Summary
In the western part of the Region the fight against smuggling has had some success, especially in reducing the supply of illegal tobacco products. On 9 July 2004 the European Community with 10 EU member states concluded with Philip Morris International a twelve-year agreement valid throughout the whole of the EU which included a system to combat future cigarette-smuggling and counterfeiting and ended all litigation between the parties in this area. Progress has also been reported by some SEE countries. No data are available for assessing the situation in the CIS.
Background
Apart from representing a threat to public health by encouraging tobacco consumption, smuggling deprives governments of tax revenues and reinforces criminal organizations and corruption. The size of the price differentials between duty-paid and duty-free tobacco products and corruption (60) has led to an increase in smuggling throughout the Region since the early 1990s.
The ESTC recommended that strategic national action should include:
• adopting appropriate measures to ensure that all packages of tobacco products sold or manufactured carry the necessary markings and product information which will allow the products to effectively be tracked and traced;
• monitoring and collecting data on the cross-border trade in tobacco products, including illicit trade, and exchanging information among relevant national authorities and international bodies;
• enacting and/or strengthening the corresponding legislation and penalties.
Smuggling is a supply-driven process, fed by the industry which supplies the duty suspended cigarettes. In the western part of the Region the fight against smuggling has had some success, especially in reducing the supply of illegal tobacco products.16 In the EU the number of
cigarettes seized fell from 8.1 billion in 2000 (1.9 billion in the United Kingdom and 6.2 billion in the rest of Europe) to 2.6 billion in 2003 (1 billion in the United Kingdom and 1.6 billion in the rest of Europe) (61).
Philip Morris agreement
Reducing the supply of illegal cigarettes was also a key issue in the negotiations between the EC and Philip Morris International. On 9 July 2004 the European Commission (EC) and 10 EU member states concluded with Philip Morris International a twelve-year agreement valid throughout the whole of the EU. This included a system to fight future cigarette-smuggling and counterfeiting, ended all litigation between the parties in this area, and stressed the importance of controlling the supply chain and export practices in order to gain effective control of the illegal trade (62). The EC and the 10 EU member states will receive substantial payments over a number of years. The amount of the payments will vary based on a number of factors and could total approximately US$ 1.25 billion. The agreement on payments is of crucial importance. For each container of 10 million Philip Morris International cigarettes seized in the ten countries party to the agreement – the company has to pay €1.5 million. When 90 million Philip Morris International cigarettes have been seized in the ten countries, the company has to pay five times as much or €7.5 million for each container of 10 million cigarettes seized. The agreement is in line with the principle that “the key to controlling cigarette-smuggling is to control tobacco manufacturing and its exporting practices.” (63). It could provide a baseline for a protocol to Article 15 of the WHO FCTC, for which the first session of the Conference of the Parties decided to start preparing a template.
Other tobacco companies have not been keen to accept the obligations of the agreement between Philip Morris International and the EU. British companies, such as Imperial Tobacco and Gallagher prefer memoranda of understandings, which are generally vague, short, without penalties and not legally binding in the same way as the Philip Morris International-EU
agreement. British American Tobacco (BAT) is also not willing to accept the obligations of the Philip Morris International agreement, but has made proposals to accept an export bond system which would require that any person wanting to move manufactured tobacco products in commercial quantities from one country to another has to post a bond in the form of a bank guarantee or similar instrument in a specified format and provided by an approved institution.
While BAT’s proposal is not legally binding as the Philip Morris International agreement is, it acknowledges financial responsibility for control of the export of their cigarettes.
16 In Spain for instance (one of the few countries in the world which has combated smuggling efficiently), success has not been due to controlling distribution at street level, but to reducing the amount brought into the country at
“container” level through intelligence, customs activity and cooperation and technology.
