nevertheless it will certainly be the most restrictive one among all other existing E.C. regulations. There are three main problems under scope. First the warning. It was likely that the proposed health warning "Smokers die younger" could be softened. The proposed restrictions on press advertising could also be attenuated. Imported press will not be submitted to any censure. Regarding the problem of advertising other than press advertising, some kinds of outdoor advertising, and advertising inside the points of sale could be maintained. The outdoor poster-advertising will more than probably be prohi- bited. In this case, an action before the Court is not to be excluded. The new regulations will come into operation very soon, with sane delay for a few technical provisions. An important f act to be considered is that Ireland has now the Presidency of the E.C. Council, and that its Minister f or Health, Mr. C.J. HAUGHEY, the autho of the new regulations, will be in the Chair of the inf ormal Meeting of the E.C. Ministers for Health, to be hold on 14th and ISth December 1979 and that in this position he could influence his colleagues. 2501015085 ./..

4./ - Denmark : In this country the situation is absolutely quiet, at this moment. United Kinzdom : Since the forming of the new Government which is opposed to any over-Government-policy, the situation has changed in this country. That means a considerable change for the industry which has now the improved pos- sibility f or f air negotiation. But, one should not f orget thathovernment must always take into account the political environment. The situation is dominated by the renegotiation of new voluntary agreements for a long period. Industry aims at agreements for a period of four or five years. The main points of discussion can be summarized as follows : 1. Concerning the kind of products to be manuf actured, there is a common view between industry and the Hunter Committee that further tar reductions must take account of consumer acceptability. Accordingly, scientific progrzmnes should be favoured, rather than obligatory reductions of a fixed amount. 2. The Government has a favourable attitude towards advertising, as a neces- sary instrument in free competition. Furthermore it seems to be accepted that the use of advertising is essential for achieving the aims of point 1. Nevertheless, scme restrictions may be urged in the area of : - sales to minors - supervision of vending machines (e.g. in pubs) - the launching of new brands - inpack promotions and games 3. The existing Code of practice governing the sponsorship of sporting events must.be renegotiated and adapted. As a conclusion one can hope for a " quick clean deal' in these matters, althoug attention must be drawn to private member's anti-tobacco Bill, which was signed by approx. 50 M.P. This Bill is very similar to the Irish provisions. In addition, the British delegation mentions : N ~ 1) the success of FOREST (the Freedom Organization for the Right to Enjoy _.X O ~ Smoking Tobacco) which has been established to defend the smokers. This ~ rn ./..

. 5./ organization is totally independent from T.A.C. and counts already 6000 mem- bers. Membership fee is 11 a year. 2) The appointment of Mr. Stuart Alexander as T.A.C. Director o-F Public Aff airs, bearing in mind the growing importance of public relations. Germany F.R. : In this country there were no new developments since the last meeting in Munich. Even the press is silent for the time being. It should be noted that the Minister of Economic Aff airs has clearly taken a position in favour of voluntary agreements for a range of products including tobacco, rather than State regulation. - Netherlands : a warning and labelling regulation on cigarettes and shag tobacco will probably come into force on the Ist of january 1980. The text of the war- ning will be "Smoking threatens your health". As to advertising, the voluntary agreement proposed by the industry is now under discussion in an inter-Departmental commission, which is of the opinion that the proposed agreement is not f ar-reaching enough. 2. Developments on E.E.C. level. The Advisory Committee on Raw Tobacco of the E.E.C. has charged an ad tioc group to work out a position paper on smoking and health, to counterbalance the report of the Consumers Consultative Committee. A draft report, written by Mr. MOREAU (France) of the Federation Nationale des Planteurs de Tabac de France, is submitted to the Working Group. It will be discussed at a new meeting of the ad hoc group on the IOth of October. It should be clearly stated that the report is intended to be a reply to the Con- sumers Consultative Committee, and does not imply any recognition oT- the right of the European Cbnmission to intervene in health matters. The Draft submitted complies with these conditions, though it can and will be improved. 25Q1a15087 ./..

