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December 4th, 2015:

Business and Health Interests Push Agendas on E-Cig Regulations

More than 30 meetings are planned with White House officials as the final review of new regulations takes place.

WASHINGTON, D.C. – Ahead of some of the most sweeping changes to rules governing cigars and e-cigarettes, industry groups and health advocates have been bending the ear of the White House to press their suggestions, The Hill reports. The Office of Management and Budget (OMB) is conducting a final review of the new regulations, which move cigars and e-cigs under the U.S. Food and Drug Administration (FDA) for the first time.

Thus far, 21 meetings have been held to talk about the deeming rule, with another dozen or so on the books for December. This means that the new rules will likely not be ready until 2016. Tobacco and electronic cigarette industry representatives constitute the bulk of the meetings, especially because of a potential “grandfather date” for e-cigs in an earlier version of the rules. The proposed rules say that any tobacco product first on the shelves after February 15, 2007, would need to retroactively apply for FDA approval.

“If these rules went through, the only ones left standing would be big tobacco—what you see in convenience stores,” said Schell Hammel of The Vapor Bar Inc., which has seven retail locations. She told OMB that small “vape” shops like hers would have to pay millions of dollars for the required testing for agency approval.

Meanwhile, health advocates have pushed for release of the rules sooner. “E-cigarette manufacturers have been on notice since at least 2011 that FDA planned to regulate their products, but they have taken advantage of the delay in regulation to introduce kid-friendly flavors, and now they want to limit FDA review of those products, which we think is absurd,” said Vince Willmore, vice president of communications for the Campaign for Tobacco-Free Kids.

However, the debate centers more on who has the power to change the grandfather date: the administration, or an act of Congress? The FDA has noted it lacks the authority to do so because the date was set in the Family Smoking Prevention and Tobacco Control Act of 2009.

In March of 2014, NACS issued a statement of position to encourage stores selling e-cigarettes to adopt, as a best practice, a policy of treating these products as age restricted and subjecting them to the same age-verification procedures as those applicable to tobacco products.

China to set up a cigarette plant in Zim

CHINA is expected to set up a cigarette manufacturing company in Harare following discussions between the government and officials from the Asian giant, it has emerged.

Finance and Economic Development minister Patrick Chinamasa said at a recent meeting that the government held discussions with the State monopoly company of China, which is one of the major consumers of local tobacco.

He said local companies must focus on value addition to create more jobs.

“We are getting indications from China and for a longtime we have been engaging with China. There is a State monopoly of tobacco in China and you cannot get tobacco whether raw or processed into China, unless through the State monopoly company,” Chinamasa said.

“We have been asking them to get a quota in China, but they refused then we changed tact and said they could come and make a factory to manufacture cigarettes. If successful, they can come and set up a factory and export cigarettes to China.”

China is the major consumer of Zimbabwean tobacco.

Since 2009, the number of farmers growing tobacco has been on the increase. The golden leaf output has been on the rise and prices have been favourable. But for the 2014/5 season, most tobacco farmers were disappointed because the prices were very low.

Tobacco is mostly grown in the country through contract farming, whereby the contractor provides inputs to the farmers. Tobacco output has been on the increase since 2009 and it reached its peak in 2014 producing 216 million kilogrammes but this year the farmers produced 198 million kgs due to the poor rainfall patterns experienced in the country.

Chinese President, Xi Jinping was in the country this week and signed 12 deals with the government in sectors such as infrastructure, telecommunications and energy. Zimbabwe Power Company signed a co-operation agreement for Hwange 7 and 8 to produce 600 megawatts of power.

How did EU spend its €110mn of tobacco money?

The European Union and its member states have so far received at least €1.4 billion from four tobacco giants as a result of anti-smuggling cooperation agreements. The EU budget received almost 10 percent, or €110 million, so far. How have they spent that money?

The short answer to that question is: we have no idea, and this is normal.

Some members of the European Parliament (MEPs), worried that the tobacco’s companies’ payments have bought them influence in EU policy, have asked the Commission to show how the money has been used to fight cigarette smuggling and counterfeiting.

But the EU commissioner in charge of the budget, Kristalina Georgieva, has told them that the millions are not stored in separate ‘tobacco jars’.

