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May, 2015:

World No Tobacco Day 2015: On illicit trade and taxes

On May 31, the global health community will mark World No Tobacco Day 2015. This year’s theme focuses on the public health priority of stopping the illicit trade of tobacco products. Perhaps this is a good occasion to clarify that raising tobacco taxes to make this habit-forming product unaffordable is not the cause of illicit trade. Let me explain.

The benefits of higher tobacco taxes are obvious, both in terms of good health outcomes for individuals and entire communities, which result from reduced consumption of tobacco products. In particular, this policy measure should be seen as a key strategy relevant for all countries to reduce the growing burden of non-communicable diseases. In addition, hiking tobacco taxes can help expand a country’s tax base to mobilize additional revenue to fund vital health programs and other essential public services that benefit all of us, even in the presence of cigarette smuggling. In the post-2015 period, increased tobacco taxation (along with other “sin taxes”) could also represent an important domestic revenue stream for helping finance the UN’s Sustainable Development Goals (SDGs) across the world, which will build upon the Millennium Development Goals (MDGs).

One of the main arguments often raised by the tobacco industry and other parties against the adoption of tax increases on tobacco products is the threat of illicit trade. Accumulated international experience, however, demonstrates that this argument is flawed.

Tobacco taxes are not the primary reason for cigarette smuggling and cigarette tax avoidance. Despite high cigarette prices due to high taxes in high-income countries, illicit trade is much less common in these countries than in low-income countries with low tobacco taxes. Indeed, many countries, such as the United Kingdom, or various states in the United States, have increased tobacco taxes significantly without experiencing major changes in illicit trade.

While high taxes may create incentives for illicit trade, evidence indicates that other factors have a much bigger effect on illicit trade of tobacco products. The trade thrives where the potential for illicit gains is high, and the risk to illegal operators is low. More specifically, as noted in a new report by the World Health Organization (WHO), factors driving illicit trade include: the ease and cost of operating in a country, tobacco industry participation, sophistication of crime networks, and low capacity in a nation’s tax administration system, and the likelihood of being caught and punished.

Also, as documented by the U.S. Government Accountability Office, where cigarette packs in the United States are taxed at varying rates at the state level, criminal enterprises have incentives to engage in cross-border and illicit schemes to profit or take advantage of these tax rate differentials.

What to do? Experience shows that these illegal activities can be controlled by legal means (e.g., use of prominent tax stamps, serial numbers, special package markings, health warning labels in local languages, adoption of uniform tax rates nationwide that facilitate successful collection at the points of manufacture and import), and by increased law enforcement (e.g., improving corporate auditing, better trace and tracking systems, and good governance). For example, since Her Majesty’s Revenue and Customs’ (HMRC) “Tackling Tobacco Smuggling” Strategy was introduced in the U.K. in 2000, the size of the illicit cigarette market has been cut by almost half, with more than 20 billion cigarettes and over 2,700 tons of hand-rolling tobacco seized. Additionally, the U.K. has seen more than 3,300 criminal prosecutions for tobacco offences following action by law enforcement officers. In Chile, a country that has one of the highest tax rates on cigarettes in the world, with taxes accounting for 78% of the price of each pack, the government has also experienced increased success in seizures of smuggled tobacco products. This has affected the country’s tobacco supply and is helping curtail the slight growth in illicit trade observed after a 2013 increase in tobacco prices.

After making the above argument on the need to delink tobacco taxation from illicit trade in policymaking discussions, it needs to be acknowledged that illicit trade of tobacco products is both a major health and fiscal challenge that merits urgent attention and action by governments across the world.

According to WHO research, one in every 10 cigarettes might be illicit. From a health perspective, increased availability and affordability of untaxed and inexpensive cigarettes puts more people at risk of being harmed because of increased smoking, addiction to a deadly product, and the resulting ill health, premature mortality and disability associated with tobacco-related diseases. From a fiscal perspective, illicit tobacco trade only benefits a few (often criminal enterprises) at the cost of forgone tax revenues for the government, which results from taxes not being paid on tobacco products.

