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Illicit Cigarette Trade

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Call To Action

Governments should not heed tobacco industry threats of rising illicit trade as an excuse to postpone or avoid implementing strong tobacco control measures, but should take active measures to fight illicit trade, such as employing comprehensive track-and-trace systems.

In the past, tobacco companies countered policy proposals aimed to control tobacco use by arguing that cigarettes were not harming the health of smokers. Few people would believe those arguments today. That is why tobacco lobbyists reoriented the debate, and today the primary argument that the tobacco industry uses to oppose regulation is that new tobacco control measures will cause a massive increase in cigarette smuggling.

Because of the competing interests between profit-maximizing tobacco companies and public health and welfare concerns, arguments regarding illicit tobacco trade that tobacco companies are presenting in public discussions around new tobacco control regulations 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 overstate the illicit cigarette trade problem.

Tobacco companies are among the main stakeholders benefiting from 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 has been 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 fines and penalties in compensation.

Implementation of tracking and tracing measures, such as unique codes on every pack, would help to combat illicit trade. The Protocol to Eliminate Illicit Trade in Tobacco Products, the first Protocol to the WHO FCTC, requires parties to implement such tracking and tracing systems. “Codentify”, a track-and-trace system promoted by the tobacco industry, has many limitations, but there are other effective systems for monitoring the supply chain of tobacco products that are independent from the tobacco industry.

Sources

Stoklosa M, Ross H. Contrasting academic and tobacco industry estimates of illicit cigarette trade: evidence from Warsaw, Poland. Tob Control. 2013 Aug 13;tobaccocontrol – 2013–051099.

Joossens L, Ross H, Stoklosa M. EU policy and illicit tobacco trade: assessing the impacts. Brussels: European Parliament; 2014 [cited 2014 May 21].

Gilmore AB, Rowell A, Gallus S, Lugo A, Joossens L, Sims M. Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded “Project Star” report. Tob Control. 2013 Dec 11;tobaccocontrol – 2013–051240.

Adams M, Effertz T. Tabaksteuern, Schmuggel und unversteuerte Zigaretten – Zur Glaubwürdigkeit der „Entsorgungsstudie“ der Tabakindustrie [Excise Taxes on Tobacco and the Problem of Smuggling – Concerning the Credibility of the Tobacco Industry’s “Discarded-Cigarette Packages-Study”]. Gesundheitswesen. 2011;73:705–12.

Joossens L, Lugo A, Vecchia CL, Gilmore AB, Clancy L, Gallus S. Illicit cigarettes and hand-rolled tobacco in 18 European countries: a cross-sectional survey. Tob Control. 2012 Dec 10 [cited 2013 May 18].

Clarke H, Prentice D. Will Plain Packaging Reduce Cigarette Consumption?*. Econ Pap J Appl Econ Policy. 2012;31(3):303–17.

Blecher E. A mountain or a molehill: is the illicit trade in cigarettes undermining tobacco control policy in South Africa? Trends Organ Crime. 2010 Apr;13(4):299–315.

Schneider J. Imperial, Rothmans Agree to Pay C$1.15 Billion Over Smuggling – Bloomberg. [cited 2012 Jan 26].

Joossens L, Gilmore AB. The transnational tobacco companies’ strategy to promote Codentify, their inadequate tracking and tracing standard. Tob Control. 2013 Mar 12;tobaccocontrol – 2012–050796.

Exaggerated Impact: Tax Increases

Exaggerated Impact: Plain Packaging

Exaggerated Impact: Display Ban

Exaggerated Impact: Pack size restrictions

Exaggerated scope

Tobacco industry estimates of illicit cigarette trade vs. estimates from two surveys using transparent and rigorous academic methods; Warsaw, Poland, September – October, 2011

Industry involvement

The tobacco industry was, and almost certainly still is, involved in cigarette smuggling.

In November 2000, the European Commission filed a civil action against Phillip Morris and RJ Reynolds, accusing the companies of being involved in smuggling cigarettes. Just after the lawsuit, the inflow of illicit cigarettes to Europe suddenly declined.

Industry Propaganda

Illegal cigarettes: Who’s in control?, a video created and distributed by British American Tobacco, tries again to link government regulation of the tobacco market to illicit trade and organized crime.

The UK employs thousands of well-equipped staff working to detect, investigate, and stop the illicit tobacco trade. Each year, at a cost of under GBP100 million, this strategy PREVENTS A LOSS OF GBP1 BILLION in tobacco taxes: A return on investment of 10 to 1.

“‘Illicit’ is the industry’s perfect response to controls on tobacco” -Anna Gilmore, professor of public health at the University of Bath.