Challenges posed by counterfeit cigarettes
In 2000–2001, while most of the seizures were of genuine products they were actually mainly of counterfeit items. In the United Kingdom, 25% of the legal cigarette market and 54% of the cigarettes seized in 2003–2004 were counterfeit. The control of counterfeit cigarettes is even more difficult than the control of “genuine smuggled cigarettes” (64). The origin of smuggled cigarettes can be detected, but the origin of counterfeit cigarettes can only be discovered through close collaboration with the country where they are produced. An estimate of counterfeit trade is difficult to make, but it is certain that the market share of counterfeit cigarettes is rising in many countries, not just in the United Kingdom. Recognizing counterfeit cigarettes at the time of seizure is an additional problem. Most counterfeit cigarettes have health warnings or tax stamps on the pack and are not recognized as fake by smokers. In most countries, customs authorities rely on the tobacco industry to determine whether a product is genuine or counterfeit, which can take a considerable time and impede effective control of the trade in counterfeit products. The need for independent identification of counterfeit cigarettes is self-evident. In Brazil, Malaysia and the United States (California), for instance, markings are required on the pack which allow enforcement officials to detect easily counterfeit cigarettes. There is a need for effective control of the worldwide trade in both genuine smuggled and counterfeit cigarettes.
International cooperation to combat illicit trade
To facilitate the procedure for the exchange of data, an agreement was signed in 2003 between the World Customs Organization (WCO) and the European Anti-Fraud Office (OLAF) with the aim of improving cooperation. In future, there was be a technical option for information relating to seizures of smuggled cigarettes in the EU to be transferred automatically from the OLAF Anti-Fraud Information System (AFIS)/Ciginfo to the WCO Customs Enforcement Network system. This would help to keep the analysis of global trends and the global picture of illicit cigarette trafficking up to date and assist enforcement targeting activity in the WCO’s 162 member countries. It would also make life much more difficult for the smugglers and assist in bringing them to justice. Customs services around the world could now have access to the most current information on methods of concealment and other modus operandi used by cigarette traffickers in the EU.
Progress has also been reported by some SEE countries. In Bulgaria and Serbia and Montenegro the number of cigarettes seized fell by almost 70% between 2001 and 2004. The illegal markets have been slightly reduced or stabilized albeit at very high levels in Albania (50–40%), Bosnia and Herzegovina (45–35%) and The former Yugoslav Republic of Macedonia (30–35%).
No data are available for assessing the situation in the CIS. It is estimated that 30% of cigarettes consumed in Uzbekistan are smuggled. In the Russian Federation, the illegal exports of genuine and counterfeit cigarettes mostly to CIS and Baltic countries have fallen slightly since the introduction of new measures by the State Customs Committee in 2003. Other measures to combat national consumption of smuggled or counterfeited cigarettes are starting to have some impact according to national authorities, although the Russian Federation remains the main European illegal market according to volume (20–30% of the total market).
Availability of tobacco to young people
Summary
Since 2002, 14 countries have introduced age restrictions on the sale of tobacco products.
Currently 34 countries ban the sale of tobacco products to young people aged under 18 years and
10 countries to young people aged under 16 years. The majority of Member States ban the sales of single or unpacked cigarettes and the distribution of free samples, and close to half of the Member States ban sales from vending machines – a notable increase since 2002. Notwithstanding these bans, tobacco is still widely available to young people throughout the Region. Compliance with laws on age restrictions appears to need improvement in the majority of countries.
Background
Restricting the availability of cigarettes to young people is an important element of tobacco control policy. In particular, there is some evidence that restricting access to vending machines, small packs or single cigarettes can be effective.
The ESTC recommended that strategic national action should include:
• prohibiting tobacco sales to and by persons under the age of majority as determined by domestic law;
• requiring all sellers of tobacco products to request young purchasers to provide appropriate evidence of having reached the age of majority as determined by domestic law;
• banning sales through vending machines, self-service displays, mail order and electronic sales, sales of single or unpacked cigarettes, and distribution of free samples of cigarettes;
• licensing of retailers so far as possible within the means at the country’s disposal.
In the eastern part of the Region, GYTS data on minors’ access to tobacco show that the age restrictions, even those recently introduced, are far from being fully enforced. In almost all the countries that had age restrictions when the GYTS was conducted, more than two thirds of the current smokers aged 13–15 years who bought their cigarettes in a shop had not been refused during the previous 30 days despite their youth. The range of non-compliance (percentage of those who had not been refused during the previous 30 days) varied from 93% in Slovenia to 55.9% in Belarus (Table 14).
