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Russian Public Health Society.

Understanding and counteracting tobacco industry GR in Russia

Understanding and counteracting tobacco industry GR in Russia

Understanding and counteracting tobacco industry GR in Russia[1]

Andrey K. Demin, M.D., President of the Russian Public Health Association,
coordinator of National coalition for tobacco free Russia, Councilor of the Russian Federation of the 1st Class, Doctor of political sciences, Professor of I.M. Sechenov Moscow Medical Academy, Candidate of medical sciences

andrey_demin@yahoo.com www.rpha.ru

General factors promoting tobacco industry GR activities in Russia:

increasing dependence of economic development from the state;

crisis of political PR after political system adjustment in 2006 precipitated by Beslan disaster;

development of industry professional GR departments;

arrival of international lobbyist companies in Russia such as Cassidy & Associates, The PBN Company, Mmd, etc.;

development of GR committees at Association of managers of Russia (AMR), Russian PR association (RASO) and the like[2].

Extreme concentration of vital foreign industry functions after primary penetration in Russia in 1991 also should be taken in consideration. Out of 84 regions-subjects of Russian Federation, foreign tobacco industry investment, import/export, production, management, financial operations concentrate absolutely in three: Saint-Petersburg, Leningrad region and Moscow. Political importance of these three subjects of RF related to other 81 subjects could be an extremely powerful factor promoting effective industry GR in Russia.[3]

GR in Russia is a priority for the industry due to obvious special role of Russia in industry regional and global strategies. Russia emerged as production and management, distribution industry center for former USSR, EEMA, Europe and globally, as a focal point for influencing regional, European and global pro- and anti-tobacco policies. Achieving friendly regulatory climate in Russia is of key importance for the industry.

Besides GR per se, significant aspect of GR is PR of government bodies via public and civil society. This aspect is grossly underdeveloped in Russia, and direct, possibly corrupted, collaboration between industry and government might prevail. Most often used forms – establishing direct contacts or acting via industry association.

Direct formal and informal industry – Government contacts take place by providing expert information to decision makers, participation of industry representatives in various governmental meetings, in development of draft legislation and promotion of industry-friendly legislation. Currently in Russia leader of the company is usually its prime and most effective GR person. Former government officials also often work in industry GR structures.

Indirect forms of pressure include organizing influence groups inside governmental structures, including, for example, “former” industry members of State Duma[4]. For Russia are also typical CSR, voluntary social reporting and charity [5].

Industry GR structures are sophisticated, numerous and possess huge budgets. For example, senior BAT GR functioners are Aksionov V.K., advisor to the managing director and Lyutiy A.G., director on corporate relations. Directorate of corporate relations supervises GR Department, responsible for developing relations with all branches of state and municipal power. This GR department includes five subdepartments: 1) on relations with Federal Assembly of RF; 2) on links with regulatory (controlling) government bodies, 3) on regional policy (interaction with regional executive and representative state bodies, municipalities, territorial departments of the Federal ministries and agencies); 4) on prevention of dissemination of illegal and counterfeit products (intellectual property protection); 5) on interaction with competitors, industry communities and all-Russian business associations (industry relations). Number of staff at BAT Directorate on corporate relations is about 30, annual budget – appr. 80 million Rubles [6].

It should be mentioned that this might be only the open part of GR budgets, which are confidential, and may exceed those published.

Thus even the open total annual GR budget of JTI, PM, BAT and Imperial Tobacco in Russia might exceed 1-2 million USD.

According to estimates of V. Kochetkov of IK “Finam”, on average, tobacco companies spend 10-12% of net profits for marketing promotion[7]. In 2007 BAT net profits in Russia reached 3.64 billion USD[8], PM in first half of 2009 reported profits of 3.02 billion USD[9], JTI in the second half of 2009 – 452 million USD.[10] Thus annual profits of these three leading companies in Russia might reach 11-12 billion USD, so that promotion budget might reach 1.1 billion USD. At the same time, funding of all social advertising in Russia is estimated at only 20 million USD.[11]

GR officials

At PMI: Vasiliev V., Manager on corporate affairs; Chernis A., director of department of corporate issues of affiliated companies in Russia and Byelorussia.

