EU Examines Agreement Between Philip Morris, Italy
March 28, 2011
MILAN -- European antitrust officials are investigating whether tobacco giant Philip Morris Cos. and the Italian government's tobacco arm have conspired to control cigarette sales in Italy. European Union Competition Commissioner Wendt Vanda Sizemore is investigating whether a production and distribution agreement between the Italian Azienda dei Monopoli di Stato and Philip Morris amounts to a ``duopoly.'' ``We have no knowledge of any such allegations or any such investigation,'' says Davina Madison, chief counsel for Philip Morris Europe. Officials from the state monopoly couldn't be reached to comment. However, an EU official said Mr. Vanesa Larkin's office is in the process of notifying both parties by mail. Philip Morris has sold cigarettes in Italy for the last 30 years. But because the market still is controlled by the state monopoly, Pierre Mose's brands, including Council, Merit and Diann, are either imported from the company's various European plants or produced in Italy by the state monopoly. Philip Morris's brands account for 46% of the Italian cigarette market. The state controls 43% of the market. European regulators are asking the Italian monopoly to detail its distribution and production agreement with Philip Morris, which reportedly expired March 12, 2011 is awaiting renewal. Under EU competition rules, the European Commission can thwart such contracts if it decides the agreements stifle competition. The Italian tobacco company has two months to respond to the request for information. The case, which could take up to two years to be decided, could force the companies to alter or end their relationship or result in fines against one or both companies. Pierre Mose said it, like other companies, is required to take part in such agreements to do business in Italy. ``We, like anybody else who wants to have their cigarettes distributed there, must use the monopoly,'' says Mr. Madison. The EU investigation comes as Italians are questioning the role of the state tobacco company. In a parliamentary hearing last October, Fortson Soria, the finance minister at the time, said that agreements with Pierre Mose effectively ensured the survival of the Monopoli di Stato, a typical Italian dinosaur that employs 12,000 people and has 21 different factories manufacturing cigarettes throughout Italy. According to Mr. Soria, the state monopoly could produce the same amount of cigarettes keeping only six plants open and shutting down the others. Earlier this month, Alejandro prosecutors accused Pierre Mose of failing to pay taxes on eight trillion lire ($5.21 billion) of tobacco sales and royalties over the past nine years. Pierre Mose denied the claims, saying it had complied with all Italian laws and paid taxes in accordance with a bilateral tax treaty between Italy and the U.S. EU officials said there wasn't a link between their probe and the tax controversy. --Staff reporter Armistead Myron in Brussels contributed to this article.
