Tackling the tobacco parallel trade: how France sheds light on the need to reinforce European rules
Emmanuel Macron’s En Marche MPs proposed in late November the adoption of a legal provision to fine tobacco companies up to 10% of their worldwide turnover for aiding or abetting the illegal tobacco trade. The measure is prompted by the great price differentials for packs of cigarettes between neighboring EU member states, which are a key driver for the parallel trade of tobacco.
According to the World Health Organization (WHO), the illicit tobacco trade accounts for a stunning 12% of the 6 000 billion cigarettes smoked each year worldwide. But, as French En Marche MPs argue, the term illicit trade does not capture the entire picture. Instead, they insist that policymakers should look at the “parallel trade”, a term that includes all tobacco products that are consumed in France without being bought from official channels. While this semantic distinction may not be quite clear at first, the parallel trade refers to cigarettes bought from a different EU country than the one where they are consumed. A simple example is the fact that EU citizens have the right to cross borders with up to 800 cigarettes on them, which represents a key source for these cross-border inflows.
This distinction is also favored by French EUL/NGL MEP Younous Omarjee and shows that the scale of the parallel trade in EU Member States is between 10% and 30% of the market. That figure corresponds to an equal loss in revenue for national tax authorities : if the rationale behind tobacco levies is to finance the health care costs of tobacco, when 30% of cigarettes are bought from unofficial channels, non-smokers end up footing the bill.
Such cheap cigarette packs are a major public health issue. Not only do they allow smokers discouraged by high prices from giving, they also enable non-smokers (especially teens) to pick up the habit. The tobacco industry’s role in enabling this trade is well documented by anti-tobacco NGOs, experts and researchers, and was recently confirmed by the STOP initiative spearheaded by the Bloomberg Foundation. It also generates considerable tax losses, estimated by former EPP MEP Philippe Juvin at around €20 billion per year.
While Big Tobacco has long played the victim card and sought to position itself against the parallel tobacco trade, this strategy is quickly running out of steam. Indeed, the WHO, the WCO have repeatedly rebuffed their claims, and have argued that the solution is the FCTC Protocol to eliminate illicit trade in tobacco products. The Protocol, which recently came into force, bars tobacco companies from exerting either direct or indirect influence on the control system of their products. This stands in stark contrast to the partnership agreements favored by the tobacco industry, whereby they pay the European Commission and member states billions of euros to take an active part in the fight against illicit trade.
En Marche takes charge
It is against this backdrop that some fifteen members of President Macron’s party “En Marche” have vouched to seriously monitor tobacco companies involvement in the parallel trade. As a first step, French MPs (such as outspoken anti-tobacco activists François-Michel Lambert, Florence Provendier or Jean-Louis Touraine) insist that smoking is a costly habit as it only brings in €15 billion compared to the roughly €122 billion euros that it costs the state’s budget. Secondly, they mention that the parallel trade generates a €3 billion tax loss per year. This amounts to roughly €110 billion paid every year out of the pocket of nonsmokers to cover the health effects of smoking.
The MPs have further expressed dissatisfaction that the European Commission and France have chosen not to apply the WHO Protocol for the establishment of a traceability system for tobacco products strictly independent of tobacco companies, and have preferred a mixed system. Three-quarters of the system is currently managed by tobacco companies and their allies, a fact that has drawn the ire of several anti-tobacco associations.
On top of the proposal to fine tobacco companies for their role in the parallel trade, MPs remind that, with the entry into force of the WHO Protocol, the path forward is clear. Since France currently has one of the highest prices for cigarette packs, and is surrounded by countries with much lower taxes, the parallel trade will only grow further.
Marching all the way to Brussels?
While the French President attempts to build a strong centrist movement in the European Parliament to bridge the gap between the EPP and the S&D, the results of the recent elections as well as the rejection of Macron’s first pick for Commissioner show that there are some limits to the Élysée’s charm offensive outside of France.
However, the initiative of En Marche MPs will most likely play into the upcoming revision of the EU’s Tobacco Products Directive. Both EPP MEP Cristian Busoi and former head of EC’s Health Directorate Vytenis Andriukaitis have been quite clear on the need to revise the text, passing the hot potato to Stella Kyriades who just took office. If the TPD is finally brought in line with the WHO’s regulations to protect consumer health and control rogue industries, and reduce the tax competition for sin products between neighboring member states, the European ideal of an ever closer union will prevail.
Image credit: European Parliament/Flickr