KT&G Temporarily Suspends Cigarette Business After 22 Years in the U.S. Market

[Asia Economy Reporter Seungjin Lee] KT&G will temporarily suspend the sales of combustible cigarettes in the United States due to decreased business viability. This comes about 22 years after first entering the U.S. market in 1999.

According to KT&G on the 15th, the company will temporarily halt the manufacturing, shipping, customs clearance, and product sales to local wholesalers of combustible cigarettes sold in the U.S. The amount of sales suspension is approximately 205.7 billion KRW, which corresponds to about 3.9% of last year's consolidated sales.

This suspension of KT&G's tobacco business in the U.S. is interpreted as a result of strengthened local regulations and intensified market competition. In particular, the increase in the escrow fund, a reserve fund accumulated to prepare for tobacco lawsuits under local regulations, was also a factor in this decision. Last year, KT&G's escrow deposit was about 230 billion KRW, nearly matching the annual sales in the U.S. (consolidated basis) of approximately 246.3 billion KRW. Since KT&G must pay most of its annual sales as escrow deposits, it judged the business to be unviable.

The recent strict regulatory standards for tobacco products set by the U.S. Food and Drug Administration (FDA) also hindered operations. Recently, Washington State and Denver City in Colorado have been pushing legislation to ban the production and sale of menthol cigarettes. Regulations demanding very low nicotine content levels are also continuing. KT&G analyzes that the increased regulatory costs are a significant pressure as sales have been driven mainly by a portfolio of low-priced combustible cigarette products in the U.S. market.

So far, KT&G has faced difficulties due to opposition from local companies, including the “Coalition Against Korean Tobacco,” composed of U.S. tobacco manufacturers. In December 2019, the coalition claimed that Korean Grade 4 cigarettes were being dumped at high rates ranging from 7.10% to 113.06%. In February, the U.S. International Trade Commission (ITC) acknowledged this and issued a “preliminary affirmative injury determination.” Although KT&G was ultimately cleared of charges, it struggled due to various regulatory tightenings and market overheating.

A KT&G official stated, "Unlike other markets, the U.S. is strengthening regulations related to the tobacco business, and market competition is intensifying, leading to increased costs," adding, "From a mid- to long-term perspective, we will suspend product sales in the U.S. for now, review the regulatory environment, and then reconsider our business strategy."

This content was produced with the assistance of AI translation services.