issue

Illicit Trade

Most cigarettes traded illicitly are products of legitimate tobacco manufacturers that profit from selling these cigarettes to smugglers and use illicit trade as a counterargument against tobacco control policies.

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Today, the primary argument that the tobacco industry uses to oppose new tobacco control regulations is that they will cause a dramatic increase in cigarette smuggling. However, these industry arguments should be treated with particular caution. Studies paid for and presented by cigarette manufacturers are generally not independently-verified or peer-reviewed and, unlike academic research studies, are not replicable. Growing evidence suggests that these industry-commissioned studies typically grossly overstate the illicit cigarette trade problem.

Because the industry’s illicit trade estimates cannot be trusted, governments need to seek for other rigorous and industry-independent estimates. Illicit trade estimates that are not influenced by the tobacco industry are rare. For example, the illicit cigarette prevalence became an official government statistic in the United Kingdom, where Her Majesty’s Revenue and Customs releases the estimates annually. Some other countries have asked academia and civil society to help them better understand the scope and nature of the illicit cigarette trade. The most reliable methods of illicit trade estimation include surveys of cigarette packs, both discarded and presented by smokers. Further cooperation between governments and researchers toward studying illicit cigarette trade would provide high-quality estimates to inform the implementation of evidence-based tobacco tax policies and other tobacco control measures.

In addition to obtaining reliable information on illicit cigarette trade, those who tackle the problem need to understand that the illicit cigarette trade has one powerful and perhaps unexpected ally: the tobacco industry. It is estimated that 98% of illicit cigarettes traded globally are products of legitimate tobacco manufacturers. This proportion might seem unbelievable, unless one understands that tobacco companies are among the main actors benefiting from the illicit cigarette trade. Smuggling helps these companies generate higher profits by enabling them to pay tobacco taxes in jurisdictions with lower levies, or to not pay taxes at all. It is well documented that the tobacco industry’s various business strategies to expand tobacco sales facilitated the illicit cigarette trade. Worldwide, transnational tobacco companies have been found guilty of organizing illicit tobacco trade, and have paid billions of dollars in penalties.

Governments can take effective and proven steps to prevent the illicit cigarette trade. Much of the problem can be addressed by strengthening tax administration and enforcement. However, because the companies and the smugglers work internationally, the ultimate steps to eliminate illicit cigarette trade and hold the responsible entities accountable will require global cooperation. The Protocol to Eliminate Illicit Trade in Tobacco Products is a platform for such a global effort. When in force, the Protocol would help to prevent illicit trade by: securing the supply chain, including through tracking and tracing cigarette packs; requiring companies to exercise due diligence; and by strengthening law enforcement, including through international cooperation.


Tax Increases

The industry says

“This tax rise is further good news for criminals who already view the UK as a smugglers’ paradise and do not care what age their customers are.”

-Japan Tobacco International, 2010

The Truth

Due to periodic cigarette tax increases, the inflation-adjusted price of cigarettes in the UK increased by 63% from 2001 to 2016, making UK cigarette prices among the highest in the world. At the same time, the illicit market dropped by over 70%.

 


References

Tobaccowatch.org. United Kingdom – JTI believes tobacco tax increase lead to moretobacco smuggling.. [Internet]. Snus News & Other Tobacco Products. [cited Jan 19, 2018]. Available from: http://snus-news.blogspot.com/2010/03/united-kingdom-jti-believes-tobacco-tax.html

Plain Packaging

The industry says

“At the end of the day no one wins from plain packaging except the criminals who sell illegal cigarettes around Australia.” – British American Tobacco Australia, 2012

The Truth

No increase in use of illicit cigarettes was observed following the implementation of plain/standardized packaging in Australia.


References

BATA. Serious unintended consequences start 1 December [Internet]. British American Tobacco Australia; 2012 [cited Jan 18 2018]. Available from: http://www.bata.com.au/group/sites/bat_9rnflh.nsf/vwPagesWebLive/DOA3CLZ9/%24FILE/medMD8X73N7.pdf?openelement

The proof: No increase in illicit trade

Pre-plain/standardized packaging 2012

Plain/standardized packaging Implementation 2012

Post-plain/standardized packaging 2014

Prevalence of unbranded illicit tobacco use among cigarette smokers

3.7%

3.5%

3.0%

References

Scollo M, et al. Tob Control 2015;24:ii76-ii81. doi:10.1136/tobaccocontrol-2014-052072

Menthol Cigarette Ban

The industry says:

“the primary effect of this law will be to increase the illegal tobacco market in Nova Scotia.”
– The National Coalition Against Contraband Tobacco, the tobacco industry front group, 2015

Truth:
In 2015, Canada’s province of Nova Scotia became the first jurisdiction in the world to ban menthol cigarette sales. Contrary to the tobacco industry’s threats, the province’s authorities reported no increase in illicit cigarette sales:

“Since 2006-07 the amount of illegal tobacco in the province has decreased from 30 per cent of all tobacco consumed to less than 10 per cent.”

– Service Nova Scotia, 2017

A declining number of seized illicit cigarettes confirms the downward trend in illicit cigarette trade in Nova Scotia. According to local authorities, there were only a few small seizures of menthol cigarettes in the year following the ban, after which there have been no further seizures of menthol cigarettes.


