Tobacco Industry Policies in Japan and the USA - Essay Example

Running Head: Tobacco Industry policies in Japan and USA Name Course Course instructor Date submitted Tobacco Industry policies in Japan and USA Introduction Industrial policy is any policy the affects a certain set of industries differentially from the rest group of industries that remain. An industry is a set of firm competing in a certain market. A certain market is characterized by the types of goods and services sold by the firm in that industry. Any tax, trade measures, antitrust enforcement measure, standard setting policy affect the industry in one way or the other can be considered as an industrial policy, this is because it involves the application of governmental resources, reallocation of these resources across the industries. Industrial policies are subdivided into two categories; strategic policies and corrective policies. Strategic policies promote certain market segments to the advantage of the domestic welfare. In this case, domestic firms are provided with subsidy if they are facing stiff competition from the international rivals. Subsidy makes these domestic firms become more aggressive while this change in altitude becomes credible to their rivals because it changes the firms own incentives. When the firms’ production increases at the cost of foreign rivals, shifting monopoly rent from foreign firms to domestic once. This aggressiveness also affects the consumer surplus in the market where rivals compete, because it causes fall in prices of products (Brander and Spencer 1983).Corrective policies on the other hand are meant to improve the economic welfare by correcting market failures. Industries can receive assistance from the state when there is harm causes by the external environments, like the high cost of oil or change in exchange rates. This article compares the tobacco industry policy of two countries namely Japan and Canada. In Japan, tobacco industrial policy is primarily promoted by the Ministry of finance and the ministry of Health, Labor and welfare. In history tobacco industrial promotion has been a governmental force. The Japanese parliament (Diet) clearly recognizes tobacco as good business for economic growth and a good business for the government (Mark Levin 2005). From 1904, tobacco industry in Japan was sorely owned by the government. This ensured that tax revenues were maximized in a wartime economy and prevented James Buchanan Duke, a powerful American tobacco company from entering the market (Kluger 1996). Japan’s tobacco industry developed under monopoly protecting and government control. After the introduction of the Allied Occupation Guidance in 1949, tobacco business was transferred to Japan tobacco and Salt Public Corporation (JTSPC) which was headed by the ministry of finance. In 1980s, various forces pushed the government to restructuring its tobacco business. Foreign governments, mostly the USA under the Reagan administration, in favor of tobacco giants Philip Morris put pressure on Japan in trade negotiations to put to an end the monopoly protection regime (Sugarman 2001). Moreover there were domestic pressures over contentious labor management reforms concerning japans major monopolies; Rail, telephone system and Tobacco. In 1985, tobacco industry was finally privatized. The privatized regime concentrated on intense tobacco promotion which boosted the agricultural sector in Japan in a big way. However, they started experiencing lots of pressure from consumers, public health officials and activists about the health concerns of tobacco consumption (Reynolds Tobacco 1979). In mid 1980s, many governments started controlling tobacco industry (Kagan & Vogel 1993) but Japan tobacco industry retained its industry in the hands ministry of finance and an industry dominated by government advisory council. Before privatization, tobacco industrial policy in Japan was accomplished directly through the guidance and support of the ministry of finance and indirectly by the ministry’s budgetary power. The ministry of finance , government advisory council and finance ministry agents to advantage of their protective legislative regime and moved from being a domestic government enterprise to a global one positioned number three on the international tobacco companies (Japan Tobacco Inc 2003). They have also fought hard and maintained this position by providing favorable domestic tax and lower cigarette pricing (Watanabe 2003). There has been strive amongst the activists fighting for privatization of tobacco industry in Japan arguing that divestment is the only way to meaningful tobacco control in Japan ( Hanai 2003), others arguing that it should be transferred to the ministry of health under Tobacco products control law for Japan. In Japan tobacco control policy seemed weak in 1987 but has grown tremendously after the first registration addressing tobacco control. There has been tobacco control campaigns which has banned smoking tobacco in public places, and banning outdoor vending machines (Levin 2001). Finally, the self regulation in Japan ahs resulted to informal control policy, which has resulted to few limitations on tobacco advertising on TVs, radio and large format urban billboards. However all through the years the government had failed to control tobacco consumption in Japan. In 1987, the ministry of health took the health issues seriously and nowadays cigarette package has warning on cigarette consumption. In 1995, the ministry recommended action on three areas; underage smoking prevention, creation of smoking and non smoking zones, and support to smokers who wish to quit smoking. Tobacco control has taken root in Japan through the ministry of health however some democrats argue that this controls are affecting the agricultural sector, the media industry are famed due to the amount that used to be used in tobacco adverts. In 2001, there were a series of tobacco control policies which have changes the tobacco environment in Japan and Success in reducing tobacco conception has been experienced in Japan by developing new tobacco