IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Regulation and key laws

Tobacco business
The tobacco regulatory environment has been becoming increasingly stringent since the WHO Framework Convention
on Tobacco Control (FCTC) took effect in February 2005.
The FCTC’s objective is to “reduce continually and substantially the prevalence of tobacco use and exposure totobacco smoke.” The FCTC covers price and tax measures
to reduce tobacco demand, non-price measures to reduce
tobacco demand (e.g., protection from exposure to secondhand smoke, regulation of tobacco products’ contents andemissions, regulation of tobacco product disclosures, regulation of tobacco products’ packaging and labeling, regulationof tobacco advertising, promotion and sponsorship) andmeasures to reduce the supply of tobacco products (e.g.,measures to prevent illicit trade in tobacco products andsales of tobacco products to minors).
While the FCTC requires its signatory countries to develop,
implement, periodically update and review national tobacco
control strategies, plans and programs, it leaves to the discretion of each country the specifics of national regulations’content, scope and methods. The FCTC’s governing body,the Conference of the Parties (COP), has been meeting
regularly since the FCTC first took effect. The COP is a forum
for ongoing discussions among FCTC-signatory countries on
issues such as formulating FCTC Article-specific guidelines
and protocols (which must be separately ratified or otherwise agreed to by the parties).
Among FCTC-signatory countries, Russia, one of our key
markets, enacted a comprehensive tobacco control law in
February 2013 and phased it in from June 2013. The law
restricts retail sales locations and point-of-sale displays of
tobacco products; prohibits advertising, sales promotions
and sponsorship; sets minimum retail prices; bans smoking
in public; and combats illicit trade in tobacco products.
The EU revised its July 2001 Tobacco Products Directive (TPD)
effective May 2014. The revised TPD tightened restrictions
on tobacco product packaging and labeling, added new
regulations on tobacco product additives, tobacco productflavor and E-Vapor products, and also included measures toaddress illicit trade. EU-member countries have implemented
regulations associated with the revised EU TPD.

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Australia mandates generic packaging of tobacco products
under its Tobacco Plain Packaging Act, which took effect inDecember 2012. The law prohibits tobacco packaging frombearing logos, brand images, promotional text or anythingelse except the product name printed in a standardized fontand color. Plain packaging regulations have since been adopted elsewhere, including in France and the U.K. A numberof other countries are exploring the possibility of following
suit or have already decided to follow.

existing tobacco product regulations to RRP while others
have newly adopted separate regulations. In the E.U. forexample, it was decided in November 2022 that a flavor
ban regulation previously applied only to certain tobacco
products would also be applied to HTP (heated tobacco
products). Also, in the U.S., sales of certain flavored E-Vapor
cartridges were banned from February 2020. With a global
regulatory consensus yet to take shape, regulatory treatment of RRP varies widely among markets/countries.

various initiatives to address this issue in coordination withgovernments and concerned organizations in addition toappropriately operating in accord with our GMPs.

In Japan, the Tobacco Business Act (TBA) prescribes that weare obligated to purchase a grower’s entire tobacco crop
excluding any portion not suitable for manufacturing tobacco products and that our own tobacco products as well astobacco products imported by a designated distributor may
be sold by retailers only at prices approved by the Ministerof Finance. Tobacco product sales and promotional activities
in Japan are regulated under the TBA, related laws/regulations and voluntary industry standards. One regulatory
requirement is that advertisements and product packaging
must carry a cautionary statement about the health implications of consuming tobacco products. In accordance with
the Tobacco Institute of Japan (TIOJ)’s voluntary standards,
which were revised in 2020, the cautionary statement on
tobacco product packaging was changed to be consistent
with the latest scientific knowledge, and the area it occupied on the packaging was enlarged. Revisions to the TIOJ’s
advertising voluntary standard included measures to more
effectively shield those under 20 years of age from tobacco
product ads, including online, and new restrictions on
point-of-sale ad size and display methods.

Regulatory impacts on our operating performance

Pharmaceutical R&D, manufacturing, sales and marketingare stringently regulated in Japan and major overseas markets. Additionally, regulatory authorities globally have beenreviewing new drug applications (NDA) increasingly rigorously in recent years in response to a growing imperative toensure drug safety. Given the need to demonstrate safety inlarger sample sizes over sufficiently long timeframes, clinical
trials are growing in both scale and duration. Meanwhile,with required NDA documentation being internationallystandardized both qualitatively and quantitatively, drug
companies now commonly use a single set of data available
in multiple countries for drug development, a practice that
increases development efficiency and reduces costs.

