This is from the U.S. answers to questions from the arbitrator in the Clove Cigarettes Article 22.6 proceeding:
88. Company documents from Kretek International (“Kretek”), which occupied 97 percent of the market for clove cigarette imports in the United States, substantiate that the current market for clove cigars is the old market for clove cigarettes. Kretek’s July 2009 National Sales Meeting Presentation makes clear that clove cigars fulfill the exact same market as clove cigarettes. The presentation details how Kretek will effect a “seamless conversion to clove cigars as cigarettes are depleted.”76 Kretek’s presentation explains that the company will offer clove cigars in the “other tobacco product” (“OTP”) category77 – with the intent of putting them in a category currently not subject to Section 907(a)(1)(A). Slides 1330-31 illustrate Kretek’s plan to phase in sales of clove “cigars” in mid-2009, at the same time that sales of clove “cigarettes” are winding down. By December 2009, sales of clove products marketed as cigars would (and did) completely replace sales of clove cigarettes at just over 4500 cases.78 Indeed, this plan is borne out in the import data, which shows that imports of Indonesian cigars replaced the level of imports of clove cigarettes by the end of 2009.
89. Indonesia is not tapping a new or different market in the United States for clove cigars. The fact that there is one U.S. market for “cloves” – i.e., clove cigarettes or clove cigars – is provided by Kretek. As the company details in its July 2009 presentation, the key to a smooth “conversion” to clove cigars is to deliver essentially the same product to the same consumers through the same distributors and marketing.
The argument here is that Indonesia suffered no nullification or impairment from the ban on clove cigarettes, because the company involved converted all of its production to clove cigars, which are permitted under the law.
There's definitely a factual question here. How many clove cigarettes were sold prior to the law, and how many clove cigars are being sold now? The precise figures weren't clear to me from the U.S. submission; I'm curious to see Indonesia's response.
Assuming the figures are identical, though, does that mean there is no nullification or impairment? Does the cost of the conversion process matter?
