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EU has chance to stop illegal tobacco trade

The trade in illicit tobacco is a massive problem, but the European Commission has been presented with a golden opportunity to strike a blow against the smugglers. But it must look long-term, writes Eric Lequenne.

Eric Lequenne is International Business Development Manager at Worldline.

According to KPMG, illicit tobacco accounts for up to 12% of all cigarettes and more than 58 billion cigarettes in the EU alone. Aside from the obvious public health risk of illicit cigarettes flooding the EU, there’s a huge impact on tax revenues: as much as €12.5 billion a year. Those billions could go towards schools, infrastructure or tax cuts. That hurts us all, slowing growth, reducing competitiveness and costing jobs.

Cigarettes are among the top five illegally-traded products alongside drugs, arms, fuel and diamonds. By market share, smugglers run the third-largest tobacco business in the world.

So it’s understandable why the European Commission is focused on tackling the issue through the revised EU legislation on Tobacco Products (EUTPD), adopted in 2014. It is a good example of product-specific legislation, as it aims to protect public health, while improving the internal market for tobacco and related products. In this context, the EUTPD introduces new requirements to combat illicit trade that will be made operational through implementing acts on tracking, tracing and security features, expected to be finalised in late 2017.

The tobacco industry, its suppliers, law enforcement authorities, member states, and the EU should work together to eliminate this illicit trade. Everyone agrees that Europe needs a solution that can be implemented quickly, and meets the objectives of the Tobacco Products Directive. We need a system that encourages competition – flexible and effective solutions based on common standards. This will strengthen cooperation between enforcement, manufacturers, and others in the supply chain. We also need adequate control in place, and penalties for those who fail to comply, or simply cheat.

The department leading efforts on tobacco is DG SANTE. To help reach a decision, an independent consultancy was asked to conduct a feasibility study into different possible solutions that would meet the conditions of EU legislation.

The result? A report that correctly identified the need for universal standards, but failed to properly consider the emerging Track&Trace technologies being tested in the real world. The report also failed to encourage technological progress through competition.

We thus welcome the news that DG SANTE has commissioned a further study into the options available. It’s an opportunity to get it right and come up with a future-proof solution to the problem – a solution with a fighting chance of getting ahead of the criminals who feed off the trade.

Imposing a single solution across the EU rather than defining open standards may seem superficially attractive. But the real-world implications are significant – and highly negative, if the chosen approach stifles innovation and competition among service providers. The key to fighting this battle – and winning it – is to supercharge the power of innovation. This means working with third parties to ensure the solutions compete with each other, continue to improve, and respond to changing threats – while meeting basic technical standards.

The World Health Organisation’s (WHO) Framework Convention on Tobacco Control (FCTC) and its Protocol to Eliminate the Illicit Trade in Tobacco Products provided a good model. The Protocol requires the implementation of T&T systems for tobacco products throughout the entire supply chain. But it rightly does not establish any specific global standards for implementation, since these would be impossible to apply. Instead, it requires governments to implement their own systems and work together to maximise effectiveness.

In the GSM telecoms sector, too, open standards have been effective in driving innovation, ensuring a competitive environment that hugely benefits businesses and consumers.

Many industries, including pharmaceuticals, alcohol, and luxury goods, face similar issues. They are responding with digital solutions that can effectively track, trace and authenticate products throughout the supply chain. Many of the most advanced solutions proposed by the technology and security industries today are embedded into the packs themselves, rather than being merely glued on with a physical stamp containing the security feature.

We have worked with many of the industries facing similar challenges. Worldline has seen the benefits of collaboration – essentially, taking advantage of the industries’ own expertise in fighting counterfeiting and illicit trade. We do recognise that the tobacco industry is different; some argue this industry should be excluded from participating in implementing any regulation. But we believe that leveraging their expertise can help fight the scourge of illicit trade. This should be part of a clear framework, based on independent auditing and effective controls – ensuring consistent best practice.

The directive’s acts may not be implemented until 2019. Who knows what new technology will be market-ready by this point? That’s why EU work must look beyond the prescriptive and restrictive, and take the more complex but ultimately more effective route of developing interoperable standards. The Commission now has a unique opportunity to deal a real blow to the criminals who trade in illicit tobacco.

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