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Illegal trade

Industry-funded International Tax and Investment Center responds to criticism by attempting to muddy the waters

24 Jun, 16 | by Marita Hefler, News Editor

Karen A Evans-Reeves, Anna B Gilmore and Andy Rowell

Tobacco Control Research Group, University of Bath,

The tobacco industry is under attack. In just two weeks, in May 2016, its tactic of challenging any law that threatens its profits, took a big hit. The arbitration panel, that tobacco giant Philip Morris International (PMI) had hoped would overturn standardised packaging legislation in Australia, published its full ruling that the company’s self-serving claims were inadmissible. Just days later, all four major tobacco companies lost their challenges against both the European Union’s Tobacco Products Directive and standardised packaging legislation in the UK.

The UK, France and Ireland, which have already enacted standardised packaging legislation, will now go ahead with this brand removal. Further afield Canada, New Zealand, Hungary and Norway are due to follow suit and other countries which have expressed an interest will be buoyed by the way the industry’s legal and trade challenges to plain packs are being soundly rejected. The World Health Organization’s (WHO) slogan for World No Tobacco Day 2016 was “Get Ready for Plain Packaging” recognising that the removal of branded tobacco packaging is “going global.”

Each jurisdiction to consider standardised packaging legislation has received sustained attacks from tobacco companies, using both their own voices and those of third parties which they fund. By commissioning and publicising research reports and opinions from seemingly independent experts, tobacco companies have created not only the impression of a large network of opposition but of an illusory body of evidence, particularly in relation to the industry argument that standardised packaging will increase the illicit tobacco trade.

PMI private documents, leaked to Action on Smoking and Health (UK), revealed that “broad third-party media engagement” and “high profile opinion pieces” would be used to raise awareness of such arguments among “decision makers and the general public” as part of its attempt to prevent standardised packaging in the UK. These documents also revealed that PMI intended to use the International Tax and Investment Centre (ITIC) as one of its key “media messengers”. Since 2012, PMI has paid ITIC (in collaboration with global advisory firm, Oxford Economics) to produce annual reports on the illicit trade in Asia. These claimed that illicit trade is increasing in the region but have been accused of being methodologically flawed. When publicly available routine data was used in an attempt to replicate ITIC’s findings in Hong Kong, illicit levels were found to be under half of what ITIC had estimated.

Key to the industry’s use of third parties is its attempt to shift the paradigm by presenting third parties as ‘independent experts’ and their research as ‘trustworthy and rigorous’ while simultaneously positioning public health academics as ‘advocates’ and ‘zealots’ and their research as ‘advocacy’. This presentation of corporate pawns as informed moderates producing quality work and public health researchers as misguided fundamentalists producing poor quality work is a public relations tactic employed for decades by corporations in relation to environmental and health issues.

Over the last few weeks this tactic has been adopted by the tobacco industry third party, ITIC, in a series of letters sent to Non-Governmental Organisations (South East Asia Tobacco Control Alliance (SEATCA), ASH (UK), EU SmokeFree Partnership), the University of Bath in the UK, and the Editors of Tobacco Control, all of whom had criticised ITIC’s activities, some in letters, reports and webpages. ITIC’s letters made three inter-related claims, each of which we explore in the paragraphs below.

First, that public health research should be seen as advocacy while, by contrast, ITIC’s research (none of which appears to be peer-reviewed) should be seen as high quality. For example, in his letter to the University of Bath the President of ITIC, Daniel Witt, claimed:

We have become increasingly concerned about how the integrity of reputable institutions and individuals is maligned by overzealous advocacy ….. and ….by what passes for academic research when it is clearly constructed to fulfil an advocacy agenda”.

This denigration of public health research has been strongly criticised by independent experts. In her 2006 verdict in an extortion case against the tobacco industry in the United States Judge Gladys Kessler noted:

Much of the Defendants’ [i.e. the tobacco industry’s] criticisms of Government witnesses focused on the fact that these witnesses had been long-time, devoted members of “the public health community.” To suggest that they were presenting inaccurate, untruthful, or unreliable testimony because they had spent their professional lives trying to improve the public health of this country is patently absurd”.

