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April 24th, 2015:

Summary Report on the International Conference on the Shadow Economy and Taxation

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FTC expected to approve $27B tobacco deal

Big Tobacco can breathe easy.

The Federal Trade Commission is expected to approve Reynolds American’s $27 billion purchase of Lorillard by a vote of four to one, despite the objections of some agency staff, The Post has learned.

The deal will combine the second- and third-largest cigarette makers, and two of the three most popular brands among young adults, Newport and Camel.

Regulatory approval will clear the way for a three-way transaction that will reshape the tobacco industry. Reynolds and Lorillard also agreed to sell five brands for $7 billion to Imperial.

While there was some skepticism the FTC would approve the deal, the companies argued that the sale of Winston, Kool and other smaller brands would build Imperial into a strong No. 3 player.

Imperial, which has little presence in the US, also persuaded regulators that it can build its business here based on its success overseas, a source said.

While antitrust officials have looked askance at other mega-mergers in the cable and food industries, tobacco is an already tightly controlled industry that generates huge tax revenue.

Even so, critics have called on regulators to block the deal, in part because of concerns about marketing tobacco to children.

Matthew Myers, president of the Campaign for Tobacco-Free Kids, warned last year that the merger could “increase the power of these companies to market to kids.”

Reynolds did not return calls. The FTC declined comment.


Hong Kong may move to ban e-cigarettes. Advocates claim it is the best alternative to reduce harm from smoking. Opponents claim the unknown makes it worth banning outright.

Alan*, a local academic, is a smoker. It was time to kick the habit when his family welcomed a newborn daughter. He hadn’t been able to stop in the past, but now had new incentive. Strong incentive. And a new option.

An alternative to conventional smoking cessation devices was presented to Alan in the form of a “vaping” device, aka the e-cigarette. Using a battery, an “e-liquid” is vapourised for the user to inhale producing a similar experience to smoking without any combustion involved. They can, but legally do not in Hong Kong, contain nicotine, the addictive substance in cigarettes. People can use them to control and reduce nicotine dosage and eventually give up nicotine altogether. Regular use of his e-cigarette enabled Alan to cut his smoking to one pack of cigarettes in three weeks, and then extended periods of zero smoking. He was on his way to reducing his nicotine dosage to zero.

Unfortunately for Alan, a recent crackdown by the government on e-liquids containing nicotine disrupted his use of e-cigarettes. He has reverted to smoking a pack of cigarettes per day.

Nipping it in the bud

His personal situation plays out against a broader campaign. On March 30th, the Hong Kong Council on Smoking and Health (COSH) held a press conference advocating a total ban on e-cigarette products.

E-cigarettes, without nicotine, are easily accessible in Hong Kong. COSH claims some products “target youngsters”, and “normalise smoking behaviour”, potentially creating a (supposedly new) “tobacco epidemic”. COSH Chairman Antonio Kwong says, “COSH has serious concern on the spread of e-cigarettes. To protect public health, we advocate the Government for a total ban on e-cigarette to prevent its prevalence among the youngsters and stop it from becoming the gateway to smoking.”

A total ban on e-cigarettes would entail the “prohibition of sales, advertising, promotion and sponsorship, distribution, importation and manufacturing” of the product.

Hours after the COSH press conference, Secretary for Food and Health Dr Ko Wing-man was quoted stating that the government was “inclined to agree” with the Council’s request citing possible health risks and the possibility that youngsters may pick up smoking [conventional] cigarettes after they begin smoking e-cigarettes. He added that detailed studies would be required before they could proceed with legislation.

Currently, under the Pharmacy and Poisons Ordinance, any e-cigarettes containing nicotine and marketed as nicotine replacement therapy must be registered before sale and possession, under threat of a maximum penalty of HK$100,000 and 2 year’s imprisonment. No nicotine containing e-cigarette product has ever been registered as pharmaceutical products in Hong Kong, creating a de facto ban.

Against the ban

Ray Story, founder and CEO of Tobacco Vapor Electronic Cigarette Association (TVECA), is an advocate for regulation, not banning it outright. Mr Story, an owner of several e-cigarette brands, successfully pushed for the legalisation and subsequent regulation of e-cigarettes in the United States and the EU. He was recently in Hong Kong to speak to the media on the matter after attending the Shenzhen International Electronic Cigarette Industry Expo where over 100,000 industry professionals gathered.

Mr Story claims that the focus is misplaced. He explains, “when you look at conventional tobacco and how it’s used, you create all different types of chemicals when you light a cigarette.” A conventional cigarette is known to have approximately 600 chemicals in it and produces up to 7,000 when burned, at least 69 of which are known carcinogens. “An e-cigarette has five ingredients. So by not having all those chemicals and tar through combustion, it is therefore less harmful than conventional tobacco,” claims Mr Story.