At JTI: Bocan-Harchenko V., Director on corporate issues; Yershov V., manager on GR; Mashtanov A., director on industry and normative issues; Strok D., GR manager for Central Russia; Mamontova E., director of department of corporate relations and communications in North-Western region; Matrosov A., GR manager.

At Imperial Tobacco: Aleksandrov A., manager on normative regulation, Felberg K.-H., director on corporate issues.

GR functioners of tobacco industry are highly qualified. For example, V. Aksionov and V. Bocan-Harcenko are diplomats, graduating from prestigious MGIMO (Moscow institute of international relations), A. Lyutiy used to work as foreign correspondent of TASS in Washington, D.C. and Communist Party newspaper Pravda in London, L. Sinelnikov used to work as director of the best Soviet tobacco factory Yava in Moscow.

Activities of GR functioners is very high, they participate in numerous commissions, committees, conferences, etc.

According to SuperJob.ru, vice president on GR of large company salary is appr. 500,000 Rubles per month, head of department - 200,000, manager - about 75,000 plus social package.

It is typical that GR officers migrate from one company to another, so that top GR officers of Russia-based leading companies might have served for the big tobacco.

Documented facts on industry penetration in decision-making at the Federal level:

Prior to 2004, BAT and “Tabakprom”[12] association used to dominate in foreign industry GR activities in Russia, especially in the undermining of national tobacco control legislation and FCTC process, establishing tax regime favorable for the industry. Various industry companies started strong coordination of activities in Russia.

Among documented successful industry GR efforts, direct influence behind the scenes with the help of high level functioners at State Duma and Federal Government in early 2000s are:

1) V. Aksionov’s active role in countering, and later, weakening tobacco control law, adopted in 2001, put forward by Chairman of State Duma Health Committee N.F. Gerasimenko; V. Aksionov was aided by O. Beklemischeva, Deputy Chairman of Health Committee, and

2) use of sovereign Russia by the industry at the INB meetings in Geneva for “softening” of FCTC text. BAT Russia head L. Sinelnikov was included in Russian official delegation under the cover of “Expert of Ministry of Agriculture” by the verbal order of Deputy Prime Minister Scherbak. The industry aimed at “organizing” CIS countries at INB around industry-friendly Russia. Sinelnikov’s real identity was uncovered by FCA activists at the final INB at 2003[13].

Even before that, in 1997, participation of key Russian officials in the sphere of tobacco taxation, including deputy Federal minister S. Shatalov (currently holds this position, responsible for excise taxation), A. Pochinok, deputy chairman of subcommittee on the budget, banks and finance (currently member of Federation Council from Krasnodar Kray), and others in the conference on Russian tax reform at Duke University was funded by R.J. Reynold Tobacco[14].

In May 2004 PM Izhora and JTI Elets with Baltiyskaya Tabachnaya Fabrika founded second organization for promotion of industry interests in Russia – Council on issues of development of tobacco industry[15].

Soon afterwards this Council became more visible in concerted activities of foreign industry in Russia, than Tabakprom. General director of this Council – N. Shkolkina, currently the most visible industry activist.

A few years ago N. Shkolkina participated in a series of meetings organized by foreign industry under the roofs of Ministry of Health and Social Development and Public Chamber, aimed at ensuring industry leadership in FCTC process in Russia. Industry interference might be the cause of 4-year long boycott of FCTC, resulting in billions of USD profits for the industry and more than 1.5 million premature deaths from tobacco in Russia.

In June 2006, under Committee of State Duma on economic policy, entrepreneurship and tourism there was organized Expert council on issues of state regulation of production and turnover of tobacco products. Chairman – Chairman of Committee Fyodorov. In spite of Article 5.3. of FCTC, N. Shkolkina continues to serve as secretary of this expert council. This council developed sophisticated alternative of the industry towards FCTC – Federal law “Technical reglament on tobacco products”. This law was adopted in December 2008, and should be enforced in December 2009. This law contradicts the FCTC spirit and letter, for example, legalizes light and mild descriptors in Russia. This law also contradicts Federal law on technical regulation, that prohibiting development of technical reglaments on products harmful for health, and also Federal law on protection of consumers’ rights. The industry pressure for Technical reglament was so strong that even negative conclusion on the draft law by the Ministry of Health and Social Development was ignored. All these negative developments became possible due to centralized and intransparent decision making, inadequate participation of civil society and WHO. For example, ultimate discussion of the draft law before adoption in the State Duma took place at the “United Russia” ruling political party Highest political council.