6./ 3. International Committee on smoking issues (ICOSI). Once more it is clearly pointed out that ICOSI is an assisting and supporting body; the national associations are the acting bodies. ICOSI is still in its formative stage. Several working parties, called "groups" and "task f orces", have been created. The "Counter-measures Task Force" is holding a meeting in October. One of the purposes of this meeting is to examine the needs of the industry associations. A meeting with the national associations is planned in Brussels an 28th and 29th of January (provisional dates). The Working Grcup- recognizes that ICOSI is a valuable instrument of defense for the industry, but that it needs some time to be fully operational. 4. The fourth World Conference on Smoking and Health (Stockholm 18/21 June 1979). Or. Jongsma reported that the Conference was very disappointing. However, there was a general impression that the smoking problem should not be over-dramatized. Attention was drawn to : - the statement of Prof. SCHIEVELBEIN, who is a member of the W.H.O. expert cormittee on smoking, and who has severely criticised the spirit of the Confe- rence - the creation of various regional committees to coordinate the actions against smoking. The Working Group agreed that the availability of continuous information concer- ning the development of the international campaigns against smoking, should be improved. Furthermore, the Working Group is fully aware of the importance of smoking issue ror developing countries, and in particular f or tobacco growing countries, which should be made sensitive to the need to protect their interests. 2501015000 Item IIT_ : Competition rules : E.E.C. procedures. - Belgium : It was underlined that the Fedetab case v/Ccmmission is in its last stage. The Court of Justice will fix soon the date of the public hearing. ./..

7.1 - Netherlands : a. Master Agreement of the Stichting Sigarettenindustrie. The delay asked f or by the Stichting in answering the statement of objections notified by the Commis- sion has been rejected. It is observed that the tone of the objections is par- ticularly offensive and that at this moment the Stichting has not much support from its Government. b. Sigarenkartel. Actually there are two agreements : one concerning the distribu- tion policy and the other regarding the price policy. This second agreement was. not notified to the European Commission. The cigar industry is preparing the answer to be given to the questions of the Commission. It was reported that the Commission sought inf ormation not only in Holland but also in Belgium and Germany. Item IV : E.E.C. tax harmonisation. 1. The enforcement of the 2nd Council Directive will raise some problems in the Benelux. The Belgian cigar industry and the Ministry of Finance want to maintain a differential tax for cigars with natural wrapper and cigars with homogenized wrapper. The difference should nevertheless not be more than 10 points. In the Netherlands, the same need f or a differential taxation has never existed and still not exists. The Dutch Industry fears that every discussion on this problem with the Govern- ment could lead to a general increase of taxation on all cigars. As both parties maintain their position, which in fact, is the consequence of a very different market structure, an agreement seems to be impossible. The consequence of this deadlock will be either a compromise between the Govern- ments which would give satisf action to none of the parties, or the reintroduc- tion of a fiscal disharmonisation in the Benelux. In both cases, it should be deplored that the final decision will be determined entirely by the officials.

8./ 2. Next stage of Harmonisation. It is practically impossible f or the European Commission to get a Oirective of the Council on the next stage of harmonisation before the 30th of June 1980. The most probable decision will thus be a prolongation of the second stage, as a,juridical vacuum has to be avoided. The European Commission prepared a working paper on the next stage of harmonisation for cigarettes based upon the principle of "equivalent efforts" to be made by the •Member states. The present views: of the Commission can be summarized as follows : 1. the next stage would be the final stage (to enter into f orce on 1.1.1984) in which a fixed ratio is established betwesithe specif ic and the ad valorem ele- ments: 2. freedom, should be left to Member States to determine the speed and stages by which they reach the final objective; 3. according to the Commission's calculations the specific element in the excise would represent about 20 % of total tax at the final stage. The national experts will examine this working paper at a meeting to be held on 5 and 6 November. The Industry Working Group is of the opinion that the approach made by the Com- mission, which maintains the principle of a fixed ratio between specific and ad valorem elements for cigarette taxation, does not solve the problem of the multi- plier. In fact,•the opposition between specific and ad valorem protagonists could be solved if the problem of the fiscal structure is tackled taking into considera- tion the multiplier effect, rather than the f ixed ratio. 25o1a15n9a ./ .

