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Central European coalition criticizes TPD

| May 22, 2013

A joint declaration adopted May 17th by Polish, Czech, Slovak, Hungarian, Romanian and Bulgarian agriculture ministers criticizes the European Commission’s draft Tobacco Products Directive, especially the proposed ban on slim and menthol cigarettes, reports Europolitics.

The ministers said that, if approved, the directive would hurt thousands of families that depend on tobacco cultivation for their living. They called on the Commission to “establish support instruments for producers which would compensate for losses incurred due to the implementation of the directive,” and “to guarantee an alternative for those who would like to withdraw from tobacco production.”

The ministers also opposed the proposal for cigarette health warnings to cover 75 percent of the surface area of packaging, saying this requirement would have negative consequences for the rights of brand owners and increase the possibility of fraud.

E-cigarettes under threat in EU

| May 9, 2013

The European Commission has said that the majority of e-cigarettes sold in the EU would most likely fall under pharmaceutical legislation if the commission’s proposed revisions to its Tobacco Products Directive were to be accepted. The commission has proposed that e-cigarettes would fall under the legal framework for medicinal products if they contained levels of nicotine above certain thresholds.

It is generally thought that, for cost or technical reasons, most e-cigarette companies would struggle to have their above-the-threshold products authorized under pharmaceutical laws, and that below-the-threshold products would be unacceptable to many consumers.

“The nicotine threshold has been identified by considering the nicotine content of nicotine replacement therapies that have already received a marketing authorization by Member States,” the commission said in a written answer to two questions raised by the Polish MEP, Filip Kaczmarek.

“For electronic cigarettes below the thresholds, the commission proposal foresees that they carry health warnings. They would also have to comply with the General Product Safety Directive as … is the case at the moment.”

Illicit trade breaks another EU record

| May 1, 2013
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Boatloads of bootleg

The illegal cigarette trade in the EU reached a new record high for the sixth year in a row, according to a KPMG report commissioned by Philip Morris International. The study showed the illegal cigarette trade rising to 11.1 percent in 2012 from 10.4 percent in 2011.

At 31 percent of the national tobacco market, illicit cigarettes had the highest market share in Latvia. Latvia loses an estimated LVL60 million ($111.4 million) to LVL70 million  in annual tax revenue due to cigarette smuggling. KPMG Baltics representative Andris Purins said Latvia’s proximity to Belarus and Russia is exacerbating the black market problem.

Other strongly affected EU markets included Lithuania, where illicit cigarettes accounted for 27.5 percent of the market; Ireland (19.1 percent), Finland (16.9 percent), the United Kingdom (16.4 percent), France (15.7 percent), Greece (13.4 percent) and Poland (13 percent).

The U.K., Greece, Italy and Estonia recorded the steepest growth in the illegal cigarette market since 2011, according to the KMPG report.

‘Tobacco Directive will encourage smoking’

| May 1, 2013
smokers zurich

Unintended consequences

Provisions in the proposed EU Tobacco Products Directive (TPD), including standardized packaging and a ban on menthol and slim cigarettes, have the potential to push consumer downtrading and fuel illegal trade, according to a study conducted by Roland Berger Strategy Consultants, commissioned by Philip Morris International and reported by Business Wire.

The report predicts 175,000 job losses, up to €5 billion ($6.5 billion) in lost tax revenue, and an increase in smoking as a consequence of price competition.

Patrick Mannsperger, Partner at Roland Berger, said the new TPD could affect not just the EU tobacco sector but also the European economy. The tobacco sector generates more than €100 billion in tax revenue every year, and lower revenues will require spending cuts or tax hikes in other areas.

Illegal trade, which already represents about 11 percent of cigarette consumption in the EU, could grow by 25-55 percent as a result of standardized packaging and the ban on slim and menthol cigarettes, the report said.

Sales of illegal cigarettes could rise from 68 billion to between 84 billion and 106 billion. Some countries would be particularly hard hit by the TPD. In Poland and Bulgaria, the directive could result in up to 50,000 and 29,000 job losses, respectively, the report added.

“We hope the EU will reconsider these proposals and replace them with a regulatory framework that is not politically driven, but science-based and effective in reducing the harm caused by smoking without imposing unnecessary burdens on the economy,” said PMI Vice President for Communications Julie Soderlund.

Despite EU weakness, German smokers stay strong

| May 1, 2013

Alison Cooper, CEO of Imperial Tobacco, said cigarette and tobacco sales in Germany were “excellent,” despite the EU’s economic weakness, which hit the British multinational’s half-year profits.

“We are growing cigarette share, we are growing fine-cut share, and not just at the value end of the market. We have seen growth at the top-end in brands such as Davidoff and Gauloises,” Cooper told CNBC.

“We have seen excellent performance in that market,” she added.

However, Imperial Tobacco, the world’s fourth-largest cigarette company, said volumes were hit by difficult trading conditions in the broader EU, from where it makes two-thirds of its earnings.

