Why Did Philip Morris Spend More Than Anyone Else Lobbying The E.U.?

It turns out that tobacco major Philip Morris International (NYSE: PM) spent €5.25 million to lobby Members of European Parliament (MEP), the highest for any company in the European Union in 2013 . This is not a small feat considering that the competition included  Exxon Mobil (NYSE: XOM), which came in a close second at €5 million. ^[1] So why did a big tobacco company outdo a big oil company in seeking to influence regulation? In this article we take a look at some events that may have induced such an expenditure.

See Our Full Analysis For Philip Morris

EU’s Tobacco Products Directive

Last year was an important year for tobacco regulation in the European Union. MEPs deliberated on the EU’s Tobacco Product Directive, which was eventually approved by the European Parliament in February 2014. Under this legislation, cigarette packs were required to be covered on 65% of their surface area by graphic health warnings. (For our analysis of Philip Morris’ tussles with regulation regarding health warnings on cigarette packs see our articles An Uruguayan Lawsuit For Philip Morris and Philip Morris Sues Thai Government) E-Cigarettes were to be classified as medicinal products that would put them under much stricter regulatory supervision (Our earlier coverage of Philip Morris’ e-cigarette market forays can be found at Philip Morris finds its footing in the e-cigarette industry). ^[2]. Flavors such as menthol will also be forbidden for use in cigarettes. Such flavors are argued to make cigarettes more attractive to young people. Atleast one MEP has been quoted as saying that focus of the regulation is on preventing people under the age of 18 taking up smoking. While the ban on menthol will be effective only in 2020, other aspects of this directive become operative within two years of the E.U. parliament approval.

Lobbying Against The New Directive

The European Ombudsman has launched an investigation against the European Commission for holding backdoor discussions with the tobacco industry (The European Ombudsman is the agency that investigates complaints about maladministration within the E.U. institutions). This is a violation of United Nations rules in this regard, which mandate that all meetings between regulators and tobacco companies or their lobbyists must be made public. Former European Commissioner John Dalli had been forced to resign over such violations. ^[3]

Meanwhile, internal documents leaked from Philip Morris’ offices give indications of targeted efforts to delay the regulatory decision making in this regard. The company apparently used 161 lobbyists to this end, who cost it £1.25 million in meeting expenses alone. 31% of MEPs had been met by Philip Morris atleast once within a six month period. These documents are said to contain evidence that the company commissioned economic and academic studies to influence opinion. They are also believed to have used farmers organizations and retail industry bodies to lobby the E.U. In 2013, a crucial vote in this regard had been delayed for a while, raising apprehensions about the future of the regulation.

Philip Morris has stood by its right to actively advocate its views during the regulatory decision making process. It sought credit for entering such information in the Transparency Register, a mechanism whereby the E.U. expects lobbying activities to be made public. ^[1] It also suggested that the regulation was flawed. Philip Morris wanted the regulation to be modified to make it fair and scientific. Its spokesperson suggested that the current regulation unnecessarily burdens the economy. ^[4]

Philip Morris’ efforts at lobbying against the new regulation needs to be seen in the light of its need to stem the decrease in the market size for cigarettes in the European Union. The number of cigarettes sold in the European union is expected to decrease from 450 billion currently to 375 billion in 2021.

If the adoption of smoking among the younger segments of the population is thwarted by more effective regulations, it could mean the market size could shrink further. This could hurt Philip Morris future revenue streams from the European Union region negatively. Hence Philip Morris can be expected to lobby the E.U. aggressively going ahead as well to protect its European Union market. Its lead over Exxon Mobil in lobbying expenditures could very well be here to stay.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research

1. Philip Morris Tops NGO’s Spending Table [↩] [↩]
2. EU’s New Tobacco Directive [↩]
3. Commision’s Alleged Contacts With The Tobacco Industry [↩]
4. Philip Morris Spent Millions To Delay E.U. Regulation [↩]