g . / The Chairman had submitted a proposal in this sense to the cigarette manuf acturers of Fedetab. In his paper he observes that the adoption of a f ixed ratio between the specif ic and the ad valorem elements leads eventually to a predominantly ad valorem structure for the most popular price-class. He thinks that a fiscal multiplier of 2, would be a realistic proposal if the transitional period is long enough. In other words, this means that in all Member states, the ad valorem element would never be higher than 50 % of the retail price; freedom would be left to the national Govern- ments to fix specif ic taxes according to their revenue needs. The Stichting gLgarettenindustrie for its part, submitted to the participants, a "Draft letter to the European Commission" underlining the competitive distortions due to the multiplier effect in the cigarette industry. After a long discussion, the f ollowing remarks were made : all delegates consider the new approach of harmonisation under the principle of a maximum multiplier, to be a highly positive step in this diff icult matter. The maximum multiplier approach is very attractive, on the one hand because it is in the interest of the cigarette industry not to be conf ronted, in the final stage, with an unacceptable multiplier (as a consequence of a fixed ratio), and on the otner hard, because suff icient f iscal autonomy is left to the Member States to safeguard their revenue needs some delegates express the view that a clear definition should be given to the multiplier. The multiplier 2 has indeed a totally different meaning if it is consi- dered inclusive of trade margins (total multiplier), or exclusive of trade margins (tax multiplier). A total multiplier 2 could be acceptable. It is clear, however, that the fiscal authorities will nog intervene in the field of the trade margins which are of the competence of the authorities on economic aff airs. Allowing for trade percentage margins which average ca IO % of retail price through the Community, this implies that the total tax multiplier, attributable only to the proportional elements of taxation, should not be greater than 1,7 . . Point fi of the Dutch document should theref ore be amended in this sense. tV LJ1 ./.. F O CJ1 O ~

- It does not seem advisable to refer in a letter to the European Commission, to the resolution of No%ember 73 (point 1 of the Dutch document) which in fact starts from the principle of a fixed ratio. - The Working Group agrees that a Resolution or' the E.C. cigarette industry should be presented by the seven concerned free industries unanimously. Under reserve of the BLEU where the problem is still in examination, all delegations accept the multiplier approach. The Chairman, speaking f or the cigarette industry of Belgium and Luxemburg, strong'_ hopes that the question will be settled within Fedetab in the near future. He will keep the other members inf ormed. If a common resolution is adopted, the members of the Working Group wish that it will be communicated by Fedetab directly, in the name of the Associations, to the European Commission. The national Associations will inform their respective Govern- ments. - The meeting thanks the Chairman f or his eff orts to get the agreement of Fedetab, and expresses the hope that his steps will be successful. 3. Tax credit terms. Sooner or later the Commission will make proposals on the question of harmonisa- tion of fiscal credit terms. Though there is some mention of the problem in the Working Paper of the E.C. Commission, it is intended not to link it with the fisca harmonisation as defined by the Ist Directive, and no parallel develcoment is required. This question will be treated separately. For the time being there are no draft proposals on the question. Nevertheless, it is highly recommended to the Working Group to take a position in due time, bef ore any proposals of-the Commission are formulated. A preliminary study wi ll be prepared by Mr. TOET for the next meeting of the Wor- king Group. Item V: GATT negotiations and other problems connected with the application of the E.E.C. Common Custcms Tariff. - The issue of the G.A.T.T. negotiations on the Common E.E.C. Customs Tariff is to be considered positively. 2501015092 ./. .