Dismounting the high horse

| November 1, 2016

It’s time for critics to recognize the tobacco industry as a partner, rather than an adversary, in the fight against illicit trade.

By George Gay

smokers zurichA few years back I was told off for having suggested that the price people pay for cigarettes should be aligned in direct relationship with their incomes; so the more a person earned the more she should pay for her cigarettes. The general drift of the complaint was how dare I suggest that a person who had studied diligently and worked hard so as to land a well-paying job should be penalized for such enterprise.

I tried to explain that my suggestion was aimed not at penalizing the better-paid person but at helping her by pushing the price of cigarettes to the point where she could no longer afford them, stopped smoking and enjoyed all of the health advantages that quitting offered. I was merely raising the bar of government strategy so that it encompassed too the better off.

At this point the person who had been telling me off looked at me as if I were mad and changed the subject.

What does this true story indicate? To me it suggests that there is at least one person who doesn’t buy into the idea that the primary reason why governments raise cigarette taxes is to improve public health. And I get the feeling that he isn’t alone.

So it’s about the money, about government revenues? In part. For instance, in July, a smoker in the U.S. state of Pennsylvania raised a question that should be asked often and loudly but rarely is: Why should smokers pay a disproportionately high level of taxation? Writing on www.pennlive.com, Nancy Eshelman said that she had smoked for more than 50 years and, during that time, “dropped a lot of money into the state coffer.”

“I don’t mind paying tax on my cigarettes,” she wrote. “But why should I, and other smokers, provide nearly two-fifths of the new revenue that will balance the state’s new budget?”

Making choices

But there’s more to tax increases than money and health. For one thing, they have to do with the fact that, in the minds of some people, there can be no redemption for tobacco sinners. And they have to do with the fact that some people make their choices not on the basis of what they like the most but on what they dislike the most.

This way of choosing was evidenced by the Brexit vote and by reaction to the U.S. presidential campaigns. And it is evident in the vapor debate—it’s better to stick with smoking than allow tobacco manufacturers to take the moral high ground with their newfangled vapor devices.

And in respect of the illegal trade in tobacco products, there seems to be a theme running through the narrative suggesting that some in the anti-tobacco field would sooner that this trade carried on if the alternative required working with tobacco manufacturers.

In September, a brand security consultant said the World Health Organization (WHO) would rather focus on easy targets, such as licit tobacco companies, than on the illegal trade in tobacco products, according to a story by Connor D. Wolf published on InsideSources. Former U.S. federal agent Thomas Lesnak warned that the WHO’s political agendas and secret meetings had resulted in an echo chamber of dangerous policies. “No one really wants to talk about what the facts are, what the real numbers are,” Lesnak said. “It’s easy to say I’m against the big tobacco companies. Politically it’s smart. There’s no downside to it except you’re ignoring what’s really going on out there.”

Also in September, a report by the Australian Institute for Progress (AIP) said that the November meeting of the Conference of the Parties (COP) to the WHO’s Framework Convention on Tobacco Control (FCTC) would lack the transparency and dialogue that underpin United Nations values. The report was launched by the former Australian government minister Gary Johns.

The seventh FCTC COP, which was set to be held in Delhi, India, on Nov. 7–12, just after this magazine’s November issue was due to be published, was refusing entry to relevant stakeholders or media to discuss new developments that could save lives around the world, the AIP said in a story issued through PR Newswire. “The WHO FCTC is a closed shop which uses exclusion to silence debate,” Johns was quoted as saying.

Perhaps this is part of the reason why, according to a Taxpayers Protection Alliance (TPA) report in October, numerous countries have opted not to pay their obligations to the WHO FCTC. “As of July 15th, 142 of the 180 FCTC member countries, nearly 80 percent, had outstanding obligations,” the TPA said. “The FCTC has faced criticism for banning journalists at its meetings, malpractice, stifling debate, lacking transparency and being profligate with public money.”

And perhaps the criticisms are starting to get through. Also in October, though before the TPA report came out, Vera Luiza da Costa e Silva, head of the Secretariat of the FCTC, wrote in a Huffington Post blog that some sessions of the international tobacco control meeting due to be staged in India would be held in public. But da Costa e Silva said that the parties to the Delhi meeting could not sit at the negotiating table with the people who had caused the global disaster of tobacco use because the tobacco industry had lied.

Startling inefficiency

russia-cigarettesSo no redemption for the tobacco sinners, which seems to mean that the future looks bleak because, as is suggested above, the FCTC, working on its own, is stuck inside an echo chamber—and one of startling inefficiency.

In September, Philip Morris International expressed concern that, four years after its adoption, an international protocol aimed at eliminating the illegal trade in tobacco products had not entered into force. The Protocol to Eliminate Illicit Trade in Tobacco Products, developed under the FCTC, was adopted in November 2012. The protocol, PMI pointed out, must be ratified by 40 FCTC signatories to enter into force, but, after almost four years, only 20 signatories, 19 countries and the EU, had ratified it.

