Illicit Trade

Analyses of the illicit cigarette trade by industry-independent researchers show that the tobacco industry consistently overestimates the size of the problem and misrepresents its trends and nature. At the same time, the industry pushes the erroneous narrative that tobacco control policies, such as taxation, are responsible for causing or exacerbating the illicit market. Governments should not be deterred by this false narrative in their tobacco control efforts. There are effective and proven strategies to prevent or reduce illicit trade, such as securing the supply chain by tracking and tracing cigarette packs and strengthening law enforcement as detailed in the Protocol to Eliminate Illicit Trade in Tobacco Products.

The tobacco industry misrepresents illicit trade by overestimating the scope of the problem, claiming it is increasing over time, and hiding the fact that almost all illicit cigarettes were once legal—in other words, tax-paid in their place of manufacture. Most of these cigarettes were originally produced by the same companies that complain to policy makers about the illicit market. With these misrepresentations, the industry aims to deter or reverse effective tobacco tax policies and other tobacco control efforts.

Independent studies—which are fortunately growing around the world— consistently find that levels of illicit trade are lower and more manageable than claimed by tobacco companies. It is crucial that governments rely on rigorous, industry-independent estimates of illicit trade when developing and implementing policies, rather than allowing overestimations to mislead policy efforts.

The tobacco industry regularly misrepresents the dynamics to favor its narrative. For example, it will show changes in the illicit market share rather than changes in absolute quantity of illicit products. For example, in Ireland, in absolute terms the illicit cigarette consumption is in decline, but the tobacco industry publicly and loudly used illicit market share as its measure to claim it was increasing. In this case, put simply, legal cigarette consumption was declining faster than the consumption of illicit cigarettes due significantly to the government’s tobacco control successes.

The tobacco industry narrative around illicit trade issues makes it seem as if counterfeiting is the main problem. But most illicit cigarettes begin legally, meaning they are tax-paid by legal producers in the jurisdiction of manufacture. This includes most smuggled cigarettes. Or, legal manufacturers under-declare their production to authorities to evade taxes. In the case of “illicit whites”, these are products often made legally in a factory with the approval of the local licensing authority but mostly intended to be sold illegally into other markets. Remarkably, the tobacco industry continues to attribute illicit products to criminals and calls for governments to join their efforts in fighting them. This is mostly a diversion from the real health and economic problems created by legal tobacco sales and consumption. While precise proportions in the figure below likely differ from what the industry is claiming, one key take-home point is that even in its own estimates, the tobacco industry identifies that almost all illicit cigarettes (up to 93%) have strong—often direct— connections to legal producers. Counterfeit—something that is clearly illegal—is truly the rare exception.

In addition to misrepresenting the scale and scope of the problem, the industry pushes the narrative that the answer to illicit trade is not implementing or weakening effective tobacco control policies, falsely claiming that these measures contribute to and/or exacerbate the problem. The industry seeks to position itself as a genuinely concerned stakeholder on the topic implying that the tobacco control community does not understand nor care about the illicit market. However, experiences from countries around the world continue to disprove such claims with no indication that effective tobacco control including taxation, plain packaging, and other policies, lead to an uptick in illicit tobacco.

International consensus on how to combat illicit trade in tobacco products

The industry ignores the international consensus on how to effectively address illicit trade contained in the Protocol to Eliminate Illicit Trade in Tobacco Products, an international treaty which entered into force in September 2018. The Protocol’s objective is to eliminate all forms of illicit trade in tobacco products through a comprehensive package of evidence-based measures implemented cooperatively by countries.

The Protocol provides recommendations to fight illicit trade around the world, including the implementation of a global tracking and tracing system to secure the supply chain of tobacco products and equip national authorities with a platform for the exchange of information to determine the origin, transportation routes, intended markets of sale, and potential points of diversion of the products.

The tobacco industry has a long history of presenting itself as a strong, legitimate partner in securing the supply chain, even going as far as developing and selling its own tracking and tracing system. But there is clear evidence that major tobacco companies have been repeatedly complicit in major smuggling efforts (e.g., Ukraine) and underreporting of legal production (e.g., Pakistan) to evade paying taxes.  As a result, the Protocol specifically stipulates that the obligations assigned to a Party in relation to setting up and maintaining a tracking and tracing system shall not be performed by or delegated to the tobacco industry.

Governments need to be aware of the tobacco industry’s false narratives and seek guidance from rigorous, independent (of the tobacco industry) research about the tobacco supply chain. The Protocol to Eliminate Illicit Trade in Tobacco Products details effective and proven steps that policy makers can take to prevent and reduce illicit trade. Experiences from around the world demonstrate that such measures can even be taken in tandem with evidence-based tobacco control policies.