Required Report - public distribution

**Date:** 6/14/2004

**GAIN Report Number:** KS4028

KS4028

**Korea, Republic of**

**Tobacco and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Marcus E. Lower

U.S. Embassy

**Prepared by:**

Stanley S. Phillips / Sunyoung Choi

**Report Highlights:**

Korean leaf tobacco area and production are forecast to contract again
in 2004. Elimination of domestic leaf tobacco purchasing requirements in
2001 and privatization of KT&G, the former state-owned tobacco
processing firm, in December 2002 paved way for Korean tobacco
processors to shift from domestic to imported tobacco.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Seoul \[KS1\]

\[KS\]

Table of Contents

[**Situation and Outlook 3**](#situation-and-outlook)

[Leaf Tobacco Production 3](#leaf-tobacco-production)

[Leaf Tobacco Consumption 3](#leaf-tobacco-consumption)

[Leaf Tobacco Trade 3](#leaf-tobacco-trade)

[Leaf Tobacco Stock 4](#leaf-tobacco-stock)

[Cigarette Market Situation 4](#cigarette-market-situation)

[PS&D 6](#psd-1)

[PS&D for Tobacco, Unmfg, Total 6](#psd-for-tobacco-unmfg-total)

[PS&D for Flue Cured Tobacco 6](#psd-for-flue-cured-tobacco)

[PS&D for Flue Cured Tobacco 7](#psd-for-flue-cured-tobacco)

[PS&D for Burley Tobacco 7](#psd-for-burley-tobacco)

[PS&D for Burley Tobacco 8](#psd-for-burley-tobacco)

[PS&D for Cigarette 8](#psd-for-cigarette)

[PS&D for Cigarette 9](#psd-for-cigarette)

[Production -- Unmanufactured Tobacco Total
9](#production-unmanufactured-tobacco-total)

[Production -- Unmanufactured Tobacco Total
10](#production-unmanufactured-tobacco-total)

[Trade Matrix 11](#trade-matrix)

[Korea: Total Imports of Unmanufactured Tobacco for CY 2003 -- 2004
11](#korea-total-imports-of-unmanufactured-tobacco-for-cy-2003-2004)

[Korea: Imports of Burley for CY 2003 -- 2004
11](#korea-imports-of-burley-for-cy-2003-2004)

[Korea: Imports of Flue-cured for CY 2003 -- 2004
12](#korea-imports-of-flue-cured-for-cy-2003-2004)

[Korea: Imports of Oriental for CY 2003 -- 2004
12](#korea-imports-of-oriental-for-cy-2003-2004)

[Korea: Imports of Tobacco stems for CY 2003 -- 2004
12](#korea-imports-of-tobacco-stems-for-cy-2003-2004)

[Korea: Total Exports of Unmanufactured Tobacco for CY 2003 -- 2004
13](#korea-total-exports-of-unmanufactured-tobacco-for-cy-2003-2004)

[Korea: Exports of Burley for CY 2003 -- 2004
13](#korea-exports-of-burley-for-cy-2003-2004)

[Korea: Exports of Flue-cured for CY 2003 -- 2004
13](#korea-exports-of-flue-cured-for-cy-2003-2004)

[Korea: Exports of Tobacco stems for CY 2003 -- 2004
13](#korea-exports-of-tobacco-stems-for-cy-2003-2004)

[Korea: Exports of Filter Tip Cigarette for CY 2003 -- 2004
14](#korea-exports-of-filter-tip-cigarette-for-cy-2003-2004)

[Price Tables 15](#price-tables)

[Korea: Purchase price of Burley and Flue-cured Tobacco by KT&G for CY
2003
15](#korea-purchase-price-of-burley-and-flue-cured-tobacco-by-ktg-for-cy-2003)

[Korea: Imports Prices of Flue-cured and Oriental Tobacco
15](#korea-imports-prices-of-flue-cured-and-oriental-tobacco)

[Korea: Exports Prices of Burley and Flue-cured Tobacco
15](#korea-exports-prices-of-burley-and-flue-cured-tobacco)

[Market Share 16](#market-share)

[Korea: Domestic and Foreign Cigarette Sales
16](#korea-domestic-and-foreign-cigarette-sales)

[Korea: Cigarette Sales by Major Market Competitors for CY 2003 -- 2004
16](#korea-cigarette-sales-by-major-market-competitors-for-cy-2003-2004)