“PMI has been a supporter of the anti-illicit trade protocol since its adoption in 2012,” said Alvise Giustiniani, head of PMI’s anti-illicit trade department. “The WHO’s protocol paves the way for solutions that have already been proven effective in the EU—such as tracking and tracing, and due diligence procedures—to be implemented as common practice around the world.  We believe the protocol is a significant step forward towards creating a global solution for the problem of the illegal and unregulated tobacco trade. It is concerning that, four years after its adoption, the protocol has not entered into force. As the protocol presents a promising framework to fight the tobacco black market around the world, this is a missed opportunity.”

But, in fact, even the EU has not covered itself in glory recently in respect of the illegal trade in tobacco products. For a number of years it has had in place anti-illegal trade agreements between the four major multinational tobacco manufacturers, the EU Commission and member states aimed at cracking down on the illegal trade in cigarettes. The agreements have required the four companies to secure their supply chains through marketing and tracking-and-tracing systems, and to make two types of payment to the European Commission and the member states of the EU. These payments consisted of annual fixed sums payable from 2004 up to 2030, ranging from $200 million to $1 billion, and “seizure payments” equivalent to 100 percent of the evaded taxes for seizures of genuine (not counterfeit), diverted products above quantities of 50,000 cigarettes in one haul, rising to 500 percent if total annual seizures exceed 150 million to 450 million cigarettes.

However, the commission decided in July not to extend the 12-year agreement with PMI, the oldest agreement and the first to come up for renewal, saying that it would instead focus on provisions of its new Tobacco Products Directive and WHO protocols to continue the battle against the illegal tobacco trade. That, I take it, is the WHO protocol that is still reverberating around the echo chamber.

The commission decision seems to have been irrational. A commission report assessing the agreement with PMI in February concluded that the deal had “effectively met its objective of reducing the prevalence of PMI contraband” but questioned its “continued relevance,” according to a story on www.euobserver.com. During the period of the agreement, the volume of genuine PMI cigarettes seized by EU member states between 2006 and 2014 was said to have declined by about 85 percent. And PMI was said to have used the agreement “on multiple occasions” to give anti-fraud authorities in the EU “information of direct investigative value.”

But the report said, “It can also be argued that PMI’s incentives in this type of assistance to enforcement might as well be independent from the existence of the PMI agreement.” The report said also that while the deal might have worked well in the past, the “market and legislative framework has changed significantly since the entry into force of the agreement” in 2004, with many of the rules in the agreement now part of EU law and some parts of the deal contradicting international obligations. But the clincher, I imagine, was the report’s acknowledgment of criticism that the agreement allowed a cozy relationship between companies and the EU.

What strikes you here is that the agreement clearly worked and that it could probably have been made to continue to work, with agreed changes to cover the new market and legislative framework—but anything rather than work with a tobacco company, to stay in a relationship with a tobacco company that could be conceived of as cozy but in reality was probably a working relationship.

The agreement certainly worked. Margarete Hofmann, policy director of the EU’s anti-fraud office OLAF, sent a briefing paper to political advisers in the European Parliament on March 7 stating that the existing agreements with the four major tobacco companies were the “best instruments” to combat cigarette smuggling at the international level. According to a story by Quentin Aries and James Panichi for www.politico.eu, documents accessed by Politico revealed that Hofmann had warned that a failure to renew the deal with PMI would hurt law enforcement agencies’ short-term anti-smuggling capability.

But the “cozy” relationship was the issue. An Irish member of the European Parliament, Nessa Childers, in an opinion piece in The Parliament Magazine, said that the “infamous” PMI agreement should be confined to the dustbin of public policy history. “We have empowered the industry to self-police cigarette smuggling without independent verification,” she said. “Therefore, it will come as no surprise that the vast majority of seizures are declared as counterfeit. If they were not, then the industry would owe the exchequer duty on the smuggling of their own wares.”

What Childers implied, however, was at odds with the commission’s view. The commission had previously said in answer to a parliamentary question that there had been no evidence of incorrect reporting by tobacco manufacturers in relation to the provenance of cigarettes seized within the EU. “It is important to note that there has been no evidence of incorrect reporting by the manufacturers,” the commission said as part of its answer. “One particular member state has verified 123 assessments made by manufacturers and not found any error.”

In the past, we in the tobacco industry did and said a lot of things that were indefensible, and I still think—and sometimes point out—that there are issues that we still get wrong and don’t act on quickly enough to put right. But in respect of the illegal trade, it is about time that the WHO and the EU came down from their self-righteous high horses and started to recognize that it is the tobacco industry that can be the most effective partner in combatting the illegal trade in tobacco.

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Category: Editorial Archives, Illicit trade

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