policies (Levin 1997) In United States, indigenous people used tobacco leaves for medicine and in certain ceremonies. It has been grown commercially in USA since 1612. Farmers were given marketing quotas for the tobacco they grew as it was dictated in the agricultural adjustment act 1938. This quota restricted producers form increasing cost efficiencies through economies of scale planting in different locations. This lowered the demand of tobacco products and resulted to restricted production. Nowadays, tobacco marketing is done through contract markets rather than the auction marketing that dominated earlier (ERS 2002). Tobacco growers benefits from government price support. However this support is for the tobacco sold through USDA approved auction warehouses and perfectly inspected and graded. With the increase of contract marketing there was a decline in quota available and this triggered the congress to approving the fair and equitable reform act as part of the American job creation act. The main reason for introducing thus buyout quotas was to ensure that US. Tobacco had worldwide competitive prices and lower domestic prices. The lower production of burley and the ever increasing demand of burley tobacco help many switches to it and maximize profits (Capehart 2006). In history, United States was the dominant exports of tobacco due to its ability to produce high quality cigarette tobacco. Until recently, small quantities of foreign tobacco could be mixed successfully in the US to make cigarettes that could match those of the US. Tobacco growers in the US had a monopoly in the production of high quality mild tobacco which produces American style cigarettes. This monopoly made it possible for the US to maintain a domestic price support program with high and increasing prices frequently. The profits realized by the support program have been capitalized in to the annual quota rental rates which keep on increasing every time. The reason why these prices kept on increasing was due the federal tobacco support program which established a floor under market prices which ensured that farmers are paid with the support price when commercial buyers don’t bid above that supported price. In 1993, the government imposed high penalties on cigarette manufactures that were using less than 75% of US tobacco. This ensured that all tobacco grown in the country cirtulated within the country and was utilized within the country creating a ready market for the farmers. In 1998, United States Attorneys Generals and cigarette manufactures made an agreement to compensate the state for medical costs associated with smoking and law put in place measures to curb underage smoking. Limitations were also introduced in advertisement of tobacco products. U.S. consumption of cigarette increased through 1950 to 1970s, however, cigarette consumption decreased inn 1981 after a campaign on negativity associated with smoking and high prices due to federal exercise in 2002 (ERS 2005). The production of tobacco decreased from 2 billion pounds in 1970s to 678 million pounds in 2005. This was due to the introduction of buyout quotas. Although its acreage is smaller compared to other crops, it was the 8th most valued crop in the market in the year 2005. USA is the world highest importer of tobacco and the highest exporter of cigarette; this is because of the high value of dollar of exports and imports. In USA, the state is always up and down regulating tobacco policies. Most of tobaccos policies in this country are risk reduction policies. Current research shows that removing certain ingredients in cigarettes won’t make them any safer (Institute of medicine 2001) this is due to lack of scientific evidence that tobacco contains morbidities and mortalities. Unburnt cigarette contains 2000 chemicals and toxicants , therefore despite the revenue generated through tobacco sales, the government is out to reduce medical bills of diseases caused by tobacco products. Conclusion Both Japan and USA have well laid tobacco industry policies. However I prefer US policies rather than Japan policies. US policies are favorable to the country and to the farmers, by this I mean that farmers benefit from the price support program. The US government has well laid programs where by cigarette manufacturing companies must use the locally produced tobacco, creating market for the framers. More over, there are well laid strategies to educated people on the dangers associated with smoking habits. Despite the decrease of the revenue collected from tobacco, due to decreased number of tobacco consumers the government continues discouraging people from smoking. In Japan, revenue and profit share is the main thing. The government is more addicted to tobacco than the consumers but merely because of the profits and shares in the industry. Therefore the negativities associated with the smoking habits are not key issues in legislation in Japan. Introducing bills against tobacco consumption will be like fighting against one self in Japan. This is because tobacco industry is viewed as a government initiative and a big economic booster. Tobacco manufacturing companies are privatized in the US unlike in Japan where monopoly was dominance. Despite the revenues that are associated with tobacco industry the US government has all manufacturing companies as private. There is no monopoly in the US except in producing high quality mild tobacco which produces high quality products recognized in the whole globe. References Alfred A. Knopf; (1996).the Unabashed Triumph of Phillip Morris. New York: Brander, J. and Spencer, B. (1983), Tariff Protection and Imperfect Competition: in Monopolistic Competition in International Trade. Capehart, Thomas, C, (2006), U.S. Tobacco Sector Regroups: ERS Amber Waves 4(1) pp. 2. Hanai, K, (2003) Weak tobacco pact reflects Japan’s lukewarm attitude: The Japan Times. Institute of medicine, (2001) clearing the smoke: Assessing the science base of tobacco harm reduction. Washington Japan Tobacco Inc. (JT), (2003.), JT Annual Report. 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