Education and debate

How can cigarette smuggling be reduced?

Luk Joossens, consultant ^a, Martin Raw, honorary senior lecturer ^b. 

^a International Union Against Cancer, EU Liaison Office, rue de Pascale 33, 1040 Brussels, Belgium, ^b Department of Public Health Science, Guy's King's and St Thomas's School of Medicine, University of London, London

Correspondence to: L Joossens joossens{at}globalink.org

The tobacco industry has argued that tobacco smuggling is caused by market forcesby the price differences between countries, which create an incentive to smuggle cigarettes from "cheaper" countries to "more expensive" ones. The industry has urged governments to solve the problem by reducing taxes, which will also, it says, restore revenue. The facts contradict all these assertions. Smuggling is more prevalent in "cheaper" countries, and where taxes have been reduced, such as in Canada, consumption has risen and revenue fallen. There are, however, countries that have solved the problem by better control, Spain being the most impressive example to date, and the new World Health Organization framework convention may at last promote control of tobacco smuggling at the level at which it must be tackledglobally.

Tobacco smuggling has become a critical public health issue because it brings tobacco on to markets cheaply, making cigarettes more affordable and thus stimulating consumption, consequently increasing the burden of ill health caused by its use. Smuggling is not a small phenomenon: we have estimated that, globally, a third of legal cigarette exports disappear into the contraband market.¹ This extraordinary proportion results in a second key effect of smugglingthe loss of thousands of millions of dollars of revenue to government treasuries. We also showed in our earlier studies that tobacco smuggling defies apparent economic logic. Common sense might suggest that cigarettes would be smuggled from countries where they are cheap (southern Europe, for example) to expensive countries (such as northern Europe) and that this is due simply to price differences between these countries, as the tobacco industry claims. Although this does happen, it is not the largest type of smuggling, and in Europe there is far more smuggling from north to south rather than the reverse.²

In fact, smuggling occurs in all parts of the world, even in regions where taxes are low. One internal document of BAT (British American Tobacco), the largest European international tobacco company, estimated that 318 billion (nearly 6%) of world cigarette sales of 5300 billion were DNP (duty not paid) cigarettes, an industry term for contraband.³ Eastern Europe and the Asia-Pacific region accounted for most of this, at about 85 billion each, although Western Europe was also important at about 50 billion. In relation to total market sales, volumes of DNP cigarettes are largest in Eastern Europe (about 13%) and in Africa and the Middle East (about 12%) but are also substantial in Latin America (about 9%) and Western Europe (about 7%). Western Europe has the highest prices in the worldin 1996 they were four to five times higher than in Africa, the Middle East, and Eastern Europe⁴yet, despite these high prices, smuggling is on average lower than in other regions of the world. In other words, cigarette smuggling is not caused principally by "market forces." It is supply driven, caused mainly by fraud through the illegal evasion of taxes.

Yet the tobacco industry has lobbied governments to reduce tobacco tax, arguing that this will solve the smuggling problem and increase government revenues. This is not true: when the Canadian government reduced cigarette tax in response to industry pressure the results were disastrous. Tobacco smuggling not only makes tobacco available cheaply but also sabotages national tobacco taxation and tobacco control strategies. Its key characteristic is not cross border shopping and bootlegging but large scale fraud in which millions of cigarettes evade duty and appear on the contraband market. The true beneficiaries are the tobacco companies.² In this article we suggest solutions to combat smuggling which follow logically from a true understanding of its cause.

	Methods

Smuggling is illegal trade, which means that statistics are often not reliable. Customs and excise authorities in various countries do make estimates but often don't publish them. Apart from figures quoted from published articles, our sources for estimates of smuggled cigarettes have been customs authorities, and for tax revenue tax and health authorities. Often these are based on conversations, exchanges at conferences, or documents unofficially handed to us, but they are rarely "published" or otherwise in the public domain.

	Countries' responses to smuggling

Canada and Sweden
Canada and Sweden reduced their taxes on tobacco products because of concern about increased smuggling. In Canada the negative consequences for public health and tax revenue are now well documented. After the Canadian tax reductions in 1994 the real price of cigarettes fell by a third. The prevalence of smoking increased in teenagers from 16% to 20% and also increased in the population as a whole.⁵ Federal tax revenues fell by $C1200m, more than twice as much as predicted.⁶

Spain and Andorra
Spain is one of the few countries in the world to have tackled smuggling successfully. It did not do so by reducing tobacco tax. Despite Spanish cigarettes being among the cheapest in the European Union, smuggled cigarettes had a market share of 15% in 1995.² One of the sources of smuggled cigarettes in Spain and the European Union was Andorra. In 1997 there was concerted action at national and European levels to reduce the supply of contraband cigarettes. Close collaboration between the authorities in Spain, France, Britain, Ireland, and Andorra and the European Anti Fraud Office (OLAF) reduced the supply of smuggled cigarettes from Andorra. Actions included sealing the Andorran border, civil guard brigades patrolling valleys and hills to make smuggling more difficult, and political pressure on the Andorran government by the European Union and its member states that forced it to create new legislation making it illegal to smuggle tobacco into neighbouring countries.¹³

(Credit: GERARD JULIEN/AFP) Customs officers checking a container of contraband cigarettes at the port of Marseille

United Kingdom
Tobacco smuggling has become a problem in Britain relatively recently and has been driven by the increased price of cigarettes in Britain compared with the rest of Europe (over £4 or $6 a packet) and the high value of sterling. As with Canada, smuggling became a problem as mainly domestic brands became available to smuggling networks outside Britain which brought them illegally back into the country. British customs and excise authorities have estimated that the contraband market increased from 3% in 1996-7 to 18% in 1999-2000 and that lost revenue increased from £680m in 1996 to £2500m in 1999.¹⁴

	Conclusions

Andorra shows that tobacco companies view contraband markets as simply one area of market competition. In an extraordinary admission, the deputy chairman of BAT (a former minister for health) recently said: "Where any government is unwilling to act or their efforts are unsuccessful, we act, completely within the law, on the basis that our brands will be available alongside those of our competitors in the smuggled as well as the legitimate market."¹⁵ An editorial in the Guardian the following day said that this was an incredible admission: "He has openly admitted that the company supplies cigarettes knowing that they are likely to end up on the black market."¹⁶

A generous conclusion would be that the tobacco industry transports containers of a product worth $1-3m with astonishing recklessness. In fact, as we have shown, the real problem is fraud, and the real solution must therefore be to control, through international treaty, the transport of this valuable and dangerous product. One of the problems has been that the manufacturers have been technically within the law, arguing that what dealers do with their (legally sold and bought) cigarettes is not their business. Similar arguments have proved socially and politically unacceptable when the product is arms, and so we recommend that tobacco export and transit should be controlled by mechanisms similar to those for arms control. In October 2000 the World Health Organisation will start negotiations for a framework convention on tobacco control. A specific protocol could deal with tobacco smuggling. It could, for instance, require "chain of custody" markings on all packages of tobacco products, placing the onus on the manufacturers to show that cigarettes arrive legally in their end user markets. Manufacturers might also apply for export licences for cigarettes. Only such action at international level will resolve the problem, but it has now been shown to be soluble.

	Acknowledgments

We thank Teresa Salvador, Joan Villalbi, Paul Nordgren, Clive Bates, and David Sweanor for providing information and for helpful comments on a draft of this paper.

	Footnotes

Funding: This research was supported by the Cancer Research Campaign (UK) and the National Institute for Public Health (Sweden).

Competing interests: None declared.

	References

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(Accepted 10 August 2000)