Under the aforementioned Duma committee on economic policy an expert commission on the draft of Technical reglament was functioning. Expert council and the group developing Technical reglament, is characterized by massive presence of industry and its allies. Draft law on Technical regulation was put forward by Duma deputies G. Kulik, A. Hayrullin, A. Sysoev, A. Filippov, visible allies of tobacco industry. The Technical reglament was officially presented by the industry to the Council of Federation before it was adopted.

Primary idea of the industry was to protect it’s interests from FCTC by developing and adopting Technical reglament prior to FCTC ratification. In this case FCTC had to be adapted to Technical reglament, developed by the industry and neglecting public health and FCTC. FCTC implementation had to be subordinated to Technical reglament. For example, first draft of reglament envisaged 10% health warning.

N. Shkolkina is influential in Ministry of Agriculture – as head of public council under the Ministry, and in the Russian Union of industrialists and entrepreneurs (RSPP).

In December 2007 N. Shkolkina’s name was found in the list of candidates to State Duma of “United Russia” ruling party. However she was hiding her tobacco identity and was presented as chairman of public council at RSPP. Probably, due to publication of open letter to President of Russia by civil society activists, N. Shkolkina was not elected in State Duma.

In July 2008, Chief Sanitary Physician, head of Rospotrebnadzor, professor G. Onishenko said: “… actions of tobacco producers in RF are “nicotine genocide” of Russian people and “these actions should be assessed in the court”. “Counterstanding with cynical, losing all moral norms, rules, criteria and principles Russian tobacco sinecure, being at service of foreign, first of all American capital, and which is headed by Ms. N. Shkolkina, is probably entering a new circle”. “Superprofits of American corporations are paid by catastrophic impact on health of young Russian generation”.[16]

Tobacco industry in Russia dominates in Association of advertizers, cooperates with Charities Aid Foundation (UK), Agency for Social Information, World Wild Fund, and other similar agencies and organizations.

BAT and PM paid the “research” on issues of interest to such influential expert organization, as former Chairman of the Federal Government E. Gaidar Institute of Economy in Transition (IET- IEPP). I. Trounin, one of IET researchers working on industry paid work, in 2006 filled position of head of department of tax, excise and customs tax at Federal Ministry of Finance, and is still there. I. Trounin’s name is related to introduction of Maximal retail price (MRP) on tobacco, and decision to eliminate VAT on excise stamps. Both decisions favor industry. MRP made tobacco the only socially protected consumer good in Russia, increased financial accessibility of tobacco at the expense of decreased retail margin.

The industry is making donations to civil society organizations, first of all related to Youth Smoking Prevention programs promoted by the industry. Among PM recipients in 2006, is the fund “Severnaya Korona” headed by wife of Russian minister of finance.

The leading company in Russia – JTI is government owned, and relies on Japanese government support, including GR. For example, a few years ago the Japanese embassy actively responded to Russian Government tax claims towards JTI, mentioning chances for more Japanese investments in Russia. Thus it is obvious that the leading tobacco companies in Russia might use their governments’ resource.

Industry GR is based on intransparency of industry activities in Russia[17]. Statistical reporting on tobacco of the Russian government is inadequate and in many cases industry statistics is used.

Tobacco industry is leading debate and activities in CSR. Attempts are underway to legalize GR in Russia. Tobacco related activities of center “Lobbying.ru”, headed by P. Tolstyh, could be promoting industry interests. The centre regularly conducts ratings of GR officers, highlighting tobacco industry officers. GR activities of tobacco industry are treated as exemplary. In 2009 the centre published a paper pretending to analyze lobbying in tobacco field, depicting conflict between tobacco and antitobacco lobbies. The report emphasized BGI involvement and seriously undermined position of leading tobacco control organizations such as KonfOP and specific activists.