“The money collected by the Commission and the member states as a result of the agreements is not earmarked for any particular ensuing actions,” the commissioner wrote in response to questions from MEPs.

“Therefore, there is no link between the incoming funds and specific expenditure. This is in line with the principle of the universality of the budget which applies to the EU budget and the budgets of numerous Member States”.

‘Could be’

Indeed, when going back to the time of the signing of the first such agreement, between Philip Morris International (PMI) and the EU, no hard promises were made that the PMI money would be spent on combating cigarette smuggling.

On the day the PMI agreement was signed, then budget commissioner Michaele Schreyer was already cautious not to rule out that some of the money would be used for other purposes.

She noted the agreement “provides for substantial payments by PMI”.

“These could be used to combat smuggling and counterfeit”, she said.

The phrase “could be” would be repeated in later communications, also on three additional similar agreements signed with other tobacco firms.

Olaf, the EU’s antifraud agency, referred in its annual report for 2007 to the second such agreement that was concluded that year between the European Commission, member states, and Japan Tobacco International.

“The agreement, which runs for 15 years, makes provision for the payment of $400 million (approximately €250 million), which could be used to combat the smuggling and counterfeiting of cigarettes”, Olaf’s report noted.

‘Could be’. Not ‘will be’.

In total, the four tobacco giants have paid €1.4 billion until June 2015, with 9.7 percent, or €110 million, going to the EU budget. The rest has gone to member states’ budgets.

The commission does not monitor how member states use these funds, nor did it track how the money it received was spent.

Napkin calculation

Of course, one can still compare how much money was spent on fighting cigarette smuggling to how much money was received. However it is a bit of a napkin calculation, because the commission itself does not officially add up all EU action on cigarette smuggling and counterfeiting.

Several EU agencies deal with the issue.

Looking at EU funds going to anti-fraud agency Olaf, judicial cooperation agency Eurojust, and the EU’s law enforcement agency Europol, one can say that indeed several tens of millions of euros have been spent on combating cigarette smuggling during the eleven years since the first PMI agreement was signed.

This is when taking into account the expenditure on salaries, and looking at how many staff are assigned to fighting tobacco fraud. But it would be a guess at best.

It is even harder to know if those funds would have been spent had there been no such agreement, and the expiration of the PMI agreement next year raises the question whether reliance on the annual payments plays a role on the decision whether or not to negotiate.

Herculean task

There is however one programme which very directly came out of the PMI agreement.

In 2006, two years after the deal was signed, the European Commission proposed to increase the budget for Olaf’s Hercule II programme by €44 million (for the period 2007-2013), specifically to finance training activities and equipment that are aimed at fighting cigarette smuggling and counterfeiting.

Denmark’s custom authorities for example received €335,000 in grants in 2010 and 2011 to buy X-ray scanners to scan for illegal shipments of tobacco products. According to an official Commission evaluation, 9,000 cartons of smuggled cigarettes were detected in the first nine months.

But while the programme was praised by several member states, the evaluation report’s annex showed that there was limited hard proof of its effectiveness.

“Overall, the beneficiary survey showed that 75% of beneficiaries agreed or strongly agreed that the Programme multiplied and intensified the measures in the areas identified as the most sensitive, in particular cigarette smuggling and counterfeiting,”, the report noted.

“However, … the evaluator had limited data available on the numbers of arrests or numbers of seizures of smuggled cigarettes and counterfeit products, which made it difficult to assess the effectiveness of these actions in purely quantitative terms. For the same reason it was not possible to determine whether the Programme contributed to increased numbers of arrests or increased numbers of seizures of smuggled cigarettes and counterfeit products.”

The report adds: “A case study confirmed that the equipment would not have been purchased in four Member States without the co-financing provided by Hercule II. Due to the lack of quantitative data on seizures of smuggled or counterfeit cigarettes, the evidence is limited.”

“This makes it difficult to estimate precisely the extent to which the actions have multiplied and intensified existing measures. However, the qualitative data provided strong evidence showing that the programme intensified measures in the area of cigarette smuggling, because it contributed to projects which improved staff‘s analytical capacity to counter cigarette smuggling.”