[Korea: Market Share of Top 4 Foreign Cigarettes for CY 2001 -- 2003
16](#korea-market-share-of-top-4-foreign-cigarettes-for-cy-2001-2003)

[Tariffs and Taxes 17](#tariffs-and-taxes)

[Korea: Taxes and Charges for Cigarettes
17](#korea-taxes-and-charges-for-cigarettes)

[Korea: Tobacco and Cigarette Tariff Rates
17](#korea-tobacco-and-cigarette-tariff-rates)

# Situation and Outlook

Korean leaf tobacco area and production are forecast to contract again
in 2004. Elimination of domestic leaf tobacco purchasing requirements in
2001 and privatization of KT&G, the former state-owned tobacco
processing firm, in December 2002 paved the way for Korean tobacco
processors to shift from domestic to imported tobacco. Accordingly,
domestic tobacco production is expected to continue to decline.

Remarkably strong cigarette exports, reaching 30.9 billion pieces in
2003, boosted foreign leaf tobacco imports. Domestic cigarette
consumption, however, is expected to contract in response to a 500 won
(\$0.42 per pack) increase in cigarette prices. The price increase in
cigarettes, schedule for the latter half of 2004, is one component of
the government's anti-smoking campaign.

## Leaf Tobacco Production

KT&G's requirement to purchase domestic leaf tobacco expired in 2001.
Since expiration of the domestic purchase requirements, Korean leaf
tobacco production has decreased sharply.

Total leaf tobacco production in 2004 is forecast at 36,380 MT. Area
planted in 2004 is expected to decrease 17 percent from 2003. In 2003,
total leaf tobacco production decreased to 35,666 MT; a 17 percent
decrease from 2002 production of 43,013 MT. Frequent rain while the
tobacco was in its growth stage and limited sunshine during the
harvesting season retarded yields and reduced tobacco production in
2003. Flue-cured production in 2003 decreased to 24,729 MT from 30,447
MT in 2002. Burley production decreased to 10,937 MT from 16,206 MT in
2002. Stocks of burley in Korea are relatively high at present.
Processors are expected to draw down burley stocks over the next couple
of years. Accordingly, production of burley is expected to contract
while processors work off stocks.

The number of tobacco growers decreased to 21,592 in 2003 from 25,935 in
2002 along with the reduction in leaf tobacco production. Korean tobacco
grower numbers are expected to decrease to 17,000 in 2004.

## Leaf Tobacco Consumption

Korea's total leaf tobacco consumption in 2004 is estimated to increase
to 62,038 MT from 59,532 MT as a result of increased cigarette exports
and local manufacturing of foreign brand cigarettes in Korea. However,
the usage weight of domestic leaf tobacco is not expected to increase as
a result of increased cigarette exports and more domestic production of
foreign brand cigarettes. KT&G (the largest cigarette manufacturer in
Korea) increased the usage of foreign leaf tobacco to 20 percent in
2003. British American Tobacco (BAT) Korea and Philip Morris (PMI) Korea
are expected to expand their market shares in 2004. However, BAT and PMI
have no plans to use local leaf tobacco. Japan Tobacco International
(JTI), a Japanese cigarette manufacturer that has exported cigarettes to
Korea in the past, responded to an increase in the Korea import tariff
on imported cigarettes (to 40 percent) in 2004 by consigning production
of the brands that were previously produced in Japan to KT&G to be
produced domestically in Korea.

## Leaf Tobacco Trade

Leaf tobacco imports are forecast to increase to 29,000 MT in 2004 along
with the continuing increase of Korean cigarette exports to the Middle
East and Central Asia. In 2003, Korea's leaf tobacco imports increased
to 27,623 MT; a 59 percent increase from 17,419 MT in 2002. Tobacco
imports have been bolstered by entry of two foreign cigarette
manufacturers (BAT Korea and PMI Korea) that began production in Korea
in March 2003.

Foreign cigarette companies operating in Korea in 2003 did not consume
domestic leaf tobacco, which is considerably more expensive than
imported leaf tobacco. As a result, imports of leaf tobacco in 2003
increased to 27,623 MT from 11,697 MT in 2002. Concurrently 5,777 MT of
tobacco stems (tobacco refuse) were imported again in 2003, the first
since 1992 (3,842 MT).