The recent high court ruling on the challenges made by British American Tobacco, PMI, Japan Tobacco International and Imperial Tobacco to UK standardised packaging legislation made a similar point, citing Sir Cyril Chantler’s 2015 review of the evidence:

Chantler … rejected the criticism made by the tobacco companies that those that advised the Government were biased against the industry. Conversely, he articulated scepticism about the methodological efficacy of research results generated by the tobacco companies. He also criticised the tobacco companies for adopting unrealistic criticisms of the output of existing researchers…

This ruling drew upon two peer-reviewed papers, one confirming the poor quality of industry evidence in comparison to public health evidence on standardised packaging and the other paper showing how BAT and JTI  went about distorting and misrepresenting public health evidence.

ITIC’s second claim is that it is not a lobby group. Yet based on widely accepted definitions of lobbying, ITIC’s own descriptions of its activities, and the global health communities’ observations of its behaviour, ITIC clearly acts as a lobbying organisation. Indeed, it has persistently boasted of its lobbying success. in 1995, ITIC produced a document which outlined how “ITIC has developed trusted, advisory relationships with key, senior-level policy makers…..[which]…provide channels for private sector expertise to reach the Government before, during and after the official policy-making process. This combination…… provides ITIC and its sponsors a ‘seat at the policy-making table’”. And in 2004, Daniel Witt, ITIC’s President noted: “ITIC is a public policy organization actively working to change public policy in a pro-investment direction.” Although ITIC claims to be an “independent, non-profit research and educational organization” it receives tobacco company funding and has industry representatives on its Board of Directors.  Outputs such as the Asia-11 and Asia-14 illicit trade indicator studies, commissioned by PMI and published by ITIC along with global advisory firm Oxford Economics, have been critiqued by Dr Hana Ross (on behalf of SEATCA) for opaque methodology and “unverifiable” results that were “inconsistent with results from other studies” in the region (for more on this issue, read here). In 2014, ITIC attempted to destabilise the proposed guidelines on tobacco tax and price policy by convening a meeting with Parties and Observers to the Framework Convention on Tobacco Control (FCTC) immediately prior to the sixth Conference of the Parties (COP6). The Convention’s Secretariat blasted ITIC for this move.

Finally, in each letter, ITIC’s President, Daniel Witt argues that public health organisations ought to engage with ITIC given its tax expertise. This position displays a fundamental misunderstanding of the FCTC’s Article 5.3 which aims to protect policy making from the vested interests of the tobacco industry. It also displays a fundamental lack of understanding of public attitudes to ITIC. For example, the World Bank withdrew from an ITIC event in India, following a letter from the Institute of Public Health in the country,  similarly, following a letter from ASH (UK), the UK Department for International Development (DfiD) asked ITIC to remove its name, from its list of sponsors on ITIC’s website as DfiD has never been a sponsor, and the FCTC Secretariat has urged all governments not to engage with ITIC.

SEATCA and the University of Bath have respectively published and sent to ITIC detailed rebuttals of ITIC’s letters to them. These rebuttals and the aforementioned high court rulings are unlikely to deter ITIC from trying to influence tobacco control policies such as standardised packaging across the globe and undermining Article 5.3 of the FCTC. But the more people who reject engagement with ITIC, the harder it will be for ITIC to boast that it can get its tobacco industry clients a “seat at the policy making table”.

Philip Morris agreement with Spanish police: undermining the FCTC?

2 Dec, 15 | by Marita Hefler, News Editor

On 29 October, Philip Morris Spain signed an agreement with the Spanish police to fund equipment including underwater cameras, night vision systems, and scanners for verifying authentication and tracking of tobacco products. The agreement also includes support during inspections and seizures of counterfeit products to assess possible illegal activities regarding the entire production and distribution chain, as well as research and studies about illicit tobacco.

The agreement takes place against the backdrop of a hotly contested battle for the European Commission’s approach to track and trace technology to meet the requirements of the revised European Tobacco Products Directive (TPD). Unlike the WHO protocol to Eliminate Illicit Trade in Tobacco Products (which the EU has signed, but not ratified), the TPD doesn’t exclude the tobacco industry from a central role in fighting illicit tobacco. The track and trace system supported by the TPD also doesn’t require secured markings on tobacco packages.