Revenue in the six months leading to March 31 stood at £13.4 billion ($20.8 billion), down 4.2 percent on the previous year’s £14.0 billion. Operating profit was down 9.7 percent at £1.2 billion.

“The performance reflects the weak consumer environment across Europe, challenging competitive situation in the U.S. and the need to step up investment behind its key brands,” said Damian McNeela and Graham Jones, analysts at Panmure Gordon, in a research note released after the earnings announcement.

Cooper said revenues from key strategic brands, fine-cut tobaccos and snus (similar to American dipping tobacco) had increased, with improved volumes, and the company achieved revenue growth in the UK and Germany, plus Africa and a number of other emerging markets.

“Excise-driven market dynamics in Russia, and our transition to a new pricing strategy in the U.S. slowed our revenue and profit momentum in non-EU territories, masking the good growth we’re generating in Asia-Pacific and Africa and the Middle East,” Cooper said in a press release issued after the results.

Despite the weak economic environment, Cooper said consumers are not reducing their tobacco consumption.

She added that the EU market would remain tough for at least another 12-to-18 months.

OLAF report: no evidence against Dalli

| April 29, 2013

EU anti-fraud office OLAF had no hard evidence that former health commissioner John Dalli tried to solicit a bribe from a tobacco firm.

The information comes from its confidential report into the Dalli case, part of which was leaked on Sunday, April 28, by the MaltaToday news agency.

In his cover letter to the paper, dated October 17, OLAF chief Giovanni Kessler said: “There is no conclusive evidence of the direct participation of commissioner John Dalli either as instigator or as mastermind of the operation of requesting money in exchange for the promised political services.”

Dalli lost his post last year over allegations he used a middleman to ask tobacco firm Swedish Match for millions of euros to change EU legislation, according to a story published by EUobserver.com

Sale of Swedish Match’s mouth tobacco, snus, is banned in every member state except Sweden. Dalli’s task was – his accusers claim – to lift the ban in exchange for money.

The deal was allegedly brokered by Silvio Zammit (a Maltese local politician and restaurant owner with close ties to Dalli) and Gayle Kimberley (a Malta-based consultant hired by Swedish Match) at a meeting in February 2012. Dalli says he had nothing to do with Zammit’s scheme.

While the OLAF report admits there is no incriminating evidence, it still makes Dalli look bad. It says he attempted to muddle evidence and was most likely aware of Zammit’s plan.

Dalli met Zammit in February just three days before Zammit allegedly asked Kimberley for the money on Dalli’s behalf. Dalli initially denied his Zammit meeting took place, but changed his story later on.

OLAF also says Dalli met directly with tobacco lobbyists who “have a personal interest in a matter within his portfolio” in breach of the EU commissioners’ code of conduct.

He first met with Zammit and with the European Smokeless Tobacco Council (ESTOC) in August 2010. He met again with Zammit and Kimberley in January 2012.

When questioned by OLAF on what went on at the various events, Dalli tried to hide “content relevant to the issue at stake.”

The OLAF report states “the inconsistency of commissioner John Dalli’s statements together with the findings of this investigation relating to him, could be seen as a serious breach of duty to behave in keeping with the dignity and the duties of his office.”

It adds: “there are a number of unambiguous and converging circumstantial items of evidence gathered in the course of the investigation, indicating that … Dalli was actually aware of both the machinations of Silvio Zammit and the fact that the latter was using his name and position to gain financial advantages.”

The report contradicts some recent statements made by euro-deputies. French Green MEP Jose Bove in March this year met with Swedish Match employees Johan Gabrielsson and Cecilia Kindstrand-Isaksson.

He said they told him the February 2012 meeting where Zammit allegedly asked Kimberley for the bribe never took place. They also told Bove that OLAF instructed Kimberley to lie about it in order to build its case.

OLAF denies this. Its leaked report faithfully records that Kimberley made “contradictory” statements about her relations with Zammit and Gabrielsson.

The former head of the commission’s legal service, Michel Petite – whose new employer, law firm Clifford Chance, works for tobacco giant Philip Morris – also played a prominent role in the affair.

The OLAF report says Petite met with his former colleague — the commission’s top civil servant, Catherine Day – to pass on Swedish Match’s bribery allegations, prompting the OLAF probe.

The report quotes another Swedish Match employee, Frederik Peyron, as saying: “We started planning for how to report this matter to the relevant EU authorities and contacted Michel Petite at Clifford Chance to receive advice. At our request, he contacted Catherine Day, and we submitted a written report on the matter.”

For German conservative MEP Ingeborg Graessle, the leaked report shows OLAF itself in a bad light.

“Despite missing some important pages, the document confirms the impression of a biased and partly amateurish investigation by OLAF,” she said on Monday.

“The part of the report now accessible is full of speculation, assertions and obviously uncritical repetition of witness accounts,” she added.

The Brussels-based pro-transparency NGO, Corporate Europe Observatory, agreed with her.

“It looks as if OLAF has selectively compiled arguments to support that Dalli had behaved inappropriately, without considering the credibility of the witnesses,” it said on Monday.

It described the Petite-Day relationship as “shocking.”