EU launches US lawsuit against tobacco giants

Brussels launched an unprecendented legal action yesterday against America's two biggest tobacco companies, accusing Philip Morris and RJ Reynolds of smuggling cigarettes into the EU.

Brussels launched an unprecendented legal action yesterday against America's two biggest tobacco companies, accusing Philip Morris and RJ Reynolds of smuggling cigarettes into the EU.

The suit, filed in a New York district court, marks the firstattempt by the European Commission to sue American companies in a US court. Brussels is seeking unspecified financial damages for losttax revenue and claims anti-racketeering laws have been breached.

The case against Philip Morris, which makes Marlboro, and RJ Reynolds, which produces the Camel and Winston brands, was described by Michaele Schreyer, the European budget commissioner, as "a new step in our strategy to fight against fraud and financial irregularities".

As many as 60 billion cigarettes are smuggled each year, depriving EU countries of billions of euros in tax revenue. In some countries, contraband cigarettes account for 10 per cent of sales.

Yesterday the tobacco giants promised to fight the action. "We will vigorously contest the Commission's unprecedented attempt to utilise American courts to impose liability upon us," said David Davies, vice-president of corporate affairs for Philip Morris Europe.

The biggest smuggling cases occur while tobacco is in transit from the factory to the point of sale. Big ports like Antwerp benefit from a temporary suspension of customs duties, excise and VAT. Cigarettes can be bought at a fraction of their market price, moved on, and then re-imported into the EU at a huge profit. In the past the authorities have been unable to prove that manufacturers were playing any role in this system.

Experts estimate that about 30 per cent of exported US cigarettes are lost to smuggling, a much higher percentage than other US exports.