Out of the total amount of leaf tobacco imported by manufacturers in
Korea in 2003 (27,623 MT), nearly all (23,541 MT) was classified as
flue-cured. Flue-cured tobacco arrived in Korea from Brazil (8,674 MT),
the United States (5,109 MT), and China (4,946 MT). Flue-cured imports
from China were up substantially from only 600 MT in 2002. Korea also
imported 3,299 MT of oriental leaf tobacco from Greece and Turkey in
2003, a 42 percent decrease from 5,722 MT in 2002.

In the past when KT&G's had a requirement to purchase local production,
KT&G regularly exported leaf tobacco at a loss to reduce the high
inventory. Now that there is no local purchasing requirement, exports of
leaf tobacco have dropped sharply.

## Leaf Tobacco Stock

According to KT&G, the optimum leaf tobacco stock (including domestic
and imported tobacco) to have on hand for cigarette manufacturing is
around 75,000 MT, which would represent about 2 years of consumption
capacity. However, ending stocks in 2003 were estimating an 116,000 MT.
Ending stocks in 2004 are expected to continue to decrease, driven by
receding domestic tobacco production and strong export demand for
cigarettes.

## Cigarette Market Situation

An intensive anti-smoking campaign and expected increases in cigarette
prices during the second half of 2004 are forecast to reduce Korean
cigarette consumption in 2004. Conversely, Korean cigarette production
is forecast to increase to 123,700 million pieces to meet strong export
demand from the Middle East, Central Asia and new markets in China and
the United States. In 2004, total local cigarette sales are expected to
decrease to 90,000 million pieces from 96,780 million pieces in 2003.

Due to local cigarette manufacturing by two foreign-owned companies,
foreign cigarette imports in 2003 decreased dramatically to 5,339
million pieces from 18,841 million in 2002. Imports are expected to
continue to decrease in 2004 in line with Japan Tobacco International's
decision to have their brands produced in Korea by KT&G.

Cigarette prices are expected to increase during the second half of 2004
in response to a revision of the National Health Promotion Act.
Currently, a "health fund" tax of 150 Korean won per pack of cigarettes
is in effect. Under the revision of the Act, the "health fund" tax will
increase to 650 won per pack. The Ministry of Health and Welfare (MOHW)
estimated that the resulting cigarette price increases would cause 5
percent reduction in total cigarette consumption. Korea is still one of
Asia's largest cigarette markets with about 60 percent of male adults
being smokers, compared to roughly 30 percent in other economically
advanced countries.

Among cigarette manufacturers in Korea, KT&G commanded a 76.6 percent
share in 2003, while foreign competitors' share increased to 23.3
percent from 21.6 percent in 2002. Despite aggressive marketing by
foreign manufacturers in Korea, KT&G has maintained market share with
the introduction of a variety of lower nicotine and tar containing
cigarettes to meet the needs of increasingly health-conscious smokers.

Korea's cigarette market is shifting rapidly to the low-tar (less than
5mg per piece) and low-nicotine cigarettes in 2004. Ultra-low tar (less
than 3mg per piece) cigarette sales reached 50 percent of total sales in
January 2004. In 2003, domestic and foreign manufacturers introduced 12
new cigarettes to the market. Among the 12 new products, 75 percent were
low and ultra-low cigarettes. Premium cigarettes (over 1800 won per
pack) accounted for 58 percent of sales in 2003 and are expected to grow
to 67 percent in 2004.

KT&G's total cigarette exports increased to 30,900 million pieces in
2003, a 44 percent increase from 21,400 million pieces in 2002. Exports
accounted for 29 percent of total sales volume in 2003. KT&G invested in
a manufacturing factory in Turkey in 2004 and is expected to produce in
Turkey in 2005.

# PS&D  {#psd-1}

## PS&D for Tobacco, Unmfg, Total

## ![](media/image2.wmf)  {#section .unnumbered}

## PS&D for Flue Cured Tobacco

## ![](media/image3.wmf)  {#section-1 .unnumbered}

## PS&D for Burley Tobacco

## ![](media/image4.wmf)  {#section-2 .unnumbered}

## PS&D for Cigarette

## ![](media/image5.wmf)  {#section-3 .unnumbered}

## Production -- Unmanufactured Tobacco Total

  ------------------------- ------------ -------- -------- ------------ -------- --------
                            Area Planted                   Production            

                            (Hectares)                     (Metric               
                                                           Tons)                 

                            2002         2003     2004     2002         2003     2004

  Tobacco, Unmfg., Burley   6,008        4,960    3,920    16,206       10,937   10,380

