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illicit trade boatWHACK-A-MOLE

Why is it so difficult to stamp out the illicit trade in tobacco products? Part of the challenge is that it is a moving target: Tackle one area—by tightening border controls, for example—and smugglers will simply set up shop elsewhere or channel their malevolent energies into other activities, such as counterfeiting.

The slippery nature of the problem appears to have been a consideration in the EU’s decision to not renew its long-standing anti-illicit tobacco agreement with Philip Morris International. Despite the deal’s spectacular success in reducing the illegal trade in PMI products, the overall size of the EU illicit tobacco market remained unchanged over the lifetime of the arrangement.

That failure was due not to the agreement’s scope—after all, the EU signed similar agreements with all major tobacco manufacturers—but to illicit traders’ ability to adapt to changing market circumstances. Designed to address the problems of the early 2000s, the pact focused on preventing product diversion. By the time the deal came up for renewal, however, stakeholders’ concerns had shifted toward “illicit whites”—cigarettes often produced specifically for smuggling.

The EU has now pinned its hopes on tools provided by the World Health Organization’s Framework Convention on Tobacco Control (FCTC) and the revised Tobacco Products Directive, which entered into force in May.

It is unclear, however, whether those instruments will succeed where agreements with individual companies did not. For starters, regional measures are of limited use in a global market. A substantial share of the illegal cigarettes sold in Europe today is said to originate in Belarus—a country safely beyond the reach of Brussels’ enforcers.

Even the FTCT Protocol to Eliminate Illicit Trade in Tobacco Products isn’t truly global, as its stipulations apply only to the countries that have signed up. The protocol must be ratified by 40 FCTC signatories to enter into force, but, at press time, only 20 signatories had done so. The United Nations alone has 193 members, so the treaty’s advocates have their work cut out for them.

At the end of the day, the fight against the illicit tobacco trade will be won not by company agreements, track-and-trace technologies or lofty protocols, but by sensible fiscal policies. For all their faults, cigarette smugglers and brand pirates are rational businessmen. Take away the financial incentive presented by tax differentials, and they will quickly turn their attention elsewhere.


Read the October 2016 digital edition here

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