EU Illicit Cigarette Trade Agreements With Tobacco Industry Have Failed

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

Agreements with the 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 illicit cigarette trade to Europe. To address this problem, the European Union (EU) signed agreements with the four major transnational tobacco companies to deter them from further involvement in the illicit cigarette trade. Within those agreements, 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.

Despite the failure of the agreements, negotiations to explore a possible extension for one of them are currently underway. The EU must take immediate steps either to end the agreements or to ensure accurate independent verification of whether a seizure is counterfeit product.

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 recently 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.

Similarly, in Guatemala there is a recent flat-to-downward trend in the absolute number of illicit cigarettes smoked, but the market share grew because overall consumption declined markedly.

In sum, we must track tobacco industry claims about illicit trade in cigarettes very closely and must counter their false narratives with an accurate portrayal of reality, particularly when they misrepresent the data to promote the idea that illicit trade is a result of successful tobacco control.

Resources

Methods

We present figures for Ireland and Guatemala to show a pattern rather than to report the precise number of legal and illegal cigarettes consumed. The Ireland figure is based on data from the European Commission (2015) and Japan Tobacco International (2014), so we caution that the data generated by the industry might not be accurate. It is important to note that the illicit cigarettes in the Ireland figure include contraband, counterfeit, illegal whites, duty free, and cross-border purchasing. The Guatemala figure uses data from Euromonitor International, which might also have some reliability issues.

Sources

Stoklosa M. Is the Illicit Cigarette Market Really Growing? The Tobacco Industry’s Misleading Math Trick. Tobacco Control. ePub May 2015. doi:10.1136/tobaccocontrol-2015-052398.

Japan Tobacco International (2014) The Illicit Tobacco Trade Review 2013.

European Commission (2015) Taxation and Customs Union. Releases for consumption of cigarettes and fine cut tobacco.

Euromonitor International. Passport Database. London, UK, 2015.

Historical Revisionism of Illicit Trade Data

The Fourth Edition of The Tobacco Atlas showed a global map of illicit trade estimates produced by academic and commercial sources. While these data were the best available at the time and help us in some ways to understand the broader context, the authors of the Fifth Edition of The Tobacco Atlas also determined that many of the commercial estimates were unreliable and fluctuated without sufficient explanation from year to year.

For example, as we see in this figure for South Africa, the commercial market research firm, Euromonitor International, has substantially and retroactively revised its oft-used illicit cigarette trade estimates (as it has done for other countries, too). Accordingly, we strongly encourage researchers around the world to use rigorous, transparent and replicable methods to estimate illicit cigarette trade volumes in their home countries, like the “Gap Method” developed by American Cancer Society researcher Evan Blecher (2010), if they wish to reference specific illicit trade volumes.

The lack of reliable and consistently calculated, cross-country data for illicit trade flows generates sufficient doubt for us to exclude such data almost entirely from the Fifth Edition of The Tobacco Atlas.

Resources

Methods

Euromonitor figures are the volume of illicit cigarettes as a percent of the total cigarette market in South Africa. Credit goes to Evan Blecher for developing and updating the estimates of illicit trade volume using the gap method in South Africa.

Sources

Blecher, E., Liber, A., Ross, H., & Birckmayer, J. Euromonitor data on the illicit trade in cigarettes. Tobacco control, 2015;24:100-101. doi:10.1136/tobaccocontrol-2013-051034.
Blecher, E. A mountain or a molehill: is the illicit trade in cigarettes undermining tobacco control policy in South Africa?. Trends in Organized Crime, 2010;13:299-315.

Almost All Illicit Cigarettes Began Legally Somewhere Else

Global Illicit Trade Makeup According to Philip Morris International

Note: figures are in Billions of Sticks for 2013

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, however, is not the case. In the actual figures that they present to their investors, Philip Morris International (PMI) asserts that out of the claimed 3 trillion cigarettes sold outside of China in 2013, only 339 billion of those were internationally-traded illicit cigarettes, and a paltry 0.22% of the total global cigarette market (just 7 billion sticks) was made by illegal counterfeiters.

Resources

Methods

Illicit trade volumes and legal consumption are from PMI and do not include data on China’s cigarette market. There is no reliable source for similar data for China’s market. Note, too, that the Tobacco Atlas does not use these illicit trade volumes anywhere else in the publication beyond this figure and the Atlas authors do not endorse the accuracy of these estimates.

Sources

Andre Calantzopoulos. PMI Investor Day. CEO Remarks. June 24, 2014. Slides.

Frederic de Wilde. PMI Investor Day. Marketing & Sales. June 24, 2014. Slides.

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Related

World No Tobacco Day 2015

The official theme of World No Tobacco Day 2015 is the illicit trade in tobacco products. The most effective way to reduce illicit trade is to reduce the demand for all tobacco products, legal or illicit.

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