In July 2018, the Health Promotion Act (HPA) was amended
to better prevent unwanted exposure to secondhand smoke
in facilities frequented by the public. We recognize public
places that allow smoking are going to decrease in number
under the amended HPA, which fully took effect from April
1, 2020. While it is difficult to predict smoking environmentchanges in detail, we expect our financial results to beaffected to some extent.
In relation to RRP (Reduced-Risk Products), the U.S. andEuropean countries are starting to establish new guidelines
and frameworks for scientifically assessing the reduction in
health risks associated with smoking. Tobacco makers havebeen stepping up activities to obtain official certificationof risk-reduction benefits. Some countries have applied

While the future content of laws, regulations and industry
guidelines on smoking, tobacco products and tobacco
product marketing, sales promotions, packaging andlabeling is impossible to accurately predict, we expect theregulations discussed above to expand in scope and/or new
regulations (including municipal regulations) to be imposed
in Japan and overseas markets in which we sell products.
We are supportive of reasonable and appropriate regulationof tobacco, but if tobacco regulations like those describedabove are tightened or if we are not afforded enough time
to adequately adapt to such regulatory tightening, ourfinancial results may be adversely affected by contraction
in tobacco product demand, loss of market share and/or
increased regulatory compliance expenses.

Self-regulation of marketing
In addition to complying with the regulations of every
country and region in which we operate, we also operatein accord with our own Global Marketing Principles (GMPs),
the principles based on our recognition of the importanceof responsibly marketing tobacco products. Our GMPs are
based on the recognition of the importance of conducting
responsible marketing activities for tobacco products, anddescribe the principles for advertising, promotion, andothers activities conducted by the Group. This includes
ensuring that marketing activities are targeted at peopleof 18 years of age or older, and of legal smoking age. These
marketing activities are not aimed at encouraging anyone
to start smoking or discoursing them from quitting, even
if they are of legal smoking age. We also recognize thatthe prevention of smoking by minors (those who have
not reached legal smoking age) is an issue that needs
to be addressed by society as a whole. We are pursuing

Please visit JTI.com for more details.

Pharmaceutical business

In Japan, pharmaceutical manufacturing and sales are
regulated by the Ministry of Health, Labour and Welfare(MHLW) and/or prefectural authorities under the Act on
Securing Quality, Efficacy and Safety of Products Including
Pharmaceuticals and Medical Devices (the “Pharmaceuticaland Medical Device (PMD) Act”). The PMD Act requires
companies that manufacture and sell pharmaceuticals to
be licensed in every prefecture in which they operate andto renew those licenses every five years. Additionally, every
pharmaceutical manufactured or sold in Japan must be
approved by the MHLW. Japan’s National Health Insurance(NHI) program maintains a drug formulary and sets official
drug prices. The NHI is planning to radically reform drug
pricing. The planned reforms include annual drug pricerevisions, paring-down of the list of drugs qualifying forpremium pricing intended to incentivize drug discovery andreduce off-label drug use, and tiered reductions in long-listed drug prices based on generic substitution rates.

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IDENTITY

Our processed food business is regulated as a food productmanufacturer and distributor, mainly under the Food Safety
Basic Act, Food Sanitation Act and Food Labeling Act.
The Food Safety Basic Act, enacted and effective from2003 with the purpose to ensure food safety and protect
consumers, charges food companies with a responsibility to
implement safeguards necessary to ensure food safety froma scientific standpoint through risk control, assessment andcommunication at each stage of their entire supply chains.
The Food Sanitation Act aims to keep food and beverages
free of hygienic hazards and protect the health of consumers. It requires food companies to acquire knowledge andtechnology, verify ingredient safety, inspect their facilities,
and otherwise act diligently to fulfill their responsibilities toensure the safety of their food products, additives, utensils,
containers and/or packaging. As part of the revision in 2018,
additional requirements such as hygiene management inline with the HACCP (Hazard Analysis and Critical Control
Point) are in place. The Food Labeling Act, aiming to upholdconsumer interests and contribute to making food production support the protection and/or promotion of consumer
health, sets labeling standards for food products offered for
sale, including with respect to allergen content, shelf life, ingredients, and place of origin. Food companies are required
to label their products in compliance with these standards.
In addition to meticulously complying with these and otherapplicable laws and regulations, our processed food business is committed to the highest standards of food safety
management from the four perspectives—food safety, fooddefense, food quality and food communication—in orderto provide consumers with safe, high-quality food productsthat they can enjoy with peace of mind.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Litigation