The tobacco industry is arguing for its own technology Codentify – a system developed by Philip Morris and licenced at no cost to BAT, Imperial Tobacco Group and Japan Tobacco International – against a Swiss company SICPA. Officials at the European Anti-Fraud Office, OLAF, have already thrown support behind Codentify and expressed concern that the SICPA technology may be incompatible with working agreements currently in place with the tobacco industry to combat smuggling.

OLAF’s support ignores significant concerns about the adequacy of Codentify, particularly its use of relatively unsecured equipment and potential for codes to be used more than once. Use of Codentify also opens up the possibility that investigations and inquiries could be transparent to the tobacco industry, and therefore potentially beneficial in shaping its reponse.

OLAF has noted that efforts to disrupt illicit tobacco rely on the input of the industry, a situation created by anti-smuggling agreements between tobacco companies, the EC and EU member states. The agreements were enacted with companies from 2004, following a case in the 1990s in which cigarettes were legally exported from the US and later appeared on the black markets of countries such as Italy, Spain and other European countries. The anti-smuggling agreements, due to expire in 2016, require tobacco companies to control their supply chain and set penalty payments for cigarette seizures. The agreements have generally been ineffective due to a range of loopholes, particularly because customs officials rely on industry to determine counterfeit cigarettes.

In the mid 1990s, it was estimated that 16% of the Spanish cigarette market was illegal. This was reduced to 2% in 2001, following a focused operation which included inter-jurisdictional cooperation, coordinated customs activity and participation in the EU investigation of cigarette smuggling by transnational tobacco companies. The main source of illegal cigarettes had been products from transnational tobacco companies supplying Spain via seaports. A 2014 OLAF report suggests that the illicit tobacco market in Spain has re-emerged and is fuelled by contraband originating in Gibraltar.

There is a lack of technical expertise in tracking and tracing in many European countries, creating a significant opportunity for the industry to step in and fill the gap. In addition, a comprehensive two year strategy and action plan to tackle illicit tobacco published by the EU in June 2013 – which aims to target supply and demand in illicit products, decrease smuggling incentives (primarily through tax harmonisation), improve security of the supply chain through tracing and tracking, and strengthen and coordinate enforcement – has no new budget allocation.

Philip Morris is likely to benefit from the agreement with the Spanish police in several ways. Apart from the obvious public image benefit of being seen to support strong law enforcement, providing apparently welcome assistance to police agencies in individual countries in Europe helps to cement the industry’s positioning as an essential partner in the fight against smuggling. Supplying research and ‘academic’ advice provides an opportunity for PMI to shape law enforcement expertise based on research favourable to its position.

In 2011, Philip Morris gave a donation of $23 million to Interpol; as with that donation, this agreement with the Spanish police generates goodwill within law enforcement and makes it appear that Philip Morris is part of the solution rather than a root cause of the problem.

Additional links:

Big tobacco, Interpol & Codentify: potential problems with industry product tracking systems

17 Jun, 15 | by Marita Hefler, News Editor

In 2013, Tobacco Control published an article which examined Codentify, an industry tracking and tracing standard (click here for open access full text). It traces events from 2011, when Interpol accepted a substantial donation from Philip Morris International. Shortly afterwards, in 2012, Interpol announced the creation of the Interpol Global Register (IGR) to help ensure authenticity of products threatened by illicit trade. At the same time, Interpol announced it would work the four major transnational tobacco companies (British American Tobacco, Imperial Tobacco Group, Japan Tobacco International,  and Philip Morris International) to make the industry’s supply chain control system, Codentify accessible via the IGR.

This collaboration took place in the lead up to the adoption of the Framework Convention on Tobacco Control (FCTC) Illicit Trade Protocol in November 2012, which is focused on technological solutions to global illicit trade. The article examines how the tobacco industry promoted Codentify, portrayed itself as part of the solution to illicit trade and integrated itself into FCTC processes. It notes that while limited information was available, the pan-industry deal to develop and promote the PMI tracing and tracking standard is potentially problematic, given the standard has significant limitations, and particularly in light of the fact that the industry has been accused of involvement in tobacco smuggling.

