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To Stop Illicit Tobacco Trade, We Must Focus on Reducing Demand for all Cigarettes

Economic and Health Policy Research, American Cancer Society

How do we stop the illicit trade in tobacco products? The best and most simple answer is to implement comprehensive tobacco control measures to reduce demand for all cigarettes.

The 2015 World No Tobacco Day focuses on stopping the illicit trade in tobacco products. Illicit cigarettes are a global concern because, while being as deadly as legal cigarettes, they are not subjected to local regulations and, therefore, can be more accessible and affordable than legal cigarettes.

Most illicit cigarettes start as legal ones. When selling cigarettes to smugglers, transnational tobacco companies make income, which they can then use to further expand their legal business. To address the global illicit trade problem, the international tobacco control community has called for the ratification and implementation of the Protocol to Eliminate Illicit Trade in Tobacco Products.

When making the world aware of the illicit cigarette trade problem and calling for ratification of the Protocol, we believe that it is paramount to reinforce strongly that the Protocol is a part of a broader WHO Framework Convention on Tobacco Control (WHO FCTC) package. In short, implementing the Protocol is most effective when the other provisions of the WHO FCTC are also successfully in place.

The demand for illicit cigarettes is a derivative of overall cigarette demand. Low smoking prevalence means that the market for illicit cigarettes is also small. Because of that, anti-illicit measures are most likely to work when combined effectively with comprehensive tobacco control measures to reduce overall demand for tobacco products.

There are several reasons why the implementation of tobacco control measures would reduce illicit along with legal cigarette consumption.

First, by lowering smoking prevalence, the size of the potential illicit cigarette market is reduced. For example, data from the International Tobacco Control Policy Evaluation Project (ITC) in Canada, France, the UK, and the US, show that the probability of smoking illicit cigarettes increases with age and smoking intensity. Younger and less intense smokers are not typical users of illicit cigarettes in those countries. This suggests that smokers switch to illicit cigarettes when they get older and more addicted. Therefore, measures aimed at preventing youth initiation, such as higher tobacco taxes, will prevent illicit cigarette smoking as well. Because young people will not start smoking at all in the first place, they will never switch from legal to illicit cigarettes as they grow older.

Higher tobacco taxes are often blamed for causing increased trade in illicit cigarettes. However, globally, regions with the lowest tobacco taxes also have the largest illicit cigarette market share. In fact, harmonizing taxes and increasing cigarette prices across the entire region could alleviate, rather than exacerbate, the illicit cigarette problem. The European Union (EU) is a good example of such a scenario. The EU Tobacco Tax Directives set a minimum for tobacco excise taxes in all 28 member states. Because those minima are being regularly increased, Europe is now the region with the highest cigarette taxes worldwide. With open borders between most of the EU member states it is extremely difficult to control between-country flows of goods, including flows of tobacco products. Despite that, even according to an industry-commissioned study, the number of illicit cigarettes consumed in Europe has fallen from 2007 to 2013. This is because tax harmonization decreases between-country cigarette price differences and, thus, removes incentives for smuggling and cross-boarder shopping.

Implementation of strong anti-illicit trade measures together with comprehensive tobacco control measures has proven to be an effective strategy for reducing illicit cigarettes consumption worldwide. For example, in 2013, the UK’s strategy to tackle illicit tobacco trade was one of the most complex in Europe, with a budget of £94 million a year, 19 x-ray scanners at ports, and an equivalent of 2,000 full-time staff working on detection, investigation, and intelligence, including 28 overseas liaison officers in places that are important sources of illicit cigarettes. But it is precisely because these aggressive anti-illicit measures were paired with the highest tobacco taxes, the toughest smoking bans, and the most comprehensive cessation programs in Europe – the UK was at the top of the 2013 Tobacco Control Scale in Europe – that illicit cigarette consumption in the UK has been dropping. From 2002 to 2013 the number of illicit cigarettes consumed in the UK has declined by more than 75%.

Another county that implemented both strong anti-illicit and comprehensive tobacco control measures to effectively tackle the illicit cigarette trade is Brazil. By 2007, Brazil had a large illicit cigarette problem, with many Brazilian legal manufacturers producing substantial amounts of cigarettes for the illicit market. In December 2007, Brazil implemented a track-and-trace system. This system consists of secure markings applied directly on cigarette packs at the manufacturing site, which allows production and distribution control as well as immediate and unequivocal authentication of every pack throughout the entire distribution channel.

What is crucial is that, unlike the systems advocated for by the tobacco companies, the Brazilian system has no legal or commercial link to any of the manufacturers and is entirely independent from the tobacco industry. This anti-illicit measure has been implemented together with large tobacco tax increases, updates in graphic health warnings, and tighter smoke-free laws, to reduce the overall demand for cigarettes. In consequence, even the tobacco industry, which normally tends to exaggerate the illicit trade problem, has admitted that the illicit market share has been declining in Brazil thanks to the measures implemented by the government.

Illicit trade in tobacco products is a global problem with many serious health, economic, and social impacts. There are measures, such as those included in the Protocol to Eliminate Illicit Trade in Tobacco Products, which most certainly will help to alleviate this problem. But most importantly, it is clear that the measures that aim at reducing demand for cigarettes more generally are crucial in reducing the illicit trade problem. When combined, the anti-illicit measures and tobacco control policies and regulations create a most powerful force for stopping illicit trade in tobacco products.

This post was drafted by Michal Stoklosa with contributions from Jeffrey Drope, Alex Liber and Elizabeth Mendes. Data sources: HM Revenue & Customs and European Commission, Taxation and Customs Union

ACS Staff

Economic and Health Policy Research, American Cancer Society

The Economic and Health Policy Research program seeks to address cancer worldwide by conducting research on the economic and policy aspects of risk factors to cancer, including in the areas of tobacco, nutrition, physical activity and harmful alcohol use. We also examine issues around the economics of health equity, including access to care.