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Call for end to agreements on EU illegal trade

| June 3, 2015

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 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.’

Thailand’s smoking population on the rise

| June 3, 2015

Figures released by Thailand’s National Statistical Office showed that the number of smokers aged 15 and above rose by 21 percent year-on-year to 11.4 million in 2014, according to a story in the Chiang Rai Times relayed by the TMA.

Last year, Thailand was estimated to have about 400,000 smokers aged 18 years and under.

The figures showed also that the average age for smoking initiation fell from 16.8 years in 2007 to 15.6 years last year.

About 50,000 people in the country reportedly die each year from smoking-related illnesses.

Meanwhile, her Royal Highness Princess Soamsawali inaugurated a program at Future Park Rangsit in Pathum Thani organized by the Public Health Ministry on the occasion of World No Tobacco Day on May 31 to highlight the health effects of smoking and support the tobacco control bill that would, if passed, raise the minimum age to buy cigarettes from 18 to 20 and ban the sale of individual cigarettes.

Canadian companies to appeal C$15.6 billion ruling

| June 2, 2015

Rothmans, Benson & Hedges (RBH) has said that it will appeal a Canadian trial court decision setting damages in respect of the members of two class actions at C$15.6 billion and allocating C$3.1 billion of that amount to RBH.

The decision, made public in Montréal yesterday, found in favor of the plaintiffs in two class actions – one seeking damages for addiction and one for smoking-related diseases. The cases, based on alleged conduct from decades ago, were filed in 1998 and later consolidated for trial.

The trial court found that the class members’ damages should be about C$15.6 billion, and allocated C$10.5 billion of that amount to Imperial Tobacco Canada, C$3.1 billion to RBH, and C$2 billion to JTI-MacDonald (JTI-MC).

‘The trial court calculated these amounts based on the assumption that all of the individuals estimated to be part of the disease class as defined will ultimately file a valid claim, while recognizing that in most large class actions only a small portion of eligible class members make a claim,’ RBH said in a report of the trial. ‘The ultimate damages disposition will depend on further proceedings at the trial court level and an individual claims process for eligible class members.’

RBH said that its parent company, Philip Morris International, was not a party to these cases and was not liable for any portion of the judgment.

“These cases are far from over,” said RBH spokesperson Anne Edwards. “We will vigorously appeal this lower court’s judgment, and believe that we have very strong legal grounds to overturn the judgment in its entirety.

“Plaintiffs sought money for over a million people but not a single class member, in nearly three years of trial, testified under oath. Not one showed up to say that he or she was unaware of the risks of smoking. We believe that, in light of prevailing law and common sense, the judgment should not stand.

“The evidence at trial, including the government’s own polling and statements, demonstrated that the Canadian public has been aware of the risks of smoking for many decades. The trial court explicitly acknowledged this but nonetheless held RBH liable to those who chose to smoke in light of these well-known risks.

“The Québec Court of Appeal has already ruled – in an earlier appeal in these very cases – that by bringing a class action, plaintiffs must prove not only that defendants engaged in wrongdoing but that this wrongdoing caused injury to every member of the class. The trial court had no evidence to conclude that any class members smoked and were injured due to any alleged wrongdoing by RBH, much less regarding the number of class members on which its judgment is based.”

RBH said the trial court had ordered the defendants to deposit a portion of the damages amounting to about C$1.1 billion into a trust account within 60 days. Imperial’s share of this deposit is C$743 million, RBH’s share is C$246 million and JTI-Macdonald’s share is C$143 million.

The cases are Létourneau v. Imperial Tobacco Canada Limitée, et al. (the addiction class), and Conseil Québécois sur le Tabac et la Santé (CQTS) et Blais v. JTI-Macdonald Corp., et al. (the disease class) before the Superior Court of the District of Montréal, Province of Québec.

In a note posted on its website, Japan Tobacco Inc. said that its subsidiary, JTI-MC, fundamentally disagreed with the court’s conclusions. JTI-MC intended to appeal the decision and to request that the Quebec Court of Appeal suspend the initial payment order, it said.

And in a note included on its website, British American Tobacco said ‘British American Tobacco plc was not a party to the proceeding and is not a party to the judgement, only its Canadian subsidiary, Imperial Tobacco Canada’.

‘On 1st June 2015, the judge publicly issued a ruling in favour of the Plaintiffs awarding a total of CAD$15.6 billion in moral and punitive damages, including interest,’ BAT said in its note. ‘Imperial Tobacco Canada’s share of the total damages would be CAD$10.4 billion.

