Cigarette wars rage in the South Caucasus, as governments wake-up to the need of regulating smoking practices
17 April 2017

The countries of the South Caucasus often look like the last haven for the cigarette-smoker in Europe. In the plush surroundings of the lobby bar in the iconic Marriot Hotel in Armenia's capital Yerevan, smokers puff away at expensive Cuban cigars, or alternatively cheap local cigarette brands. In Georgia locals avoid non-smoking restaurants, and regulation has up to now been very light, whilst in Azerbaijan regulation has been practically non-existent.

The majority of the male population in all three countries smoke, and tobacco is big business.

Slowly however, it seems that the governments have started waking up to the risks of smoking to the health of their citizens, and have started taking some steps to regulate smoking practices, despite resistance from the strong tobacco lobby.

On Friday, the Azerbaijan Parliament passed through the first reading a new law that regulates smoking in public places. Presenting the new law, the Chairman of the Committee on Social Affairs of the Milli Meclis, Hadi Rajabli, said that tobacco smoking in Azerbaijan was on the increase and that  "67.5% of men and 52.5% of women smoke". The new law, once it is approved, will ban tobacco smoking in public places such as hospitals, schools, train stations, sports arenas and similar venues. A similar, though stricter law has recently been approved by the Georgian Parliament.

Governments however remain ambivalent on their overall approach to tobacco, and decisions are often taken on the basis of financial gain rather than health. In Armenia for example, the cigarette companies are among the country's top tax payers. Local cigarette production is also on the increase and are becoming an important export. Whilst introducing the new law on smoking restrictions in Azerbaijan Hadi Rajabli re-assured parliament that there were new overseas markets for Azerbaijani cigarettes, and so the industry was not at risk.

However, as the governments start squeezing the local markets, even if ever so gently, cigarette companies are at war with each other in an effort to retain their market segments and profits. Efforts by the tobacco giant Philip Morris to suffocate small local competitors in Georgia and Armenia have however backfired as courts in Georgia and Russia backed the case of local producers.

In Georgia two multi-national tobacco companies have recently been found guilty of attempting to squeeze out a local competitor through price-fixing to dominate a market where the tobacco industry has so far been largely unregulated.

The tobacco giant Philip Morris was heavily fined by a Georgian court in February for trying to fix cigarette prices in order to squeeze out a small local competitor. The Georgian court accepted a claim by the local firm Tbilisi Tobacco that starting from 2013 Philip Morris, and another global cigarette firm BAT, sold certain brands of cigarettes below market value, causing irreparable damage to local producers through illegal action. Current legislation in Georgia specifically forbids the sale of cigarettes below, or at cost.

The multi-million dollar fine was fixed on the basis that the court accepted that the market share of the local company has over the last three years shrunk from 35% to 6% as a result of the price fixing.

The Georgian government is in the process of adopting new legislation that will gradually ban smoking indoors and in sports arenas. Georgia currently, not only has one of the weakest tobacco control legislations in Europe but cigarette advertising is massive, and the size of health warnings minimal. Attempts to put more control on tobacco promotions have up to now been largely unsuccessful, with politicians concerned that regulation may harm economic activity, and sensitive to a possible backlash from voters.

In the meantime, the legal battle between the tobacco multinationals and the local firm are likely to continue. The case in Georgia is expected to go to appeal shortly, but Tbilisi Tobacco says that they are considering taking the case against Philip Morris and BAT to Swiss and British courts.

An attempt by Philip Morris to squeeze out another local competitor, this time in Armenia, also failed. The Russian Court of Arbitration recently ruled against Philip Morris in a dispute involving the sale of Armenian cigarettes in Russia by the Armenian firm Grand Tobacco. Armenian cigarette production and exports have increased considerably recently, with exports increasing from a meagre $8 million in 2010 to $209 million in 2016, and the country's tobacco industry hopes for further increases as it capitalises on Armenia's recent accession to the Eurasian Economic Union. Armenian cigarette companies currently export mainly to Iraq and Syria.

It is likely that the pressure on governments in Armenia, Azerbaijan and Georgia, to regulate more efficiently tobacco smoking will increase as societies become more aware of the dangers of smoking. Closer relations with the European Union will also increase pressure to align legislation with that of other European countries. But for the moment strong lobbies hinder the process as governments continue to balance between financial gain and the health of their citizens. In the meantime,  the cigarette wars between local producers, and tobacco giants like Philip Morris are likely to become even fiercer.