  Dark Air & Sun Cured      0            0        0        0            0        0

  Dark Air Cured            0            0        0        0            0        0

  Dark Fire Cured           0            0        0        0            0        0

  Tobacco, Unmfg., Flue     14,992       13,040   10,980   30,447       24,729   26,000
  Cured                                                                          

  Light Air Cured           0            0        0        0            0        0

  Tobacco, Unmfg., Oriental 0            0        0        0            0        0

  Tobacco, Unmfg.           20,985       18,000   14,900   46,653       35,666   36,380
  ------------------------- ------------ -------- -------- ------------ -------- --------

#  Trade Matrix

## Korea: Total Imports of Unmanufactured Tobacco for CY 2003 -- 2004

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Brazil         8,710          28,139         1,831          6,231

  P.R. China     4,946          10,179         56             178

  USA            5,109          40,732         749            6,152

  India          1,628          1,407          0              0

  Greece         4,693          24,610         1,570          7,759

  Turkey         1,096          2,719          463            972

  Uganda         305            1,348          0              0

  Malawi         232            593            0              0

  Argentina      198            678            0              0

  Bangladesh     40             91             59             148

  Mexico         104            433            52             203

  Italy          79             276            78             275

  Macedonia      31             120            321            1,637

  Iran           0              0              200            278

  Bulgaria       13             25             0              0

  Other          439            1,940          53             233

  Total          27,623         113,290        5,432          24,066
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Imports of Burley for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Uganda         305            1,348          0              0

  Malawi         232            593            0              0

  Mexico         104            433            52             203

  Italy          79             276            78             275

  Brazil         36             147            139            513

  Other          27             103            0              0

  Total          783            2,900          268            991
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Imports of Flue-cured for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Brazil         8,674          27,992         1,692          5,718

  USA            5,109          40,732         749            6,152

  P.R. China     4,946          10,179         56             178

  Greece         2,534          12,878         0              0

  India          1,628          1,407          0              0

  Argentina      198            678            0              0

  Bangladesh     40             91             59             148

  Other          412            1,835          53             233

  Total          23,541         95,792         2,609          12,429
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Imports of Oriental for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Greece         2,159          11,732         1,570          7,759

  Turkey         1,096          2,719          463            972

  Macedonia      31             120            321            1,637

  Iran           0              0              200            278

  Bulgaria       13             25             0              0

  Other          0              2              0              0

  Total          3,299          14,598         2,554          10,646
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Imports of Tobacco stems for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  India          3,669          705            1,560          323

  P.R. China     1,540          896            0              0

  Bangladesh     154            83             0              0

  Spain          134            136            0              0

  Brazil         47             44             79             71

  Philippines    0              0              537            107

  Indonesia      0              0              115            23

  USA            115            109            0              0

  Argentina      2              3              0              0

  Malawi         0              0              77             41

  Uganda         38             30             0              0

  Other          78             63             0              0

  Total          5,777          2,069          2,368          565
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Total Exports of Unmanufactured Tobacco for CY 2003 -- 2004

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Greece         997            4,263          432            1,772

  France         192            685            0              0

  Bulgaria       0              0              97             382

  Other          0              0              0              0

  Total          1,189          4,948          529            2,154
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## 

## Korea: Exports of Burley for CY 2003 -- 2004

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Greece         445            1,659          215            715

  Bulgaria       0              0              97             382

  France         192            685            0              0

  Other          0              0              0              0

  Total          637            2,344          312            1,097
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Exports of Flue-cured for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Greece         552            2,604          217            1,057

  Other          0              0              0              0

  Total          552            2,604          217            1,057
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Exports of Tobacco stems for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Russia         1,021          262            373            104

  Other          0              0              0              0

  Total          1,021          262            373            104
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

**K**orea: Imports of Filter Tip Cigarettes for CY 2003 -- 2004

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  Japan          3,390          49,344         650            8,750

  U.K.           685            8,827          3              94

  German         584            9,788          0              17

  USA            572            9,036          58             886

  Holland        281            6,162          0              8

  P.R. China     156            835            46             395

  Greece         12             114            2              16

  Philippines    12             40             0              0

  Hong Kong      3              38             0              10

  Indonesia      2              20             0              4

  Spain          3              33             0              0

  Other          2              85             0              0

  Total          5,702          84,322         759            10,180
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

## Korea: Exports of Filter Tip Cigarette for CY 2003 -- 2004 

  -------------- -------------- -------------- -------------- --------------
  Country        CY 2003                       CY 2004 (Jan.  
                                               -- Mar.)       

