Fuelling the fires of the illicit trade in tobacco
The tobacco industry warns clampdowns will encourage the smugglers. Mark Leftly reports
Mark Leftly is political correspondent at The Independent on Sunday and associate business editor across the Independent titles. He writes a weekly column, Parliamentary Business, published on a Wednesday, that covers politics and the City. He is a multi-award winning reporter and was named Press Gazette's business magazine journalist of the year prior to joining The Independent on Sunday.
Sunday 03 February 2013
On the border of Poland and Kaliningrad, a standalone portion of Russia that is cut off from its motherland on the Baltic coast, forces seize 40,000 packs of illegal cigarettes worth around £8,500.
Kaliningrad's border department chief Pyotr Gordiyenko boasts: "Thanks to precise interaction between Russian and Polish border guards, a large contraband transaction has been foiled, which members of the criminal group tried to effect across the Russian-Polish border."
The Russian exclave has long been identified as a prime location in the illicit cigarettes trade; that particular bust took place in late 2008. The customs agency of Kaliningrad's other neighbour, Lithuania, says that nearly one third of the illegal smokes it finds come over that border, with around 60 per cent due to go to EU states, the UK and Germany among them.
Last week, Alison Cooper, the chief executive at John Player Special and Rizla manufacturer Imperial Tobacco, said there were "increasing levels of illicit trade" in Europe, which was hurting the FTSE 100 group's sales.
Big tobacco is highlighting the issue, which it argues bankrolls criminal gangs, as governments look to crack down on the legal trade. This includes forcing legitimate manufacturers to sell fags in drab packaging rather than in strongly coloured, branded boxes.
The EU has proposed a Tobacco Products Directive that would follow Australia's implementation of standardised packaging, as well as make sure that the cartons are designed so that they are 75 per cent covered by health warnings. In the UK, only 30 per cent of the front of the pack is covered by a text warning, with 40 per cent of the back filled by a frightening picture, like a tarred lung.
The EU also wants to ban flavoured cigarettes, such as menthol and the sale of packs containing fewer than 20 to stop people buying a handful thinking that they won't still be dangerous.
Tobacco Manufacturers' Association chief Jaine Chisholm Caunt is, unsurprisingly, against these plans, saying that prohibiting the sale of smaller packs is counter-intuitive if the aim is to help smokers quit.
Pointing out the legitimate part of the industry employs 1.5 million across the continent, Ms Chisholm Caunt argues: "These proposals will deliver very little for public health, but would create a huge profit opportunity for criminals and racketeers.
"Those involved in considering the proposed directive over the coming months should reflect carefully on the many unintended consequences of these proposals."
At the heart of most defences of big tobacco is extra regulation and taxes impose costs that result in higher prices in the shops.
This drives even more people to the black market, where a packet of 20 might cost less than £3.50, under half a legally bought pack, and some research suggests this costs the government more than £3bn in lost revenue. In December, Lancashire wholesaler NH Foods of Accrington was ordered to pay more than £6,000 in costs and fines for possession and supply of illegal cigarettes.
From Russian outposts to former mill towns in the North of England, the best defence of such a criticised industry appears to be that governments would be better off not punishing the devils they know.
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