EDITED BY TIMOTHY BELKNAP

Guarding a Lead in the Cigar Market...From a Rival Waiting in the Wings (int'l edition)

Hendrik Kelner is interrupted mid-interview by two worried technicians holding samples of the new boxes that have just arrived for the pricey ($10-$18) Davidoff cigars that his company, Tabacos Dominicanos, produces. The wooden boxes are almost imperceptibly imperfect: One edge is ever so slightly crooked. Kelner peers at the boxes, then rests a cigar tube on the offending side--it rolls off. ''If they're all like that, they'll have to go back,'' he tells the technicians. He turns to his visitor. ''It's a small problem, but it's a problem with quality,'' he says, puffing on one of his own cigars, which he keeps on a tray on his desk.

Quality is of the essence in the Dominican Republic, the world's largest producer of premium, or hand-rolled, cigars. Based in the Cibao Valley around the city of Santiago de los Caballeros, 130 km northwest of capital Santo Domingo, the cigar industry last year brought in $323 million to this Caribbean country. But with Americans' premium-cigar smoking fad of the mid-1990s now fading and overall consumption in steady decline, Dominican producers must ensure more than ever that they don't lose their market leadership to fierce rivals from Honduras, Nicaragua, and Mexico.

The focus on quality is the legacy of the boom in quantity. Starting in 1992, U.S. premium-cigar consumption soared--from 99 million to its zenith of 463 million in 1997, according to the manufacturers' Cigar Assn. That sent producers in the Dominican Republic scrambling. Locals in Santiago built cigar-rolling workshops in their garages and started growing tobacco, the price of which had soared, in their backyards. Entrepreneurs, local and foreign, opened some 140 factories and flooded the market with new brands, while the number of tobacco farmers almost doubled. ''Everyone wanted to get in on it,'' recalls Kelner.

Realizing the potential, the top Dominican producers quickly banded together to protect the reputation of Dominican cigars in general and their brands specifically. One key tactic was holding promotional ''cigar dinners'' around the U.S. at which diners received a sample box of Dominican brands to take home after an ample repast. Their efforts paid off: Dominican share of the premium market jumped from 45% in the early '90s, to the current 62%.

But in 1998, demand started falling off. As makers closed--only 20 are still operating--banks were left holding up to six years' worth of tobacco inventories and tobacco prices crashed. Now, remaining producers fear the opposite problem: With prices so low, farmers aren't sowing enough seed to meet demand. Last year's harvest reaped only 16,000 50-kg sacks, quite a drop from the 1 million sacks during the boom's apogee. The boom brought another headache: pirate Dominican cigarmakers who yearly churn out an estimated 3 million cigars of inferior quality under known brand names.

Despite the aftershocks, the 1990s cigar madness left the Dominican Republic well positioned, experts say. ''In the last five years, they've improved greatly in quality,'' says Gordon Mott, executive editor of Cigar Aficionado magazine. Although Dominican cigarmakers yearn for the good old '90s, they're also happy that the premium market, albeit diminished, is still almost triple what it was before the boom.

Dominican cigarmakers like to claim their cigars are better than Cuba's, but Cuba has the cachet--and that's what has them nervous if Havanas are ever allowed to be sold in the U.S. They don't want Cuba to dominate their prime market as it does in Europe, where it sells about 100 million cigars annually to the Dominicans' 25 million. The Dominicans, some of whom had fled Castro's Cuba with seed and their brand names, have taken steps to protect their position in the U.S. by registering such fabled names as Montecristo and Partagas, making a legal battle royal necessary if Cuba wants to enter the U.S. with those same names, which it also markets.

But some believe that Cuba would avoid the issue and simply create new brands for the U.S. Others say that the novelty of Cuban cigars would pique Americans' interest in cigars in general. ''People will try Dominican cigars to compare,'' says Cigar Aficionado's Mott. Still, the Dominicans don't want to take chances. Says Kelner: ''Everyone is getting their strategy ready.''