Ratification of the Protocol to Eliminate Illicit Trade in Tobacco Products, which is a supplementary treaty to the WHO Framework Convention on Tobacco Control (FCTC), is a critical first step to confront this global health, economic and social scourge. The Protocol is now open for ratification, acceptance, approval, formal confirmation or accession by all Parties to the WHO FCTC. So far, eight countries have ratified it (Gabon, Mongolia, Nicaragua, Spain, Turkmenistan and Uruguay). Thirty-two additional country ratifications are needed to make this Protocol an international law.

On World No Tobacco Day 2015, let’s all advocate and encourage lawmakers –from across the political spectrum in our respective countries– to ratify and implement the Protocol to Eliminate Illicit Trade in Tobacco Products, in spite of the strong opposition from the tobacco industry. Lives and the social well-being of nations depend on it!

The new Tobacco Products Directive – one year on

by Linda McAvan, Member of the European Parliament, Rapporteur on the Tobacco Products Directive

A little over a year ago the new Tobacco Products Directive (TPD) entered into force. The Directive is a major achievement for public health in the EU, in particular as regards the protection of young people. As its provisions start to be implemented across EU countries over the coming months, we will see major changes in the type and packaging of tobacco products available on the EU market. The TPD prohibits strong flavours such as fruit or menthol in cigarettes and roll-your-own tobacco. It requires that cigarette packages carry big pictures and text warnings that remind consumers of the risks of smoking and bans the use of misleading terms such as ‘organic’ or ‘natural’.

The Directive also introduces measures to combat the illicit trade of tobacco products. New provisions for nicotine-containing electronic cigarettes will ensure that these products are safer and of better quality, and properly labelled.

A lot has happened in the past year. The European Commission is currently working on the detailed technical rules needed to implement the TPD. These include the methods to determine strong flavours in tobacco products, the appearance of the new health warnings and rules for e-cigarette refills. These rules should be in place before the transposition deadline of May 2016. A lot of work is also on-going in Member States to ensure timely transposition of the Directive.

Meanwhile, the Directive has already been challenged in court by both the tobacco and e-cigarette industry as well as by one Member State. The European Parliament and Council are working together, with the help of the Commission, to ensure that the rules agreed by the co-legislators are upheld in Court and that the internal market and public health benefits of the new Directive are not lost.

Encouragingly, a number of Member States (France, Ireland and the UK) have signalled their intention to go further and introduce fully standardised packaging. Like Australia before them, these countries are committed to ensuring that tobacco companies do not use packaging to entice young people to use their products. They are frontrunners in the protection of young people and citizens from the harmful effects of smoking. Smoking prevalence has been falling in the EU over recent years. The TPD will reinforce that trend and mean even fewer young people will be attracted to start.

World Health Organization Blocks Interpol From Meetings On Illicit Tobacco Trade

The World Health Organization is celebrating World No Tobacco Day Sunday in an effort to encourage reduced consumption, all the while freezing Interpol out of crucial meetings intended to combat one of the largest drivers of increased use: illicit trade by terrorist organizations.

WHO seems intent on keeping Interpol out of the discussion, despite the international police organization applying for observer status. The reason cited is that Interpol has a financial agreement with Philip Morris International (PMI), the largest publicly traded tobacco company. PMI contributes 15 million euros a year to help lower the underground tobacco trade.

Terrorist organizations find tobacco ideal for smuggling because, as Interpol notes, “The product is small, lightweight and profitable…the sale price is many times the cost of manufacture, mostly due to high levels of local tax in most countries.” A report from the EU Commission found that illicit tobacco trade, driven almost exclusively by criminal groups, results in a €10 billion loss of tax revenue every year for European Union member states. Cities and states often increase cigarette taxes to discourage consumption.

New York City has bumped up the tax rate on cigarettes by 190 percent since 2006.

Tobacco smuggling by terrorist organizations is pervasive and increasing. In some cases, authorities have seized 10 million cigarettes, but backlash from law enforcement clearly hasn’t dissuaded groups that stand to gain tremendously, as a result of selling cigarettes in exchange for cash, drugs and humans. Prominent Middle Eastern terror groups profit considerably from illegal cigarette operations in the United States.

“The public needs to understand it’s not a mom and pop operation,” former Bureau of Alcohol, Tobacco, Firearms and Explosives Assistant Director Rich Marianos told The Daily Caller News Foundation last year. “These are some very very bad actors with ties to al-Qaida, Hamas, Asian organized crime, Russian organized crime.”

