Hungarian Government vs. Cigarette Industry Goliaths

WITH global sales flagging, Western tobacco giants are determined to beat a slew of obstacles, including smuggling, chaotic distribution systems, and antagonistic laws to tap eastern European markets.

Here in Hungary, Phillip Morris, R.J. Reynolds, British-American Tobacco (BAT), and Reemstma of Germany are lobbying against the country's ban on most cigarette ads. Meanwhile they are breaking the law. Each owns recently privatized factories here.

Undeterred by the state's creaky enforcement, the four firms jostle for market share. Hungarian per capita cigarette consumption last year was a high 139 packs, according to BAT. Billboard, newspaper, and shop-front ads proliferate.

"Western tobacco companies' advertising wars resemble the frontiers of the Wild West," says Tamas Wachsler, an opposition member of Parliament.

A 1978 decree bans ads that "enhance consumption" except in stores, in the foreign-language press, and at internationally broadcast events. Cigarette makers say the decree is obsolete. The authorities agree, but maintain that the law is the law. Fines and court orders have not worked:

* For a year R.J. Reynolds ran "Camel Boots" ads, sporting the familiar animal logo, on 22 Budapest trams. On Feb. 24, the municipal court ordered them taken down. On March 1, Reynolds came back with a billboard campaign for Formula One "Team Camel."

* Phillip Morris started a campaign for a local brand that did not mention tobacco but displayed a cigarette-pack design and a lit cigarette. Ad agency Leo Burnett Budapest claims it merely advertises the pack's new look. The state disagreed and on Nov. 5 fined Morris $22,727. Morris has not taken the billboards down.

* Three $34 fines levied last December against "Nepszabadsag," Hungary's largest daily, has not kept it from running full-page ads for BAT's Lucky Strikes. "I won't stop," says Miklos Breitner, the paper's general manager. "If they fine us, we pay. It's very cynical."

These examples, as well as Reemstma's April 1 launch of a poster campaign, show the trend is growing. Zenith Media Worldwide expects spending on cigarette ads to leap from $1.13 million in 1992 to $7.9 million this year.

"The laws we have to enforce are already surpassed by real life in Hungary," says Miklos Bardi, director of the Consumer Protection Agency (CPA). Maximum fines - in most cases $34 for posters and $113 for billboards - are "ridiculously low" compared with the ad revenue generated, Mr. Bardi says. Moreover, local shop owners and multinational ad agencies are willing partners that help overwhelm the CPA's skeleton staff.

Bardi has appealed unsuccessfully for a tougher stance from cash-strapped local governments that earn $198 to $284 from a year's billboard license. Appeals against fines and removal orders clog the courts and can often outlast a campaign.

Reynolds and Morris say they have each invested more than $20 million and are frustrated with the CPA's bewildering rulings. Last summer the agency ruled that while posters in shop windows illegally "enhance consumption," stacks of packs on display do not. Camel-logo ashtrays on outdoor cafe tables are fine, but not on the tables' sun umbrellas.

The four companies have joined together to lobby for looser rules.

"The industry should continue to talk to high-level politicians to maintain pressure on the bureaucracy," writes Gabor Garamszegi, Morris's marketing manager. Tobacco companies remain defiant. "We don't want to just spend money in Hungary, but to make money too," says Reynolds's Gabor Hajnaczky.