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Does #COVID-19 represent a mortal threat to the #tobacco sector?

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The SARS-CoV-2 pandemic has spelled bad news on the whole for smokers and the industry which supplies them. The most recent developments include the debunking of research that suggests smokers are supposedly less susceptible to the virus – accompanied by revelations that in fact the habit exacerbates the effects of the disease – as well as a public smoking ban in Galicia that has now spread across the whole of Spain.

With over one million smokers in the UK having reportedly kicked the habit since the onset of COVID-19, how great a threat does the current crisis represent to the industry which profits from their addiction? Public awareness of the dangers of smoking have never been higher, meaning the time is ripe for authorities in Europe and elsewhere to introduce measures aimed at curbing the deadly practice – but they must be wary of interference and prevarication from the ever-tenacious tobacco industry itself.

'Big Tobacco' under threat

At the outset of the coronavirus outbreak, smokers may have been initially cheered to hear the results of a study from China, where they were disproportionately underrepresented among sufferers of Covid-19. Subsequent research has not brought nearly such positive news; more than one peer-reviewed paper has found smokers are roughly twice as likely to experience coronavirus symptoms as non-smokers. This aligns with other studies, which found that smokers with the virus were twice as likely to be hospitalized and 1.8 times more likely to die than their non-smoking counterparts.

The addiction isn’t just damaging to those holding the cigarette, either. With bar patrons urged to keep their voices down and even theme park goers warned against screaming for fear of transmitting the virus orally, the huge clouds of smoke emitted by tobacco enthusiasts could be an ambient epidemic waiting to happen. Aware of the danger, South Africa took immediate action to ban tobacco sales in late March, although it has since revisited those restrictions. More recently, the Spanish region of Galicia and the Canary Islands archipelago both announced public smoking would be prohibited, with the rest of the country considering following suit.

The pandemic hasn’t just prompted a response from lawmakers – smokers are also reconsidering their relationship with tobacco in light of the dangers posed by the highly contagious and deadly respiratory disease. In the UK, over a million smokers have quit in the last six months, with 41% of those claiming fears of coronavirus were their primary motivation for doing so. Meanwhile, the University College London found that more people have given up smoking in the year up to June 2020 than in any other 12-month window since records began over a decade ago.

Underhanded tactics at play

Never one to take such setbacks lying down, Big Tobacco has resorted to its tried and tested tactical playbook. Among other machinations, that playbook involves obfuscating and influencing the science by funding favorable studies on the subject of coronavirus and smoking, delaying anti-tobacco regulations and claiming the industry comprises an “essential business” to avoid lockdown measures in places as diverse as Italy, Pakistan and Brazil.

At the same time, major tobacco firms have been accused of crisis-washing. Philip Morris International (PMI) donated a reported $1 million to the Romanian Red Cross and 50 ventilators to a Greek hospital, as well as an estimated €350,000 to a Ukrainian charity, with other big players reportedly having done the same. Critics claim these apparently altruistic contributions are nothing more than opportunistic PR stunts which capitalize on a global tragedy to paint Big Tobacco in a positive light – something which the industry itself vehemently rejects.

Regardless of the intent behind the donations, there are heavy suspicions that they may have contravened the Framework Convention on Tobacco Control (FCTC) protocol, which specifically prohibits governments or government-owned bodies from taking funds from the tobacco industry. Unsurprisingly, this kind of chicanery is nothing new for Big Tobacco, who have been ploughing a similar furrow for decades. Unfortunately, it’s one that continues to yield advantages for those behind the yoke, despite efforts to curb their influence.

Ineptitude and inefficiency in the EU

EU policymakers have, disappointingly, demonstrated themselves to be particularly susceptible to the tobacco industry’s malignant influence. As detailed by the OCCRP, the EU has effectively handed over large parts of its track and trace (T&T) system for illicit tobacco to firms with close ties to the industry. The system, which the FCTC has highlighted as an integral step in clamping down on a black market that costs the bloc more than €10 billion per annum in lost public revenue, is intended to monitor a packet’s progress at each stage of the supply chain via a unique identifier, thus eliminating any opportunity for wrongdoing.

A central element of any successful T&T system, as defined by the Illicit Trade Protocol (ITP), is its complete independence from the industry itself. However, the OCCRP investigation has uncovered how key firms developing T&T software and handling the process have ties to the tobacco industry, including seven out of eight of the companies tasked with storing the all-important cigarette data. Meanwhile, one of the main companies monitoring hundreds of supply lines into the EU – Inexto – appears to be at least partially funded by Big Tobacco, while the very software it uses to carry out its obligations was purchased from PMI themselves for a rumored fee of just one Swiss franc.

The whole process is so riddled with inefficiencies that nine months after its implementation, insiders have said they have no idea how effective it has been in clamping down on the illegal trade, while one official from the UK’s trading standards office has called it “completely useless”. Nonetheless, EU officials have travelled the world touting the benefits of their system and several nations have already bought into the myth, with Inexto winning contracts from Mexico, Pakistan, Russia, and governments in Western Africa to date. The Pakistani contract, at least, has since been invalidated by court order.

