Asian Tribune - The illicit trade in tobacco: international cooperation is vital to save lives and billions of dollars

By Manjari Peiris

Tobacco kills more people than the other major reasons such as AIDS, other legal and illegal drugs, road accidents, murder and suicide cause death. At present around five million people worldwide die each year from tobacco related causes, including cancer, heart disease and respiratory diseases.

The World Health Organization estimates that by 2025 the annual number of deaths resulting from tobacco will almost double. Of the approximately ten million deaths per year by 2030, an estimated three million will occur in the developed world and seven million in developing countries.

It is proven that one of the effective methods of reducing tobacco consumption is taxation through increase of prices of tobacco products. A 10% increase in price on a packet of cigarettes is likely to reduce tobacco consumption by about 4% in high-income countries and by about 8% in low and middle income countries.

The illicit trade in tobacco products is a major international problem that requires an international solution – to reduce tobacco use and save lives, combat organized crime and recoup $US billions in lost government revenue.

The illicit tobacco trade refers primarily to the smuggling, counterfeiting and other illegal manufacturing of tobacco products, as well as bootlegging. In fact, cigarettes are the world's most widely smuggled legal consumer product. It was estimated that in 2006 illicit trade accounted for 10.7 percent of global cigarette sales, or about 600 billion cigarettes.

Illicit trade contributes to increase of tobacco consumption - and higher rates of tobacco-related disease and death – by making tobacco products available more cheaply, which particularly encourages price-sensitive young people. It circumvents public policies to reduce tobacco use, especially high tobacco taxation policy, which evidence shows is one of the most effective ways to reduce tobacco consumption.

Illicit trade in tobacco products also deprives governments of $US billions in tax revenue each year and poses a significant threat to the maintenance of law and order, and to international security. There is evidence that the illicit tobacco trade is carried out by transnational criminal groups and that money gained through illicit trade has been used for other serious criminal enterprises, including terrorist operations.

There is considerable evidence that tobacco producers themselves assist wholesale smuggling in transporting tobacco products. Much of the organized criminal smuggling that accounts for the vast majority of cigarette smuggling worldwide has occurred with the knowledge of the major cigarette companies themselves and would not occur without their compliance. Cigarette company documents do not use the term “smuggling”, but instead use euphemisms or code words for the activities whose meaning is clear.

Smuggling has been an integral part of the business activities of global cigarette companies... these actions expand their markets and help them gain a competitive advantage over other cigarette companies. It has also been used by the cigarette companies to gain political leverage to persuade governments to reduce cigarette tax rates or duty fees. Recent data from tobacco industry documents show that roughly a third of all exported cigarettes worldwide continue to be diverted into smuggling supply lines with major international brands continuing to dominate.

There is a growing volume of evidence that the legal manufacturers of certain cigarettes have knowingly fostered and have consciously supported the illegal smuggling of their own brands. Although the major international cigarette companies make the same amount of profit on legal and illegal sales, they have several economic initiatives to smuggle. Through smuggling they can sell their brands in countries otherwise closed to them because of import bans or because tax rates and duty free make legal imports much more expensive than domestic brands. Smuggling expands the companies’ sales being much cheaper than all legally imported cigarettes sold in the country. By helping to keep overall cigarette prices down, smuggled cigarettes also help to increase overall sales.

Tobacco industry benefits from smuggling in several ways – smuggling stimulates consumption both directly and indirectly, threat of smuggling has been used to avoid trade barriers or force open new markets.

The international tobacco companies that incorporate smuggling penetrate the market through illegal imports, weaken the state monopoly by reducing the market share of domestic brands and legal role, convince the authorities to prioritize or open the market, authorize the legal import and or production of foreign brand and stop fuelling the illegal market and take over the market in a legal way.

Documents demonstrate that apparently legitimate duty free sales have provided an effective means of supplying smuggled cigarettes.

Illicit trade in tobacco products is a transnational problem that cannot be effectively addressed without international cooperation and action. Recognizing this fact, more than 150 States Parties to the WHO Framework Convention on Tobacco Control (FCTC) met in February 2008 to launch negotiations on an international treaty to combat the illicit trade in tobacco products. The illicit trade treaty is being negotiated as a supplementary treaty, or protocol, to FCTC, which became international law in February 2005.

The WHO FCTC obligates States Parties to implement effective measures to reduce tobacco use, including high tobacco taxes, strong health warnings, and laws requiring smoke-free workplaces and public places, and comprehensive bans on tobacco advertising, promotion and sponsorship.

As the illicit tobacco trade can circumvent several tobacco control measures, especially tobacco taxes, a strong treaty to combat the illicit tobacco trade is essential for effective and successful implementation of the WHO FCTC – and to reducing tobacco use and saving lives around the world.

The States that are Parties to the WHO FCTC have set a goal of completing negotiations on the illicit trade treaty by 2010.

The Framework Convention Alliance (FCA), an international organization of more than 350 tobacco control organizations, is urging governments to include the following to combat the problem of illicit trade of tobacco products;
 

• The tracking and tracing of tobacco products, which will enable the point of diversion from the legal market to the illicit market to be identified;
   
• Obligations on manufacturers of tobacco products to control the supply chain for their products, with serious penalties for those that fail to do so including liability for unpaid taxes and duties on seized products;
   
• Licensing and other arrangements to monitor and control the behavior of participants within the tobacco supply and distribution chains;
   
• Enhanced law enforcement and international cooperative measures, including information
   
• Sharing, cooperation in respect of investigation and prosecution of offences, mutual legal assistance and extradition arrangements, which will increase the effectiveness of international action against the illicit trade, both in genuine manufactured and counterfeit tobacco products.

Since illicit trade in tobacco products is a transnational problem, primarily consisting of large-scale organized smuggling involving the illegal transportation, distribution and sale of large consignments of cigarettes and other tobacco products, a significant reduction in the illicit trade will require the implementation of a comprehensive system of international cooperation. Recognizing the need for such a system, the Parties to the WHO Framework Convention on Tobacco Control have agreed to begin negotiations on a protocol on illicit trade in tobacco products to supplement the provisions of the Convention.
 

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