Key issues of activities of tobacco industry GR:

Support and protection of Technical reglament as a vehicle against FCTC, improving industry status and achieving their aims; industry friendly state excise policy; issues of containment of limitation of smoking; counteracting WHO; achieving friendly advertising policy in the area of smoking.

Except for counteracting WHO, industry GR groups are quite successful.

So far GR activities of industry changed minds of legislators in Russia: that FCTC and Russian legislation must be separated into two distinct isolated parts: primary - on production issues (Technical reglament), and the secondary, on human rights protection, undermined by the industry, far from being adopted.

State Duma Committee on health activities are undermined by industry through committees on economic development, agriculture and others.

Most GR successes of foreign tobacco industry in Russia were achieved in the periods of economic, social and political crises: after break-up of USSR, in 1991-2, and after August 1998. There is a risk of more industry GR successes if economic situation in Russia will deteriorate.

Foreign industry GR/PR rhetoric in Russia:

Explicit:

Industry (95% foreign) is local, and even more, patriotic, protecting Russian State’s interests from foreign inadequate manipulations, violating sovereignty of great Russia.

Industry is providing vitally and politically important good for smoking majority (tens of millions) of adult Russian population, comparable to bread. Attacking industry = attacking everyday basic needs of these masses.

Industry is a prominent taxpayer, provides workplaces, charitable donations, excellent environment[18].

Tobacco control prescribed by FCTC, such as increasing excise tax, etc. is a political risk, because will lead to ‘social explosion’.

FCTC tobacco control measures might be good for Russia, but must be postponed till the end of economic crisis in Russia.

FCTC is only a foreign framework document with loose recommendations, which are not necessary to be implemented.

Reporting on FCTC is far away – in 2013, so Russia has plenty of time ahead and should not hurry.

Russia has it’s own peculiarities permitting to ignore FCTC norms.

FCTC is a document which has no direct power in Russia, separate laws should be developed on every aspect of FCTC.

Bloomberg Global Initiative is not good for Russia.

Recipients of BGI funds are not good patriots, taking big amounts of US money which can not do any good to Russia.

BGI grentees activities in Russia might resemble rehearsal of “orange revolution”.

Antitobacco individuals and organizations are only after Bloomberg money, and switch from pro- to antitobacco activities because of money.

Proposed tobacco control in the Russian Army might be just a cover for foreign intelligence.

Discontent with tobacco industry activities is generated and comes exclusively from recipients of BGI funds.

There is a need to scrutiny of all activities of BGI funded projects.

Alcohol abuse is much more important factor in Russia, compared to tobacco use.

Industry is characterized by exemplary corporate responsibility in Russia.

Industry is doing good for Russia, improving quality, introducing filter cigarettes, decreasing content of tobacco in cigarettes, from 1 g down to 0.7 g.

Smoking is going down in Russia and is low, so this tobacco control hysteria is not substantiated (GATS data will be used to support this point of view).

Number of deaths caused by tobacco use in Russia is grossly exaggerated.

Policy development in economic aspects is impossible without the industry participation.

Industry denormalization is a bad and wrong concept.

Implicit: attacking foreign tobacco industry in Russia = attacking the ruling elite, because key tobacco activities, including investment and production, are concentrated in Saint-Petersburg, Leningradskaya Oblast and Moscow.

Conclusions:

Russia is still unprepared for effective countering of GR activities of foreign tobacco companies, which effectively lead public debate and decision making in their interests.

Industry GR legalization efforts are underway, which include undermining trust in tobacco control community and FCTC, BGI.

BGI should avoid involving potentially vulnerable partners.

There is a need for more developed Russian civil society basis in tobacco control, involving regions. Russian Public Health Association might become the focal point for developments, as the national civil society organization active in tobacco control since 1993 and possessing an extremely positive domestic and international image.

Patriotic rhetoric on behalf of Russian civil society might be productive.

More involvement and emphasis on former USSR and European organizations is needed to cool down industry criticisms that tobacco control in Russia is represented and dominated by BGI.

There is a need to concentrate on tobacco control issues where the industry can’t resist much, such as smoke free health care, education, sports, culture, and the like.