Regulation and key laws

Processed food business

MATERIALITY andSUSTAINABILITY

Japan Tobacco Inc. Act
JT was established pursuant to the Japan Tobacco Inc.
Act (the “JT Act”) to manufacture, sell and import tobacco
products. Under the JT Act, the Japanese government must
always own at least one-third of our total issued shares(excluding any non-voting share classes*¹). The Minister ofFinance must approve any offerings of newly issued stock or
subscription rights to shares, as well as any issuance of stock,subscription rights to shares or bonds cum subscription
rights to shares in conjunction with a stock swap. In addition
to manufacturing, selling and importing tobacco products
and operating businesses incidental thereto, we are permitted by the JT Act to engage in other businesses as required
to fulfill our purpose and subject to the Minister of Finance’s
approval. Other matters requiring the Minister of Finance’s
approval include appointment/dismissal of Directors,
Executive Officers and Audit & Supervisory Board Members,
amendments to our Articles of Incorporation, appropriationsof capital surplus (excluding appropriations to rectify anaccumulated deficit), mergers, split-ups and dissolution. We
are also required to submit a statement of financial position,statement of income and business report to the Minister ofFinance within three months of every fiscal year-end.
The Reconstruction Financing Act*², which took effect on
December 2, 2011, directed the government to reassessstate involvement in the tobacco industry under the
Tobacco Business Act by March 31, 2023, and to explore thepossibility of divesting its JT shareholdings.
*1 Defined as classes of shares with no right to vote on any resolutions at
general meetings of shareholders*2 The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake

Some of JT’s subsidiaries are defendants in lawsuits filed byplaintiffs seeking damages for harm allegedly caused bysmoking or vaping, the marketing of tobacco or E-Vapor
products or exposure to tobacco smoke. There are lawsuits
involving smoking/vaping and health-related cases pendingin which some of JT’s subsidiaries are named as defendants
or for which JT may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco
Inc.’s non-U.S. tobacco business. In addition, JT and/or someof its subsidiaries are also defendants in lawsuits other than
the smoking/vaping and health-related cases.
There are 10 ongoing health care cost recovery cases in
Canada pending against JTI-Macdonald Corp. (hereinafterreferred to as JTI-Mac), our Canadian subsidiary and JT’s
indemnitees (RJR Nabisco Inc.’s affiliates), brought by
Canadian provinces. In addition, there are 8 pending classactions in Canada where plaintiffs are seeking damages forharm allegedly caused by smoking of cigarettes. Damages
claimed in some of these cases reach sums in the multi-billion-dollar range. We will continue to take all appropriate
actions to defend such claims vigorously and believe there
are a number of valid defenses.
On March 8, 2019, JTI-Mac filed for protection from its
creditors under Canada’s Companies’ Creditors Arrangement
Act (CCAA). The Ontario Superior Court granted the CCAA
application on the same date and extended the protection infavor of JTI-Mac. All the Canadian matters against JTI-Mac referred to herein have been stayed by the court order. JTI-Mac
carries on business in the ordinary course under the CCAA.
In recent decades, numerous, large-scale smoking andhealth-related cases have been brought against tobacco
product manufacturers in the U.S. and some of the cases initially resulted in verdicts with massive damage awards. We
are not defendants in any of these lawsuits, nor are we subject to any indemnity claims with respect to them. The JT
Group’s U.S. tobacco business does not include the businessthat it acquired from RJR Nabisco Inc. in 1999, as well as the
Natural American Spirit’s non-U.S. business that it acquired
from Reynolds American Inc. group in January 2016.

There is ongoing litigation in the U.S. alleging health effects
associated with E-Vapor use and harm caused to consumers
by misleading representations and advertising for whichplaintiffs are seeking damages and/or demanding healthwarnings against E-Vapor manufacturers in the U.S. One
such case has been brought against a number of E-Vapor
manufacturers including JT subsidiaries. This case has been
stayed by a court order. We believe that we have valid
grounds to defend this claim and intend to do so vigorously.
Even now, the scale of the JT Group’s U.S. tobacco businessremains small. Hence, we believe that litigation in the U.S.
will not materially affect its businesses in the near future.
Please see “Contingent Liabilities” in our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees are
named as defendants.
To date, the JT Group has never lost a case or paid any
settlement award in connection with smoking/vaping andhealth-related litigation. However, the Group is unable topredict the outcome of currently pending or future lawsuits.
A decision unfavorable to the JT Group and payment of a
substantial amount of monetary compensation could materially affect its financial performance. Moreover, regardlessof the results of these lawsuits, critical media coverage may
reduce social tolerance of smoking, strengthen public regulations and prompt the filing of a number of similar lawsuits
against the JT Group, forcing it to bear litigation costs andmaterially affecting its business performance. Apart fromsmoking/vaping and health-related ones, the JT Group also
may become the defendant in further litigation. Should any
problems arise on the Group’s product quality, this maylead to claims seeking product liability. Such litigation cases
may negatively affect the Group’s business performance or
the manufacture, sale and import and export of its products,
should the outcome of any such claims prove unfavorable.

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