‘The judgement also stated that if an appeal was to be made, a provisional execution order would require the defendants to pay CAD$1.131 billion between them. Imperial Tobacco Canada’s share of the provisional execution order would be CAD$743 million.

‘There are strong legal grounds with which to challenge both the overall judgement, and to seek a stay of the provisional execution order, which Imperial Tobacco Canada will do within 30 days of the original 27th May ruling.

‘As such, no payments will be made until the request to stay the provisional execution order has been heard and a judgement made.’

Mexican workers sue over Kentucky farm conditions

| June 2, 2015

Thirty nine Mexican guest workers are suing the Kentucky tobacco farmers who hired them through a government program for seasonal work, according to a WUKY (Lexington, Kentucky).

Three lawsuits have been filed by the workers who allege a number of abuses while they were working for Kentucky farmers through the H-2A program, a program that allows farmers to hire foreign workers when they cannot find US workers to fill jobs.

According to an Associated Press story relayed by the TMA, the three separate lawsuits were filed in the Kentucky Federal court last week by the non-profit legal advocacy firm Kentucky Equal Justice Center and Nashville, Tennessee-based Southern Migrant Legal Services, a federally-funded organization that handles the legal needs of migrant and seasonal agricultural workers in Tennessee, Kentucky, Arkansas, Louisiana, Mississippi and Alabama.

The lawsuits accuse tobacco farms in the counties of Scott, Monroe and Nicholas of paying the workers substandard wages, providing squalid housing and threatening some with jail or deportation if they complained or left, in violation of federal and state labor and civil rights laws.

The plaintiffs are seeking back wages and other damages.

The Federal government sets different H-2A wage rates by state. Caitlin Berberich, an attorney representing the workers, said that in Kentucky the rate was $9.80 per hour in 2013, $10.10 an hour in 2014 and is $10.28 an hour this year, but that some workers were paid less than the current federal minimum wage of $7.25.

Under the program, employers hiring H-2A workers are required to provide free housing and reimburse workers for costs incurred to reach their jobs.

The plaintiffs alleged that they were living in rat-infested housing with improper toilets, beds, ventilation and heating.

Eastern Tobacco looks set to manufacture in Malawi

| June 1, 2015

The Malawi government and Egypt’s Eastern Tobacco have signed a memorandum of understanding in respect of cigarette manufacturing in Malawi, according to a story in the Nyasa Times on Thursday.
The Times reported that Eastern was ‘expected to have a ground breaking ceremony marking the commencement of the company in the country Friday at Kanengo industrial area in Lilongwe’.
Malawi’s President Peter Mutharika commended Eastern for investing in the country and pointed out that Malawi’s big tobacco crop could earn more in foreign exchange if part of it were exported as finished products.
Mutharika said that Malawi was one of the largest tobacco producers but that, over the years there had been little improvement in respect of value addition.
“Today I am pleased to sign the memorandum of understanding between the Malawi Government and the Eastern Tobacco Company of Egypt which will be involved in cigarette making,” Mutharika was quoted as saying.
“These cigarettes will be sold either within or outside the country and this will make the country gain more foreign currency,” he said.

BAT signs agreement to acquire TDR

| June 1, 2015

British American Tobacco said today that it had signed an agreement to acquire TDR, the leading independent cigarette manufacturer in Central Europe.
If the agreement receives the necessary approvals, BAT will acquire TDR and other tobacco and retail assets from Adris Grupa ‘for a total enterprise value of €550 million’.
TDR is said to have a market leading position in Croatia and positions of scale in Bosnia and Serbia, all of which will provide BAT with the opportunity to grow its business in the region ‘significantly’.
‘By combining its existing business in the region together with TDR, BAT expects to benefit from highly skilled people, well established brands, enhanced regional leaf processing capabilities, a local high quality factory and print facility, and strong relationships with distributors and retailers in these markets, BAT said in a note posted on its website.
‘As part of the transaction BAT has committed to keeping TDR’s manufacturing facility in Kanfanar, Croatia, operational for at least five years following completion of the acquisition.
‘The transaction represents a multiple of approximately 12.5 times (based on TDR’s financial year ending 31 December 2014 EBITDA of approximately €44 million).’
“This is an exciting acquisition for BAT, which will provide immediate scale in three core markets of Croatia, Bosnia and Serbia and establishes a sustainable platform to grow our business in Central Europe,” said Nicandro Durante, BAT’s chief executive.
The proposed acquisition is subject to a number of anti-trust approvals and Adris shareholder consent. The transaction is expected to complete in October 2015.

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