GATS evidence for Russia should be well commented, otherwise it would be used by the industry to prove that no special additional tobacco control measures are needed.

Russian civil society should ask the Government to implement the highest standards of FCTC, including Article 5.3. provisions, and also to adopt a law on the conflict of interests.

Activities aimed at industry transparency and denormalization should be continued.

There is need to dedicate much more time, effort and resources to analysis and neutralization of GR/PR activities of the industry and dissemination of relevant analysis among decision-makers and population-at-large.

Industry vulnerabilities in Russia should be identified and used for countering industry GR activities.



[1] This document has been produced with the help of a grant from the International Union Against Tuberculosis and Lung Disease (The Union). The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the positions of The Union or those of the Donors.

[2] www.bastion.ru/files/jr.doc [Corporate links with state power bodies and lobbying in Russia at the current stage] Корпоративные связи с органами государственной власти и лоббирование в России на современном этапе. (06.05.2008)

[3] Tobacco epidemic in Russia is sort of foreign industry affair with these three regions, concentrating 66% of tobacco products production and 80% of revenue from tobacco product sales. 49% of total tobacco capital investment in Russia was absorbed by Leningradskaya Oblast. Russia is practically not growing tobacco and virtually all tobacco and relevant chemicals are imported; 95% of these imports come through Saint-Petersburg; major part of sanitary-epidemiologic surveillance is currently suspended by Federal Customs Service based on ordinance of Federal Service of Protection of Consumers Rights. 80% of tobacco products distribution in Russia is provided by one company. JTI’s global service desk (GSD) and business service centre (BSC) playing leading role in JTI global operations, have been established in Saint-Petersburg recently. Economies of city of Saint-Petersburg and Leningradskaya Oblast are deeply dependent on tobacco industry activities. http://www.rpha.ru/bull2.pdf

[4] For example, Ivan Savvidi, owner of majority of shares of “Donskoy Tabak”, has surrendered his tobacco business shares to his wife and continues to serve as State Duma Deputy, first as a member of Committee on excise, and most recently as a member of Committee on international affairs.

[5] www.bastion.ru/files/jr.doc [Corporate links with state power bodies and lobbying in Russia at the current stage] Корпоративные связи с органами государственной власти и лоббирование в России на современном этапе. (06.05.2008)

[6] www.bastion.ru/files/jr.doc [Corporate links with state power bodies and lobbying in Russia at the current stage] Корпоративные связи с органами государственной власти и лоббирование в России на современном этапе. (06.05.2008)

[12] Association of tobacco products producers “Tabakprom” established on 27 February 1997 to protect legal rights and represent common interests of members in Russia and abroad. Members: ZAO “Balkanskaya Zvezda”, OAO “BAT-STF”; OAO “BAT-Yava”; OAO “Donskoy Tabak”, OOO “Kres-Neva”, ZAO “Liggett-Dukat”, ZAO “Nevo-Tabak”, OOO “Petro”, OAO “Pogarskaya cigaretno-cigarnaya fabrika”, OOO “Tabachnaya fabrija Reemstma-Volga”, OAO “Usman-Tabak”. Associated member: ZAO “Alokozay”. General Director: Zhelnin VA, former politician, and head of association of advertisers of Russia.

[13] A. Demin, 2007. http://www.ecsocman.edu.ru/db/msg/307113.html

[14] Data from Legacy Library of tobacco industry documents; http://arkadiy.health.googlepages.com/

[15] Council of issues of development of tobacco industry– organization, uniting proponents of specific excise tax. Established in May 2004. Members: "J.T. Elets” (JTI), "PM Izhora" (Philip Morris) and Baltiyskaya Tabachnaya Fabrika (famous for Jin Ling).

[16] [Onishenko told which companies are killing Russians] Онищенкорассказал, какиекомпанииубиваютроссиян // Взглядот 22.07.2008.

[17] For example, Korean tobacco company is building a new factory in Kaluzhskaya Oblast. The population opinion was not considered, and it is not guaranteed that residents of Oblast are aware of construction, and agree with this project.

[18] In 2009 competition “Enterprise, most friendly to working mothers” between employers in Moscow, organized by the City Government, JTI “Liggett-Ducat” factory was selected as winner.


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