US rejects WTO panel on clove cigarette ban

* Flavoured tobacco ban excludes menthol

* Indonesia dominated U.S. sales of clove cigarettes

GENEVA, June 22 (Reuters) - The United States rejected on Tuesday a call by Indonesia for a World Trade Organization panel to rule on their dispute over the U.S. ban on clove-flavoured cigarettes.

Like many trade disputes, this turns on health and safety rules, and whether they are being abused to keep out imports.

Indonesia says a U.S. law, implemented in September last year, banning flavoured cigarettes is discriminatory because it covers the clove flavours popular in the Southeast Asian country but excludes menthol cigarettes widely produced in America.

“No one, least of all Indonesia, questions the serious health risks associated with the use of tobacco products,” Indonesian diplomat Nurlaila Nur Muhammad said.

“At the same time, we are at a loss to understand the rationale and justification for the complete ban on clove cigarettes... while menthol cigarettes are excluded from the ban,” she told the WTO’s dispute settlement body.

The U.S. authorities say that flavoured tobacco makes cigarettes more attractive to young people.

The World Health Organisation opposes flavoured tobaccos for that reason. But an official at the WHO’s Tobacco-Free Initiative told Reuters that more research needed to be done into menthol, which appeared to be marketed mainly to women.

“Any additive that changes the flavour is usually done to convey a sense of less danger and whether marketed or not it alters the property of the cigarette in a way that may make them look less harmful -- and that we oppose,” Armando Peruga said.


A U.S. official said the ban did not discriminate against any country and Indonesia’s request for a panel to rule on the dispute was premature as a scientific committee set up under the law to examine tobacco products would report by March next year.

Under WTO rules, the defendant in a dispute is allowed to block the creation of a panel at the first request, but cannot obstruct it a second time. Indonesia’s request is likely to go through at the next meeting on July 20.

Clove-flavoured cigarettes, known as kretek, dominate cigarette consumption in Indonesia, the world’s fifth biggest tobacco market, but only small numbers are exported, and the unflavoured sort, or “white sticks”, are gaining in popularity.

U.S. government surveys showed that menthol cigarettes accounted for 44 percent of cigarettes consumed by young people and 28 percent of all consumption, Muhammad said.

Clove cigarettes accounted for less than 0.05 percent of cigarettes smoked by young people, and 0.09 percent of all consumption, before the ban, she said.

The United States imported $15.2 million worth of kretek cigarettes in 2008, of which 99 percent came from Indonesia, according to U.S. data cited by Indonesian officials. Since the ban, sales have fallen to zero.

“In many parts of my country the main source of income and employment is the production of tobacco, clove and cigarettes,” Muhammad said.

“Indeed, well over 6 million Indonesians depend directly or indirectly on clove cigarette production to put food on the table, clothes on their children’s backs and day’s wages in their pocket.”

Foreign tobacco producers, keen to gain a bigger share of the expanding markets for cigarettes in emerging economies, have been buying up Indonesian manufacturers to acquire kretek brands and build on the potential for white stick sales.

In June last year, the world's no. 2 cigarette maker, British American Tobacco BATS.L, bought an 85 percent stake in Indonesia's fourth largest cigarette maker by volume, PT Bentoel Internasional Investama RMBA.JK.

Philip Morris International PM.N acquired the majority of Hanjaya Mandala Sampoerna HMSP.JK in 2005. Other Indonesian manufacturers include Gudang Garam GGRM.JK and unlisted conglomerate Djarum. (Editing by Mark Heinrich)