The agreements drawn up between the EU and the four major transnational tobacco companies to crack down on cigarette smuggling and recoup lost tax revenues are failing to meet their stated aims, according to a medicalxpress.com report citing research published online in the journal Tobacco Control.
The agreements are said to be littered with loopholes that the tobacco companies can easily exploit, and the researchers are calling for them to be abandoned.
The intention behind the agreements was to crack down on the illegal trade in cigarettes across Europe by requiring the four companies to secure their supply chains through marketing and tracking/tracing activities, and by making two types of payment to the European Commission and the member states of the EU.
These payments comprised annual fixed sums payable from 2004 up to 2030, ranging from US$200 million to US$1 billion; and ‘seizure payments’ equivalent to 100 percent of the evaded taxes for seizures of genuine, diverted products above quantities of 50,000 cigarettes in one haul, rising to 500 percent if total annual seizures exceed 150-450 million cigarettes.
To find out how well the agreements were working, the researchers analysed documents for 2004-12 not publicly available, and they apparently found that the amount of money paid out by three of the companies, Philip Morris International, Japan Tobacco International and Imperial Tobacco, for seized products averaged €8.3million a year, which represented 0.08 percent of the €10 billion the European Anti Fraud Office (OLAF) estimates that cigarette smuggling ‘loses’ the EU every year in unpaid taxes.
There are two main reasons why the seizure payments are so small, the researchers suggest. The first is that only large quantity seizures qualify for the penalty and, since the agreements were reached, the average size of consignments has shrunk.
Secondly, the payments only apply to genuine, not counterfeit, products, and customs officials rely on the tobacco industry to determine the status of the seizures – determinations that are not subject to independent verification. ‘Since the implementation of the first agreement up to 2013, the tobacco industry has claimed that most (78 percent) of the seizures were counterfeit, but these figures are several magnitudes higher than published industry estimates for the prevalence of counterfeit cigarettes,’ the report quoted the researchers as saying.
The researchers conclude that the agreements have served only to further industry interests and threaten progress in tobacco control.
‘The seizure payments are paltry and are a wholly inadequate deterrent to involvement in illicit trade,’ they say. ‘The agreements contain too many loopholes.’