A vaccine for industry influence

At a time when the Covid-19 crisis has thrown health concerns into sharp relief, governments and health groups should be taking a page out of the obesity debate book and generating momentum towards cutting smoking rates in their territories. While that momentum does seem to be gaining ground, it sadly does not appear to have escaped the pervasive and pernicious influence of the industry itself, which undermines the entire process.

Big Tobacco’s stratagems are widely documented and well understood – but this knowledge does not seem to be capable of preventing their success all the same. In addition to a vaccine for this deadly new coronavirus, it seems immunity against industry intervention should also be on the EU’s priority list.

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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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Illicit tobacco trade: Nearly 370 million cigarettes seized in 2020

EU Reporter Correspondent

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International operations involving the European Anti-Fraud Office (OLAF) led to the seizure of nearly 370 million illegal cigarettes in 2020. The majority of the cigarettes were smuggled from countries outside the EU but destined for sale on EU markets. Had they reached the market, OLAF estimates that these black market cigarettes would have caused losses of around €74 million in customs and excise duties and VAT to EU and member state budgets.

 OLAF supported national and international customs and law enforcement agencies from across the world in 20 operations during 2020, in particular providing vital information on the identification and tracking of lorries and/or containers loaded with cigarettes misdeclared as other goods at the EU borders. OLAF exchanges intelligence and information in real time with EU member states and third countries, and if there is clear evidence that the shipments are destined for the EU contraband market, national authorities are ready and able to step in and stop them.

OLAF Director-General Ville Itälä said: “2020 was a challenging year in so many ways.  While many legitimate businesses were forced to slow or halt production, the counterfeiters and smugglers continued unabated. I am proud to say that OLAF’s investigators and analysts played a vital role in helping to track and seize these illegal tobacco shipments, and that OLAF’s cooperation with authorities across the globe has remained strong despite the challenging conditions. Our joint efforts have not only helped save millions of euros in lost revenues and kept millions of contraband cigarettes of the market, they have also helped us get closer to the ultimate goal of identifying and closing down the criminal gangs behind this dangerous and illegal trade.”

A total of 368,034,640 cigarettes destined for illegal sale in the EU were seized in operations involving OLAF during 2020; of these 132,500,000 cigarettes were seized in non-EU countries (primarily Albania, Kosovo, Malaysia and Ukraine) while 235,534,640 cigarettes were seized in EU member states.

OLAF has also identified clear patterns with regard to the origins of this illicit tobacco trade: of the cigarettes seized in 2020, some 163,072,740 originated in the Far East (China, Vietnam, Singapore, Malaysia), while 99,250,000 were from the Balkans/Eastern Europe (Montenegro, Belarus, Ukraine). A further 84,711,900 originated in Turkey, while 21,000,000 came from the UAE.

The main cigarette smuggling operations reported by OLAF in 2020 involved collaborations with authorities in Malaysia and Belgium, Italy and Ukraine, as well as a number involving authorities from across the EU and elsewhere.

OLAF mission, mandate and competences

OLAF’s mission is to detect, investigate and stop fraud with EU funds.

OLAF fulfils its mission by:

  • Carrying out independent investigations into fraud and corruption involving EU funds, so as to ensure that all EU taxpayers’ money reaches projects that can create jobs and growth in Europe;
  • contributing to strengthening citizens’ trust in the EU Institutions by investigating serious misconduct by EU staff and members of the EU Institutions, and;
  • developing a sound EU anti-fraud policy.

In its independent investigative function, OLAF can investigate matters relating to fraud, corruption and other offences affecting the EU financial interests concerning:

  • All EU expenditure: the main spending categories are Structural Funds, agricultural policy and rural
  • development funds, direct expenditure and external aid;
  • some areas of EU revenue, mainly customs duties, and;
  • suspicions of serious misconduct by EU staff and members of the EU institutions.

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Tobacco Excise Directive consultation: 83% of submissions warning about higher taxes on vaping

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The World Vapers’ Alliance strongly urges policymakers to stay away from equating smoking tobacco and vaping, especially when it comes to taxation. This comes off the heels of a recently ended consultation on the update of the Tobacco Excise Directive, which specified the European Commission’s intention to tax vaping products similarly to how cigarettes are taxed. 

Commenting on the consultation, WVA Director Michael Landl said: “Making vaping less appealing to smokers by higher prices will discourage current smokers from switching to less harmful alternatives. This is certainly not going to be of any public health benefit. Additionally, high taxes on vaping products are particularly harmful to the lower income brackets of the population, which make up the largest proportion of current smokers.”

The consultation ended on 5 January and out of 134 responses from citizens, associations and industry, 113, or 84% referenced the positive impacts of vaping and the serious negative impact that taxing it the same as cigarettes would have.

Michael Landl added: “I am delighted by the overwhelming number of responses in favour of vaping to this consultation. It shows that many people know the potential for harm reduction of vaping. . What policymakers need now to understand is that tax hikes on vaping will lead to people switching back to smoking, an outcome absolutely nobody wishes for.”

Therefore, for the WVA it is important that non-combustible products are not regulated and taxed the same way combustible tobacco is. Lawmakers need to follow the scientific evidence and abstain from tighter regulation and higher taxation of vaping products.

“If we want to reduce smoking induced burdens on public health, access and affordability to vaping products need to be guaranteed,” Landl concluded.

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