                 MT             US\$ 000       MT             US\$ 000

  U.A.E.         21,268         99,678         6,659          32,142

  Afghanistan    9,562          44,653         1,972          9,328

  Turkmenistan   7,492          32,581         2,281          10,009

  USA            1,895          27,364         305            4,515

  Kyrgyzstan     1,107          5,502          252            1,098

  Uzbekistan     486            2,326          80             364

  Iran           262            1,268          2,056          12,780

  Russia         231            1,936          146            1,323

  P.R. China     220            3,572          92             1,482

  Mongolia       179            1,575          39             326

  Jordan         504            2,201          0              0

  Other          684            6,063          233            2437

  Total          43,890         228,719        14,115         75,804
  -------------- -------------- -------------- -------------- --------------

Source: Korea Trade Information Services (KOTIS)

# Price Tables

## 

## Korea: Purchase price of Burley and Flue-cured Tobacco by KT&G for CY 2003

  ------------- -------- -------- -------- -------- -------- -------- --------
  Stalk         Leaf &                              Tip &             
  Position      Cutter                              Lug (KRW          
                (KRW /                              / KG)             
                KG) 1/                                                

  Grade         No. 1    No. 2    No. 3    No. 4    No. 1    No. 2    No. 3

  Burley        6,610    5,980    5,570    4,430    5,570    4,750    4,120

  Flue-cured    7,660    6,940    6,330    5,020    6,330    5,430    4,660
  ------------- -------- -------- -------- -------- -------- -------- --------

1/ Korean Won / KG

Source: Korea Tomorrow and Global (KT&G) Corporation

## Korea: Imports Prices of Flue-cured and Oriental Tobacco

(Unit: US\$/KG, CIF basis)

  ------------ ------- ------- ------- ------- ------- ------- ------- -------
  Year         1996    1997    1998    1999    2000    2001    2002    2003

  Flue-cured   8.41    9.07    9.16    8.49    6.71    4.95    4.61    4.07

  Oriental     5.45    5.45    6.07    5.37    4.8     4.65    3.8     4.42
  ------------ ------- ------- ------- ------- ------- ------- ------- -------

Source: Korea Trade Information Services (KOTIS)

## Korea: Exports Prices of Burley and Flue-cured Tobacco 

(Unit: US\$/KG, FOB basis)

  ------------ ------- ------- ------- ------- ------- ------- ------- -------
  Year         1996    1997    1998    1999    2000    2001    2002    2003

  Burley       4.6             4.33    4.13    3.85    3.85    3.93    3.68

  Flue-cured   4.43    4.14    4.31    4.87    4.95    4.22    4.28    4.71
  ------------ ------- ------- ------- ------- ------- ------- ------- -------

Source: Korea Trade Information Services (KOTIS)

# Market Share

## Korea: Domestic and Foreign Cigarette Sales 

(Unit in Million Sticks)

  ---------- ---------- ---------- ---------- ---------- ---------- ----------
  Year       Domestic   Growth     Foreign    Growth     Total      Growth

  1992       96,356     2.7        5,333      6.9        101,689    2.9

  1993       99,119     2.9        7,158      34.2       106,277    4.5

  1994       87,699     -11.5      8,549      19.4       96,248     \- 9.4

  1995       88,293     0.7        12,490     46.1       100,783    4.7

  1996       93,010     5.3        11,509     \- 7.9     104,519    3.7

  1997       92,622     \- 0.4     11,686     1.5        104,308    \- 0.2

  1998       101,326    9.4        5,246      \- 55.1    106,572    2.2

  1999       89,322     -11.8      6,167      17.6       95,489     \- 10.4

  2000       95,068     6.4        9,872      60.1       104,940    9.9

  2001       83,416     \- 12.3    15,501     57.1       98,917     \- 5.7

  2002       72,350     \- 13.3    18,841     21.5       91,191     \- 7.8

  2003       74,265     2.6        22,516     19.5       96,780     6.1
  ---------- ---------- ---------- ---------- ---------- ---------- ----------

Source: Industry Data

## Korea: Cigarette Sales by Major Market Competitors for CY 2003 -- 2004 

(Unit in Million Sticks)

  --------------- --------- --------- --------- --------- ----------- ---------
  Company         CY 2002             CY 2003             CY 2004     
                                                          (Jan-Apr)   

                  Sales     Mkt Shr.  Sales     Mkt Shr.  Sales       Mkt Shr.