Recently, a new independent blog has appeared, called Why It’s Bad, which aims to explain and further investigate Codentify. The author is a student at the Open University of London, who states: “This blog will be primarily dedicated to explaining the scam that is Codentify. I will try my best to use my background as an information systems student to explain these technical issues in simple terms.” Given the lack of research about this issue and the potential danger of regulatory capture by the tobacco industry in the area of illicit tobacco, the blog has the potential to provide interesting insights about Codentify. (Note: Why It’s Bad is external content. BMJ has not verified, and takes no responsibility for, the content in this external link).



China’s investment in Africa: consequences for tobacco control?

23 Sep, 13 | by Marita Hefler, News Editor



Sue Lawrence, London School of Hygiene and Tropical Medicine

Recently, China’s economic growth recently may have fallen below its expected 6% rate, but it is more of dip than an indication of decline. Its pursuit of new markets is likely to continue undeterred (1) and this may have spillover effects for tobacco control.

China’s outward investment ‘going-out’ policy (also known as the ‘go global’ strategy) fulfills its quest for raw resources such as oil, gas, metal ores, copper, iron and steel. The policy has naturally led it to Africa, rich in raw resources and hungry for investors. Foreign direct investment in Africa is growing; in 2005 inflows totalled 31 billion USD (2). Trade between China and Africa is growing at an estimated 30% per year, with raw commodities from Africa flowing out, and economic cooperation to build factories and roads flowing in.  Eighty-two percent of Chinese investment is from state-owned enterprises, and focuses on investing in countries rich in natural resources and weak institutions  (3). Country stability, corruption and presence of other foreign investors are not factors in Chinese decisions about where to invest. From 2004 to 2006, China invested 288 USD million into Sudan, considered one of the world’s least democratic countries (3).  Based on principles of “non-interference with a country’s internal affairs”, it is less concerned with countries with unstable economies (2).

What does this investment mean in terms of tobacco control? China has always been a unique policy actor in the tobacco control arena.  The Chinese National Tobacco Company (CNTC) is of critical importance to China.  It employs over 4 million people as farmers, factory employees or retailers, and produced1.7 trillion cigarettes in 2009 for China’s 350 million smokers. In an effort to go global,  the CNTC reformed their import-export system in 2007 and created the China National Tobacco International Company (CNTIC) (4). Recently, the CNTIC  created a joint venture with the North Carolina to buy top quality Virginia flue-cured tobacco (5).  Moreover, in order to comply with international standards for the export  market, efforts are being made to lower tar levels (4). China’s cigarettes are high in heavy metals (arsenic, lead and cadmium) due to the high metal content in the soil (6).

China’s domestic tobacco control policies are porous, an issue which should be a red flag for tobacco control in host countries. The  1992 advertising ban, which bans broadcast and print advertising, was shown to be flimsy and easily circumvented (7). Even an updated version following the ratification of the FCTC was weak: ‘prohibition of the introduction of tobacco vending machines’ was implemented in two administrative regions of Hong Kong and Macao, but merely prohibited new machines, while allowing existing machines to remain (8). With loopholes that big, point of sale advertising prolific (7) and lack of compliance to work-place smoke-free policies (9), raising the alarm on China’s possible curtailing of African host nations policies is justified.

Tobacco growing is already a target. China imports tobacco from Zimbabwe and in turn, helped Zimbabwe process its tobacco into cigarettes in preparation for export (10).  Influence of tobacco policies from transnational tobacco companies has been well documented (11–18)  however, influence from states, less so.  China has signed the Framework Convention for Tobacco Control (FCTC) and could possibly be held accountable for its actions should the enforcement instruments be enacted.  China has proved that it can and will evade national legislation on labour laws as it has done in Zambia over mining laws (19) . External actors are a challenge plus, local policies may not have been implemented or enforced due to what are perceived as more pressing priorities.  As Collin notes, ‘tobacco control’s exclusion from the core priorities of leading international health and development donor agencies has been seen as contributing significantly to the difficulties involved in securing adequate funding to support  FCTC implementation in resource poor settings”  (Collin, page 276,  2012). China’s attraction to hosts with unstable, weak infrastructures, which has a tendency to evade legislation to achieve aims, combined with a host country whose policy implementation resources are diverted elsewhere and you have a potent opportunity for exploitation.