In 2013, law enforcement cracked down on a tobacco smuggling group in New York City with ties to Hamas, a terrorist organization that controls the Gaza Strip. All 16 of those caught in the operation were Palestinian nationals.

Just two were living in the U.S. legally.

New York Attorney General Eric Schneiderman noted that police only found a very small amount of the proceeds gained from the cigarette ring. One possibility is that the Palestinians funneled the proceeds to Hamas.

In another example, federal authorities raided a group in North Carolina with connections to Hezbollah. Agents arrested 17 in Charlotte and another in Michigan. The offenses included money laundering, cigarette trafficking and immigration violations, according to U.S. Attorney Mark Calloway. The operation involved shipping cigarettes from North Carolina to Michigan and selling the products below the tax rate imposed by the receiving state.

A van loaded with cigarettes sent from North Carolina to states with higher taxes can bring in $8,000-$10,000 per trip.

Cigarette smuggling has even been implicated in the death of U.S. Ambassador Chris Stevens, based on an investigation from the International Consortium of Investigative Journalists. Researchers discovered a link between cigarette smuggling and al-Qaida in the Islamic Maghreb (AQIM). An affiliate of AQIM, Ansar al-Sharia, was thought to have killed Stevens in Benghazi. According to the United Nations Office on Drugs and Crime, 15 percent of cigarettes in Africa are bought off the black market. In Libya, that number jumps to approximately three-quarters.

Cigarettes are often more profitable and less risky than drugs, partly because few people take the cigarette trade as seriously as the drug trade.

World No Tobacco Day: The high cost of the illicit tobacco trade

It is estimated that one in every 10 cigarettes or tobacco products consumed globally is illicit, a trade which poses major health, economic and security concerns around the world. From hooking young people into using tobacco with cheaper products, from financing criminal groups who fund other organised crime activities, World No Tobacco Day is calling for an end to the illicit tobacco trade.

Why do we need to stop the illicit trade of tobacco?

Affordable and accessible

The illicit trade of tobacco products makes it more affordable and accessible to people in low-income groups, as well as children, as it is usually sold at lower prices. According to the UN, tax and price policies are recognised as an effective way of reducing demand and consumption of tobacco products. However, the illicit trade increases consumption and undermines tax policies.

As the products are not subject to legal restrictions and health regulations aimed at halting the use of tobacco, such as warnings on packaging, it has a knock-on effect on health. According to research, governments could gain $31 billion (£20 billion, €28 billion) annually by eliminating illicit trade – as of estimates from 2009 – and reduce one million premature deaths attributable to tobacco products every six years, mostly in middle- and low-income countries.

Organised crime

This kind of trade sponsors criminals and funds organised crime, which includes drugs, human trafficking and arms smuggling. It has a potential impact on levels of corruption and security.

According to Tobacco Underground, a project of the International Consortium of Investigative Journalists, illicit trafficking of tobacco is a multibillion-dollar business, which can be seen in counterfeiting businesses in China to warlords in Pakistan. The UN Security Council’s investigative body has found millions of pounds in illicit tobacco revenues are reaching al-Qaeda, the Taliban and other terrorist organisations around the world.


In 2013, the law-enforcement agency Europol found excrement and insect eggs in counterfeit cigarettes, which also contained higher levels of tar and nicotine than in other genuine tobacco products. Other illicit tobacco products contained higher levels of lead, carbon monoxide and arsenic.

Without quality controls, Europol found cigarettes were being produced with cheap material to maximise profits, with no regard for consumers.

Key facts about Tobacco

Tobacco kills up to half of its users.

It kills nearly six million people annually, of which more than five million deaths are the result of direct tobacco use and one million are the result of non-smokers being exposed to second-hand smoke.

According to the UN, the number could rise to more than eight million by 2030.

More than three-quarters of the world’s one billion smokers – nearly 80% – live in low- and middle-income countries.

There are more than 4,000 chemicals in tobacco smoke.

More than one billion people, around 16% of the world’s population, are protected by comprehensive national smoke-free laws.

According to the Centers for Disease Control and Prevention, there are more than 16 million Americans living with a disease caused by smoking.