  KT&G (Korea)    72,350    79.34%    74,265    76.7%     22,878      76.9%

  British         9,774     11.72%    12,355    12.8%     3,660       12.3%
  American                                                            
  Tobacco (U.K.)                                                      

  Philip Morris   5,209     5.71%     6,389     6.6%      2,329       7.8%
  (USA)                                                               

  Japan Tobacco   3,820     4.19%     3,728     3.9%      852         2.9%
  (Japan)                                                             

  Other           38        0.04%     45        0%        14          0.1%

  Total           91,191    100.0%    96,780    100.0%    29,735      100.0%
  --------------- --------- --------- --------- --------- ----------- ---------

Source: Industry Data

## Korea: Market Share of Top 4 Foreign Cigarettes for CY 2001 -- 2003

(Unit in %)

  ----------------------- -------------- -------------- ------------------
  Company                 CY 2002        CY 2003        CY 2004 (Jan-Mar)

  Dunhill (BAT)           50.2%          53.9%          54.8%

  Virginia Slims (PM)     15%            12.2%          12.5%

  Mild Seven (JT)         19%            15.4%          12.3%

  Marlboro (PM)           9.3%           8.2%           10.4%

  Other                   6.5%           10.3%          10.0%

  Total                   100.0%         100.0%         100.0%
  ----------------------- -------------- -------------- ------------------

Source: Industry Data

# Tariffs and Taxes

## Korea: Taxes and Charges for Cigarettes 

(As of February 1. 2002, Unit in Korean Won)

+------------------------------------------------+---------------------+
| Tax and Charge                                 | Retail price of     |
|                                                | 2,000 Won per pack  |
|                                                | of cigarettes       |
+------------------------------------------------+---------------------+
| Taxes                                          | 510                 |
|                                                |                     |
|  Consumption (Excise) tax                     | 255                 |
|                                                |                     |
|  Education Tax (50% of Consumption Tax)       | 164                 |
|                                                |                     |
|  Value added tax (10% of wholesale price)     | 150 (650) 2/        |
|                                                |                     |
| Charges                                        | 4                   |
|                                                |                     |
|  Health Fund (Public Health Promotion         | 10                  |
| Supporting Fund)                               |                     |
|                                                | ..............      |
|  Green Fund (Public Environment Supporting    | ................... |
| Fund)                                          |                     |
|                                                | 1,093               |
|  Subsidy Fund (Leaf Tobacco Cultivation       |                     |
| Stabilizing Fund) 1/                           |                     |
|                                                |                     |
| Subtotal of taxes and charges                  |                     |
+------------------------------------------------+---------------------+
| Retailer Margin (10% of retail price)          | 200                 |
+------------------------------------------------+---------------------+
| Net Cost per pack of cigarettes                | 707                 |
+------------------------------------------------+---------------------+

1/ Subsidy fund is charged to KT&G only, not foreign cigarette
manufacturers in Korea.

2/ In accordance with the expected revision of National Health Promotion
Act, a 500 Won is scheduled to increase from July 2004.

Source: Industry Data

## Korea: Tobacco and Cigarette Tariff Rates

  ------ ------------------------ --------- ------ ------ ------- ------ ------
  HS     Description              Actual                  WTO            
  code                            Applied                 Bound          
                                  Rates                   Rates          
                                                          1/             

                                  2003      2004   2005   2003    2004   2005

  2401   Unmanufactured tobacco   20        20     20     55.7    54.0   54.0

  2402   Cigars, cheroots,        30        40     40     69.0    65.5   65.5
         cigarillos, and                                                 
         cigarettes, of tobacco                                          
         or of tobacco                                                   
         substitutes                                                     

  2403   Other manufactured       40        40     40     69.0    65.5   65.5
         tobacco and manufactured                                        
         tobacco substitutes,                                            
         "homogenized" or                                                
         "reconstituted" tobacco,                                        
         tobacco extracts and                                            
         essences                                                        
  ------ ------------------------ --------- ------ ------ ------- ------ ------

1/ According to the WTO agreement, the tariff rate is scheduled to drop
evenly over a 10 year from 1995 to 2004.