Age restrictions
Since 2002, 14 new countries have introduced age restrictions for the sale of tobacco products (Table 15). 17Currently 34 countries ban sales to young people aged under 18 years and 10 countries ban sales to those aged under 16 years. But despite these bans on the sale of tobacco products to minors, tobacco is still widely available to young people throughout the Region.
The answers from the responding counterparts show that compliance with laws on sales restrictions needs to be improved in the majority of countries.
17 In Table 15 and the relevant calculations, Serbia and Montenegro have been counted as two Member States so as to reflect the position in October 2006, even though the data refer to the period before they separated.
Table 14. Access to cigarettes by 13–15-year-olds in countries with a minimum buying age
Country GYTS year Minimum
buying age
The former Yugoslav Republic of Macedonia
2002 18 63.7 74.5
Restrictions on impersonal modes of sale
In addition to age restrictions, some countries have introduced regulation of impersonal modes of sale (Table 15). Twenty-two countries reported that they ban the sale of tobacco products
through vending machines (10 since 2002) and 18 in self-service displays (5 since 2002). Forty Member States (13 since 2002) ban the sale of single or unpacked cigarettes and 32 (8 since 2002) ban the distribution of free samples, while a few countries have banned or restricted mail order and electronic sales. A majority of countries have restrictions on duty-free sales of tobacco products and licence requirements for retail sales.
Table 15. Bans or restrictions on the sale of tobacco products by various means, October 2006
Country Age
Table 15, continued
Germany 16 Voluntary
agreement
Italy 16 Restriction Ban Restriction Ban Partial
restriction
Netherlands 16 Partial
restriction
Country Age
Note. Shading indicates that the legislation entered into force during 2002–2006.
a From 1 January 2007.
b From 31 December 2006.
Tobacco subsidies
The ESTC recommended that strategic national action should include:
• promoting alternative economic activities to tobacco production; and
• gradually transferring subsidies for tobacco-growing to other activities.
The gradual decrease and elimination of subsidies to tobacco production remain important objectives in the overall spectrum of tobacco control measures. Major progress has been noted in recent years in the EU where, in 2004, the Council of Ministers decided that aid would be fully decoupled from tobacco production after a four-year transition period starting in 2006. During these four years, at least 40% of the tobacco premiums are to be included in the decoupled single payment for farmers, although Member States may decide to retain up to 60% as a coupled payment, i.e. still linked to production (65).
In 2005 the EU contributed almost €1 billion to tobacco production, but as a result of the reform, the 2006 budget for raw tobacco production was to be set at only one third of the 2005 level.
Although the EU still supports tobacco growers, it has decided that this aid should not stimulate tobacco production (decoupling).
After the four-year transition period, from 2010 onwards, tobacco aid will be completely de-linked from production. Some 50% will be transferred to the single payment scheme and the remaining 50% will be used for programmes in tobacco-producing regions within the rural development policy (EC 864/2004) (65). Contributions to the Community Tobacco Fund will be 4% of coupled tobacco payments in respect of the 2006 harvest and 5% in respect of the 2007 harvest. In 2006–
2007 the Fund will only finance information concerning the harmful effects of tobacco
consumption: EC regulation No 2182/2002 applies, laying down the conditions for the use of the Community Tobacco Fund with regard to information programmes and measures to promote a switch of production (66). This Regulation provides that funding should be divided appropriately between two main objectives: aiding tobacco producers to convert to other crops and implementing antismoking information programmes. Funding to the Community Tobacco Fund increased from 2% of the premium paid to tobacco growers in 2002 to 3% in 2004. The Commission, with the assistance of a scientific and technical committee, is responsible for the management of the Fund as regards the information programmes. The funding for health projects has increased from €3 million in 2000 to €14.4 million in 2005; in 2007 an amount of €16.9 million is foreseen.