This lack of data will make it challenging for the Commission to complete its assessment of the benefits that the agreement with PMI has brought, and whether to aim for a renewal next year.

EU Tobacco Agreement Hasn’t Significantly Slowed Smuggling

The landmark deal with Philip Morris International was supposed to greatly reduce the influx of illegal and counterfeit cigarettes.

BRUSSELS – Eleven years after the European Union inked a landmark deal with Philip Morris International (PMI) to curb cigarette smuggling, some are questioning its effectiveness, the EU Observer reports. “We have concluded an agreement with PMI, which is quite unique in its scope. and I am not afraid to use the term ‘landmark’ agreement here,” Michaele Schreyer, European Union (EU) commissioner for budgetary affairs, said in July 2004. “We have built an efficient system to fight against future cigarette smuggling and counterfeiting.”

Now, that arrangement is close to expiring and the EU has been conducting an assessment of the agreement. “The main objective of the PMI agreement to reduce the presence of smuggled PMI products on the EU black market has been achieved,” said Kristalina Georgieva, head of the European Union’s budget office. “Between 2006 and 2014, the volume of illegal PMI products seized by member states under the agreement has dropped by 85%. That substantially exceeds the overall downward trend in seizures. This drop applies equally to both genuine and counterfeit PMI products.”

EU members reported seizing 4.5 billion illegal cigarettes in 2005, which dropped to 3.1 billion contraband cigarettes in 2013. During the same time period, PMI brands also plummeted among the seized smokes.

However, some say that because some member states only started reporting smuggled cigarette numbers in 2005, there’s a lack of accuracy as to contraband numbers before the agreement. The amount of estimated lost taxes because of smuggling has stayed steady since 2010, at €10 billion.

EU admits parts of tobacco deal too bureaucratic

The EU’s anti-fraud agency Olaf has said that an agreement the EU signed with tobacco company Philip Morris International (PMI) in 2004 has given PMI an incentive to cooperate in cigarette smuggling investigations, but also indicated that some of the inquiry tools the EU acquired under the agreement may have been too bureaucratic to work in practice.

The EU-PMI deal, which ended a legal struggle and cemented a cooperation to combat cigarette smuggling and counterfeiting, will expire next year.

EUobserver has looked at various aspects of the agreement, and uncovered PMI’s annual compliance reports via a freedom of information request.

The reports showed that Olaf had made little use of several of the investigative tools it was given under the agreement.

For example, the deal gave Olaf the power to interview PMI employees, but PMI said it never received any request for such interviews during the 11 years the agreement has been in place.

According to the reports, Olaf also blindly trusted PMI’s promise to hold due diligence probes into the company’s business partners – Olaf never requested the due diligence reports despite the right to ask for them.

Olaf was unavailable for comment before publication of the article about its investigative tools under the agreement, but their press office has sent this website an e-mail with comments since.

Responding to questions why Olaf never used some of the options given under the agreement, its press office said “the specific situations envisaged in certain clauses have not arisen in the context of Olaf investigations”.

Although Olaf did not specify how or quantify how often, the spokesperson wrote that PMI “has on multiple occasions provided national investigators and Olaf with information of direct investigative value”.

“This information has regularly led to seizures by Member States’ enforcement authorities, and in many cases to arrests and criminal indictments,” it said.

“Transnational criminal organisations were dismantled and potential losses to Member States’ and the EU budget of many million euros were prevented. PMI and other companies also provided assistance to dismantle illegal cigarette production facilities in some EU Member States and neighbouring countries,” the e-mail continued.

Olaf noted that “on several occasions Olaf has addressed requests to PMI for information in relation to on-going investigations”, but also hinted that not all the inquiry tools put in place by the deal were considered effective.

“Investigative needs will also frequently dictate much faster means of enquiry than formal requests with a deadline of 45 days for replies, such as when a container with a suspicious load is already en route,” said Olaf’s press office.

The European Commission has promised an assessment of the agreement before the end of the month. Based on that assessment, a decision will be made whether or not to start negotiations for a possible renewal of the deal.

EUobserver has published a four-part series of articles about the EU’s agreement with tobacco company PMI