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Why there should be no harmonized excise duties on nicotine-free e-cigarettes in the EU

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Since 2016, the European Commission has been working on a revision to the Tobacco Excise Directive, the ‘TED’, the legal framework ensuring excise duties are applied in the same way, and to the same products, throughout the Single Market, writes Donato Raponi, honorary professor of European Tax Law, former head of excise duties unit, consultant in tax law.

Member states, through the Council of the EU, recently asked for a range of new products to be contained within the TED. It includes e-cigarettes which contain no tobacco but do contain nicotine. However, there are also e-cigarettes with no nicotine in them and their fate is unclear.

But why should a directive that has, until now, been only for tobacco be extended to include products which contain neither tobacco nor nicotine? Isn’t this a step too far?

The EU's constitution, enshrined in the Treaties of the European Union, is very clear that before proposing any legislative initiative, some key questions must be addressed.

The EU rules1 explain very clearly that products should be included in the TED only to ensure the proper functioning of the internal market and to avoid distortions of competition.

It is by no means clear that a harmonized excise treatment of nicotine-free products, such as nicotine-free e-liquids, across Europe will help to alleviate any such distortions.

There is very limited evidence on the extent to which consumers view e-liquids without nicotine as a viable substitute for e-liquids with nicotine in them. The European Commission’s recently published Eurobarometer study on the attitudes of Europeans towards tobacco and electronic cigarettes has nothing to say on this question. And the evidence from the available market research experts is limited at best.

It is, consequently, virtually impossible to know how many consumers – if, indeed, any at all – would switch to e-liquids without nicotine if only nicotine containing e-liquids were subject to an EU level excise duty.

What we do know, however, is that almost everybody who consumes tobacco products already covered by the TED does not view nicotine-free e-cigarettes as viable substitutes for them. And that is why most cigarette smokers who switch to alternative products look for other products containing nicotine.

There may be parallels between this and the excise treatment of alcohol-free beer, the latter not being, covered by the EU Alcohol Directive. Although it is designed to be an alternative product, this does not mean that alcohol-free beer is viewed as a strong substitute by most of the people who drink alcoholic beer. Member states have not applied a harmonised excise on alcohol-free beer and so far, the effective functioning of the Single Market has not been damaged.

Even if the absence of a harmonized excise on nicotine-free e-cigarettes were to distort competition, it must be material enough to justify any EU level intervention. Case law from the CJEU confirms how distortions of competition must be ‘appreciable’ to justify any changes to EU legislation.

Simply put, if there is only limited impact, there is no rationale for EU intervention.

The market for e-cigarettes without nicotine is currently very small. Euromonitor data shows that nicotine-free e-liquids for open systems represented only 0.15% of all EU tobacco and nicotine product sales in 2019. Eurobarometer reveals that while nearly half of Europe’s e-cigarette consumers use e-cigarettes with nicotine every day, only 10% of them use e-cigarettes without nicotine daily.

With no clear evidence of any material competition between nicotine-free e-cigarettes and the products already covered in the TED, together with the low sales of nicotine-free products, the test of there being an ‘appreciable’ distortion of competition is not – at least at the moment – obviously being met.

Even if there is no case for new EU-level legislative measures for nicotine free e-cigarettes, this does not stop individual member states from levying a national excise on such products. This has already been the practice across member states so far.

Germany does not, for instance, need an EU Directive to levy its domestic excise on coffee, while France, Hungary, Ireland and Portugal levy a tax on sugary drinks without any EU Soda Excise Directive in place.

The case of non-nicotine e-liquids is no different.

There is nothing to stop any member state from taxing non-nicotine e-liquids at its own pace without the unnecessary intervention of the EU.

1 Article 113 of the Treaty on the Functioning of the European Union

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Vaping flavour bans prove own goal for public health advocates

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The Canadian federal government recently published draft regulations to ban almost all e-cigarette flavours across the nation, with only tobacco and mint/menthol flavours left untouched. The proposal would also see most flavouring ingredients, including all sugars and sweeteners, banned from use in vaping products, writes Louis Auge.

The bill’s intended purpose is to protect public health by making vaping less appealing to young people. The available evidence, however, suggests that not only could the measure fall short of the mark, it could actually cause more problems than it solves, prompting both young people and adults to take up smoking conventional cigarettes, a far more harmful practice than vaping. Indeed, a recent study by the Yale School of Public Health (YSPH) suggested that, after a San Francisco ballot measure banned flavoured vape liquids in 2018, smoking rates increased in the city’s school district after years of steady decline.

