Sunday

19th Aug 2018

Opinion

Illegal cigarette trade still dogs Europe's fringes

  • There are concerns over the independence of a new 'track and trace' monitoring system for cigarettes in EU being smuggled (Photo: Tom Sinon)

A battle is being fought on the EU's borders: a struggle to intercept illegal tobacco products, and the stakes keep rising.

In 2015 alone, the illicit tobacco trade deprived EU governments of more than €11bn in tax revenue, a figure projected to have risen even further since then.

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This is not to mention the estimated 700,000 in deaths each year from smoking-related illnesses, a number inflated by illegal trafficking.

As the costs to member states increase, so too do the number of creative ways by which smugglers seek to sneak their products, known as 'cheap whites', past border controls.

Earlier this month, Lithuanian border police intercepted thousands of packets destined for a country where one in every six cigarettes smoked in 2016 was illegally imported.

Belarus is origin

The smugglers had attached the packets to blocks of ice and floated them along the river Neris. It's no coincidence that upriver leads to Belarus.

As much as 85 percent of all illegal tobacco in Lithuania comes from Belarus, with the majority caught in transit to other EU countries.

Over the past few years, such stories have served as the backdrop to the European Commission's tortuous efforts to stamp out the illicit tobacco trade.

Unfortunately, so far, their campaign remains hampered by the persistent influence of the tobacco industry, as well as their failure to ratify a critical global protocol meant to put an end to the illegal tobacco trade once and for all.

Over the past few years, the EC's efforts have been driven by the EU Tobacco Products Directive of 2014, which, among other things, requires tobacco companies to comply with a new track and trace (T&T) system by May 2019.

The system, whose delegated and implementing acts were released in December, is meant to control the flow of tobacco at all stages of the supply chain. According to the document, each member state will have to appoint an 'ID issuer' charged with creating and assigning ID codes for unit packs, while ensuring the issuer's independence from industry.

This system replaces a previous anti-smuggling agreement between the commission and Philip Morris International (PMI), which expired in 2016 and had been criticized for allowing too much industry involvement.

Tobacco companies have instead pushed for the tracking and tracing of its own products through a system originally called 'Codentify'.

Developed by PMI itself, then licensed for free to three other major companies, it is under the remit of a supposedly independent third-party organisation called Inexto – that is staffed by former tobacco industry representatives.

The continued existence of Codentify as an alternate T&T system, and one that could potentially be nominated by individual member states as an ID issuer, is cause for concern.

After all, there is a long history of links between cigarette manufacturers and smugglers: in 2004 for instance, PMI reached a 12 year long, $1.25bn (€1.01bn settlement) with regulators to conclude a legal dispute over its role smuggling cigarettes into the EU.

Separately, British American Tobacco was fined £650,000 in the UK for oversupplying cigarettes to Belgium, in a move to duck higher taxes in the country.

How 'independent'?

The new T&T proposal needs to strengthen restrictions for nominating ID issuers, and make clear that no industry influence whatsoever is allowed – a position the current version does not take, potentially rendering the new "independent' system null.

This means that, despite the commission's protests to the contrary, the proposal fails to meet best practice under the World Health Organization's Protocol to Eliminate Illicit Trade in Tobacco Products under the Framework Convention on Tobacco Control (FCTC), which aims to eliminate the influence of corporations on efforts to regulate the industry.

Not only are they uncompliant with WHO rules, they go against the best practices identified in the organisation's publications on tobacco control.

Perhaps that isn't surprising, given that five years after the FCTC protocol was adopted, a number of EU member states have adopted but not yet ratified the convention.

Critically, the WHO needs 40 parties to the protocol before it can become an international treaty this year. It's fair to say that even if a viable T&T system is adopted at the EU level, unless the FCTC Protocol becomes a global treaty, its impact will remain limited.

In addition to concerns about the T&T draft proposal's adherence to the FCTC, there is another issue that the new system doesn't address – one brought to light by the Lithuanian authorities' discovery earlier this month.

That is, the close ties between Big Tobacco and government authorities on Europe's fringes, where tobacco manufacturers continue to hold major stakes in state-owned enterprises (SEOs) in countries like Belarus and are directly implicated in trafficking illicit cigarettes.

Indeed, many illicit cigarettes come from Belarus, where they are produced by two SEOs, Grodno Tobacco Factory Neman (GTFN) and Tabak Invest.

Last year, GTFN reportedly supplied 5.53 billion illegal cigarettes to the European market. Not surprisingly, while these firms manufacture their own brands, they also produce under contract with some of the major international tobacco companies – including BAT, which has described itself as the biggest foreign investor in Belarus' tobacco industry.

Given Big Tobacco's continued efforts to take a slice of the illegal trafficking industry, it's clear the commission needs to go much further.

Firstly, it needs to make a more concerted effort to wipe off the industry's fingerprints from its new T&T system before they have a chance to sideline it.

Secondly, EU member states need to set an example to their neighbours and ratify the FCTC Protocol if they are serious about bringing their anti-trafficking mechanisms in line with best practice.

This wouldn't only help return billions in lost revenues, especially in the Baltic and East European states that are disproportionately impacted by the illicit tobacco market.

It would also help reduce the number of lives lost to 'cheap whites'. The successful ratification of the protocol alongside the implementation of a new T&T system could turn into a valuable victory for the EC, and by extension for the European Project, in both public health and solidarity.

Felipe Cruvinel is a researcher at St Andrews university, Scotland

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