Tuesday

23rd Jan 2018

Tobacco firms defend value of EU deals

  • British American Tobacco, which owns the Lucky Strike brand, is one of four tobacco firms that have anti-smuggling deals with the EU (Photo: andre toledo)

Three weeks are left before an anti-smuggling agreement between the European Union and tobacco firm Phillip Morris International (PMI) expires.

While the EU commission is yet to announce whether it wants to negotiate for a renewal or extension, EUobserver spoke to representatives of two of the other four big tobacco firms. They are quite happy with the cooperation so far.

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Alan Hardacre, head of strategy and public affairs at Imperial Tobacco, called his company's deal with the EU “on balance ... very effective”. Both him and his colleague at British American Tobacco believe the agreements have contributed to the decrease in the share of brand products among seized smuggled cigarettes.

“A key component of the agreements - ours plus the other companies' - was the companies taking additional steps to impose stronger controls around the supply chain to prevent smugglers from getting access to legitimate industry products,” said Ronan Barry, head of corporate affairs at British American Tobacco (BAT).

“The effectiveness … is demonstrated by the prevalence of industry brands as a component of the total amount of illicit trade, which has dropped by 45 percent from 2010 to 2015,” said Barry.

An EU commission assessment report of the PMI deal published in February, said it “effectively met its objective”, but may not be the appropriate tool for the future.

PMI was the first tobacco multinational to sign a deal with the EU and its member states, back in 2004.

The agreement settled a legal dispute: PMI had been accused of smuggling its own cigarettes, dodging tax and customs payments.

The PMI agreement was taken as a model for the three other deals, with Japan Tobacco International in 2007, and with BAT and Imperial Tobacco in 2010.

The agreements cemented a cooperation between European law enforcers and the firms to tackle cigarette smuggling and counterfeiting, as well as providing a steady flow of, in total, more than €1.4 billion from the tobacco industry into government budgets.

Generally speaking, national governments would favour a renewal or extension, but the European Parliament is against it. MEPs say that the most important provisions of the agreements, all four of which are similar although not identical, are covered by upcoming legislation.

PMI decision as 'precursor'

Barry, of BAT, said he did not follow the public debate about the PMI deal in great detail.

“Our agreement doesn't come up for renewal until 2030. We don't plan that far ahead. That's almost 15 years away,” he said, adding that his company has not received any signal from the EU commission that it may want to alter the agreement or terminate it prematurely.

Alan Hardacre of Imperial Tobacco, is following the debate more closely.

“If there is a decision not to renew the PMI agreement, then I suspect we would have to prepare ourselves for our agreement to be terminated when it comes to an end as well,” Hardacre told this website in a phone interview in May.

“It's one of the reasons why we are following what is happening with the PMI agreement. I would imagine it would be a precursor for everybody else's agreement,” he added.

Cheating 'is not in our DNA'

Both rejected criticism that public authorities have come to rely too much on the tobacco industry.

Whenever smuggled cigarettes are seized and found to be genuine, the tobacco company under the agreements has to pay a fine. However, the tobacco firms themselves provide the analysis of whether seized cigarettes are genuine or counterfeit.

A conflict of interest?

“We have a high interest in knowing to what extent our brands are being counterfeited. We need to know. There is no question of us not engaging with law enforcement on a 100 percent truthful and honest basis,” said Ronan Barry, of BAT.

EUobserver asked if BAT's forensic experts have an incentive to say seized cigarettes are counterfeit, because that would avoid the company from having to pay the fine.

“It's just not the way companies behave. I can't imagine a responsible legal industry lying to law enforcement. It's not in our DNA. ... I would say it is impossible in our company”, Barry said.

Imperial Tobacco agreed. It had forensics and compliance manager Alex McDonald call EUobserver after the interview.

McDonald said that law enforcement authorities generally trust his team's analyses, but that EU and national authorities are always able to scrutinise a decision made by the forensics experts of the tobacco companies.

“Whilst the EU is not constantly breathing down our neck, that opportunity does exist,” he said.

Meanwhile, BAT's Barry said he didn't believe the EU agreement would be impacted by a British exit from the EU.

“In terms of the broader Brexit debate, BAT hasn't taken a clear position, principally because we don't expect it will have a huge impact on our business in the UK, which is quite small, despite our name,” Barry said.

EU states 'unlikely to block new tobacco deal'

Diplomatic sources from over half of the EU member states say they broadly back renewing an anti-smuggling agreement with tobacco firm PMI, which will expire in July.

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