ITIC extracts from Legacy tobacco documents at UCSF

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Cost of a lifetime of smoking equivalent to an 800 sq ft flat, Chinese University study finds

Tobacco not only seriously harms health it ruins your wealth, Chinese University study finds

A smoker in the city will burn through more than HK$1 million in a lifetime, enough money – if invested well – to buy an 800 sq ft flat on Hong Kong Island, a Chinese University study found.

It found Hong Kong was the third most expensive place in the Asia-Pacific region for smokers, after Australia and Singapore.

Assuming consumption of one packet a day, Hong Kong smokers spend an average of HK$20,440 a year.

Vivian Lee Wing-yan, associate professor at the university’s school of pharmacy who conducted the study, said she hoped smokers could understand that quitting the habit would enable them to enjoy better wealth and better health.

“The money spent on cigarettes can be used on investment instead to potentially increase their assets,” Lee said yesterday, ahead of World No Tobacco Day on Sunday.

“Reducing the smoking population can significantly alleviate the disease burden and reduce public health expenditure.”

Smoking can cause a number of fatal conditions, such as heart and respiratory diseases and cancers. It also imposed a huge economic burden on the health care system, Lee said. But despite the many adverse effects of tobacco being recognised, many people had still not quit.

The study investigated the tobacco cost per person throughout their lifespan in Hong Kong, South Korea, Thailand, Malaysia, Singapore, the Philippines, and Australia. It assumed that the smokers started at the age of 18 and smoked one pack a day.

Australian smokers were most out of pocket, having to spend over HK$100,000 a year, followed by around HK$55,000 for Singaporeans.

Lee said if the smokers invested all the money they spent on tobacco, the returns when they retired at 60 years old were equivalent to the price of an 800 sq ft flat on Hong Kong Island, based on Standard & Poor’s 500 Index.

Lee estimated the annual economic loss caused by smoking in Hong Kong at over HK$11.3 billion. “We hope to provide a reference for the government to enforce tobacco control, and enhance anti-smoking policies.”

Department of Health figures show the smoking rate for people above 15 is 11.1 per cent in 2010, one of the lowest in the world.


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Cigarette age limit increased to 20

BANGKOK, 28 May 2014 (NNT) – The Cabinet on Wednesday approved the tobacco draft act which prohibits sale of cigarettes to those under 20 years old and raise punishment for offenders.

Deputy Prime Minister Yongyutn Yuthawong said the draft act increased the minimum legal age for cigarette purchase from 18 to 20 years and prohibited sale of individual cigarettes. The draft act also prohibits cigarette sale in some public places such as temples, public health facilities, schools and public parks, the deputy PM added.

The draft act bans cigarette companies from advertising their products as sponsors of contests and competitions. Cigarette advertising is banned in print and online media, TV and movies.

The penalty of imprisonment for those who sell cigarettes to people under 20 years old is increased from one month to one year and fine for smokers in non-smoking areas is raised from 2,000 to 5,000 baht.

WHO calls for action against illicit tobacco trade on World No Tobacco Day

GENEVA – Eliminating the illicit trade in tobacco would generate an annual tax windfall of US$ 31 billion for governments, improve public health, help cut crime and curb an important revenue source for the tobacco industry.

Those are the key themes of World No Tobacco Day on 31 May when WHO will urge Member States to sign the “Protocol to Eliminate the Illicit Trade in Tobacco Products”.

“The Protocol offers the world a unique legal instrument to counter and eventually eliminate a sophisticated criminal activity,” says Dr Margaret Chan, WHO Director-General. “Fully implemented, it will replenish government revenues and allow more spending on health.”

So far, 8 countries have ratified the Protocol, short of the target of 40 needed for it to become international law. Once that happens, the Protocol’s provisions on securing the supply chain, enhanced international cooperation and other safeguards will come into force.

The Protocol is an international treaty in its own right negotiated by parties to the WHO Framework Convention on Tobacco Control (WHO FCTC), which has been ratified by 180 Parties. Article 15 commits signatories to eliminate all forms of illicit trade in tobacco products.

The Protocol requires a wide range of measures relating to the tobacco supply chain, including the licensing of imports, exports and manufacture of tobacco products; the establishment of tracking and tracing systems and the imposition of penal sanctions on those responsible for illicit trade. It would also criminalise illicit production and cross border smuggling.