References

National Coalition Against Contraband Tobacco. Nova Scotia Menthol Ban will Fuel Contraband Tobacco. 2015.https://www.newswire.ca/news-releases/nova-scotia-menthol-ban-will-fuel-contraband-tobacco-517455221.html (accessed 1 Jun 2018)

Display Bans

The industry says

“We believe that product display bans … foster illicit trade in tobacco products, as it is much easier to disseminate such products if they do not need to be displayed. ”

– Phillip Morris International, 2010

The Truth

No change in prevalence of illicit cigarettes was observed following the 2009 implementation of display bans in Ireland.


References

Philip Morris International. Annual Meeting of Stockholders [Internet]. New York, NY; 2010 May [cited Jan 18, 2018]. Available from: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDU4NDB8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

The proof: No increase in illicit trade

Year

2008 (pre-ban)

2009 (with the ban)

2010 (with the ban)

Number of contraband cigarettes seized by Finnish customs (in millions of sticks)

18

16

10

References

Ahti Pylkkänen. Response to the request for public information by Michal Stoklosa. Helsinki, Finland: Crime Intelligence; 2013 Oct. Method: Estimates based on a survey of representative sample of Finns, includes contraband cigarettes as well as cigarettes brought in for personal use within allowed limits.

Exaggerated Scope

Tobacco industry estimates of illicit cigarette trade vs. estimates from industry-independent surveys

Industry-commissioned studies of illicit cigarette trade tend to overestimate the scope of the problem

American Cancer Society partners to find accurate estimates of illicit cigarette trade

Rigorous, industry-independent estimates of illicit cigarette trade are needed for policymakers to implement evidence-based tobacco tax policies and other tobacco control measures. Given American Cancer Society (ACS) experience in researching issues around illicit cigarette trade, the organization partners with many local research and health organizations around the world to find accurate estimates of illicit cigarette trade there. ACS’s involvement include sharing knowledge and experience in the design, execution, and dissemination of the studies. It also provides sustained technical assistance to local researchers and advocates.

One of ACS’s ongoing partnerships is in Mexico, where ACS partners with the Mexican National Institute of Public Health (Spanish acronym, INSP), the Mexican National Commission Against Addiction (Spanish acronym, CONADIC), the Pan American Health Organization (PAHO, Mexico’s National Office for Tobacco Control (ONCT), the Center for Economic Research and Teaching (CIDE), and the State Councils against Addictions (CECAs). The research efforts in Mexico include measuring illicit cigarette trade in six major, representative cities using littered pack collection and a survey of smokers, augmented by a survey of street cigarette vendors. In addition, capacity building efforts include training stakeholders in issues around illicit cigarette trade.

For more information, contact: [email protected]

 


Almost All Illicit Cigarettes Began Legally Somewhere Else

The tobacco industry narrative around illicit trade issues makes it seem as if illicitly traded cigarettes materialize out of thin air or that counterfeiting gangs are responsible for making all of them.

This narrative is myth. In the actual figures that they present to their investors, Philip Morris International (PMI) asserts that out of a total of 339 billion internationally-traded illicit cigarettes in 2013, just 7 billion sticks (2%) were made by illegal counterfeiters.

The PMI’s estimate is consistent with later estimates by the World Customs Organization, which reports that of 2.7 billion illicit cigarettes seized globally in 2015, only 58 million (2%) were reported to be counterfeit.


EU Illicit Cigarette Trade Agreements with the Tobacco Industry Have Failed

 

The tobacco industry’s lawyers have largely outsmarted the EU governments.

Agreements between the European Union (EU) and the tobacco industry, originally intended to address the illicit cigarette trade problem in Europe, have instead primarily served the tobacco industry by effectively securing their strong political presence in Europe, thereby threatening progress in tobacco control.

In the 2000s, tobacco companies were accused of facilitating the illicit cigarette trade in Europe. To address this problem, the EU signed agreements with the four major transnational tobacco companies to deter them from further involvement in the illicit cigarette trade. The companies agreed to make payments equivalent to all evaded taxes in the event of any large seizures of their genuine products. These payments were intended to serve as a penalty to the industry for failing to control their supply of cigarettes to the illegal market.

The agreements, however, have not worked as intended. Because customs officials rely on the industry to determine whether cigarettes are counterfeit (not eligible for seizure-based payments) or genuine (eligible for the payments), not surprisingly, perhaps, in most cases of large seizures, the industry has simply claimed that the seized cigarettes are counterfeit.

Although the industry sought to extend the agreements, the EU decided not to prolong the agreement with Philip Morris International. Other countries should learn from the EU experience. Instead of striking deals with the tobacco industry, those countries should take strong measures to curb illicit cigarette trade.


The illicit cigarette trade is growing… Or is it?

The tobacco industry uses a little “sleight of hand” to misrepresent trends in illicit tobacco trade to serve their narrative of an existing or looming problem. In most cases, their claims articulate a half-truth at best. For example, Japan Tobacco International claimed that “the illegal tobacco trade in Ireland has grown” and that the trends “have shown a consistent gradual increase” from 2011 to 2013. To make their point, the company used illicit cigarette market share rather than the absolute number of illicit cigarettes smoked.

Relying on the illicit market share measure misrepresented actual trends in illicit cigarette consumption: while, according to the industry study, in absolute terms the illicit cigarette consumption in Ireland was in decline, the illicit market share increased, because legal cigarette consumption declined faster than the consumption of illicit cigarettes.

Relying on illicit market share as a measure of illicit cigarette market size often gives a wrong impression about actual trends in illicit cigarette consumption. The tobacco control community and the media should be aware of these patterns and when reporting trends in illicit cigarette smoking should use absolute numbers of illicit cigarettes consumed rather than the illicit market share.