DATELINE–Seattle, Wash.

International children’s rights organization The Children First claims to have uncovered an internal memo suggesting that the tobacco industry is selling cigarettes below cost in the United States.

The memo provides evidence that domestic cigarette sales are the linchpin of Big Tobacco’s overseas marketing campaigns.

Just when it seemed that the tobacco industry was getting a handle on its legal problems, a public interest group has blown the whistle on more alleged wrongdoings, this time in the developing world.

At a press conference held early this morning, Seattle-based The Children First announced it possessed an internal memorandum signed by a senior executive at Philip Morris that outlines top-level marketing policies aimed at securing emerging markets.

According to the organization, the memo offers “irrefutable proof” that Philip Morris has been intentionally selling its cigarettes in the United States at price points below cost for at least two years. The memo also links U.S. consumption of cigarettes to sales abroad.

“Big Tobacco is literally giving away cigarettes as product placement,” The Children First spokesperson Nancy McKeon said. “They realize that the mystique of cigarettes in the developing world is heavily American, and they want to insure that Americans continue smoking.”

Although the memo itself has not yet been made available to the public due to a pending court challenge, industry experts familiar with the case do not dispute the authenticity of the leaked document. They point to increasing cigarette taxes as the likely cause behind the startling Philip Morris directive.

“In today’s market the cost of a pack of cigarettes has more to do with state and federal excise taxes than the actual cost of producing the highly contested consumables,” says Fred Ortiz, an analyst with the Monitor Company.

In Alaska the cost of a pack of cigarettes includes $1.24 in taxes, and that may jump to $2 a pack if proposed federal legislation is ratified later this year. With brand-name cigarettes fetching $2.50 in major markets, an average of only 25 percent of the retail price goes to cover manufacturing costs.

According to a University of Kentucky study, excise taxes collected on the sale of tobacco products in 1997 exceeded $13 billion, more than four times the entire farm value of U.S. tobacco production.

As excise taxes rise, companies like Philip Morris and RJR Nabisco are opting to absorb losses rather than raise the price of cigarettes. It is a strategy that may well result in a negative profit margin on the home front but assures rewards abroad, as the memo publicized by The Children First implies.

Bev Wiggins, columnist for the trade weekly Advertising Age, sees the “giveaway” as an innovative marketing ploy for an industry that must balance a rapidly diminishing domestic market share against booming foreign sales. Says Wiggins, “Every cent they lose here they get back in Asia and the third world.”

In 1996 more than 70 percent of the cigarettes sold by Philip Morris, and 57 percent of those sold by RJR Nabisco, were sold overseas. To date, nearly 95 percent of all tobacco users live outside of the United States.

“When people in third world countries think cigarettes,” Wiggins says, “they think Americans smoking cigarettes. If Americans stop smoking, American cigarettes stop selling there.”

The Federal Trade Commission reports that tobacco companies spend upwards of $5 billion each year, or roughly $13 million every day, to promote their products.