China signed the FCTC 2005. The FCTC upholds signatories to suggested tobacco policies to protect citizens from advertising, smoke-free workplaces, bans smoking in restaurants and bars, and urges control of smuggled products (8). Chinese officials have met with political and finance ministers  for investment opportunities in  South Africa, Angola, Congo, Tanzania, Uganda, Kenya, Nigeria, Mali, Libya  Senegal, Liberia, Egypt and Morocco (2). Of those countries, only Morocco and Tanzania have not ratified the FCTC with the former having signed but not ratified. Smoking prevalence rates vary in Sub-Sahara Africa with South Africa,  Kenya and Malawi with a quarter of the male population smoking and the latter two countries with long histories of tobacco growing and transnational tobacco investment (11,21)  Countries with lower rates such as Nigeria (10%) and Liberia (14%) and Uganda (16%) who are keen to invest with China should do as Zambia President Sata did and set firm limits on investment. President Sata implemented strong labour policies, increased minimum wage and changed taxation in order to protect Zambia’s copper wealth (19).

Conflict zones are potentially ripe for exploitation. Evidence indicates rampant smuggling of cigarettes to buy arms in central and eastern Africa and the black market is said to 15% of the total cigarette market (22).  Transnational tobacco companies have been accused of knowingly engaging with smuggling (12,22–25) and with China’s penchant for instability, may be an opportunity to good to resist.

What should the response be in terms of tobacco control? China’s investment into Africa is seen by many as the new development donor, providing welcome infrastructure and technical advice (2,10,19). However, this investment process may have dire consequences for tobacco control if left unchecked.  For every ray of sunshine, a shadow is cast and African states with existing tobacco control policies left unimplemented and unenforced may do well to protect their investments.

Acknowledgments: Many thanks to Professor Nadia Molenaers at the University of Antwerp


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Tobacco industry-commissioned report: large decline in EU consumption, almost no change in illegal trade

4 Jun, 13 | by Marita Hefler, News Editor

Konstantin Krasovsky

Alcohol and Drug Information Center (ADIC-Ukraine), Kiev, Ukraine

On April 17, 2013 Philip Morris International (PMI) issued a press release, based on an annual study conducted by KPMG. PMI claimed the most significant finding of the study is that: “For the sixth year in a row, the illegal trade of cigarettes in the European Union reached a new record high: in 2012 the levels rose to 11.1%, compared to 10.4% in 2011.”

However, further analysis tells a different story. It is true the numbers show that proportion of illegal sales increased as a percentage of total tobacco sales; however this is actually due to an overall decline in the EU tobacco market. The volume of the illegal cigarette trade has barely changed.

Total cigarette consumption in the EU declined from 720 billion cigarettes in 2007 to 593 billion cigarettes in 2012, a decrease of 127 billion. By comparison, in the same time period illicit cigarette consumption increased from 60.6 billion cigarettes to 65.5 billion, an increase of just 4.9 billion. In other words, the illicit trade increase compensated for only 4% of the legal sales decrease.

The decline in total cigarette consumption was partly compensated by the increase in other tobacco products consumption. Even so, the total consumption of tobacco decreased in the 2007-2012 period from 817 billion to 739 billion cigarette equivalents. Overall illicit tobacco sales (cigarettes and other products) in fact decreased in 2007-2012 from 91 billion to 90 billion cigarette equivalents.

The 2012 PMI Annual Report discloses the reason behind the sales reduction: “The total cigarette market in the EU declined … due primarily to tax-driven price increases”.

Despite the legal sales reduction, most EU countries did not experience an increase in illicit sales. If just one of 27 EU countries (Italy) is excluded from the KPMG 2012 Report, the illicit cigarette consumption in the remaining 26 EU countries declined from 59.4 billion cigarettes in 2011 to 57.4 billion cigarettes in 2012.

In Italy, total (licit+ illicit) cigarette consumption has declined from 90.4 billion cigarettes in 2011 to 85.9 billion cigarettes in 2012, despite some increase of illicit sales in 2012. Again, the reason can be found in the PMI Annual Report: “In Italy, the total cigarette market was down … in 2012, reflecting the impact of price increases in 2011 and March 2012.”

Philip Morris’s press release is a misrepresentation of the findings of the KPMG report. In reality, the report revealed that tobacco tax hikes in the EU countries effectively reduced tobacco consumption and had no consistent impact on increasing the illicit market.

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