Even after adjusting for other tobacco policies, the study found that San Francisco high school students’ odds of smoking conventional cigarettes doubled in the wake of the ban on flavoured vapes. Other studies, meanwhile, have illustrated how flavours are instrumental in prompting adult users to abandon conventional cigarettes—one 2020 study found that adults who used flavoured e-cigarettes were more likely to quit smoking than those who used unflavoured (or tobacco-flavoured) e-cigarettes.

Even more staggering is the fact that Canada’s own assessment of the proposed ban on e-cigarette flavours admits that the measure would likely cause some adults to smoke more. Some consumers aged 20 and over who currently use flavoured vaping products, Health Canada acknowledged, would not substitute the flavours they prefer with tobacco- or mint-flavoured e-cigarettes, and instead would choose to purchase more conventional cigarettes.

The startling admission from Canadian authorities really brings home the fact that flavour bans will almost certainly lead to a proportion of users abandoning their vaping devices to take up conventional cigarettes instead—with potentially ruinous public health consequences. It should be a stark warning for countries across the Atlantic, given that several European governments, including Finland and Estonia, have already banned vaping flavours—or are working furiously to push through similar legislation.

The Netherlands is one such example, where health secretary Paul Blokhuis announced last summer that he planned to ban all non-tobacco vape flavours in the country. A public consultation on the issue drew in a record number of responses and yielded a near-unanimous consensus: an overwhelming 98% of respondents were opposed to the ban. Nevertheless, Blokhuis’ measures could take effect as early as next year.

The move is a paradox in the making for the otherwise liberal country, with the Netherlands concurrently pushing major stop-smoking campaigns like STOPtober to get tobacco users to put out their cigarettes for good. By banning flavoured e-cigarettes, the Netherlands risks

jeopardising this progress and sending smokers away from vaping—a practice which is, according to research commissioned by Public Health England, roughly 95% less harmful than smoking combustible tobacco.

That these flavour bans threaten to push smokers back to combustible tobacco products could spell disaster for the EU’s efforts to have a tobacco-free generation by 2040. Despite considerable effort on the part of public health authorities, progress toward this goal has been less than promising: 23% of the overall population still use conventional cigarettes, and almost a third of young Europeans smoke. Europe now has less than 20 years, then, to help nearly 90 million smokers give up the habit.

Failure to achieve this objective could have serious public health consequences. Across Europe, more than 700,000 deaths annually, and a quarter of all cancers, are currently attributed to smoking; unsurprisingly, the bloc is keen to eliminate “the single largest avoidable health risk” via all means possible. As such, the Tobacco Products Directive has been active for a half-decade, and utilises a range of tools to dissuade smokers including health warnings, a track and trace system, and educational campaigns.

All of these measures, however, have not driven smoking rates down sufficiently, and top European officials have acknowledged that significant additional measures will be necessary to achieve the dream of a smoke-free generation. As studies have shown and Health Canada has now admitted, banning the very flavours which make e-cigarettes an attractive option for smokers who are seeking to reduce their health risks yet are unwilling or unable to quit nicotine altogether would likely push many consumers to buy more cigarettes. If this halted— or even reversed— the decline in smoking rates across Europe, the flavour bans could prove to be a dramatic own goal for public health, setting the EU’s efforts to curb smoking back years.

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Plain packaging not the panacea policymakers have been looking for

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A new study by researchers from LUISS Business School and Deloitte in Rome analyses the effectiveness of plain packaging for tobacco products in the UK and France and comes to a sobering conclusion.

EU Reporter wanted to find out more and sat down with the researchers.


EU Reporter: Thank you for agreeing to this interview. This is the second analysis by your group on the effectiveness of plain packaging. The first time you looked at Australia. This time, you focused on the UK and France, two countries that implemented plain packaging to curb cigarette consumption three years ago. Can you summarise how you approached the analysis and the methodology used for the report?

Professor Oriani: Thank you for having me. Our analysis is based on cigarette consumption statistics that span more than three years of full implementation of plain packaging in the UK and France. So far, ours is the only study that we are aware of that has used data from such a long time period.

We used three methods to assess whether the introduction of plain packaging had a significant impact on cigarette consumption in both countries.

Firstly, we performed a structural break analysis to test whether the introduction of plain packaging led to a change in the cigarette consumption trend.