Instead, Mr Story believes banning e-cigarettes is unfair to current smokers. “To ban e-cigarettes, would only mean you will allow conventional cigarettes to continue,” he says. “Banning the product would therefore be extremely irresponsible.”

What lies within

The five main ingredients in an e-cigarette, are nicotine, water, propylene glycol, glycerin, and flavouring. There are e-liquid options on the market that contain no nicotine, which are currently on sale legally in Hong Kong.

Out of the five ingredients, water is obviously not a point of contention. Nicotine, on the other hand, is undeniably addictive. However, advocates suggest the e-cigarette is still a much less harmful alternative. Mr Story says, “Nicotine is not the problem in tobacco. It is the tar and the carcinogens and the chemicals that are the issue. E-cigarettes do not have these issues.”

Propylene glycol and glycerin, while found in many food items and cosmetic products, are often touted by opposers to cause health risks. At COSH’s press conference, Dr Daniel Ho Sai-yin, associate professor at University of Hong Kong, cited literature claiming the chemicals cause mouth and throat irritations, and, at high temperatures, form formaldehyde and acetaldehyde, known carcinogens.

Investigating papers referenced by Dr Ho muddles the argument. The conclusions found in the report in the New England Journal of Medicine, from University of Portland researchers, titled “Hidden formaldehyde in e-cigarette aerosols”, were criticised earlier this year due to methods failing to reflect realistic situations. The report described what happened when researchers used two different voltage settings on the vaping device: “At low voltage (3.3 V), we did not detect the formation of any formaldehyde-releasing agents (estimated limit of detection, approximately 0.1 μg per 10 puffs).” In other words, when they tested a tank system at a realistic voltage setting of 3.3V, no formaldehyde was detected. But at an unrealistically high temperature setting of 5.0V, formaldehyde concentrations five- to fifteen-fold that of cigarettes were measured. The experiment showed that when overheated, vaping devices yield unacceptable levels of formaldehyde.

Media reports, however, touted the more sensational conclusion, leading readers into believing that normal consumption of e-cigarette vapour can expose a user to cancer-causing chemicals more dangerous than conventional cigarettes. The vapour, if produced at such levels, would be so noxious and irritating to the airway that the user would be unable to inhale it anyway, according to Professor Peter Hajer, Director of the Health and Lifestyle Research Unit at the Wolfson Institute of Preventative Medicine, Barts and The London School of Medicine and Dentistry, Queen Mary University of London.

For the ban

Nonetheless, COSH is adamant the time to ban it is now. Speaking to Harbour Times, COSH chairman Antonio Kwong said, “the e-cigarette is a new product that hasn’t been widespread in Hong Kong yet. If we need to wait for all the evidence to come out, say in 20-30 years, many people may have already picked it up by then and we’ll be asking ourselves why we didn’t ban it earlier. We feel we need to ban it to avoid this situation.”

The fact that e-cigarettes are less harmful than conventional tobacco products by “orders of magnitude”, as some claim, holds no water with COSH and, to them, doesn’t even bear examination. Kwong: “I can’t comment on [whether it is less harmful], we don’t have enough research to prove that. What we do know is, there are carcinogenic agents. A carcinogen is a carcinogen. What is a safe level?”

Glamour and gateway arguments

To COSH, health risks are only half the problem. “It took us a number of years to bring the smoking prevalence down from 23.3% in the 80s to the 10.7% today, and took major efforts to de-normalise this behaviour, so if this “re-normalises” tobacco use it could be very harmful, especially when we see its attracting a younger age group and non-smokers,” explains Kwong.

According to a survey conducted by COSH last year, while only 1.8% out of the 2,400 participants admitting to having used e-cigarettes before at least once, the study concluded that “young people were more likely to use e-cigarettes”. “The promotion of e-cigarettes remains unregulated. Nowadays, e-cigarettes come in all shapes and sizes and can be very attractive to curious young people,” explains Kwong.

Responding to these claims that e-cigarettes could become a “gateway” to smoking, or re-normalise the behaviour, Mr Story claimed, “to state that you use one product and that takes you to the next level to use another product is unfounded. Does it happen? Potentially. But is that the norm? There’s a lot more people that have gone from conventional tobacco to e-cigarettes, than the other way around. But I’m obviously not going to rule it out, because that would be ignorant on our part. The majority, however, goes from regular tobacco cigarettes, to e-cigarettes, and that has been the norm, and all the science backs it up as well.”

Official UK figures from a study on smoking behaviour by the UK’s Office for National Statistics conducted last year support Mr Story’s claim. The study found that about one in 10 current cigarette smokers surveyed and one in 20 of the former smokers said they were now using e-cigarettes. Over half of e-cigarette users surveyed said their main reason was to stop smoking. About one in five said it was because they thought they were less harmful than cigarettes.

Regulate not ban

“If there’s no regulation, we don’t know where they’re manufactured, what’s in them. All these issues need to be addressed, and can only be addressed once you have a conversation logically and responsibly,” explains Mr Story. “But if you don’t want to have that conversation, just ban it, pretend it’s not there, then you’re gonna have the same situation we’ve seen in other places, where the product will continue to sell, but without regulatory oversight.”