“The Protocol faces overt and covert resistance from the tobacco industry,” says Dr Vera da Costa e Silva, Head of the WHO FCTC Secretariat. “Manufacturers know that once implemented, it will become much harder to hook young people and the poor into tobacco addiction.”

The illicit tobacco trade offers products at lower prices, primarily by avoiding government taxes through smuggling, illegal manufacturing and counterfeiting. Cheaper tobacco encourages younger tobacco users (who generally have lower incomes) and cuts government revenues, reducing the resources available for socioeconomic development, especially in low-income countries that depend heavily on consumption taxes. This money might otherwise be spent on the provision of public services, including health care.

While publicly stating its support for action against the illicit trade, the tobacco industry’s behind-the-scenes behaviour has been very different. Internal industry documents released as a result of court cases demonstrate that the tobacco industry has actively fostered the illicit trade globally. It also works to block implementation of tobacco control measures, like tax increases and pictorial health warnings, by arguing they will fuel the illicit trade.

“Public health is engaged in a pitched battle against a ruthless industry,” says Dr Douglas Bettcher, Director of the WHO’s Department for the Prevention of Noncommunicable Diseases. “On this World No Tobacco Day, WHO and its partners are showing the ends that the tobacco industry goes to in the search for profits, including on the black market, and by ensnaring new targets, including young children, to expand its deadly trade.”

Policy makers should recognize that the illicit tobacco trade exacerbates the global health epidemic and has serious security implications. Ratification of the Protocol to Eliminate the Illicit Trade in Tobacco Products is a necessary step to combat these twin evils.

Editor’s note

Tobacco-related illness is one of the biggest public health threats the world has ever faced. Approximately one person dies from a tobacco-linked disease every six seconds, equivalent to almost 6 million people a year. That’s forecast to rise to more than 8 million people a year by 2030, with more than 80% of these preventable deaths occurring among people living in low-and middle-income countries.

The WHO Framework Convention for Tobacco Control (WHO FCTC) entered into force in 2005. Parties are obliged over time to take a number of steps to reduce demand and supply for tobacco products including: protecting people from exposure to tobacco smoke, counteracting illicit trade, banning advertising, promotion and sponsorship, banning sales to minors, putting large health warnings on packages of tobacco, increasing tobacco taxes and creating a national coordinating mechanism for tobacco control. There are 180 Parties to the Convention.

Significant mandates: JTI turns to Freshfields in latest tobacco challenge to plain cigarette packaging

The latest firm to win work challenging the UK government’s decision to introduce plain cigarette packaging, Freshfields Bruckhaus Deringer’s Tom Snelling has launched High Court litigation on behalf of Japan Tobacco International, the maker of Camel, Benson & Hedges and Silk Cut.

The UK’s second biggest cigarette seller after its £9.4bn purchase in 2007 of Gallagher, whose brands included Mayfair, Silk Cut and Hamlet Cigars, Japan Tobacco International (JTI) follows its rivals British American Tobacco and Philip Morris International in filing a suit against the plans to ban branded packaging from May 2017. Snelling is being supported by IP partner Giles Pratt and has instructed David Anderson QC of Brick Court chambers to bring the case before the courts.

The company has so far failed in a similar suit against the Australian government, which became the first nation to implement plain packaging legislation in December 2012 with the Tobacco Plain Packaging Act. The legal battle has not stopped there, however, with Ukraine, Honduras and Dominican Republic bringing a dispute against Australia over its plain packaging rules at the World Trade Organization (WTO).

JTI argues that plain packaging is unlawful and infringes important principles of UK and EU law, and other fundamental rights, and goes against obligations under WTO rules.

Earlier this year, British American Tobacco (BAT) instructed Herbert Smith Freehills (HSF) for its challenge against the UK government’s plans, as well as Hogan Lovells to advise on intellectual property issues, while barristers brought in include 39 Essex Chambers’ Nigel Pleming QC and One Essex Court’s Geoffrey Hobbs QC.

MPs voted to back plain packaging legislation by 367 to 113 in March following an independent review by Sir Cyril Chantler that found the measure was ‘highly likely…to reduce the rate of children taking up smoking and implausible that it would increase the consumption of tobacco.’