We then performed a structural model estimation, to confirm if plain packaging can be associated with a reduction in cigarette consumption after alternative influencing factors, such as price, are controlled for.

Finally, we estimated a difference-in-differences regression equation for cigarette consumption that allowed us to assess the differential impact of plain packaging in France and the UK with respect to comparable countries that have not introduced plain packaging.

EU Reporter: What were the main findings of the research?

Professor Oriani: We found that the introduction of plain packaging has had no impact on cigarette consumption trends in the UK or France.

The estimation of the structural model showed that after controlling for alternative influencing factors , plain packaging has had no statistically significant impact on cigarette consumption in both countries. Finally, the difference-in-differences regression shows that plain packaging has had zero effect in the UK, while it is associated with a statistically significant increase in per capita cigarette consumption of 5% in France, which is contrary to the intended goals of the regulation.

EU Reporter: That is very interesting. So, the evidence does not suggest that plain packaging reduces cigarette consumption?

Professor Oriani: Taken together, the data show that there is no evidence that plain packaging reduces cigarette consumption at any levels. None of the different models used showed a reduction in consumption of cigarettes because of plain packaging in the UK and France.

And indeed our research found some evidence of an increase in cigarette consumption in France, suggesting that plain packaging may have had a counterproductive effect on smoking levels.

We also have to keep in mind those smokers that switched to alternative products, such as e-cigarettes or heated tobacco products. Our analysis does not include them. The fact that we found that plain packaging had no effect even without taking account of the shift to alternative nicotine products, reinforces our results that plain packaging is ineffective.

EU Reporter: I mentioned your first study earlier. Can you compare the results of the Australian study on plain packaging to the results from the UK and French studies? What conclusions can we draw from such a comparison?

Professor Oriani: The results in this report are consistent with those presented in our previous study on the impact plain packaging has had on cigarette consumption in Australia. We used the same methodology and came to the conclusion in one of our models that plain packaging is associated with a statistically significant increase in cigarette consumption there, as well.

This shows that there is no indication that plain packaging reduces cigarette consumption. Also, there is some evidence that plain packaging may result in higher smoking levels, which is something we should try to avoid.

EU Reporter: As an expert, how do you recommend European policymakers approach the topic of plain packaging?

Professor Oriani: As the most in-depth and comprehensive study on plain packaging in the UK and France to date, our research can help inform European policymakers when considering which types of tobacco control measures to introduce. This and our previous studies do not confirm the hypothesis that plain packaging is an effective policy measure to reduce cigarette consumption. European decision-makers evaluating plain packaging should consider this to ensure they have a full picture of the potentially counterproductive impact and costs of plain packaging.

The study can be accessed here

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World No Tobacco Day 2021:

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“Tobacco use is the single largest avoidable health risk. It is the leading cause of preventable cancer, with 27% of all cancers attributed to tobacco. With Europe's Beating Cancer Plan, we are proposing bold and ambitious actions on prevention to reduce the use of tobacco. We have set a very clear objective - to create a smoke-free generation in Europe, where less than 5% of people use tobacco by 2040. This would be significant change compared to the around 25% today. And reducing the use of tobacco is crucial to reach this goal. With no tobacco use, nine out ten cases of lung cancer could be avoided.

"Many, if not the majority, of smokers have attempted to quit at some point in their lives. The latest Eurobarometer[1] figures speak for themselves: if we manage to support smokers trying to quit to follow this through successfully, we could already halve the smoking prevalence. On the other hand, three out of four smokers who quit, or tried to stop, did not use any help.

"The COVID-19 crisis has highlighted the vulnerability of smokers, who have up to a 50% higher risk of developing severe disease and death from the virus, a fact that has triggered millions of them to want to quit tobacco. But quitting can be difficult. We can do more to help, and this is precisely what this year's World Tobacco Day is about – committing to quitting.

"We need to increase the motivation to leave smoking behind. Stopping smoking is a win-win situation at all ages, always. We need to step up our game and ensure that EU tobacco legislation is enforced more strictly, especially as regards sales to minors and campaigns on giving up smoking. It also needs to keep pace with new developments, be sufficiently up to date to address the endless flow of new tobacco products entering the market. This is particularly important to protect younger people.

"My message is simple: quitting is saving your life: every moment is good to quit, even if you have been smoking forever.”

[1] Eurobarometer 506. Attitudes of Europeans towards tobacco and electronic cigarettes. 2021

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