The regulations Mr Story proposes would go along the lines of: age verification for sales, advertising restrictions, nicotine content restriction, labeling, maximum capacity tanks, maximum nicotine strengths.

“The toxicity of any product is determined by its dosage. But if you regulate a product and allow them to only have 2 milliliters per cartridge, if you regulate the product and allow the bottle to only be 10 ml, just like we did in Europe, there’s no way it can hurt you,” claims Mr Story.

The right course of action

In 2009, when the authorities began cracking down on e-cigarettes by seizing shipments into the States, Mr Story took it upon himself to challenge the decision — and succeeded. American style.

“I sued them,” he says, with a dramatic pause. “I took them to court and put my foot down and said I want to talk, but if you won’t talk to me, I will take you to court and make you prove your position in court to where you’re right and I’m wrong and somehow, they couldn’t do it. Because to ban it because you don’t have any information, is ignorant. We try to build laws based on an abundance of information, not a lack of information.”

So will the TVECA replicate the process in Hong Kong? Mr Story says he truly hopes we won’t have to go there, but added “I will do what it takes.”

Kwong believes that what COSH is doing is the right course of action. “It’s actually quite like the total ban on smokeless tobacco by the HK Government in 1987.” The ban successfully kept the product off Hong Kong shelves up till today, and according to Kwong, Hong Kong has avoided the diseases related to smokeless tobacco.

“If you look at countries such as Sweden, Norway and Finland, or Pakistan and India, they have very serious problems related to smokeless tobacco, causing many cases of mouth cancers. Luckily we banned it and have no such issues. Therefore we hope the Government can do the same this time,” explains Kwong. Not known are the benefits Hong Kong missed out on from avoiding secondhand smoke had smokeless tobacco products been allowed for the past 28 years.

At the moment, Singapore and Thailand are among thirteen countries globally that have taken a similar stance on e-cigarettes, banning the industry altogether.

Alexander Basile, CEO and founder of e-cigarette developer Digirette, an American e-cigarette firm launching a Hong Kong office, urges the authorities to think about the 10.7% of Hong Kong people, “If you start looking at it from the public good and be open to the possibility that this technology can make a significant difference, then you’re going to be able to find the middle of the road. To ban it right now would literally be to condemn everybody in HK who would have transitioned to this, to death instead.”

The unapologetic Mr Basile feels that, if its young people who were going to smoke who are picking up vaping instead, then everyone should be happy about that. “We’re transitioning people through technology to a much better delivery system. Here with this technology, you actually have a chance to make a difference with people who are alive that you spend time with. If it’s going to make vaping cool, then so be it.”

To Mr Basile, and supporters of e-cigarettes alike, the bottom line is this, “It’s like driving on a freeway. If you’re smoking, you’re on the wrong side of the freeway and you’re driving against the traffic: you know that’s going to end badly. But vaping is equivalent to driving on the right side of the freeway. By no means is it harmless, but the likelihood of you dying from it is far less.”

*Name changed to protect anonymity.

SA economy losing billions due to illegal cigarettes trade

There have been allegations of licensed companies involved in manufacturing counterfeits cigarettes.

CAPE TOWN – The Tobacco Institute of Southern Africa says 23 percent of the local cigarette manufacturing and distribution trade is made up of illegal products.

Officials from the institute briefed Parliament’s Trade and Industry portfolio committee today on issues affecting the industry.

The institute’s Francois van der Merwe told members of Parliament the country’s economy has lost R22 billion to the illicit trade in cigarettes since 2010.

Van der Merwe adds there have been allegations that licensed companies are also involved in the manufacturing of counterfeit cigarettes.

On Thursday, Eyewitness News revealed former South African Revenue Service (Sars) spokesperson Adrian Lackay claims evidence has emerged that British American Tobacco (BAT), a private investigation firm, and State Security Agency officials have been involved in cigarette smuggling. BAT has denied involvement in any illegal activity.

Parliamentarians questioned why this continues unabated when there are numerous agencies tasked with cracking down on the trade.

They raised concerns the country will continue to lose money if the problem is not adequately dealt with.

China tobacco advertising to minors

BEIJING, April 24, 2015 (Xinhua) — China’s top legislature on Friday adopted an amendment to the Advertisement Law that places tougher restrictions on tobacco advertising to minors.

The amendment was approved by the Standing Committee of the National People’s Congress at its bimonthly session, which closed on Friday. The amendment to the 21-year-old Advertisement Law will take effect on September 1.

Tobacco advertisements are forbidden on mass media and in public places, the revised law says, banning any kinds of advertisement targeting minors.

Advertisements for other products or services should not include the brand, trademark, packaging, design and similar contents of tobacco products, according to the new law.

International Conference on the Shadow Economy and Taxation

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